Q1 2025 Fomento Económico Mexicano SAB de CV Earnings Call

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Alan: Welcome to the FEMSA First Quarter 2025 Results Conference Call. My name is Alan and I will be your coordinator for today's event. Please note this call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone key. If you require assistance at any time, please press star zero and you'll be connected to an operator.

Ellen: Welcome to the fun stuff plus what does 2025 results conference call. My name is Ellen and I'll be a coordinator for today's EBIT. Please note. This call is being recorded and for the duration your lines will be on listen only.

Have the opportunity to ask questions at the end.

Speaker Change: This can be done by pressing star one on your telephone keypad. If you require assistance at any time, Please press star zero and you'd be connected to an operator I'll now hand, you over to your host Juan Fonseca to begin with thank you.

Juan Fonseca: I'll now hand you over to your host, Juan Fonseca, to begin. Thank you. Good morning, everyone.

Ellen: Yeah.

Ellen: Thank you.

Ellen: Good morning, everyone welcome to <unk> first quarter 2025 results conference call.

Jose Antonio Fernandez Garza-Laguera: Welcome to Census first quarter 2025 results conference.

Juan Fonseca: Today we are joined by Jose Antonio Fernandez Garza-Laguera, CEO of our Proximity and Health Division, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola Fences and Infection Relief. The plan for today is for Jose to open the conversation with some comments on the performance of the business during the first quarter, particularly at Proximity Americas, and then to provide a quick update of our retail portfolio.

Ellen: Today, we are joined by four components that are under the gun kind of way to CEO of our proximity and health Division.

Ellen: Yes, our CFO, and particularly gas hedge Coca Cola FEMSA to Investor Relations team.

Ellen: The plan for today is for horse if you open the conversation with some comments on the performance of the business during the first quarter, particularly at proximity Americas, and then to provide a quick update of our retail portfolio.

Martin: After <unk> remarks, Martin will provide more detail on our quarterly results.

Juan Fonseca: After Jose's remarks, Martin will provide more detail on our quarterly report. Finally, we will open the call for your.

Ellen: We will open the call for your questions.

Jose Antonio Fernandez Garza-Laguera: Jose, please go ahead. Thank you, Juan.

Speaker Change: Also please go ahead.

Juan Fonseca: Thank you Juan good morning, everyone.

Jose Antonio Fernandez Garza-Laguera: Good morning, everyone. During the first quarter, PEMSA was able to navigate a challenging environment across several markets, particularly in Mexico. taking advantage of its resilient, geographically diversified business platform. Within proximity and health, however, Mexico is by far the biggest component. and the division results will inevitably reflect whatever is happening in this core market. Our results for the first quarter reflect a challenging set of headwinds, particularly in proximity America. combining a persistently soft consumer environment in Mexico with a tough calendar setup and against a demanding comparison base.

Speaker Change: During the first quarter FEMSA was able to navigate a challenging environment across several markets, particularly in Mexico.

Speaker Change: Taking advantage of it resilient geographically diversified business platform.

Speaker Change: Within proximity Unhealth, However, Mexico is by far the biggest component.

Speaker Change: And the divisional results will inevitably reflect whatever is happening in these core markets.

Speaker Change: Our results for the third quarter reflect a challenging set of headwinds, particularly in proximity of America.

Speaker Change: Combining a persistently soft consumer environment in Mexico, with adult Callendar setup and against a demanding comparison base.

Jose Antonio Fernandez Garza-Laguera: Therefore, I would like for my remarks today to provide you with three things. First... our assessment of the causes of the underwhelming numbers. particularly related to same-store traffic in Oaxaca, Mexico. Second, an overview of some of the actions we're taking to offset or mitigate the impact in Mexico. And finally, our expectations for the remainder of the year, including what we foresee will be a better second half in Mexico that should help us deliver a solid full year result despite the slow start.

Speaker Change: Therefore, I would like for my remarks today to provide you with three things first.

Speaker Change: Our assessment of the corpus of the underwhelming number.

Speaker Change: Particularly related to same store traffic in OXXO, Mexico.

Speaker Change: Second an overview of some of the actions, we're taking to offset or mitigate the impact in Mexico.

Speaker Change: And finally, our expectations for the remainder of the year, including what we foresee will be a better second half in Mexico that should help us deliver a solid full year results. Despite the slow start.

Speaker Change: After that we will give you an update on the rest of the operations.

Jose Antonio Fernandez Garza-Laguera: After that, we will give you an update on the rest of the operation. During the first quarter, same-store sales for Proximity America contracted by 1.8%, with average ticket growing 5.1%, slightly ahead of inflation. but average traffic contracting 6.6%, continuing a trend that has been in place for several quarters. The calendar effects are straightforward. We had one day left in February, and the entire holy week shifted to the second quarter this year. adjusting for those different We estimate that same store sales would have been flat. Beyond that, there is an undeniable weakness in the consumer environment that first manifested itself around the middle of last year.

Speaker Change: During the first quarter same store sales for proximity America contracted by one 8% with average ticket growing five 1% slightly ahead of inflation.

Speaker Change: But average profit contracting six 6% continuing a trend that has been in place for several quarters.

Speaker Change: The calendar effect are straightforward, we had one one day less in February and the entire Holy week shifted to the second quarter. This year.

Speaker Change: Adjusting for those differences.

Speaker Change: We estimate that same store sales would have been flat.

Speaker Change: Beyond that there is an undeniable weakness in the consumer environment. The first manifested itself around the middle of last year.

Jose Antonio Fernandez Garza-Laguera: just after the election. and consistent with previous electoral years. Moreover, the ongoing uncertainty around trade with the U.S. has exacerbated what we already expected would be a slow start to the year due to the postponement of many investment decisions until greater clarity is achieved. Other negative traffic drivers include a particularly colder month of January impacting high traffic categories such as alcoholic and non-alcoholic beverages. cigarettes and snacks, as well as certain localized markets where consumers have reduced their movement outside the home after certain hours as a response to a heightened perception of risk. Finally, in terms of channel dynamics, we continue to see the traditional trade gradually recover some of the market share it lost to modern channels during the COVID pandemic.

Speaker Change: Just after the election.

Speaker Change: And consistent with previous electoral year.

Speaker Change: Moreover, the ongoing uncertainty around trade with the U S has exacerbated what we already expected would be a slow start to the year due to the postponement of many investment decisions until greater clarity is achieved.

Speaker Change: Other negative traffic drivers include a particularly older month of January impacting high traffic categories, such as alcoholic and non alcoholic beverages.

Speaker Change: <unk> and snacks as well as strengthen localized markets, where consumers have reduced their movement outside their home after a certain hour as a response to a heightened perception of risk.

Speaker Change: Finally in terms of channel dynamics, we continue to see the traditional trade gradually recover some of the market share it lost to mother and channel during the Covid pandemic.

Jose Antonio Fernandez Garza-Laguera: Historically, the traditional trades have done better in economic slowdowns as people cut down on impulse buys and seek the smaller price point SKUs of these channels. As a result of the consumer environment and consistent with what we have seen in similar downturns in the past. Some of the CPG suppliers are adjusting their package strategy accordingly. For example, increasing the availability of smaller price points, multi-serve, and returnable presentations. that are also well suited for the traditional trade. However, we do not have any clear evidence that other channels may be gaining competitiveness relative to us. And our reading to date is that the majority of the slowdown is attributable to factors outside of our control, such as the macro environment, weather, and calendar effects, and consistent with untapped figures for other channels.

Speaker Change: Historically that traditional trade cut on bettering the economic.

Speaker Change: The slowdown as people cut down on impulse buy.

Speaker Change: Seek the smaller price points that can use of this channel.

Speaker Change: As a result of the consumer environment.

Speaker Change: And consistent with what we have seen similar downturns in the past.

Speaker Change: Some of the CPG supplier are adjusting their package strategy accordingly.

Speaker Change: For example, increasing the availability of smaller price point multi serve and returnable presentations.

Speaker Change: Are also well suited for that traditional freight.

Speaker Change: However, we do not have any clear evidence that other channels may be gaining competitiveness relative to OXXO.

Speaker Change: And our reading too late is that the majority of the slowdown is attributable to factors outside of our control such as the macro environment weather and calendar effect and consistent with the figures for other channels.

Speaker Change: And this is a good segue to move on and discuss and discuss some of the actions we're taking.

Jose Antonio Fernandez Garza-Laguera: And this is a good segue to move on and discuss some of the actions we're taking. We have launched several commercial and cost initiatives with three clear objectives. One, to drive traffic and top line. Two, to maintain our positive trajectory of growth margin expansion. And three, cost containment initiatives to ensure the leanest organization possible. while not mortgaging our future by cutting transformational initiatives. Within the top-line initiative, we should highlight our push for increased affordability across categories, working in tandem with our key supplier partners. These initiatives aim to expand our assortment to include more affordable brands and presentations, including in key categories like tobacco, soft drinks, beer, spirits, and salty snacks.

We have launched several commercial and cost initiatives with three year objectives, one to drive traffic and top line.

Speaker Change: To maintain our positive trajectory of growth margin expansion.

Speaker Change: And three cost containment initiatives to ensure the leanest organization possible.

Speaker Change: I'll not mortgaging, our future by cutting transformational initiatives.

Speaker Change: Within the top line initiative, we should highlight our boost for increase the <unk> category.

Speaker Change: Working in tandem with our key supplier partners.

Speaker Change: These initiatives aim to expand our assortment to include more affordable brands and Brooklyn patients, including in key categories like Blackwell soft drink beer spirits and healthy snacks.

Speaker Change: We have launched targeted plan to reactivate the adaptive coffee offering and to support the beer and soft drink category.

Jose Antonio Fernandez Garza-Laguera: We have launched targeted plans to reactivate the Andati coffee offering and to support the beer and soft drink categories, including returnable multi-serve. Furthermore, we continue to increase the breadth of our financial services and correspondent partnerships with banks and fintechs, while also increasingly leveraging the insights from our SPIN Premier Loyalty Program to improve the effectiveness of our promotion. and this connects with our efforts to drive profitability at a gross margin level. as we keep working with our supplier partners to find incremental value through the precise execution of more targeted promotion. On this front, as you saw in our results, a bright spot at Proximity America was once again the continued margin expansion at the gross level.

Speaker Change: Including returnable multi serve.

Speaker Change: Furthermore, we continue to increase the breadth of our financial services and correspondent partnerships with banks in Phoenix, while also increasingly leveraging the insights from our spin premier loyalty program to improve the effectiveness of our promotions.

Speaker Change: And this connects with our effort to drive profitability at the gross margin level.

Speaker Change: As we keep working with our supply partners to find incremental value through the precise execution of more targeted promotions.

Speaker Change: On this front as you saw in our results our bright spot at proximity of America was once again the continued margin expansion at the gross level.

Speaker Change: As we look at the pipeline of commercial collaboration we see in the months ahead. We are optimistic that we can continue to drive these metrics higher.

Jose Antonio Fernandez Garza-Laguera: As we look at the pipeline of commercial collaboration we've seen the months ahead, we are optimistic that we can continue to drive these metrics higher. There are several important negotiations underway in key categories that we expect to provide us with continued tailwind at the gross margin level. Further down the income statement, we again face pressure from another low double-digit increase in the minimum wage, as well as a loss of operating leverage from the soft traffic trends and the incorporation of the results from the lower-margin decay operation in the U.S. We also maintained our pace of store-based expansion and capability-building activity.

Speaker Change: There are several important negotiations underway in key categories that we expect to provide us with continued tailwind on the gross margin level.

Speaker Change: Further down the income statement, we again faced pressure from another low double digit increase in the minimum wage as well as the loss of operating leverage from the soft traffic trends.

Speaker Change: And the incorporation of the results from the lower margin Dk operation in the U S.

Speaker Change: We also maintained our pace of store base expansion and capability building activities.

Speaker Change: In our network to offset rising expenses, we have made great strides, reducing the FTE or full time equivalent per store.

Jose Antonio Fernandez Garza-Laguera: In an effort to offset rising expenses, we have made great strides reducing the FTE, or full-time equivalent per store, generating real efficiencies at scale, as well as a reduction in overhead. Despite these efforts, we saw a swing from an expansion of 120 basis points at the gross level to a contraction of similar magnitude at the operating level. I have asked all of our operations to drill into overhead expenses where I think opportunities to be a leaner and more effective organization.

Speaker Change: And the rating real efficiencies of scale as well as a reduction in overhead.

Speaker Change: Despite these efforts we saw a swing from an expansion of 120 basis points at the gross level to a contraction of similar magnitude at the operating level.

Speaker Change: I have asked all of our operations to drilling two overhead expenses were I think opportunity to be a leaner and more effective organization.

Speaker Change: And that brings me to the general outlook for the remainder of the year.

Jose Antonio Fernandez Garza-Laguera: And that brings me to the general outlook for the remainder of the year. Based on our projections, we believe we will see a sequential improvement in top-line dynamics beginning in the second quarter and peaking for the year during the third quarter. Such improvement is partly within our control through the implementation of all the commercial and cost control initiatives I just described, and partly outside of our control requiring economic activity and consumer sentiment in Mexico to gradually pick up. Therefore, as a slow start, our base case expectation for the full year remains for a high single-digit increase in revenues with stable operating margins relative to 2021.

Speaker Change: Based on our projections, we believe we will see a sequential improvement in top line dynamics beginning in the second quarter and speaking for the year during the third quarter.

Speaker Change: Such improvement is partly within our control doing the implementation of all the commercial and cost control initiatives I just described.

Speaker Change: Partly outside of our control requiring economic activity and consumer sentiment in Mexico to gradually pick up.

Speaker Change: Therefore, the flow start our base case expectation for the full year remains for a high single digit increase in revenues with stable operating margins relative to 2024.

Speaker Change: Moving on let me give you a brief update on some of our other formats in markets that we know are top of mind for investors.

Jose Antonio Fernandez Garza-Laguera: Moving on, let me give you a brief update on some of our other formats and markets that we know are top of mind for investors. In the U.S., we continue our testing and experimentation as we advance in the definition of our optimal value proposition for this market. As you may remember from our last call, we have already started the first conversion of some of the DK stores into OXO. Back in February, we announced the first one. And since then, we have reached 15 OXO units, all of them in the Midland-Odessa metro area in West Texas.

Speaker Change: In the U S. We continue our testing and experimentation as we advance in the definition of our optimal value proposition for these markets.

Speaker Change: As you May remember from our last call. We have already started the FERC conversions of some of the Dk sourcing to OXXO back in February we announced the first one and since then we have reached 15, Oxford unit all of them in the Midland Odessa area in West Texas.

Jose Antonio Fernandez Garza-Laguera: while consumer reaction to the rebranding has been very positive. There is a lot of work to be done as we close the value proposition gap, including in the key prepared food category. On that front, we have already made progress bringing the Andate coffee offering from our Mexico operation. And we are testing improved food offerings in approximately 20% of the store base. The OXO-Mexico team is also sharing with the U.S. team some of its expert capabilities such as pricing, assortment, and segmentation, and there is more to come. Again, very early days, and we will keep you posted on our progress there.

Speaker Change: While consumer reaction to the rebranding has been very positive.

Speaker Change: There is a lot of work to be done as we close the value proposition gap, including in the key prepared food category.

Speaker Change: On that front, we have already made progress, bringing indiana that the coffee offering from our Mexico operations.

Speaker Change: And we are testing improve food offerings in approximately 20% of the store base.

Speaker Change: The OXXO Mexico theme, if also sharing with our U S teams some of its expert capability, such as pricing assortment and segmentation and there is more to come.

Speaker Change: Again, very early days and we will keep you posted on our progress there.

Speaker Change: In Brazil, we continued to make progress, reducing shrink and employee turnover, which have been two areas of operational focus in recent quarter.

Jose Antonio Fernandez Garza-Laguera: In Brazil, we continue to make progress reducing shrinkage and employee turnover, which have been two areas of operational focus in recent quarters. We continue to see the brand and value proposition grow in consumer preference. And our expansion plans for this year are unchanged with approximately 100 new OXOs in the state of Sao Paulo. At Vara, we had a good start to the year in terms of store-based expansion, adding roughly twice as many stores during the quarter compared to last year, and on track to add approximately 235 net new stores in 2021. We recently opened a new distribution center in Querétaro and we're making progress as we set up our second region in northern Mexico while also advancing as we develop and grow the supplier network for our key private labels.

