OXXO: growth, profitability and innovation

We opened 1,208 net new OXXO convenience stores during the year, for a total of 14,061 stores in operation in Mexico and Colombia at year-end 2015. This is in line with our objective of adding more than 1,000 net new stores each year, using proprietary site-selection processes and strict cost of capital parameters, and represents the creation of more than 8,000 direct new jobs.

OXXO’s successful business model embraces the following principles, among others:

• Proximity to our customers. Even with strong sequential growth in recent years, there is still significant market penetration opportunity, not just in underserved regions but also in large population centers that are continuously growing and therefore require incremental stores. Our geographically dispersed network of 16 distribution centers supports our scaling strategy.


• Segmentation, differentiation, category development: We meet a broad range of consumer needs, from quenching thirst and replenishing groceries, to bill payment, cash deposits and withdrawals and cellular airtime purchases. Innovations include the introduction of our Saldazo branded debit card; proprietary brands such as Delixia (prepared foods), Bitz (snacks) and O’Sabor (fresh-prepared hot food), and of course andatti, the leading fresh-brewed coffee brand in Mexico celebrating its 10th anniversary this year. We are also making progress in our segmentation strategy, adjusting the value proposition of each store to its location and environment. On average, each store now carries almost 3,000 SKUs.


• Speed, access, service: With familiar floor plans across our network, extended business hours and rapid service, our customers can rely on OXXO as their one-stop shop for products and services. We conducted an average of more than 10 million transactions per day in 2015, signaling the growing importance of OXXO in the daily lives of our consumers.


• Operating structure: OXXO stores are company owned, not franchises, giving us direct control over product selection, execution and service quality. A majority of our stores are operated by commission-based partners, and because we prioritize growth while generating excess returns on capital, most of our real estate is leased rather than owned.

Offering fast, fresh and delicious options

Leveraging our expertise in small-box retail

We entered the drugstore segment in 2013 with the acquisitions of two regional chains in Mexico, Farmacias YZA and Farmacias FM Moderna, leveraging our consumer know-how and small-box retail expertise to enhance the FEMSA Comercio value proposition with the addition of pharmaceutical and health and beauty products.

We made an additional two acquisitions in 2015 to advance our growth strategy in this segment: Farmacon, which operates over 200 stores in Mexico, and a majority stake in Socofar, which operates over 640 Cruz Verde drugstores and 150 Maicao beauty stores in Chile, and 150 drugstores in Colombia. Combined with our Farmacias YZA and Farmacias FM Moderna units, we now operate more than 1,900 drugstores and beauty stores in our markets today, an almost 220% jump from 2014. We see this segment as an important driver of our capital allocation and international growth strategy, representing an opportunity to consolidate another fragmented industry adjacent to our core.

In the quick-service restaurant category, we hold a majority stake in Doña Tota, a regional chain with over 200 sites in Mexico and the United States that enjoys strong brand recognition in its territories.

A key growth driver

Growth at FEMSA Comercio’s Retail Division has been sustained and disciplined, outpacing the industry. It comprises a growing share of FEMSA’s total revenues and EBITDA, and while the operating and financial structure is changing as we add new formats and geographies, the benefits of scale and operating leverage ensure that continued expansion will drive long-term value.

2015 was another year of healthy growth, driven by new store openings, the acquisitions of Farmacon and Socofar, and continued improvement in Mexico’s consumption environment, particularly in the north of the country in parallel with the region’s manufacturing-driven economic gains, and in-store innovations.

Total revenues rose a strong 21.2% in 2015, to Ps. 132.9 billion. Organic revenues, which exclude non-comparable results from acquisitions made in the past twelve months, increased a solid 14.1%. Same store sales rose an average of 6.9% over 2014, driven by a 5.1% increase in average customer ticket and a 1.7% increase in store traffic.

Gross profit increased 20.1% year over year, while gross margin contracted by 30 percentage points to 35.6% primarily reflecting the integration of Socofar and Farmacon. Similarly, income from operations increased 25.6% to Ps. 10.9 billion, while the operating margin increased 30 percentage points.

Profitable growth is driven by scale and operating leverage

Same stores sales increased an average of 6.9% over 2014