Speaker Change: We continue to see that brand and value proposition growing consumer preference.

Speaker Change: And our expansion plans for this year are unchanged with approximately 100, new offices in the state of Sao Paulo.

Speaker Change: As BARDA, we had a good start to the year in terms of store base expansion, adding roughly twice as many stores during the quarter compared to last year and on track blood approximately 235 net new stores in 2025.

Speaker Change: We recently opened a new distribution center and get it and we're making progress as we set up our second region in Northern Mexico, while also advancing as we develop and grow the supplier network for our key private label.

Speaker Change: In Europe <unk> results show solid growth in Mexican peso, given the meaningful weakening of the peso against European currencies year on year.

Jose Antonio Fernandez Garza-Laguera: In Europe, Valora's results show solid growth in Mexican pesos given the meaningful weakening of the peso against European currencies year-on-year, but on a comparable basis the numbers are slowing. We see positive trends in retail supported by certain categories like tobacco and from a growing commercial income platform. However, B2B service is lapping a very difficult comparison base from the successful one-time pretzel project we executed last year. We continue to work to improve traffic to B2C2 service which is somewhat dependent on German economic growth and on the retail front in the coming months we expect to rebrand a meaningful number of our DV stores in German train stations to our successful AVEC banner.

Speaker Change: But on a comparable basis, our numbers are sluggish we see positive trends in retail supported by certain categories like <unk> and from our growing commercial income plus platform.

Speaker Change: However to be fair. This is lapping a very difficult comparison.

Speaker Change: From the successful onetime Pretzel project, we executed last year.

Speaker Change: We continue we continue to work to improve profit to be to see foodservice.

Speaker Change: It is somewhat dependent on German economic growth.

Speaker Change: On the retail front in the coming months, we expect to rebrand a meaningful number for DB sourcing German train stations towards successful.

Speaker Change: <unk> partner.

Jose Antonio Fernandez Garza-Laguera: which over time should help us in our organic growth efforts as the AVEC brand becomes better known in Germany. At OXO Gas, we did well in the first quarter but in the coming quarters we will be increasing headwinds from the voluntary price commitments we have put in place for regular unleaded gasoline together with the rest of the industry in Mexico.

Speaker Change: Which over time should help us in our organic growth efforts of the <unk> brand becomes better known in Germany.

Speaker Change: I hope so gas, we did well in the first quarter or in the coming quarters, we will be increasing headwinds from the voluntary price commitment we have put in place for a regular unleaded gasoline together with the rest of the industry in Mexico.

Speaker Change: And finally at FEMSA health, we saw improving operational trends across most markets except Mexico.

Jose Antonio Fernandez Garza-Laguera: And finally, at Pemsa Health, we saw improving operational trends across most markets except Mexico. helped by the positive impact of FX, as was the case in Europe. The brightest spot continues to be our retail operation in Colombia, but results out of Chile and Ecuador were also solid. For its part, Mexico is in full operational turnaround mode, including a meaningful resizing as we rationalize the store base and continue to fine-tune the valuation of our two-format strategy.

Speaker Change: The positive impact of FX as was the case in Europe.

Speaker Change: The brightest spot continues to be a retail operation in Colombia, but referrals out of Chile, and Ecuador were also solid.

Speaker Change: For its part in Mexico as in full operational turnaround mode, including a meaningful recycling as we rationalize the store base and continue to fine tune the valuation of our two format strategy.

Jose Antonio Fernandez Garza-Laguera: Expect further news on this front as the new management team completes its work of getting up to speed and fine-tuning the new strategy.

Speaker Change: Expect further news on this front at the new management team complete its work of getting up to speed and fine tuning the new strategy.

Speaker Change: Wrapping up we would like to leave you with the metrics that even.

Jose Antonio Fernandez Garza-Laguera: Wrapping up, we would like to leave you with the message that even the though the start of the year was low in the core proximity American business. Based on the information we have today, our expectation remains that the numbers will improve as we go through the year, positioning us well to deliver another solid set of results for the full year of 2021.

Speaker Change: Though the start of the year was low in the core proximity Americas business.

Speaker Change: Based on the information we have today, our expectation remains that the numbers will improve as we go through the year positioning us well to deliver another solid set of results for the full year of 2025.

Speaker Change: And with that I will now turn the call over to Martin to discuss FEMSA first quarter results.

Martin: And with that, I will now turn the call over to Martin to discuss FEMSA First Quarter Results. Martin, please go ahead. Thank you. Good morning, everyone, and thank you for joining us today.

Martin: Martin Please go ahead.

Martin: Thank you Wilson.

Martin: Good morning, everyone and thank you for joining us today as you have seen in our press release, we have added a column to the various income statements representing comparable figures to help you isolate the effects of currency fluctuations as well as acquisitions.

Martin: As you have seen in our press release, we've added a column to the various income statements representing comparable figures to help you isolate the effects of currency fluctuations as well as equity. We are using the same definitions and following the same methodology used for many years by Coca-Cola FEMSA in their own disclosure. surely be familiar to many. Hopefully, you will find this information useful.

Martin: We are using the same definition and following the same methodologies used for many years by Coca Cola FEMSA in their own disclosure, which will surely be familiar to many of you hopefully you will find this information useful.

Speaker Change: Let me begin with sensors consolidated financial and operational results for the first quarter of 2025.

Martin: Let me begin with Census Consolidated Financial and Operational Results for the first quarter of 2021. Total revenues increased 11.1% while operating income grew 4.9% year-over-year reflecting mixed results from our business units as several of them faced a challenged macroeconomic backdrop and softer consumer demand in our key Mexican markets. as well as an unfavorable calendar effects water. A comparable basis, total revenues and operating income grew by 5.6% and 1.7% respectively, evidencing the currency tailwinds which helped us this quarter. Net consolidated income increased 54.3% to 8.9 billion pesos, mainly driven by One, a $630 million fiscal increase in income from operations.

Speaker Change: Total revenues increased 11, 1%, while operating income grew four 9% year over year, reflecting mixed results from our business units are several of them face a challenging macroeconomic backdrop and softer consumer demand in our key Mexican market.

Speaker Change: As well as the unfavorable calendar effects throughout our businesses.

Speaker Change: Our comparable basis total revenues and operating income grew by five 6% and one 7% respectively, evidenced in the currency tailwind, which helped us this quarter.

Speaker Change: Net consolidated income increased 54, 3% to $8 9 billion vessels, mainly driven by <unk>.

Speaker Change: One 630 million pesos increase in income from operations.

Speaker Change: Two or three Boon <unk>.

Martin: 3 Billion Pesos Increase in the Other Financial Income Related to Net Foreign Exchange Gains and Gains in our Financial mainly as a result of an increase in the price of our remaining Hanigan shares. 3, a $2.4 billion increase in net income from discontinued operations driven by a gain from the sale of PTFE. All of this, despite interest expense, higher interest expense and income taxes, as we have explained in our earnings.

Speaker Change: <unk> 3 billion increase in the other financial income related to net foreign exchange gains and gains in our financial instruments, mainly as a result of an increase in the price of our remaining Heineken shares and.

Speaker Change: And three a $2 4 billion increase in net income from discontinued operations driven by a gain from the sale of PTA.

Speaker Change: All of this despite interest expense higher interest expense and income taxes as we have explained in our earnings release.

Speaker Change: Moving to the operations I will try to be brief so as not to repeat most of where wholesale already touched on.

Martin: Moving to the operations.

Martin: I will try to be brief so as not to repeat most of what Jose already touched on. Proximity America has delivered a 6.8% or 1.4% on a comparable basis, increase in total revenues and 11.8% decline or 11% on a comparable basis in income from operations. The decline in operating income reflects soft, top-line growth, accompanied with a solid growth margin. However, offset by higher operating expenses resulting from increased labor costs, continued investment in transformational initiatives, and reduced operating. As Jose mentioned, we are implementing a series of top line growth and cost containment initiatives, which we expect to bear fruit in the second half of the year, ideally with a reactivation of the Mexican economy.

Speaker Change: Proximity Americas delivered a 6% or one 4% on a comparable basis increase in total revenues.

Speaker Change: And 11% 11, 8% decline or 11% on a comparable basis income from operations.

Speaker Change: The decline in operating income reflects soft topline growth company.

Speaker Change: A company with a solid gross margin expansion.

Speaker Change: However, offset by higher operating expenses, resulting from increased labor costs continued investment and transformational initiatives and reduced operating leverage.

I would hope had mentioned we are implementing a series of topline growth and cost containment initiatives, which we expect to bear fruit in the second half of the year ideally with.

Speaker Change: With the reactivation of the Mexican economy.

Speaker Change: On the expansion front.

Martin: on the expansion front. OxoMexico opened 361 net new stores during the first quarter, a good start to the year, while net additions reached 31 in Colombia and 21 in Brazil through our Grupo Unos joint venture.

Speaker Change: <unk> opened 361 net new stores during the first quarter a good start to the year, while net additions reached 31 in Colombia, and 21 in Brazil through our Grupo <unk> joint venture.

Speaker Change: Now turning to proximity to Europe.

Martin: Now turning to Proximity Europe. So you need to increase 18% in peso terms or 1% on a comparable basis. Gross profits rose 14.8% in pesos but declined 1.9% on a currency neutral basis. resulting in a margin contraction of 110 basis points, primarily due to software performance in the higher margin B2B food service segment. At the operating level, Valora reported a 14.6% decrease in income from operations. or 27.7% on a comparable basis. selecting a 90 point, a 90 basis point margin contract. reflecting the impact of the weak or higher margin B2B performance against a very demanding comparison.

Speaker Change: Revenues increased 18% in peso terms or 1% on a comparable basis.

Speaker Change: Gross profits rose 14, 8% in pesos declined one 9% on a currency neutral basis, resulting.

Speaker Change: Resulting in a margin contraction of 110 basis points, primarily due to softer performance in the higher margin <unk> foodservice segment and flat results in the other businesses.

Speaker Change: At the operating level.

Speaker Change: By Lauder reported a 14, 6% decrease in income from operations were 27, 7% on a comparable basis.

Speaker Change: Reflecting a 90 point, a 90 basis point margin contraction, reflecting.

Speaker Change: Reflecting the impact of the weaker higher margin <unk> performance against the very demanding comparison base.

Martin: The health division delivered revenue growth of 21% in pesos. Colombia has stellar performance while Ecuador and Chile had solid results driving the division's momentum for the quarter. In contrast, Mexico remains challenged. So we have begun the process of closing underperforming stores. We expect a total in excess of 400 by the end of the year. Operating income rose 27.4% or 11.7% on a comparable basis. with a margin expanding by 20 basis points to 3.5%, particularly reflecting the stock growth in the retail segment in Colombia and solid performance from Chile.

Speaker Change: The health Division delivered revenue growth of 21% in pesos or 7% on a comparable basis.

Speaker Change: Colombia has stellar performance, Ecuador, Chile had solid results driving division's momentum for the quarter.

Speaker Change: In contrast, Mexico remains challenging, but we have begun the process of closing underperforming stores.

Speaker Change: Which we expect a total of in excess of 400 400 by the end of the year.

Speaker Change: Operating income Rose 27, 4% or 11, 7% on a comparable basis with a margin expanding by 20 basis points to three 5%, particularly reflecting the start growth in the retail segment in Colombia, and solid performance from Chile and Ecuador.

Speaker Change: Shifting to spin.

Martin: Shifting to spin. We are executing against our vision to build an omni-channel ecosystem anchored in customer engagement, loyalty, data-driven innovation, and financial... Spinbioxo continues to gain traction. with our active user base showing double-digit growth year-over-year to 8.9 million active users. We are also seeing increased modernization through a higher number of transactions. The Spain Premier Loyalty Program is expanding its relevance. Now linked to 42.5% of Oaxaca, Mexico sales. becoming an important lever for engagement reaching 25.2 million active users. an increase of 16.1% compared to last year. As we continue to grow, our focus is shifting towards improving community economics, using advanced analytics to refine our offering, and drive incremental value across the board.

Speaker Change: We are executing against our vision to build an omnichannel ecosystem anchored and customer engagement loyalty data driven innovation in financial services.

Speaker Change: Spin by OXXO continues to gain traction with our active user base showing double digit growth year over year to $8 9 million active users.

Speaker Change: We are also seeing increased monetization through a higher number of transactions.

Speaker Change: This being premier loyalty program is expanding its relevance.

Speaker Change: Now linked to 42, 5% of OXXO, Mexico sales and becoming an important lever for engagement, reaching $25 2 million active users.

Speaker Change: An increase of 16, 1% compared to last year.

Speaker Change: As we continue to grow our focus is shifting towards improving unit economics, using advanced analytics to refine our offering and drive incremental value across the system.

Speaker Change: Lastly, Coca Cola FEMSA delivered another solid quarter underscoring the strength of its diversified portfolio geographic footprint and disciplined operating model.

Martin: Lastly, Coca-Cola FEMSA delivered another solid quarter, underscoring the strength of its diversified portfolio, geographic footprint, and discipline operating model. Spice Soft Volume Trends in Mexico. This was largely offset by growth in Brazil and certain other markets. Top line grew by 10%. Supported by Revenue Growth Management Initiatives. while income from operations grew at a slightly slower pace. 7.4% or 3.2% on a comparable basis. reflecting mostly higher distribution.

Speaker Change: Despite the soft volume trends in Mexico.

Speaker Change: This was largely offset by growth in Brazil, and certain other markets.

Speaker Change: Top line grew by 10%.

Speaker Change: Five 9% on a comparable basis.

Speaker Change: Supported by revenue growth management management initiatives.

Speaker Change: While income from operations grew at a slightly slower pace of.

Seven 4% or three 2% on a comparable basis.

Speaker Change: Reflecting mostly higher distribution expenses.

Speaker Change: The team remains focused on protecting profitability through ongoing efficiency initiatives and by leveraging its proven execution capabilities.

Martin: The team remains focused on protecting profitability through ongoing efficiency initiatives and by leveraging its proven execution capabilities.

Martin: As always, we invite you to refer to Coca-Cola FEMSA's earnings call webcast for further details.

Speaker Change: As always we invite you to refer to Coca Cola FEMSA the earnings call webcast for further details.

Speaker Change: Before closing, let me briefly update you on our capital allocation strategy.

Martin: Before closing, let me briefly update you on our capital allocation strategy. As we announced last February, we remain fully committed to balancing discipline reinvestment in our corpus. while maximizing returns to shareholders as we advance towards our target level. In the first quarter, we deployed 8.8 billion pesos in CapEx, representing approximately 4.5% of total revenue. with a continued focus on expanding our retail footprint and strengthening our supply chain.

As we announced last February we remain fully committed to balancing disciplined reinvestment in our core businesses.

Speaker Change: While maximizing returns to shareholders as we advance towards our target leverage.

Speaker Change: During the first quarter, we deployed $8 8 billion pesos and Capex, representing approximately four 5% of total revenues.

Speaker Change: The continued focus on expanding our retail footprint and strengthening our supply chain infrastructure.

Speaker Change: Regarding the return of capital to shareholders.

Martin: regarding the return of capital to shareholders. In the first quarter, we repurchased approximately 1.3 billion pesos of FEMSA BD units in the local market. We also paid in January the last installment of last year's declared ordinary and extraordinary dividends for a total amount of 6.1 billion pesos or nearly $300 million. Additionally, last Friday we distributed the first quarterly installment of both the Ordinary and Extraordinary Dividends for 2025 for a total amount of nearly 12 billion pesos or approximately $610 million. as approved by our recent annual shareholder. The total amount allocated for shareholder returns from March 24, 2024 to March 2025, including both Ordinary and Exerted Distribution Amount is $44.8 billion for around $2.5 billion.

Speaker Change: First quarter, we repurchased approximately one 3 billion peso specials of FEMSA <unk> units in the local market.

Speaker Change: We also paid in jet paid in January of the last installment of last year's declare ordinary and extraordinary dividends for a total amount of $6 1 billion pesos or nearly $300 million.

Speaker Change: Additionally, last Friday, we distributed the first quarterly installment of both the ordinary and extraordinary dividends for 2025 for total amount of nearly 12 billion pesos or approximately $610 million at current.

Speaker Change: Exchange rates as approved by our recent annual shareholders meeting.

Speaker Change: The total amount allocated for shareholder returns for March 24, 2024 to March 2025, including both.

Speaker Change: Ordinary and extraordinary distribution.

Speaker Change: Amounts.

Speaker Change: Is $44 8 billion stages were around $2 5 billion.

Speaker Change: For the period from March 2025 March 2026, we are committed to returning 66 basis or nearly $3 2 billion at current exchange rates.

Martin: for the period from March 2025 to March 2026. We have committed to returning 66 billion. nearly 3.2 billion.

Speaker Change: Looking ahead, we remain optimistic about the opportunities ahead, and while we acknowledge that this year.

Martin: Looking ahead, we remain optimistic about the opportunities ahead and while we acknowledge that this year represents somewhat of an uphill battle, the first quarter usually is our least important quarter. The macroeconomic and competitive environment continues to evolve. We are confident in our strategy, our team, and the resilience of our diversified portfolio. and trust our results will revert back to their long-term growth trajectory as they have always done. As we move forward, our focus will remain on discipline and execution to deliver solid results for the rest of the year and beyond.

Speaker Change: Somewhat of an uphill battle, but first quarter, usually is our least important quarter as.

Speaker Change: As the macroeconomic and competitive environment continues to evolve we are confident in our strategy our team and the resilience of our diversified portfolio.

Speaker Change: And trust our results will revert back to their long term growth trajectory as they have always done.

Speaker Change: As we move forward, our focus will remain on disciplined execution to deliver solid results for the rest of the year and beyond.

Speaker Change: And with that we will now open the call for questions.

Alan: With that, we will now open the call for questions. Operator, please go ahead. Thank you.

Speaker Change: Operator, Please go ahead.

Speaker Change: Thank you if you'd like to ask a question I'll make a contribution todays call. Please press star one on your telephone keypad to withdraw your question. Please press star two you'll be annualized when to ask your questions.

Operator: If you'd like to ask a question or make a contribution to this call, please press star 1 on your telephone key. To withdraw your question, please press star 2. You will be advised when to ask your question.

Speaker Change: We will take our first question from Tiago Bertolucci Goldman Sachs. Your line is open. Please go ahead.

Tiago Portillo: We will take our first question from Tiago Portillo. Goldman Sachs, your line is open. Please go ahead. Yes. Hi, good morning, everyone. Jose Martin Juan. Thank you very much for the call and the opportunity of talking to you guys. Always a pleasure. I would like to explore a little bit more the momentum for Proximity Americas, particularly Mexico, right? Jose, the initial remarks that you shared were super helpful, but double-clicking into those, I think the first point I would love to hear from you is what's your feeling regarding traffic share, right? You alluded to NTED, but obviously we can't imply necessarily how much traffic has moved there, but I think it's fair to assume OXO has apparently lost some traffic share in the quarter, right?

Speaker Change: Yes, hi, good morning, everyone wholesale marketing one thank you very much for the call and the opportunity of talking to guys always a pleasure.

Speaker Change: I would like to explore a little bit more the momentum for pressing media Americas, particularly Mexico right.

Speaker Change: The initial remarks that you shared or super helpful, but double clicking into I think the first point I would love to hear from you.

Speaker Change: Our feeling regarding traffic chair right you alluded to one third but obviously, we can imply necessarily how much traffic has moved there, but I think it's fair to ask Tom OXXO has apparently lost some traffic share in the quarter right. So just to understand if this is your reading and if.

Jose Antonio Fernandez Garza-Laguera: So just to understand if this is your reading and if you have a clear view on ... who you are losing this and what are the efforts to adjust. This is number one. The number two, you mentioned this being the fourth quarter in a row that you are declining traffic, right? Does this trend change at all your appetite for further growth or, you know, the projections for the returns on capital of these new stores that you are opening in the region? And then, finally, the third point within this proximity debate, mix has been an important source of compensation at the gross margin, right?

Speaker Change: You'll have a clear view on.

Speaker Change: Who you are losing that and what are your airports.

Speaker Change: To adjust this is number one.

Speaker Change: The number to you.

Speaker Change: <unk> mentioned in the fourth quarter in a row that you are declining traffic right.

Speaker Change: This trend change at all your appetite for further growth are the projections for the returns on capital for Disney and restores the trial opening into region and then finally, the third point within this per CME to debate.

Speaker Change: Mix has been an important source of compensation at the gross margin rate could you. Please give us the ballpark how your mix has evolved over the last three years, Mark curious to see how much financial services and commercial income penetration you have there and potentially where you believe this could get.

Jose Antonio Fernandez Garza-Laguera: Could you please give us the ballpark how your mix has evolved over the last two years? More curious to see how much financial services and commercial income penetration you have there and potentially to where you believe this could get over the next two years. Those are the questions. Thank you very much.

Speaker Change: Over the next two years.

Speaker Change: Sorry. The question is thank you very much.

Speaker Change: Well, thank you very much very spot on question.

Jose Antonio Fernandez Garza-Laguera: Very spot on question. A lot of color to address on this. So I would say, first on the traffic issue, the biggest impact that we see are the calendar effects, particularly, obviously, the loss of the Holy Week or the shift of the Holy Week to the second quarter, the very cold weather in the north of Mexico in January, and the broader economic slowdown. So those are what we think are the biggest drivers of traffic slowdown, and we see it because... We saw how, in January, we were grading in hot beverages, and we were very soft on cold beverages.

Speaker Change: <unk>.

Speaker Change: To address.

Speaker Change: These things so I would say first on the traffic.

Speaker Change: Issue.

Speaker Change: The biggest impact that we see are the calendar calendar effect.

Speaker Change: Equally obviously the loss of the Holy week.

Speaker Change: <unk> of the Holy week through the second quarter, and a very cold weather in the north of Mexico in January.

Speaker Change: And the broader economic.

Speaker Change: So those are what we think are the biggest.

Speaker Change: Drivers of traffic slowdown and we see it because.

Speaker Change: We saw cow in January we were grading in hot Hot beverages.

Speaker Change: Were very soft on cold beverages.

Jose Antonio Fernandez Garza-Laguera: And, I mean, it's very particular to what happens in... when we have a colder than expected January. If you look at share, we've been monitoring closely our Nielsen measurements of share and we, what we call the modern trade or the convenience modern trade or the OXO channel, we lose marginal market share but on the low single percentage of single digit. So it's very granular. But we do see a gain in share from the traditional trade. And then if you look at the six regions that Nielsen measures, 80% of our market loss decline is in the Pacific region, which is a region that includes all the way to Tijuana, to Nayarit, going through Sinaloa, and the northeast region, which includes all the way from Chihuahua to Tamaulipas.

Speaker Change: I mean, it's very particular to our competency.

Speaker Change: When we talk about our colder unexpected John Murray.

Speaker Change: If you look at share we've been monitoring closely.

Speaker Change: Our Nielsen measurements of share and we what we call the modern create or the convenience modern trade or the OXXO channel.

Speaker Change: We lose marginal market share on the low single percentage of single digit. So it's very granular, but we do see a gain in share from the traditional trade.

Speaker Change: And then if you look at the six regions at Nielsen measures.

Speaker Change: 80% of our four market.

Speaker Change: Decline is in the Pacific region, which is a region that includes all the way to pick one or two not yet.

Speaker Change: Going through in a law and the northeast region, which includes all the way from <unk> to <unk>. So basically the north of Mexico is 80% of our share loss.

Jose Antonio Fernandez Garza-Laguera: So basically, the north of Mexico is 80% of our share loss. And those are regions where other channels, like the hard discount channels, are not really present. So it's really the traditional trade that took a gain. And we see a much bigger share loss from the modern trade non-convenience and the modern trade autoservicio, losing much more share than us. So that's where I think... I think we're covering some of what they lost. Yeah. And that's where we see the biggest share. So I'm not too concerned about other channels gaining or not. And then if you look at categories where we're losing share and the traditional trade is gaining share, the biggest driver is tabacco.

Speaker Change: And those are regions that were.

Speaker Change: There were other channels like the hard discount channels are not really present, so it's really the traditional trade.

Speaker Change: The two took again.

Speaker Change: See a much bigger share loss from the modern trade.

Speaker Change: Non convenience and the more than create alpha reseal, losing much more share that loss. So that's that's where I think.

Speaker Change: Recovering some of what they.

Speaker Change: So some of them and Thats, where we see the biggest.

Speaker Change: Sure so I'm not too concerned about although the other channels gaining runoff and then.

Speaker Change: If you look at the category, where we're losing share in the traditional trade is gaining share the biggest driver is tobacco.

Jose Antonio Fernandez Garza-Laguera: And that is obviously a concern for me because I do see a shift towards tobacco on a per single deployment. You know, we are not allowed to do that in OXO, but the traditional trade can sell on a per cigarette basis. And also lower priced tobacco products, even some tobacco products that are without all its proper customs. into the value branch of tabacco. So, I'm not too concerned about... traffic from other channels. That doesn't mean we're not doing the best we can to increase traffic in value or affordability presentations. And I do think there's a huge opportunity for OPSO to do execute even better the beer value brand categories in soft drinks, go back to affordability and packages.

Speaker Change: And that is obviously a concern for me because I do see a shift towards.

Speaker Change: <unk> on a single deployment.

Speaker Change: They are not allowed to do that in October that traditional trade can sale.

Speaker Change: On a per seat basis and also.

Speaker Change: Lower priced aqua products, even some telco probes that are without all its proper customs.

Speaker Change: Fading so that is something I am concerned.

Speaker Change: We are working with our suppliers to launch some value brand in collateral on one what we're impressed we've already launched a brand.

Speaker Change: With help of one of our big debacle players and we did see a huge increase in traffic and not a lot of shift from higher value brand to value brands.

Speaker Change: Getting incremental traffic from people that are.

Speaker Change: Already.

Speaker Change: And to the value brands of tobacco, so I'm not too concerned about.

Speaker Change: Good.

Speaker Change: Traffic from other channels that doesn't mean, we're not doing the best we can to increase traffic in value value or affordability presentations and I do think there's a huge opportunity for OXXO to execute even better.

Speaker Change: Beer value brand category in soft drinks.

Speaker Change: Go back to affordable returnable packages.

Jose Antonio Fernandez Garza-Laguera: We have a huge campaign with our beer suppliers to drive growth there. So I'm positive that we're going to be able to drive growth. In the store expansion front, I'm still seeing huge opportunities for us to grow. And so that's why we're not very aggressive on declining the number of store expansions. We're very aggressive on measuring the quality of the stores we're opening. We're really prioritizing quality over hitting a number per region. We see, obviously, there's going to be some cannibalization as we continue to grow. But it's still very profitable return on invested numbers. And we still see a huge opportunity for us to expand.

Speaker Change: We have a huge.

Speaker Change: Campaign.

Speaker Change: Our beer suppliers too to drive growth there. So I'm positive that we're going to be able to drive.

Speaker Change: Growth in the store expansion front.

Speaker Change: I am still seeing huge opportunities for us to grow and so thats why were not very aggressive on on declining the number of store expansions, we're very aggressive on measuring the quality of the stores. We're opening we're really prioritizing quality over over heating a number.

Speaker Change: By region.

Speaker Change: Obviously theres going to be some cannibalization as we as we continue to grow.

Speaker Change: It's still very profitable return on invested numbers and we still see a huge opportunity for us to expand.

Jose Antonio Fernandez Garza-Laguera: So I'm not seeing a decline yet, but much more discipline and incentivizing the region towards quality of the stores we're opening. And finally, I would say financial services is a category that's still growing. It's growing seeing a lot of excitement from our players, from our key suppliers to use the SPIN PREMIA information to expand and we see a huge opportunity still for gross margin expansion from retail media, from services and from promotional income that we still see a lot of opportunity.

Speaker Change: So I am not.

Speaker Change: I'm not seeing a decline yet.

Speaker Change: More disciplined and incentivizing the regions the quality of the stores we're opening.

Speaker Change: And finally, I would say financial services is a category that's growing it's growing.

Speaker Change: Mid single digit it's helping us we're growing.

Speaker Change: With all these fintech initiative with a lot of alternative payment.

Speaker Change: Some of these e-commerce sites.

Speaker Change: People are really excited.

Speaker Change: Oxo pay to do their payments and we're growing a lot there and we're growing a lot in that.

Speaker Change: Using also us.

Speaker Change: ATM machine basically going with your debit card over with your Fintech credit card ongoing for cash.

Speaker Change: That's a big growth segment, and we still see that.

Speaker Change: Huge growth opportunity and it's going to keep growing.

Speaker Change: <unk> increased the number of players that relating to the OXXO fade network I would also say obviously the OXXO income.

Our retail media, Inc. Scott is just getting started and has huge opportunity.

Speaker Change: To keep growing we are seeing a lot of excitement from our player.

Speaker Change: From our key suppliers to use the <unk> brand.

Speaker Change: Information two to expand and we see a huge opportunity still for gross margin expansion from retail media from services from promotional income.

Speaker Change: That we still see a lot of opportunity.

Speaker Change: I think I would I would ask tiago to what.

Martin: I think I would add, Thiago, to what Jose just said. I mean, the way you framed the question about mix, certainly financial services and commercial income, I mean, I'm surprised myself at how quarter after quarter, year after year, we continue to talk about these two drivers. And then, of course, you look at where the growth margin is, and, you know, kind of in the mid-40s, and in some quarter, you know, fourth quarter of last year, we were, you know, we almost approached 50%. And so it's been completely incremental to, you know, we've added the number of SKUs, we've...

Speaker Change: You said I mean.

Speaker Change: The way you framed the question about mix certainly financial services and commercial income I mean im surprised myself.

Speaker Change: At how quarter after quarter year after year, we continue to talk about these two drivers.

And then of course, you look at where the growth margin is.

Speaker Change: And kind of in the mid 40, <unk> and in some core fourth quarter of last year.

Speaker Change: We almost approach 50% so.

Speaker Change: It's been completely incremental.

Speaker Change: Two.

Speaker Change: We've added the number of Skus we have.

Martin: strengthens and enriches the mix of actual merchandise, but there's no question that financial services and commercial income have been doing a lot of heavy lifting in terms of the margin performance. And I think that's fantastic, right? Because to Jose's comment a few moments ago, it looks like certainly on the commercial income front, we think there's a lot more where that can go. Thank you very much, both. Appreciate it. Thank you.

Speaker Change: Strengthened and enriched the mix of actual merchandize, but theres no question that financial services and commercial income.

Speaker Change: <unk> been doing a lot of heavy lifting in terms of the margin performance.

Speaker Change: Think thats fantastic right, because two horses comment a few moments ago. It looks like certainly on the commercial income front.

Speaker Change: We think there is a lot more where that came from.

Speaker Change: This is super helpful. Thank you very much both I appreciate it.

Speaker Change: We will take our next question from Ben <unk>.

Ben Thur: We will take our next question from Ben Thur. Barclays, your line is open. Please go ahead. Good morning, and thank you very much for taking my question. I would like to follow up a little bit just on what is within your control within OXO. You've talked a couple of initiatives.

Speaker Change: Casey Your line is open. Please go ahead.

Speaker Change: Yes, good morning, and thank you very much for taking my question I.

Speaker Change: I would like to follow up a little bit just on what like what is within your control Mike within OXXO and you've talked a couple of initiatives. So wanted to get a little bit more detail and granularity as to the initiatives that youre looking at.

Jose Antonio Fernandez Garza-Laguera: I wanted to get a little bit more detail and granularity as to the initiatives that you're looking at, be it in-store or be it on the add-it to achieve certain cost savings, to really kind of like get maybe a little bit of a leaner structure in place within OXO in Mexico to help drive that gross margin expansion also further down the line, because it feels like a lot of it is lost and even more than is actually lost than what is gained on the gross margin level. So maybe help us understand with a couple of ideas, initiatives, what you're looking for in order to drive that gross margin expansion throughout the income statement down to the EBITDA.

Speaker Change: Be it in store.

Speaker Change: Alright.

Speaker Change: <unk> certain cost savings to really kind of like get maybe a little bit of a leaner structure in place within the OXXO in Mexico to.

Speaker Change: To help drive that gross margin expansion also further down the line because it feels like a lot of it.

Speaker Change: This loss and even more than is actually lost and what is gained on the gross margin level. So maybe help us understand.

Speaker Change: A couple of ideas initiatives, what you're looking for.

Speaker Change: To drive that gross margin expansion throughout the income statement down to the EBITDA. Thank you.

Jose Antonio Fernandez Garza-Laguera: Thank you. Just one second. So, yes, Ben, thank you. So, first, on the growth margin initiatives, I think there's a lot of things that we're doing on financial services that will increase our growth margin. We are still to get authorization to begin again, Banorte, and I think we already have Banco Azteca, but Banorte is set to come in as a new banking customer, and those are initiatives that will help us drive our growth margins. We see opportunities for segmentation and adjusting the value proposition to increase certain categories that have opportunities for better margins by adjusting the space and the variety, and we see an opportunity there.

Speaker Change: Just one second please.

Speaker Change: So yes. Thank you so first on the gross margin.

Speaker Change: The initiative I think there is there is.

Speaker Change: A lot of things that we're doing on on financial services that will increase our gross margin.

Speaker Change: We're still to get authorization to begin again, but in order to stay on I think we already have bank of pickup of Bernardo base is set to come in.

Speaker Change: New banking customer and those are initiatives that will help us drive our gross margin.

Speaker Change: We see opportunities for four.

Speaker Change: Segmentation and adjusting the value proposition.

Speaker Change: Two to increase.

Speaker Change: There are certain categories that have opportunities for better margins by adjusting the face and the variety and we see an opportunity there and finally, we're expanding dramatically our retail media.

Jose Antonio Fernandez Garza-Laguera: And finally, we're expanding dramatically our retail media platform. Currently, we are promoting a little bit over 3,000. Digital screens throughout our store networks, and we're more than doubling that throughout the rest of the year, and that brings incremental revenue. very dramatically. We are also very excited about our expansion of our controlled environment stores, what we call OXO nichos. Those are very profitable stores. They tend to mature very quickly. The investment required to open them are It's a much smaller investment than the regular OXXO, and we're going to be opening almost about a quarter of our new store network will be OXXO Nicho, so over 300 stores will be that, and that will also help us in profitability.

Speaker Change: Platform.

Speaker Change: <unk>, we are promoting over a little bit over 3000.

Speaker Change:

Speaker Change: Digital screens throughout the store network and we're more than doubling that throughout the rest of the year and that that brings.

Speaker Change: Incremental revenue.

Speaker Change: Very.

Speaker Change: Very dramatically.

Speaker Change: We are also very excited about our expansion of our controlled environment.

Speaker Change: <unk>, what we call the OXXO neutrals will start very profitable.

Speaker Change: They tend to mature very quickly the investment required to open them.

Speaker Change: <unk>.

It's much slower much.

Speaker Change: Smaller investment on the regular OXXO and almost.

Speaker Change: We're going to be opening almost.

Speaker Change: About a quarter of our new store network will be OXXO neutral so over 300 stores will be that.

Speaker Change: Also helped us in profitability on terms of the overhead opportunity without giving you an estimate or a precise number I would say there is.

Jose Antonio Fernandez Garza-Laguera: On terms of the overhead and opportunity, without giving you an estimate or a precise number, I would say there is... We have some transformational initiatives that we're investing heavily on and those weigh on the overhead, but they're already bringing a lot of revenue, so we're not going to cut on those. Also, things on the food service investment, things on retail media, things on the iCash investments, those require a full set of talented teams, a full set of people that are working hard on creating those new avenues that will provide us a lot of value down the road, we're not cutting on those.

Speaker Change: Okay.

Speaker Change: We see.

Speaker Change: We have some transformational initiatives that we are investing heavily on and those weighed on the overhead.

Speaker Change: But they are already bringing a lot of revenue. So we're not going to cut on adults also things on the foodservice investment themes on rebuild media things on the ice cashing betterment those require.

Speaker Change: Full set of talented teams our full set of people that are working hard on creating those new avenues that will.

Speaker Change: Provide us a lot of value down the road and we're not calling on those but we do see opportunities on all their sites of the overhead some on the on the region by centralizing certain administrative.

Jose Antonio Fernandez Garza-Laguera: But we do see opportunities on other sides of the overhead, some on the region, by centralizing certain administrative processes that are still scattered around throughout the region, we see an opportunity there. And then on other categories that... frankly in some aspects of the OXO team that the teams have opportunities to become leaner and address them.

Speaker Change: The processes that are still scatter around throughout the region, we see an opportunity there.

Speaker Change: And then on the other categories that.

Speaker Change: Frankly in some in some aspects of the OXXO team.

Speaker Change: The teams have opportunities to to.

Speaker Change: To become leaner.

Jose Antonio Fernandez Garza-Laguera: So I think those are the main issues. I would add there are other parts of proximity where I think we were investing heavily on developing teams and now that the local teams, especially in OXO Internacional, are more fully on in place, we can be leaner in the overhead in the central offices. So those are where I would say are the biggest opportunities. I think the number would be significant, but I would fail to give you a precise number as to how much savings will be there.

Speaker Change: And so I think those are the main.

Speaker Change: Nishu.

Speaker Change: I would add.

Speaker Change: There are other parts of proximity where I think we we were investing heavily on developing teams and now that the local teams, especially in oxo international or more are more fully on in place, we can be leaner and yogurt, having the central offices. So those are where.

Speaker Change: I would say are the biggest opportunity.

Speaker Change: The number would be significant but I would fail to give you a precise number as to how much savings will be there.

Martin: Let me also complement some numbers. If you just drill down to OXO Mexico. when you look at the growth of selling expenses. You can explain all the growth that we had this quarter by inflation. and despite there being an increase in the minimum wage of 12%. the reality through the initiatives that were implemented with regards to staff. and much more dynamic staffing per store and taking into account peak period. We were able to offset the growth of the selling expenses. at lower than you would have otherwise expected and very close to the sum of inflation.

Speaker Change: We also come in with some numbers with you you just drill down to OXXO Mexico.

Speaker Change: Look at the growth of selling expenses.

Speaker Change: You can explain all the growth that we had this quarter by inflation and extension.

Speaker Change: And despite there being.

Speaker Change: The increase in the minimum wage of 12% if I'm not mistaken.

Speaker Change: Through the initiatives that were implemented with regards to staffing.

Speaker Change: A much more dynamic staffing per store and taking into account the peak period.

Speaker Change: We were able to offset and keep the growth.

Speaker Change: The selling expenses.

Speaker Change: Lower than you would have otherwise expected.

And very close to the sum of inflation and expense.

Speaker Change: I think that's a rather than point, Ben the fact that even though.

Martin: I think that that's a relevant point then the fact that even though This business is obviously super sensitive to top line and operating leverage is a key part of profitability. We have chosen to keep opening stores, not only to keep opening stores at the same pace of 1,100, 1,200 per year against the slightly slowdown of the top line, but that we again front loaded the openings. If you look at the last year, it wasn't quite the same number, but almost, so it's again going to be a year where a lot of the openings take place in the first half, all of which I think factors into the calculation that Martín just addressed in terms of inflation plus that roughly 5%.

Speaker Change: Theres been some could be supersensitive to topline.

Speaker Change: Operator operating leverage is a key part of profitability, we have chosen to keep opening stores not only to keep opening stores at the same pace of 11 112 100 per year.

Speaker Change: The slightly.

Speaker Change: Slowdown in the top line, but we again frontloaded the opening so if you look at kind of the.

Speaker Change: Vis vis last year nothing it wasn't quite the same number but almost so it's again going to be a year, where a lot of the openings took place in the first half.

Martin: All of which I think factors into the calculation that Martin just addressed in terms of.

Speaker Change: Sure.

Inflation plus that roughly 5%.

Martin: you know, of the store-based being added this year, it accounts for an important part of the expense. Thank you.

Speaker Change: The store base being added.

Speaker Change: This year it accounts for an important part of the expense increase.

Speaker Change: Okay. Thank you.

We will take our next question from bank.

Bob Ford: We will take our next question from Bob Ford, Bank of America. Your line is open, please go ahead. Hey, thank you so much. You know, how should we think about the modernization of SPIN and SPIN-PREMIA? I mean, you alluded generally to some opportunities with PREMIA in data. But more specifically, when you look at the financial services opportunity, how are you mapping that out right now over the interstate? Sure. The way the SPIN team thinks about this, the financial services, first, financial services is quite a broad concept. And obviously, it includes increasingly providing the customer with the ability to honest transaction who are.

Speaker Change: Bank of America. Your line is open. Please go ahead.

Speaker Change: Hey, Thank you so much.

Speaker Change: How should we think about the monetization of.

Speaker Change: Spin and spin payment I mean, you alluded to generally to some opportunities at Etame.

Speaker Change: And data, but more specifically when you look at the financial services opportunity.

Speaker Change: How are you are you mapping that out right now for the intermediate term.

Speaker Change: Sure.

Speaker Change: The Williston team thinks about this the financial services first things there is quite a broad.

Speaker Change: Concept.

Speaker Change: Obviously it includes.

Speaker Change: Increasingly providing the customer with the ability to execute honest transactions through our app.

Jose Antonio Fernandez Garza-Laguera: and that in itself then generates the data that gives you insight into their. In order to do that and to maximize the effectiveness of the application as a method for payment, you ideally want to take that outside of... We're running already some tests. with our good corporate, Vela Pensa, in one key city, putting out term... and allowing the mom-and-pop stores to actually be able to accept paint. So there are mom-and-pop stores in the city where people can actually pay their other and other utilities and other. and that platform then becomes a way where people can pay with a QR.

Speaker Change: And that in itself then generate the data that gives you insight into their spending habits.

Speaker Change: In order to do that and to maximize the effectiveness of the application as a method for payment.

Speaker Change: Neil you want to take that outside of the store.

Speaker Change: And we're running already some tests.

Speaker Change: With our.

Speaker Change: Recordable of FEMSA <unk>.

Speaker Change: Hum.

Speaker Change: Putting up terminals.

Speaker Change: Allowing the mom and pop stores to actually be able to accept payments.

Speaker Change: Our mom and pop stores in the city, where people can actually pay their electricity Bill for example.

Speaker Change: In other utilities and other.

Speaker Change: And that platform, then becomes a way where people can pay with your code.

Jose Antonio Fernandez Garza-Laguera: If you manage to create that ecosystem where you become the preferred payment system. in Mexico, the optionality there of a series of ancillary businesses around that payment platform aren't. one distinguishing factor which our payment platform will have. other payment platforms in Mexico will not have is the loyalty component of the premia. I've actually been in the stores when I've asked the owner of the store. what does the premia point bring to you? And they say, it allows me to be competitive with OXO, believe it or not. It allows me to offer a similar loyalty point that OXO offers.

Speaker Change: You managed to create that ecosystem, where you become the preferred payment system.

Speaker Change: In Mexico the <unk>.

Speaker Change: <unk> there.

Speaker Change: A series of ancillary businesses around that payment platform.

Speaker Change: Norms.

Speaker Change: One distinguishing factor.

Speaker Change: Which our payments platform will have which other payment platforms in Mexico will not have the loyalty component of the <unk> points and I've actually been in the stores.

Speaker Change: The owner of the store.

Speaker Change: Does that bring to you and they say.

Speaker Change: It allows me to be competitive with OXXO believe it or not it allows me to offer a similar loyalty point that also offers.

Jose Antonio Fernandez Garza-Laguera: So they actually do not associate spin with the actual OXO store. And they see this as a sort of advantage that allows them to be competitive, whether it's relative to their other models. Once you create that ecosystem of payment platform with this distinguishing feature of loyalty. you then, again, you're driving more data, more information, more engagement with the app. and then you have the ability to layer in the actual financial products and that includes taking deposits and making loans. As I've mentioned in previous calls, we do expect that over time we're going to upgrade what now is basically our FinTech license.

Speaker Change: Actually not associate spin with the actual OXXO store and they see this as a sort of advantage that allows us to be competitive.

Speaker Change: Relative to the other mom and Pops.

Speaker Change: Once you create that ecosystem of payment platform, which is a distinguishing feature of loyalty. You then again, you're driving more data more information more engagement with the App.

We're using the App to three times, a day to make all sorts of payments to transfer money not only amongst themselves locally to receive their remittances to do their cash in cash out in the OXXO store with the.

Speaker Change: Recycling machines that were putting in and then you have the blue layer in that actual.

Speaker Change: Actual products and that includes taking deposits and making loans.

Speaker Change: As I've mentioned on previous calls we.

Speaker Change: Do expect that over time, we're going to upgrade but now is basically our fintech license, we will upgrade into a full banking license, which will provide us with greater flexibility. Obviously, we're at the very very very beginning stages of that and we will give everybody an ample time and guidance as to how.

Jose Antonio Fernandez Garza-Laguera: We will upgrade it into a full banking license, which will provide us with greater flexibility. Obviously, we're at the very, very, very beginning days of that. And we will give everybody ample time and guidance as to how that is evolving. There's no need to have any concern over the next few years of us all of a sudden growing our balance sheet dramatically because of a significant amount of lending. and so on, it will be done in a very typical. very slow, very cautious way, so we avoid some of the mistakes that have been made by other retailers in rolling out.

Speaker Change: That is evolving.

Speaker Change: There is no need to have any concern over the next few years of us all of a sudden growing our balance sheet dramatically because of a significant amount of lending and so on it will be done in a very typical.

Speaker Change: Very slow very cautious way. So we avoid some of the mistakes that have been made by other retailers in rolling out these.

Speaker Change: Types of financial products.

Jose Antonio Fernandez Garza-Laguera: So again, the theme and generally the answer to your question is it's all about. It's not one initiative, it's integrating OXO, it's going outside of OXO, it's integrating a whole panoply of services and alternatives for the consumer for payment. That ecosystem then creates additional optionalities of all sorts of things as people engage ever more with the application. I hope that was helpful.

Speaker Change: So again the theme in Germany, and the answer to your question is it's all about the ecosystem. It's not one initiative is.

Speaker Change: Integrating OXXO is growing outside of OXXO is integrating a whole panoply of services and alternatives for the consumer for payment that ecosystem, then creates additional optionality all sorts of things as people engage ever more with the application.

Speaker Change: I hope that was helpful.

Jose Antonio Fernandez Garza-Laguera: But it makes sense, and it's just as a follow-up. Separate question or separate topic, and that is ISA, the same store sales in Mexico were particularly weak. I was wondering if you could just expand on what you're doing across, you know, price assortment and service and what's different this time in terms of how you're Changing the way you go to market, I think, as I said, something about going to with two formats, which sounds a little bit more structural, but whatever you could say, No, again, I think, obviously, the numbers are weak, but they're weak particularly on traffic.

Speaker Change: It makes it makes sense and then just as a follow up.

Separate question separate topic and that is you saw the same store sales in Mexico were particularly weak and I was wondering if you could just expand on what youre doing across price assortment and service and what's different this time in terms of how you're.

Speaker Change: Changing the way you go to market I think as I said, something about going through with two formats, which sounds a little bit more structural but whatever you could say it would be helpful.

Speaker Change: No again, I think obviously the numbers are weak, but they're weak, particularly on traffic.

Jose Antonio Fernandez Garza-Laguera: We had a healthy ticket, but it's much more related to mix than to any price increases or anything. In the traffic sense, obviously... A big chunk of that had to do with the weather conditions and the calendar effects, but still are – even isolating for those effects, the traffic numbers are not where we want them to be and we're not happy at it. We do think there is a shift in economic conditions in Mexico and there is an appetite to go back to certain value opportunities in our core sectors. I think we should go back to providing value, opportunities, and affordability and returnable packaging in beer, in soft drinks, and we're already seeing an increase in traffic in tobacco just by incorporating a few value brands, and we're not seeing a shift from...

Speaker Change: We got a healthy ticket, but it's much more related to mix them to then to any price increases or anything.

Speaker Change: Yeah.

Speaker Change: In the traffic sense obviously.

Speaker Change: A big chunk of that has to do with the <unk>.

Speaker Change: The weather conditions on the calendar effect.

Speaker Change: Or even isolating for those affected.

Speaker Change: Numbers are not.

Speaker Change: We want them to be and we're not capriati.

Speaker Change: Do think there is a shift in the economic conditions in Mexico.

Speaker Change: And appetite to go back to certain value.

Speaker Change: Opportunities in our core.

Speaker Change: Categories, I think we should go back to Provo, providing value opportunity and affordability returnable packaging in beer and soft drinks.

Speaker Change: And we see.

Speaker Change: Okay.

Speaker Change: We're already seeing an increase in traffic in.

Speaker Change: In <unk> by incorporating a fuel value brand and we're not seeing a shift from from.

Jose Antonio Fernandez Garza-Laguera: premium smokers to value smokers. It's just an incremental traffic. But I'm confident that the full strategy that we're putting in place towards value and affordability in our core categories, but also in some of our, you know, supermarket categories or groceries and stuff will increase our traffic. And then we will compensate on the gross margin front with all of the activities we're doing in promotional income and some of the financial services. So that's why I'm very confident that we will turn it around. Yeah, there's a lot of things under our control that we need to work hard on to to bring back to increase the traffic numbers.

Speaker Change: Premium smokers to value smokers consistent incremental traffic.

Speaker Change: Im confident that the full.

Speaker Change: Strategy that we're putting in place towards value and affordability in our core.

Speaker Change: Categories, but also in some of our supermarket category.

Speaker Change: Or our groceries and stuff.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: We'll increase our traffic and then we will compensate on the gross margin front with all of the.

Speaker Change: Activities, we're doing in promotional income.

Speaker Change: And some of the financial services. So that's why I'm very confident that we will turn it around but.

Speaker Change: Yes, there's a lot of things under our control that we need to work hard on to bring back to increase the traffic numbers again.

Jose Antonio Fernandez Garza-Laguera: And I would add, Bob, this one. I mean, we've seen this in the past, right, where when slowdown kind of presents itself and then the consumer begins to shift from larger purchases, less frequent larger purchases in bigger boxes, they privilege, from a cash flow standpoint, going more frequently to the store that is close to them. And so, you know, there have been several instances in the past where OXO benefits, actually, from this change in habit when people say, well, I'm just going to go buy a smaller package that maybe on a per-unit, per-ounce basis is not the most economic way to do it, but it allows me to manage my cash flow better.

Bob: Bob This is Juan.

Speaker Change: I mean, we've seen this in the past right where.

Bob: When.

Bob: Slowdown.

Bob: Presents itself and then the consumer begins to shift from larger purchases less frequent larger purchases and bigger boxes.

Bob: The privilege from a cash flow standpoint, going more frequently to the store that is close to them. So.

Bob: There have been several instances in the past where OXXO benefit actually from this change in habits, when people say, well and youre going to go buy a smaller package that maybe on a per unit per ounce basis is not.

Bob: The most.

Bob: Economic way to do it but it allows me to manage my cash flow better.

Jose Antonio Fernandez Garza-Laguera: And then, of course, you bring in this. We mentioned how, again, this is something that happens every time. The CPGs and, of course, being so close to Coke FEMSA, we know how good they are at this, coming up with more returnables, bigger presentations. In many ways, the SKUs that are well-suited for the mom-and-pops are obviously SKUs that are well-suited for us as well. And you notice how the changes in the mix, and this doesn't happen by itself. We already work on it, that you increase. Sometimes you had abandoned returnability because the consumer was not buying returnables anymore, and then they start asking for them again, and you obviously make sure that you can accommodate that.

Bob: And then of course you bring in this we mentioned how again this is something that happens every time the cpg's I'm of course being so close to Coke FEMSA, we know how good they are at this.

Bob: Coming up with more returnable as bigger presentations in many ways. The skus that are well suited for the mom and Pops are obviously skews that are well suited for us as well.

Bob: And you notice how the changes in the mix and it doesn't happen by itself. We obviously work on it that you increase and sometimes you have abandoned return ability because the consumer was not buying returnable anymore and then they start asking for them again and you are going to make sure that you can accommodate that.

Jose Antonio Fernandez Garza-Laguera: So I think that's another component of the confidence, which is there's really nothing unique to what we're seeing right now in terms of, you look at a 20-year series, we've obviously been in these types of situations before, and also is usually quite defensive and quite resilient. You start seeing, we've talked a little bit about this, things like spirits, the suppliers coming up with a special, small, 200-mil bottle, basically for Roxxon, right? And so you work within these partnerships, and it ends up being, in some cases, I mean, certainly neutral, if not even beneficial in some ways.

Bob: So I think that's another component of the confidence which is.

Bob: There is really nothing unique to what we're seeing right now in terms of if you look at our 2020 year series, we've only been in these types of situations before.

Speaker Change: OXXO is usually quite defensive in quite resilient.

Bob: You start seeing we've talked a little bit about this.

Speaker Change: Things like spirits.

Bob: The suppliers coming up with a special small 200.

Bob: Bottle basically for OXXO right and so you work with these partnerships.

Bob: And it ends up being in some cases, I mean, clearly neutral if not even beneficiary in some cases.

Bob: Okay.

Jose Antonio Fernandez Garza-Laguera: The question was about ITSA and I should have said PEMSA Health Mexico and I think you misunderstood me, but it was about ITSA. for PEMSA Health Mexico, where the same store sales number was down 11 1⁄2. Ah, ok. Thank you. Bye. The PEMSA Health Mexico business, which is down 11 and a half on the same survey. PEMSA Salud. I'm sorry. Disculpa. Sorry, we didn't get it. Well, now we gave you another five minutes of PEMSA sales, which I'm sure everybody appreciates. So, I would just say our Health Mexico operation is on a full turnaround mode.

Bob: So the question was about the side I Should've said FEMSA helped Mexico and I think you misunderstood me, but it was about <unk>.

Bob: For FEMSA help in Mexico, where the same store sales number was down $11 five.

Bob: Okay.

Bob: Linda.

Speaker Change: The firm to help Mexico business, which is down $11 five on a same time available.

Laurie: Laurie yes.

Speaker Change: Sorry, we didn't get that we.

Laurie: Gave you another.

Laurie: Alright.

Laurie: Which I'm sure everybody appreciates.

Laurie: I would just say.

Laurie: Health.

Speaker Change: Our health Mexico operation is on a full turnaround mode.

Jose Antonio Fernandez Garza-Laguera: We had a business model that was... FedOp towards a cost structure that was sustainable when before the labor cost did not rise as dramatically and when the cost of labor started to expand. The first few 20% increases in minimum wage did not hit any of our businesses because we were paying way above that, even for lower salaries. But started to hit us. And our health business in Mexico did not have the enough scale to have a very aggressive price to compete with the value players and had a cost structure that became too onerous. And so we are transforming the business model into a more mainstream and premium type of store format that is giving us good results.

Laurie: <unk> had a business model that with.

Speaker Change: Set up.

Speaker Change: So it's a cost structure that was.

Speaker Change: Sustainable when we win before the cost of the labor cost.

Speaker Change: Did not rise dramatically and when the cost of labor started to expand the first few 20% increases in minimum wage did not hit any of our businesses because we were.

Speaker Change: Paying way above that.

Speaker Change: Even though our lower salaries, what eventually up to five.

Speaker Change: Year or more of 20% that minimum wage increases it started to Quito and our health business in Mexico with did not cut the.

Speaker Change: They'll be enough scale to have a very aggressive.

Speaker Change: Price to compete with the value players.

Speaker Change: Got a cost structure that became two on or off and so we are transforming the business modeling.

Speaker Change: A more mainstream.

Speaker Change: Premium type of store format that lead to the gate gain giving us good results, but some of them many of our old legacy stores.

Jose Antonio Fernandez Garza-Laguera: But many of our old legacy stores are just not profitable and we're doing a whole restructuring of that. And the good thing is that we've been able to do that successfully in Chile, in Ecuador, and Colombia. We have a store layout, which is a very good premium store layout. And we have the Sanasana, which is our value store format. And both businesses are growing dramatically. We have a similar model in Chile and in Colombia. growing dramatically with all these changes in the regulatory framework, Colombia has huge opportunities for growth in health. I'm going to be talking about rethinking and re-founding the whole business model.

Speaker Change: Just not profitable.

Speaker Change: We're doing a whole restructuring of that time.

Speaker Change: The good thing is that we've been able to do that successfully in Chile, and Ecuador, and Colombia, we have a very strong business model, where we have premium stores. If you go to it.

Speaker Change: Why don't we have the pubic a store.

Speaker Change: <unk>, which is.

Speaker Change: Very good premium store layout, and we have the the Amazon out which is our value store format and both businesses are growing dramatically we have a similar model in Chile and in Colombia.

Speaker Change: Growing dramatically with all these changes in the regulatory framework.

Speaker Change: Colombia has a huge opportunity for growth.

Speaker Change: In health so in Mexico.

Speaker Change: Rethinking and re founding that whole business model.

Jose Antonio Fernandez Garza-Laguera: If you think about it, there's huge opportunities for that business to re-found itself on a more omni-channel strategy to take advantage of the OXO platform to deliver some of that OTC and even prescription drugs through a store network. You will see a lot of initiatives of how we found that business model, but it's going to take us a few months, even a couple of years, to turn that business around. I think I would remind everyone how that operation really came to be in terms of the three very regional acquisitions where we bought three small, good brand locally operations and the effort to turn that into a national platform has been an uphill battle.

Speaker Change: If you think about it there is huge opportunity for that business to rebound itself on a more omnichannel strategy to think.

Speaker Change: Take advantage of the OXXO platform to deliver some of some.

Speaker Change: Some of that.

Speaker Change: OTC uneven prescription.

Speaker Change: Drugs through our store network. So you will see a lot of initiatives of how we found that business model, but it's going to take us out.

Speaker Change: Yeah.

Speaker Change: A few months, even a couple of years to turn that business around.

Speaker Change: I think I would remind everyone I mean.

Speaker Change: Got operation really tend to be in terms of the three are very regional acquisitions, where we bought three small.

Speaker Change: Good brand locally operations and the effort to turn that into a national platform.

Speaker Change: Has it been an uphill battle and so it's always been a function of scale.

Jose Antonio Fernandez Garza-Laguera: It's always been a function of scale, I think, and as Jose was saying, the two-banner strategy that has served us well elsewhere is something that we're testing now in Mexico. But really, thinking a little bit outside the box in terms of how to compete in an industry where there are two or three big incumbents that we haven't quite been able to catch up Thank you so much.

Speaker Change: Thank you.

Speaker Change: At wholesale were saying.

Speaker Change: The the two banners strategy that has served us well elsewhere.

Speaker Change: It's something that obviously, we're testing now in Mexico.

Speaker Change: But really.

Speaker Change: Thinking thinking on it.

Speaker Change: The box in terms of how to compete in an industry where there are.

Speaker Change: Two or three big incumbents that we haven't quite been able to catch up to.

Speaker Change: Thank you so much.

Speaker Change: We will take our next question from Ricardo Alves Morgan Stanley. Your line is open. Please go ahead.

Ricardo Alves: We will take our next question from Ricardo Alves, Morgan Stanley, your line is open, please go ahead. Hola, Ricardo. Hello, everyone. Thanks for the call. I hope you can hear me. Thanks for the opportunity as well.

Speaker Change: Carlo.

Speaker Change: Hello, everyone. Thanks for the call I Hope you can hear me and thanks for the opportunity as well.

Ricardo Alves: I have a couple of follow-ups in Mexico also, but then in the US and Brazil as well. In Mexico, I think that the call on competition in one of the first questions was really helpful, so thanks for that. But I wanted to explore a little bit more the cannibalization, so competition with yourself, if you will. It's been really impressive, the pace of growth of your We have been highlighting that for a while, but I wanted to understand specifically from you why this major expansion has not been detrimental to your same-store sales. I don't know if perhaps you can share some metrics that you use to evaluate each OXO that you're opening, the betting ratios that we've talked about in the past, maybe metrics that you use to assess the best spots to open new stores.

Speaker Change: I have a couple of follow ups.

Speaker Change: Mexico, OXXO, but then in the U S.

Speaker Change: And Brazil as well in Mexico, I think that the color on competition and one of the first question was really helpful. So thanks for that but I wanted to explore a little bit more the cannibalization so competition with yourself if you will.

Speaker Change: It's been really impressive the pace of growth of your stores, we have been highlighting that for a while.

But I wanted to understand specifically from you.

Speaker Change: Why is this major expansion.

Speaker Change: It has not been detrimental to your same store sales I don't know if perhaps you can share some.

Speaker Change: Metrics that you use to evaluate each oxford that youre opening the batting ratios that we've talked in the past maybe.

Speaker Change: It may be.

Speaker Change: The metrics that you use to assess the best spots to open new stores.

Jose Antonio Fernandez Garza-Laguera: I think that hearing from you why or where comes your conviction that there hasn't been a lot of cannibalization would be very helpful for the growth outlook in terms of new store openings in Mexico.

Speaker Change: I think that hearing from you why or where comes yoyo conviction that there hasnt been a lot of cannibalization.

Speaker Change: Would be very helpful.

Speaker Change: For for.

Speaker Change: The growth outlook.

Speaker Change: In terms of new store openings in Mexico.

Jose Antonio Fernandez Garza-Laguera: In the US, very quickly, just a quick update on the expansion as we think about the inorganic side. I know you're limited in what you're able to comment, but qualitatively speaking, how key the inorganic part will be for your US expansion. As it pertains to your organic expansion, I am very curious to hear any updates on the prepared food side. If there are any at this point, any updates in terms of targets that you have for prepared food as a percentage of your total versus what you achieve in other regions like Mexico, and how could that be equated to your margin?

Speaker Change: U S.

Speaker Change: Very quickly just.

Speaker Change: Just a quick update on the on the expansion.

Speaker Change: Should we think about the inorganic side. If there was anything I know you're limited into what you youre able to comment, but qualitatively speaking, how how youre thinking about the inorganic part of how.

Speaker Change: Our key the inorganic part.

Speaker Change: We will be for your U S expansion.

Speaker Change: And then as it pertains to your organic expansion I am very curious to hear any updates on the prepared foods side. If there is any at this point any any updates in terms of.

Speaker Change: I guess that you have for prepared foods as a percentage of your total versus what you achieved in other regions like Mexico.

Speaker Change: And how could that be accretive to your margin I think that this is the most interesting part of the ramp up that youre doing.

Jose Antonio Fernandez Garza-Laguera: I think that this is the most interesting part of the ramp-up that you're doing in the US outside of the conversion into OXO stores, which you already mentioned.

Speaker Change: In the U S outside of the conversion into OXXO stores, which you already mentioned.

Jose Antonio Fernandez Garza-Laguera: My last follow-up would be on the Brazil side. I appreciate the comments about the slower pace of openings in Brazil, which I think I understand, but I think that the pace of growth in terms of top line still surprises to the upside. So let's say if the shrinkage and employee turnover issues that you're facing, you resolve them before expected, how realistic would be for us to model FEMSA stepping up and speeding up the current growth scenario? Is there any bottleneck as it pertains to your partner in Brazil today that would make that impossible to execute or maybe the answer is not?

Speaker Change: And then my last follow up would be on the Brazil side I. Appreciate the comments about the slower pace of openings in Brazil, which I think I understand but.

Speaker Change: I think that the pace of growth in terms of top line is still surprised us to the upside.

Speaker Change: So, let's say if the shrink rate.

Speaker Change: <unk>.

Speaker Change: And employee turnover issues that you're facing you resolve them.

Speaker Change: Before I expected.

Speaker Change: How realistic would be for us to model.

Speaker Change: Samsung stepping up and speeding up the current growth scenario is there any bottleneck as it pertains to your partner in Brazil today that would make that.

Speaker Change: Impossible to execute or maybe the answer is not.

Jose Antonio Fernandez Garza-Laguera: So just assessing the possibility of speeding up Brazil, if these operational struggles are resolved.

Speaker Change: So just assessing the possibility of speeding up Brazil.

Speaker Change: These operational struggles are resolved.

Jose Antonio Fernandez Garza-Laguera: Thanks again. No, thank you. Very good questions. I will start with the last one to be quick, and I think we should spend more time on the cannibalization issue. But in Brazil, we are incredibly happy with the last few months in Brazil, not only on cannabis. cost controls, on turnover and shrinkage, but also on top line. We are incredibly happy with the momentum we're seeing and we want to, I mean, just in the last, if the year continues like that, we're very happy that it's going to turn out to be a great opportunity for us in Brazil.

Ian: Thanks Ian.

Ian: No. Thank you very good questions.

Ian: I will start with the.

Ian: Last time to be quick and I think we should spend more time on the cannibalization issue, but in Brazil are known we are incredibly happy with the.

Speaker Change: Q1 thing Murphy.

Speaker Change: Not only on cost controls on turnover.

Speaker Change: Shrinkage, but also on topline.

Speaker Change: We are incredibly happy with the momentum we're seeing.

Speaker Change: And we won.

Speaker Change:

Speaker Change: I mean, just in the last.

Speaker Change: If the year continues like that.

Speaker Change: We're very happy that it's going to turn out to be a great opportunity for us in Brazil, we need to.

Jose Antonio Fernandez Garza-Laguera: We like the rate of expansion around 20% to 25% of our base. That was the rate of expansion of OXO even at its highest number. So I think those are the numbers that you should expect going forward, about 20% to 25% of our store base. And I think Brazil... could certainly continue to grow that for the foreseeable future. So you should see from 100 to 120 to 140, et cetera, and eventually get to a level of growth that. similar to Mexico in a decade or. So, we're happy with Brazil and we would continue. And in terms with our partner, as you know, we are in a JV there.

Speaker Change: We like the rate of expansion around 20% to 25% of our base that was the rate of expansion of OXXO even at Hyatt.

Speaker Change: Number so I think those are the numbers that you should expect going forward about 20% to 25% of our store base.

Speaker Change: And I think Brazil.

Speaker Change: Could certainly continue to grow that for the foreseeable future.

Speaker Change: You would see from 100 to 120 to 140 et cetera.

Speaker Change: And eventually get to.

Speaker Change: What level of growth.

Speaker Change: Similar to Mexico.

Speaker Change: You bet.

Speaker Change: So we're happy with Brazil.

Speaker Change: Would continue.

Speaker Change: With our partner.

Speaker Change: As you know.

Speaker Change: We are.

Speaker Change: We are in a JV there we have a great partner there, but we wouldn't continue to invest heavily behind our Brazil.

Jose Antonio Fernandez Garza-Laguera: We have a great partner there, but we will continue to invest heavily behind our Brazil business. I mean, for any reasons or for any financial complications they do not follow through, we would come to an understanding.

Speaker Change: Business.

Speaker Change: If for any reasons or for any financial complications they do not flow through we would we would come to an understanding with them.

Jose Antonio Fernandez Garza-Laguera: of the U.S. It's too early to talk about the food issue. We're iterating a few formats. We are already launching the Andatis coffee brand and we're seeing incredible results. We are gonna try some stores with Doña Tota and we have a partnership with a pizza chain that... We are very excited to continue growing. It's a great opportunity for us to learn a category that we have not developed well in Mexico, and I think huge opportunity. And we are trying a few other things in terms of fried food, et cetera, but it's too early. We would love to achieve up to 10% of our revenues of in-store sales on food service, but it's too early to tell yet how that will turn out.

Speaker Change: On the U S.

Speaker Change: Sure.

Speaker Change: It's too early to talk about that.

Speaker Change: <unk> issue, where we're either rating a few formats, we are already launching beyond that.

Speaker Change: Coffee brand and we're seeing incredible results with we are going to try some stores. We don't have thought that and we are we have a partnership with a pizza.

Speaker Change: <unk>.

Speaker Change: We are very excited to continue growing its that its a great opportunity for us to learn a category that we have not developed well in Mexico, and making huge opportunity.

Speaker Change: And we're training a few other things.

Speaker Change: In terms of fried food et cetera, but it's too early.

Speaker Change: We would love to achieve up to 10% of our revenues of in store sales on foodservice, but it's too early.

Speaker Change: To tell yet how that will turn out we need more more months winery.

Jose Antonio Fernandez Garza-Laguera: We need more months to iterate.

Jose Antonio Fernandez Garza-Laguera: If you allow me, I think in the US question, there was also an issue about organic versus inorganic growth. Ah, yes. And I would just add on inorganic. We are obsessively focused. on getting the value proposition right. I think exactly the wrong way to do it is try to be M&A-driven without the value proposition right. I mean, you see what's happening in the U.S. You guys follow it probably more than I do. The players that are winning share are the super regionals. These Wawa, these Casey, these QuickTrips, those are the ones that are, and they're not obsessed with the big M&A process of getting the value proposition right and expanding organically.

Speaker Change: If you allow me I think in the U S question. There was also an issue about organic versus inorganic growth.

Speaker Change: I would just add on inorganic.

Speaker Change: We are authentically focused.

Speaker Change: On getting the value proposition right I think that exactly the wrong way to do is try to be M&A driven.

Speaker Change: The value proposition right I mean, you see what's happening in the U S. Following probably more than I do.

<unk>.

Speaker Change: Players that are winning share or the superregional is why it was the case.

Speaker Change: <unk> those are the ones that are under are not offset with big M&A process of getting the value proposition right and expanding organically. That's what we wanted to do.

Jose Antonio Fernandez Garza-Laguera: That's what we want to do. Obviously, we eventually would look for a good M&A opportunity if it comes in the regions that we think we could be a big consolidator, which is the Southwest and the Southeast, without California and without Florida. We've been very public on that. But the most important thing is for us to have the right value proposition. We're very happy with what we're seeing in terms of excitement around the OXO brand in West Texas, in Midland and Odessa, but it's too early to claim any type of victory or to expand. But our obsession would be organic growth with certain inorganic opportunities if they present.

Speaker Change: Obviously, we have annually.

Speaker Change: Look for a good M&A.

Speaker Change: Meaning if.

Speaker Change: If it comes.

Speaker Change: In the regions that we think we could we could.

B, a big consolidator, which is the southwest in the southeast we have.

Speaker Change: California without Florida, we've been very public on that.

Speaker Change: The most important thing for us too.

Speaker Change: Right value proposition, we're very happy with what we're seeing.

Speaker Change: In terms of excitement around the OXXO brand.

Speaker Change: Excess in Midland Odessa, but it's too early.

Speaker Change: To claim any type of big three or to expand both our obsession with the organic growth with certain.

Speaker Change: Yes.

Speaker Change: Inorganic opportunity six 8%.

Jose Antonio Fernandez Garza-Laguera: And then I would just on the cannibalization aspect. Look, I came into OXXO in 2018 and the first project I had to work on was a big cannibalization project because we were concerned, it was an electoral year, very similar to this one, 2018, right after the election, and there were a lot of concerns of traffic declines in the Piedras Negras, in Monclova, all these northern cities in Mexico. and they're still our highest return on invested capital. We never stopped opening. We're still opening stores today. And that's where we have a much more density. Source. There is cannibalization.

Speaker Change: And then just on the cannibalization.

Speaker Change: Aspect.

Speaker Change: Look I've seen into August in 2018, and the first projects I have to work on was a big cannibalization project, because we were concerned with.

Speaker Change: An electoral year very similar to the.

Speaker Change: 2018, right after the election.

Speaker Change: And there were a lot of concerns of traffic declines.

Speaker Change: In the period up negative thing more claw northern Cds in Mexico.

And they are still our highest return on invested capital third we never stopped opening we're still opening stores today.

Speaker Change: Where we have our <unk>.

Speaker Change: More and more density.

Speaker Change: There is cannibalization.

Jose Antonio Fernandez Garza-Laguera: We measure it last year of all of the 1,200 or more than 1,200 stores that we open About 600 of them had some type had some type of cannibalization effect around the stores in the vicinity Having said that, that is within the margin of, we feel okay with it. The return on investment capital is still way, way above what that gives us confidence that some level of cannibalization is tolerable. As we move more into also niche and also in control vicinity, we are seeing much less cannibalization and that's a huge opportunity for us to continue growing.

Speaker Change: We measure it last year of the 1200.

Speaker Change: More than 1200 stores that we open about.

Speaker Change: 600 of them cut some type.

Speaker Change: Some type of cannibalization effect around.

Speaker Change: <unk>, having said that that is within the margin of.

Speaker Change: We feel.

Speaker Change: Okay.

Speaker Change: The return on investment capital is still.

Speaker Change: Way way up all that gives us confident that some level of cannibalization.

Is tolerable.

Speaker Change: We move more into OXXO niche in OXXO in control, we see needed.

Speaker Change: <unk> being much less kind of utilization.

Speaker Change: That's a huge opportunity for us to continue growing we know.

Jose Antonio Fernandez Garza-Laguera: We love that format and we will continue to expand it. And I think that will limit a little bit of the. cannibalization impact. We are incentivizing our regions and our expansion to focus on stores that limit cannibalization as much as possible and that increase return on invested capital as much as possible. So, we prioritize quality over quantity, but with that, we still see an opportunity to grow above, I would say, above 1,000 stores per year for the foreseeable future. And I think that will continue. for at least several years.

Speaker Change: That format.

Speaker Change: And we will continue to expand it and I think that will need a little bit of that.

Speaker Change: Cannibalization impact.

Speaker Change: We are incentivizing our regions on our expansion to focus on.

Speaker Change: Stores that limit cannibalization as much as possible and that increased return on invested capital.

Speaker Change: Much as possible.

Speaker Change: So we.

Speaker Change: Prioritizing quality over quantity, but we that we still see an opportunity to grow above I would say.

Speaker Change: About 1000 stores per year for the foreseeable future and I think that will continue.

Speaker Change: Or at least set.

Speaker Change: Several years okay.

Speaker Change: I think there was also embedded in your question a broader question about foodservice in Mexico.

Jose Antonio Fernandez Garza-Laguera: I think there was also embedded in your question a broader question about food service. Mexico. and the reality is we have high expectations and high hopes for food service in Mexico. When you look at places like the U.S. where food is 20 to 25% in the leading players of sales, and you look at places like Japan, which over 50% of fresh food, there's definitely an enormous amount of room to grow for FEMSA. Now, Mexico's a different place. in a good and a bad way. And the bad way is it has significantly broader informal food offering.

Speaker Change: And.

Speaker Change: The reality is we have high expectations and high hopes for foodservice in Mexico. When you look at places like the U S, where food is 20% to 25% in the leading players of sales.

Speaker Change: This is like Japan, which over 50% of fresh food.

Speaker Change: There's an enormous amount of room to grow for FEMSA.

Speaker Change: Mexico is a different place.

Speaker Change: And the good and a bad way in a bad way as it has significantly broader informal food offering throughout Mexico. So.

Jose Antonio Fernandez Garza-Laguera: throughout Mexico. So, you know, the taco stand at every corner, the food carts and so on, all those are potential competitors. On the good side, you know, Mexicans have many meal occasions. with a breakfast, they have a famous mid-morning snack, they have lunch, then they have another mid-afternoon snack and then they have dinner. Each one of those eating occasions has a variety of breads, cookies, tortas. It really is a very wide variety of things. And so there are, we believe there's plenty of opportunity here. We definitely have to do better. We don't have a specific target.

Speaker Change: Taco stand at every corner.

Speaker Change: Food cards, and so on all of those are potential competitors on the good side Mexican have many meal occasions.

Speaker Change: Yes.

Speaker Change: Breakfast.

Speaker Change: The famous mid morning that they have lunch and then they have another mid afternoon snack and then they have dinner.

Speaker Change: Each one of those eating occasions as a variety of breads cookies.

Speaker Change: The thought of that.

Speaker Change: It really is a very wide variety of things and so there are we believe there is plenty of opportunity here, we definitely have to do better. We don't have a specific target. There is an ongoing debate about how many of the stores that we have where ultimately we have a food offerings.

Jose Antonio Fernandez Garza-Laguera: There is an ongoing debate about in how many of the stores that we have, or ultimately we have a food option. the General Consensus it's not going to be in all 24,000 stores. You know in the home occasion or the home segment of stores that are really meant to cover daily repositioning needs probably you won't have food but definitely you're going to have it in the downtown. high-traffic, office-related, or school-related, or near a hospital-related type store. So, that is still a work in progress and we don't have any clear targets to share with you.

And there is a general consensus it's not going to be in all 24000 stores.

Speaker Change: The home occasion, where the homes segment of stores that are really meant to cover daily repositioning need probably you won't have food, but definitely youre going to have it in the downtown.

Speaker Change: High traffic office related or school related or near a hospital related.

Speaker Change: Type storage.

Speaker Change: That is still a work in progress and we don't have any clear targets to share with you at the current time.

Martin: I would just add, Ricardo, that the analytical data that we've been exploring on cannibalization tells us that it's no more than 20%. 30 basic points of same-source sales. I mean, we want it to be as near a zero as possible, but within that range, we are okay with continuing to expand, given our high ROICs, our marginal high ROICs in our system. That was 20 to 30 beeps, right? Sorry. Yes. PPR. Got it.

Speaker Change: I would just add we got going on.

Speaker Change: The analytical data that we've been exploring on cannibalization down so that it's no more than 20 to.

Speaker Change: 30 basis points of same store sales.

So.

Speaker Change: Where.

Speaker Change: I mean, we want it to be at <unk> 41, we reported within that range. We are okay with <unk> continued to expand given our or our high ROIC, our marginal high ROIC in our stores.

Speaker Change: That was 20 to 30 bps right sorry, yes.

Speaker Change: Got it.

Juan Fonseca: Thanks. Thank you.

Speaker Change: Thank you. Thank you so much everybody. Thanks for answering all the questions and the questions within the question I appreciate that.

Juan Fonseca: Thank you so much, everybody. Thanks for answering all the questions and the questions within the questions. Appreciate that. Yeah. Now, you guys are doing three questions in one. We're being very generous here, but now keep it up. Apologies. Apologies, Juan. I don't know. Don't worry. That was... Tiago started at the very beginning setting the tone, so... That's okay.

Speaker Change: Guys are you guys doing.

Speaker Change: One we're being very generous here, but I'll keep it I apologize I apologize.

Speaker Change: Or do you have a card if you haven't started at the very beginning sitting on its own so.

Speaker Change: That's okay.

Speaker Change: We will take our next question from Alvaro Garcia of BTG. Your line is open. Please go ahead.

Alvaro Garcia: We will take our next question from Alvaro Garcia, BTG. Your line is open, please go ahead.

Yes.

Speaker Change: Hi, gentlemen.

Jose Antonio Fernandez Garza-Laguera: Gentlemen, thanks for I was wondering if you could give us more color on Oxonicho on what it is exactly and why you think it might have higher royalties. And then, too, a follow-up on the pilot in Puebla between SPIN and Juntos. Spend and Cough, what are some of the early learnings? What are the early challenges you're seeing and sort of really firing up that flywheel. Thank you.

Speaker Change: For.

Speaker Change: I was wondering if you could give us more color on OXXO neutral on what it is exactly.

Speaker Change: Why do you think it might have higher ROIC.

Speaker Change: Then to follow up on the pilot importantly between spin and kudos for spin and cough.

Speaker Change: What are some of the early learnings.

Speaker Change: But what are the early challenges you are seeing sort of really.

Speaker Change: Firing up that flywheel. Thank you.

Okay.

Jose Antonio Fernandez Garza-Laguera: Okay, so on the OXO-NITRO, I will give you more color. On average, an OXO-NITRO is, imagine we get a call from a factory, a big factory here in Monterrey, and they tell us, hey, you know, I have 2,000 workers here, and our cafeteria is not enough, and they are all, you know, they are from out of town. They want to do financial services. Can you go and put one on? I actually did one shift in the OXO in the Kia factory, and they have, that's a huge, and they already have over 2 OXOs in that Kia, in the Korean auto manufacturer there, and the way it works is usually they are asking us for us to come in, so rents tend to be.

Speaker Change: <unk>.

Speaker Change: On the OXXO neutral.

Speaker Change: To give you more color on average in OXXO neutral.

Speaker Change: We got a call from a factory a big factory here in Monterrey.

Speaker Change: And they tell us Hey, I have 2000 workers here.

Speaker Change: Our cafeteria at an on and off on their own D&O Dara from out of town and they wanted to financial services can you go on.

Speaker Change: I actually did one one shifting the OXXO in.

Speaker Change: In in the key.

Speaker Change: Factory and they have that's acute and they already have over to Oxford <unk>.

Speaker Change: Brian.

Auto auto manufacturer there.

Speaker Change: And the way. It works is usually they are asking for us to come in so rents tend to be.

Speaker Change: Sometimes it's negative.

Speaker Change: And then.

Speaker Change: They tend to pay our electricity bills.

Speaker Change: And so you can imagine and then most of the installation and the cost of the Capex requirement is already there.

Jose Antonio Fernandez Garza-Laguera: And so you can imagine, and then most of the installation and the cost of the CAPEX requirement is already there. So it's very friendly economics. They tend to mature very quickly because it's already a controlled environment. People know the store. and they love it. I mean, they see the workers need a benefit. Obviously there's some SKU control so that works in it against it. So they tend to sell less, they would usually. usually do not sell alcohol. Some of them do not allow bubble gum or stuff like that. There are some SKU controls. There are some hour shifts.

Speaker Change: No.

Speaker Change: It is very friendly economics, they tend to mature very quickly because it's already a controlled environment people know the story.

Speaker Change: And they love it I mean.

Speaker Change: Workers need a benefit.

Speaker Change: Obviously, theres some Mexico you control that.

Speaker Change: That works against it so they tend to sell less.

Speaker Change: Usually do not sell alcohol some of them will not allow baldwin volume or or stuff like that they're from SBU controls there from our ships, but given even taking all that into consideration they sell it.

Jose Antonio Fernandez Garza-Laguera: But even taking all that into consideration, they sell it, but their investment cost is much less. And so they tend to create value expansion because people that were usually not getting a snack get an extra snack for the day, get their whatever other products. So that's an oxo-nitro and they have been phenomenal for us. And obviously we have the network effect that most people want to have an oxo there because it allows them to connect to financial services and send money to their home. So we tend to have a much higher market share in oxo-nitro concepts than what we have in the street.

Speaker Change: Our cost.

Speaker Change: The investment cost is much less.

Speaker Change: And so they tend to create.

Speaker Change: Value expand.

Speaker Change: Pension because before that.

Speaker Change: Usually not getting us not get an extra snack for the day.

Speaker Change: Get there whatever or their product so that's in OXXO neutral.

Speaker Change: There have been phenomenal for us.

Speaker Change: And obviously, we have the network effect that most people want to have on OXXO there because it allows them to connect with financial services and send money to their home. So we tend to have a much higher market share.

Speaker Change: In Auckland It shows a mutual concept and what we have.

Speaker Change: In the street.

Speaker Change: That's in.

Jose Antonio Fernandez Garza-Laguera: There's more types of oxo. There's in universities. Building. There's the Ops Smart. What I would say on average, that's the...

Speaker Change: Theres more type of OXXO theyre seeing universities.

Speaker Change: In buildings, the OXXO smart, but I will tell you on average that's that's the gist of it.

Speaker Change: On your second question.

Jose Antonio Fernandez Garza-Laguera: on your second question. on your second question with regards to the earnings on. one in no particular order of priority. The relationship of the mom and pop with the sales force of Corvo La Femsa. That doesn't mean they have to participate in the execution of the actual sale and implementation of the platform. the relationship with a simple introduction by the sales force of Coca-Cola. is very valuable to getting your foot in the door with them. Number two, premium points do seem to be a differentiating factor relative to other payment platforms that don't have the same thing.

Speaker Change: On your second question with regards to the earnings on spin.

Speaker Change: One.

Speaker Change: No particular order of priority the relationship of the mom and pop with the sales force of quarter Rolla FEMSA is extremely valuable and that doesn't mean they have to participate in the execution of the actual sale and implementation of the platform with the relationship with them.

Speaker Change: <unk> by the sales force of Coca Cola FEMSA is very valuable to getting your foot in the door with a mom and pop.

Speaker Change: Two premier points do seem to be a distribution rate.

Initiating factor.

Speaker Change: Relative to other payment platforms that don't have the same thing.

Jose Antonio Fernandez Garza-Laguera: And we are noticing in the stores, people sometimes have two to three terminals, so they don't, they don't, they haven't yet committed to any one terminal. So they will have a Mercado Libre terminal, and they will have. their product and they'll have a third one and they will pick and choose which terminal they use depending on the value proposition. So you need to have a value proposition. basically can compete in all the different elements with all the different platforms. Next thing we've learned is points of sale, mother and pop's value to cash. They are a CFO's dream in how they understand their cash flow needs and managing their cash cycle.

Speaker Change: And we are noticing in the stores people, sometimes have two to three terminals. So they don't they don't they haven't yet committed to any one terminal. So they will have in Macau will leave at a terminal and they will have the sense of their product and they will have a third one and they will pick and choose which terminal to use depending on the.

Speaker Change: <unk> proposition, so you need to have a value proposition, which basically can compete in all the different elements with all the different platforms.

Speaker Change: Next thing we've learned is.

Speaker Change: Points of sale mom and pop's values of the cash flow.

Speaker Change: Our CFO dream and how they understand their cash flow needs and managing their cash cycle. It really is a spectacular to see and for example, you need to move to crediting balances.

Jose Antonio Fernandez Garza-Laguera: It really is spectacular to see. And for example, you need to move to crediting balances almost immediately for them, as opposed to doing it once a day or doing it twice a day. If you're not doing that for them, you will not be able to maintain competitiveness over time. So a lot of these smaller fintechs whose model was based on a float for two, three days, and the money was coming in, that's not going to work. And that's not Um There is definitely kinks to work out in terms of how you allow that mom-and-pop to use the cash flow for buying points and for crediting the payment of bills that they receive.

Speaker Change: Almost immediately for them.

Speaker Change: As opposed to doing it once a day or doing it twice a day if youre not doing that for then you will not be able to maintain competitiveness over time. So a lot of these smaller and texts that whose model was based on a float for two to three days of the month.

Speaker Change: And that's not going to work and that's not going to cut it.

Speaker Change: The.

Speaker Change: There is definitely Kinks to work out in terms of how you allow that mom and pop to use the cash flow for pain points and four crediting.

On crediting the payment of bills that they receive.

Jose Antonio Fernandez Garza-Laguera: That's a bottleneck that needs to be worked out and nobody's really figured it out.

Speaker Change: The bottleneck that needs to be worked out and nobody has really figured it out and finally training the mom and pop owner is fundamental you can just see the difference between a mom and pop.

Jose Antonio Fernandez Garza-Laguera: And finally, training the mom-and-pop owner is fundamental. You can just see the difference. between a mom and pop where the owner of the store understands the value that this brings to them and how they engage with the consumer to remind the consumer that they give points. They remind the consumer to consume points. And there was one lady in particular that I met who was just amazing at how she did. She has a balance of the points that she receives and the points that she gives out. She's not buying any points. She's net zero because she manages constantly the points that she receives versus then making sure she uses those points to generate revenue for herself.

Speaker Change: We're dealing with the store understands the value that this brings to them.

Speaker Change: And.

Speaker Change: And how they engage with the consumer to remind the consumer that they have the good points, they remind the consumer to consumer points.

Speaker Change: It was $1 80 in particular that I've met who is just amazing at how she did she has a balance of the points that she receives in the points that she gives out. So she is not buying any point. She is net net.

Speaker Change: Zero because she manages constantly the points that you received versus and making sure. She uses those points to generate revenue for <unk>.

Speaker Change: Our store so those are the learnings were.

Jose Antonio Fernandez Garza-Laguera: So, those are the learnings we're having, and we purposely kept the experiment in one city and relatively small so that we learn all those things before we do massive rollouts in either any city or in any region. Thanks for the call.

Speaker Change: We're having and we purposely kept the experiment in one city and relatively small so that we learn all of those things before we do massive rollout.

Speaker Change: And are there any city or in any region.

Speaker Change: Awesome, Thanks for the color.

Speaker Change: Thank you everyone.

Speaker Change: We will take our next question from Hector Maya Scotia Bank. Your line is open. Please go ahead.

Hector Myer: We will take our next question from Hector Myer, Scotiabank. Your line is open. Please go ahead. Thank you very much, José Antonio and Martín Juan, for taking my questions.

Speaker Change: Thank you very much a question on your marketing plan for taking my questions. Just if you could please expand on the initiatives for more affordable rents at OXXO.

Jose Antonio Fernandez Garza-Laguera: Just if you could please expand on the initiative for more affordable brands at OXO, just to understand the potential extent of the push for value brands and affordability, and to know if this could eventually translate into a longer-term strategy, maybe also focusing more on private label, or if this is more strategic and short-term, and more focused on the size of product presentations due to their current market. Great. So I would say, obviously, private label would play a part in certain, especially in our groceries, with our aceite. at www.FomentoEconomico.com. now for this month, we're not seeing a big shift, again, from their premium brands to their local brands or the value brands, and we're trying to privilege that.

Speaker Change: Just to understand the potential extent of the push for value brands and affordability.

Speaker Change: None of this could eventually translating to a longer term strategy, maybe also focusing more on private label Alright. This.

Speaker Change: This is more strategic in short term and we're focused on the SaaS product presentations to Japan.

Speaker Change: Great.

Speaker Change: So I would say, obviously private label would play a part.

Speaker Change: In certain.

Speaker Change: Especially in our groceries with R. R.

Speaker Change: Jim.

Speaker Change: Our cooking oil plus we.

Speaker Change: We have our beats snacking and those will play a part but I would say the biggest contributors are things we're working on with our major suppliers in hey, let's launch either a value brand together.

Speaker Change: We're doing it with the lack of with quite impressive result.

Speaker Change: Now for for this month, they're not we're not seeing a big shift again from from a from their premium brands to their local brands or the value rent and we're trying to privilege that they'd have to be marginal expansion in traffic.

Jose Antonio Fernandez Garza-Laguera: They have to be marginal expansion in traffic and gross margin, even if it's a smaller gross margin, that it helps us with incremental revenue. And then for beer and soft drinks, we are doing two types of strategies. One is coming back to returnable packaging. Returnable packaging is a complex operation for us in the convenience store. It's messy, it saturates our warehouse, but we know how to do it and we know how to do it well. And we're going back to that with our soft drink partners and with our beer partners. And that's going to play a.

Speaker Change: On gross margin, even if it's on a smaller gross margin that is helpful.

Speaker Change: With incremental revenue.

Speaker Change: And then for beer and soft drinks. We are doing are two types of strategies one is.

Speaker Change: Coming back to returnable packaging.

Speaker Change: Yes.

Speaker Change: Returnable packaging is a complex operation for us in the convenience store.

Matt: It's Matt.

Matt: Tax rates, our warehouse, but we know how to do it and we know how to do it well.

Matt: We're going back to that with our suffering partners and with our beer partners.

Matt: That's going to play out.

Matt: <unk>.

Jose Antonio Fernandez Garza-Laguera: a major plan. Then I would say we are doing some things with Andati, our coffee offering, some promotions on Andati, and get some extra, a small piece of bread or a small snack or something when you buy two coffees and things, and we're seeing good opportunities there and we're rolling out more promotions there. What I would say, those are the main ones. Juan mentioned the mini spirit bottles that we launched back actually in 2018, and we're launching them again. I mean, they've been already there, but we're launching new flavors, new variety, and they tend to work very, very well.

Matt: A major plant then.

Matt: Yes.

Matt: I would say we are doing some things with them that the our coffee offerings from some promotions on that.

Matt: <unk>.

Matt: Get some extra.

Matt: A smaller piece of a brand or a small snack or something when you buy two coffees and things.

Matt: Good.

Matt: Good opportunity there and we're rolling out more promotions there.

Matt: What I would say those are the main main one plant.

Matt: <unk> mentioned, the many spirit bottles that we launched back in 2018, we're launching them again.

Matt: I mean, they've been already there, but we're launching new new flavors new variety.

Matt: Tend to work very very well.

Jose Antonio Fernandez Garza-Laguera: We're also doing some cookie assortments next on the value and all of those things will help us. I would say. We have an opportunity to expand on grocery. Juan mentioned we tend to become a very interesting point of interest for the value-conscious consumer that values smaller packages, more frequent visits to the store with the cash on hand. And we want to remind everyone that we are a great player for those básicos del ahorro promotions that we executed in the past with a lot of success that I think we need to showcase again. So all those things are being launched as we speak and we'll get some results.

Matt: We're also doing some cookie assortment in some snacks on the value.

Matt: And all of those things we help us.

Matt: I would say.

Matt: We have an opportunity to expand on grocery.

Speaker Change: Our quantum mentioned.

Speaker Change: Tend to become a very interesting point of.

Speaker Change: Of.

Speaker Change: Interest for the value conscious consumer that.

Speaker Change: <unk>.

Speaker Change: A smaller packages.

Speaker Change: More frequent visits to the store with cash on hand, and we want to remind everyone that.

Speaker Change: That we are a great player for the.

Speaker Change: Those particles in our row promotions that we executed in the past with a lot of success that I think we need to showcase again, so all of those things.

Speaker Change: Our being launched as we speak.

Speaker Change: You'll get some results.

Speaker Change: Got it. Thank you and also quickly with USC in the U S.

Jose Antonio Fernandez Garza-Laguera: Thank you.

Jose Antonio Fernandez Garza-Laguera: And also quickly, with what you are seeing in the U.S. and your view on adapting the value proposition, how much time do you think it could take you to say, okay, we got it right now. We are ready to push for much stronger organic growth with the right assortment of prepared food. So could we consider that this could happen maybe in the next two years or should it be more like five years from now? Yes, I was going to tell you I'm not ready to give you an update, but I think within the next two years we should be able to have a winning value proposition given what we are seeing in the momentum in West Texas with OXO, given that we get a lot of feedback from the consumer of what they want.

Speaker Change: You and adapting your value proposition how much time do you think you can think you can say, okay. We got it right now and we're ready to push for much stronger organic growth.

Speaker Change: Sure.

Speaker Change: Okay can we consider that this could happen maybe in the next two years or should it be more or less five years from now.

Speaker Change: And I think that I wouldn't want to tell you I'm not ready to give you an update but I think within the next two years, we should be able to have a winning value proposition given what we are seeing in the momentum.

Speaker Change: In West, Texas, we OXXO given that we get a lot of feedback from from the consumer what they want what I do think we need to be not only better than the rest, but also unique and unique means it's a tough thing to mail.

Jose Antonio Fernandez Garza-Laguera: What I do think we need to be not only better than the rest, but also unique. And unique means it's a tough thing to nail. There's very good players out there, but I think it's very easy to go to their stores, learn what's working, and copy that. What's going to really make us win is something that... only OXO can deliver and that really drives traffic away from the main big players and from the big regionals that I know. Thank you very much.

Speaker Change: <unk>.

Speaker Change: Theres very good players out there.

Speaker Change: But I think there is very it's very easy to go to their stores learned what's working and copy that what it's going to really make us we need something that oh.

Speaker Change: Only OXXO can deliver and that really drives traffic away from from the main bring big players and from the Big Regionals that I mentioned.

Speaker Change: Yeah.

Speaker Change: Okay, great. Thank you very much thank you.

Speaker Change: We will take our next question from <unk> <unk> Santander.

Ulysses Arcote: We will take our next question from Ulysses Arcote, Santander, your line is open, please go ahead. Thank you very much. Hi, Jose Martin Juan. Thanks for the added insights as always. That's very appreciated.

Speaker Change: Santander. Your line is open. Please go ahead.

Speaker Change: Thanks, very much hi Cosmos.

Speaker Change: Thanks, Thanks for the added insight.

Speaker Change: That's very appreciate it just wanted to see if you could provide some more color into the rebranding viral decay talk so in the U S. I know its sights Super Super early and you've made some comments on this but any meetings or maybe any expectations into sales and profitability profitability sorry lift on the rebranding.

Jose Antonio Fernandez Garza-Laguera: I just wanted to see if you could provide some more color into the rebranding there of DK2OXO in the U.S. I know it's super, super early and Jose you've made some comments already on this, but any readings or maybe any expectations into sales and profitability, sorry, lift on the rebranding and the fine-tuning of offerings you're doing there on the value proposition? And also, is there any timeline you guys are targeting and maybe should we expect to see a 100% rebranding of the stores or what's the strategy there? Thank you so much. So, it's too soon to tell, they've been surprising us on the upside that the increasing sales and traffic has been significant, I would say even in the double digit for the first store.

Speaker Change: And the fine tuning of offerings Youre doing there on the on the value proposition and also is there any timeline you guys are targeting and maybe should we expect to see a 100% of rebranding of the source or whats the strategy. There. Thank you so much.

Speaker Change: So.

Speaker Change: It's too soon to tell.

Speaker Change: They have been for pricing on the op side.

Speaker Change: The increasing sales and traffic has been significant I would say even in the double digits for the first store, we just re granted another 14.

Jose Antonio Fernandez Garza-Laguera: We just rebranded another 14, so we're seeing very similar increases. There's probably a honeymoon phase and they should stabilize. So again, it's too soon to tell. But yeah, eventually we would convert. It's not all the stores, 99%. I mean, maybe there's a couple of them that are. are either on the issue of probably closing. And we're also going to open a few stores. We're planning to open a few stores even this year to try out. But again, it's below 10, and we're just going to see how the momentum of it works. And we're trying different concepts.

Speaker Change: So.

Speaker Change: We are seeing very similar increases.

Speaker Change: There's probably a honeymoon phase and they we should start to stabilize again too soon to tell but yes, eventually we would convert.

Speaker Change: If not all of the historic 99% I mean, maybe there is a couple of them that are alright.

Speaker Change: Alright, either.

Speaker Change: On the issue of probably closing and we're also going to.

Speaker Change: Open up new stores, we're planning to open a few stores, even this year to try out but again.

It's on the.

Speaker Change: Below 10.

Speaker Change: We're just going to see how.

Speaker Change: The momentum of it work and we're trying different concepts, we're doing one store more geared towards grocery and.

Jose Antonio Fernandez Garza-Laguera: We're doing one store more geared towards grocery and a blend of a dollar store with a convenience store. We're doing one much more geared towards coffee offerings. We're willing to take those experiments because we really want to learn what works and what we can roll out nationally. So we're going to take our time, but so far we're very happy with it. with the OXO brand in West Texas. It's been a very happy surprise and we see a lot of... Excitement for the brand in the region. Perfect. That's great to hear. Thank you very much.

Speaker Change: Like a blend of a dollar store with a convenient stores were doing one much more geared towards coffee offering.

Speaker Change: Willing to take those experiments because we really want to learn what works.

Speaker Change: What we can rollout nationally so we're going to take our time.

Speaker Change: But so far we're very happy with.

Speaker Change: Within the OXXO brand in West, Texas, It's been a very capital price and we see a lot of.

Speaker Change: Excitement for the brand in the region.

Speaker Change: Perfect. Thank.

Speaker Change: Thank you very much.

Speaker Change: We will take our next question from Froylan Mendez Jpmorgan. Your line is open. Please go ahead.

Fraulein Mendez: We will take our next question from Fraulein Mendez, JP Morgan. Your line is open. Please go ahead. Hello guys. Thank you very much for taking my question.

Speaker Change: Hello, guys. Thank you very much for.

Speaker Change: Thank you very much for taking my question.

Jose Antonio Fernandez Garza-Laguera: I want to dig a little bit more into BARA. Given the opening of the new distribution center, should we expect the pace of openings to accelerate in coming years, even this or the next? And what is the long-term store size that you see for this format? And also in the same route, what was your intake on how the format performed during this quarter specifically? What you saw losing in OXXO? Was it something that was captured by the BARA format? What was your take on the downtrade that we're seeing in Mexico? Thank you guys. So Bara keeps doing great.

Speaker Change: Want to dig a little bit more into <unk>, given the opening of the new distribution center should we expect a piece of openings to accelerate in coming years in coming years, even this or the next and what is the long term.

Speaker Change: Store size that you see for this format and also in the same in the same in the same route.

Speaker Change: Your take on how the format performed during this quarter specifically, what you saw a loosening in OXXO was this something that was <unk>.

Speaker Change: <unk> by the Nevada format, what was your take on the downturn that we're seeing in Mexico. Thank you guys.

Speaker Change: So, but our eclipse keeps.

Speaker Change: Doing great we did see.

Jose Antonio Fernandez Garza-Laguera: We did see a slower momentum from the fourth quarter of last year where we were growing. high on the PIMS, on the think-store sales basis, and we saw single store, single growth, or single digits. But still, Bada is doing incredibly well. The stores are, the new stores are performing even better, and we see a huge opportunity ahead. Yes, we wanna accelerate the... The expansion, the reason we are not expanding as fast as we want is because we are working hard internally on decoupling from oxo, it's a. The concept is still on the same LLC or equivalent of OXO, the same system, so we're changing all that and that's taking us some time to do that, but we are using, basically we're having to invest in a big set of teams to have the new BARA.

Speaker Change: Slower.

Speaker Change: Momentum from the fourth quarter of last year, where we were growing.

Speaker Change: Hi on the teens.

Speaker Change: On a same store sales basis.

Speaker Change: And we saw singles.

Speaker Change: A single store.

Speaker Change: Single growth or single digits.

Speaker Change: But still.

Speaker Change: But he's doing incredibly well the stores, our new stores are performing even better.

Speaker Change: We see a huge opportunity ahead, yet we want to accelerate.

Speaker Change: The expansion. The reason we are not expanding as fast as we won it.

Speaker Change: We are working hard internally on decoupling from OXXO.

Speaker Change: It's a concept that's still on the same.

Speaker Change: On the same LLC or equivalent.

Speaker Change: Of OXXO the vein systems.

Speaker Change: We're changing all that.

Speaker Change: And that's taking off.

Speaker Change: Some time to do that.

Speaker Change: We are.

Speaker Change: Using basically we're having to invest in.

Speaker Change: Big set of teams to cover that.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: Eight.

Jose Antonio Fernandez Garza-Laguera: in place and that will allow us to basically double our rate of expansion from 230 that we're planning for this year to more than double that in the next couple of years. We do think there's room for many thousands of VATAs. I wouldn't give you a number, a precise number, but there's going to be thousands of Vadas in Mexico and that segment is gaining a lot of momentum and there's a lot of people that are understanding the great value that the discount stores bring. Next slide, please. Our stores keep getting better and better and performing better and better.

Speaker Change: In place and that will allow us to basically double our R. R. R right.

Speaker Change: Great of expansion.

Speaker Change: From 230 that were planning for this year to more than double that in the next couple of years.

Speaker Change: We do think there is there is room for for many thousands of barrels.

Speaker Change: Good.

Speaker Change: I wouldn't give you a number per.

Speaker Change: A precise number but theres going to be thousands of products in Mexico.

Speaker Change: That segment is getting gaining a lot of momentum and there's a lot of people that are understanding the great value that the discount store spring.

Speaker Change: We have a.

Speaker Change: A huge opportunity because we know.

Speaker Change: What works basically.

Speaker Change: We've done a lot of outsourcing in regions, where BARDA would have been successful and we're learning a lot how the bar concept can bring.

Speaker Change: A lot of a lot of volume in those those neighborhoods. So we're very excited from what we're seeing and we're just getting.

Speaker Change: Our stores to keep getting better and better and performing better and better so yeah. The sky's the limit.

Jose Antonio Fernandez Garza-Laguera: Yeah, the sky's the limit. And I would add, Roy, on the Barra side. I mean, we talked a little bit about private label and how, you know, the mix of private label at buy is still lower than we would like. We're probably somewhere in the 20s, 30s, approaching 30s and some of our competitors are higher than that. What we're seeing is We're having some really good conversations with potential partners on the private label side, large corporations from different parts of the world that look at the opportunity for Barra and say, I'm happy to accompany you, I'll build a plan for you if we can, we have the confidence that we can work together for the long term.

Speaker Change: I would add.

Speaker Change: On the bottom side.

Speaker Change: We've talked a little bit about private label and how.

Speaker Change: The mix of private label at buyers still.

Speaker Change: Lower than we would like.

Speaker Change: We're probably somewhere in the 2030 30 approaching 30% on some of our competitors are higher than that and so.

Speaker Change: What we're seeing is.

Speaker Change: Having some really good conversations with potential partners on the private label side large corporations from different parts of the world.

Speaker Change: Look at the opportunity for <unk>.

Speaker Change: I'm happy to to accompany you know I'll build a plan for you.

Speaker Change: Sure.

Speaker Change: Can we have the.

Speaker Change: The confidence that we can work together for the long term so.

Jose Antonio Fernandez Garza-Laguera: So again, I think scale is a beautiful thing and we're getting a little bit bigger and of course there's the overall FEMSA umbrella, if you will, and the OXO umbrella that gives potential partners the confidence that we're going to do what we say we're going to do and things are moving into place quite nicely. Thank you very much, appreciate it.

Speaker Change: Again, I think scale is a beautiful thing and we're getting a little bit bigger on of course there is the.

Speaker Change: The overall FEMSA umbrella, if you will the OXXO.

Speaker Change: Umbrella I guess potential partners the confidence that we're going to do what we say we're going to do.

Speaker Change: And things are things here.

Speaker Change: Moving into place quite nicely.

Speaker Change: Yes.

Speaker Change: Thank you very much I appreciate it.

Speaker Change: We will take our next question from Rodrigo.

Rodrigo Alcantara: We will take our next question from Rodrigo Alcantara, UBS. Your line is open, please go ahead. Hi, thanks for taking my question, Juan, Martin, just one, I promise. Yes, I mean, in a context of, you know, an average store having seven employees per store, right? Three, three turns. It's a bit difficult for me to understand how much more lean goods the staff, the labor structure of a store could get. So, just curious if you can elaborate a bit more here on precisely on these initiatives of having a more efficient staff per store. And just for the sake of modeling, if you can comment on when you started to deploy these initiatives kind of like the ramp up of the initiatives, just for us to kind of have an idea of when we could see the implications on margins already reflected.

Speaker Change: From UBS. Your line is open. Please go ahead.

Speaker Change: Hi, Thanks.

Speaker Change: Alright.

Speaker Change: Thanks for taking my question.

Speaker Change: And just one I promise.

Speaker Change: Yes, I mean in a context.

Speaker Change: A number of store, having seven employees per store right.

Speaker Change: The returns.

Speaker Change: Yeah, it's a bit difficult for me to understand how much more goods.

Speaker Change: Good.

Speaker Change: Yes.

Speaker Change: Sorry.

Speaker Change: Labor structure.

Or could get so just curious if you can elaborate a bit more Q1.

Speaker Change: These initiatives, having a more efficient.

Speaker Change: And just for the sake of modeling.

Speaker Change: And if you can comment on when you started to deploy these niche kind of like the ramp up.

Speaker Change: It's just for us to kind of look how about how about ideal when we could see the mutations on margins already reflected.

Jose Antonio Fernandez Garza-Laguera: That would be my question. Thank you very much. But we've been working a lot in the number of stores, number of people per store, and we are already below the seven threshold. Actually, we were at 6.7 last year, and we're aiming for 6.5 this year. And as you can imagine, at our scale, going from 6.7 to 6.5 is a huge endeavor. And that is giving you that some stores are going all the way to 10 or 12 people per store. Some high traffic stores have much more people. And some people, some stores are working with five people.

Speaker Change: That would be my question. Thank you very much.

Speaker Change: But we've been working a lot in the number of stores a number of people per store and we are already below the 7% threshold actually we were at $6 seven last year and we're aiming for $6 five this year.

Speaker Change: As you can imagine that our scale going from $6 76.

Speaker Change: Huge and they work.

Speaker Change: Yeah.

Speaker Change: Damaging the value proposition and that is giving you that some stores are going all the way to 10 or 12 people per store some high traffic stores have much more people.

Speaker Change: And some people are some stores are working with five.

Speaker Change: People.

Speaker Change: And we are being much more precise in our analysis, we used to do a number of transactions.

Jose Antonio Fernandez Garza-Laguera: and we are being much more precise in our analysis. We used to do a number of transactions and pretty much that's it. Now, you know, if it has a lot of coffee and coffee requires a lot of cleaning and we may put more people, if there's a lot of financial services, they may require a little bit more people. Sometimes they require, in regions like Oaxaca and Chiapas, we need people with banking experience that have been bank sellers because they need to count bills very quickly. And so we've been keen to specialize much more in the level of people and the type of people that we can hire.

Speaker Change: I'm pretty much of that tape.

Speaker Change: Now if it costs a lot of coffee and coffee requires a lot of cleaning and we may we may put more people find that a lot of financial services. They may require a little bit more people sometimes they require.

Speaker Change: In regions like Oaxaca, and chop as we need.

Speaker Change: People with banking experience that have.

Speaker Change: Have been bank standard because they need to count deals very quickly.

Speaker Change: And so we'd be into a specialized much more in the level of people in the <unk>.

Speaker Change: People that we can we can hire.

Speaker Change: We have an initiative we call trail that is basically using all of these.

Jose Antonio Fernandez Garza-Laguera: We have an initiative we call TREO that is basically using all these machine learning and analytics to be much more precise on the amount of people that the store needs to have. Where can we get, I mean our ambition is let's get it as low as possible without harming at all the value proposition. If that is 6.3 or 6.2, I think it's doable but it's going to take us a while to get there. Obviously the retail landscape is changing and there's more and more tools for automation. Some of them are still decades away in this part of the world but some of them are not.

Speaker Change: Machine learning and analytics to be much more precise.

Speaker Change: The amount of people at the store.

Speaker Change: It needs to have.

Speaker Change: Where can we get I mean, our ambitions is let's get it us as low as possible without harming that all the value proposition.

Speaker Change: Is that a $6 three or six.

Speaker Change: Two.

Speaker Change: I think it's doable, but it's going to take us a while to get there.

Speaker Change: Obviously.

Speaker Change: The retail landscape is changing and there is more and more tools for automation.

Speaker Change: Some of them are decades.

Speaker Change: Decades away in this part of the world, but some of them are not.

Speaker Change: We will use.

Jose Antonio Fernandez Garza-Laguera: We will use and we're leaning aggressively on understanding how machine learning, how even LLMs can help us optimize not only the store but the supervisory part of the role and get to more stores per supervisor. We see an opportunity there as well to gain some scale there and I think we will continue to monitor that number and get leaner and leaner on the front. Not necessarily requiring less people because we are still opening enough stores so we will be able to accommodate hopefully all of our good performers and all of our good supervisors. We see still a lot of opportunity for growth and for becoming leaner.

Speaker Change: Meaning.

Speaker Change: Aggressively on understanding how machine learning, how even llm's can help us.

Speaker Change: Optimize not only to start with the supervisory part of the role.

Speaker Change: Get to more and more.

Speaker Change: More stores per supervisor.

Speaker Change: We see an opportunity there as well too.

Speaker Change: To lose some some gain some scale there and I think we will.

Speaker Change: We continue to monitor that number.

Speaker Change: Leaner and leaner.

Speaker Change: Not necessarily requiring too.

Speaker Change: Less people because we are still opening up stores. So we will be able to accommodate.

Speaker Change: Hopefully.

Speaker Change: All of our all of our group of performers in all of our mutual providers, we see still a lot of opportunity.

Speaker Change: For growth and for becoming meeting there.

Speaker Change: And I think another thing maybe we've talked about this in the past a little bit but.

Martin: I think another thing, Rodrigo, and maybe we've talked about this in the past a little bit, but it involves, as you might imagine, certainly the number of people, but also things like, you know, what time do they start their shift? So going from the kind of the basic three shifts, each shift comes in at the same time to a much more dynamic, well, you know, one person can come in at X hour, and then the other person comes in, you know, three, four hours later, because that's what the numbers tell us, they're not needed at the same time.

Speaker Change: It involves as you might imagine certainly the number of people, but also things like.

Speaker Change: What time do they start their shift.

Speaker Change: So going from the kind of a basic three shifts each shift comes in at the same time to a much more dynamic well.

Speaker Change: One person can come in at X hour and then the other person comes in three or four hours later, because that's what the numbers tell us they're not needed.

Speaker Change: At the same time, so again something that sounds relatively.

Jose Antonio Fernandez Garza-Laguera: So again, something that sounds relatively straightforward, but you need the data to tell you how to do it, and obviously, you know, we're assuming there are going to be more minimum wage increases in the coming years, so this is something that not only addresses what's already happening, but we need to be ready for the coming years where this probably will continue. That was super helpful, Jose Juan. Thanks for the call on that. Thank you.

Speaker Change: Great forward, but you need the data to tell you how to do it obviously.

Speaker Change: We're assuming they're going to be more a minute.

Speaker Change: Minimum wage increases in the coming years. So this is something that not only addresses what is already happening, but we need to be ready for the coming years, where this probably will continue.

Speaker Change: That was super helpful wholesale ones. Thanks for the color on that.

Holly: Thank you Holly.

Speaker Change: We have no further questions in the queue. So I'll.

Juan Fonseca: We have no further questions in the queue, so I will hand you back to your host for closing remarks. Thanks, everyone, for joining. Obviously, you know where to find us. If you have follow-ups, you can get in touch with my team and myself anytime you need. Otherwise, just have a great week. Thank you for joining today's call. You may now disconnect.

Speaker Change: And you're back to your host for closing remarks.

Speaker Change: Thanks to everyone for joining obviously, you know where to find US if you have follow ups.

Speaker Change: You can get in touch with my team and myself.

Speaker Change: Anytime you need otherwise should have a great week.

Speaker Change: Thank you and thank you for joining today's call you may now disconnect.

Speaker Change: [music].