Sustained growth, market leadership

Our fast-growing retail operations in Mexico and South America generated approximately half of FEMSA’s consolidated revenues and a third of EBITDA in 2016, favorably diversifying our business portfolio and financial performance. The strong pace of growth at FEMSA Comercio continued across every division, reflecting the integration of acquisitions, new store openings, and a favorable consumer environment in Mexico.

Retail Division

The OXXO chain of convenience stores in Mexico is the heart of our Retail Division. With approximately 11 million people making purchases each day, and a new store opening every eight hours on average, OXXO is today the third largest retailer in the country by revenue, and the leading retailer in Latin America by units.

We use proprietary models to identify optimal store locations, layouts and product categories, with strict cost of capital parameters that together with our well-developed operating processes and practices, allow us to drive margins and returns. We continue to fine-tune our business model by adding new categories and services in order to meet differentiated consumer needs, adjusting the value proposition of each store to its location and environment. This helped OXXO’s same-store sales in 2016 rise by an average of 7.0% over a demanding comparison base from the prior year.

2016 highlights:

• We opened 1,164 net new OXXO stores in the year, including 19 in Colombia, representing the creation of approximately 10,200 direct new jobs. Penetration levels remain low in many regions of Mexico, indicating plenty of runway for continued growth.


• We acquired Big John, a well-positioned convenience store chain in Chile operating 49 stores, mainly in the Santiago metropolitan area. The transaction helps advance our regional growth strategy by deploying our considerable expertise in the convenience store format in the Chilean market, where we also acquired leading drugstore operator Socofar in 2015.


• We continued to enhance our Services platform, particularly in the financial arena, adding HSBC and Banorte to our Correspondent Banking network, reaching 6.6 million Saldazo debit card accounts, and launching a nationwide partnership with Western Union to receive and disburse remittances to our customers.

Health Division

We first entered the drugstore segment in 2013 with the acquisition of two regional chains in Mexico, leveraging our small-box retail expertise with the addition of pharmaceutical, health and beauty products. Two additional acquisitions in 2015, including a majority stake in Chilean leader Socofar, significantly advanced our growth strategy in this segment and allowed us to expand beyond our home market in Mexico. Given its expansion and continued potential for growth, as well as our commitment to transparent disclosure practices that align with internal decision-making, we now present all our drugstore and related operations under the Health Division.

Our strategy is to consolidate fragmented markets such as Mexico and Colombia following the OXXO game plan, using our operational and logistics expertise to facilitate international expansion. With 2,120 stores at year-end 2016, we are becoming a key drugstore operator in Latin America. Revenues jumped a remarkable 232.6% in 2016 with the integration of Socofar, and 24.0% on an organic basis.

2016 highlights:

• We opened 99 net new stores in the year, primarily in Mexico, entering new regions including the key Valley of Mexico market.


• Additionally, we made two small bolt-on acquisitions: Generix in Mexico and Acuña in Colombia, adding a total of 121 new stores to our regional footprint.


• During the year we made significant progress building the infrastructure required to integrate our legacy drugstore operations in Mexico into a single platform and standardize the business model across different regional brands in order to prepare for future growth.

Total number of stores
for Health Division
per year

220

net new stores in 2016

We are preparing for further growth while integrating our legacy operations into a single platform.”

Fuel Division

When Mexico’s regulatory framework for the energy sector was modified in 2013, we saw a unique opportunity to participate in the transformation of the fuel industry via the operation of a large network of service stations. The clear alignment with our retail service operation and the ability to leverage OXXO’s brand equity, combined with the potential returns on capital of a low asset-intensity model, was compelling.

Our 382 strong network of OXXO GAS service stations is located in 16 states, primarily in the north of Mexico. Along with fuel, oil and additives, we differentiate our offering through reliable and high quality service, a strong brand, and exclusive promotions available only to OXXO GAS clients.

In our first full year of reporting Fuel Division results (2015: 10 months), total revenues increased 54.6% while same-station sales increased 7.6%. Looking ahead to 2017, as the industry continues to transition into an open market model, higher gas prices will likely translate to higher revenues but our long-term growth strategy will remain focused on expanding the network of service stations, and enhancing underlying profitability by continuing to gear the business model towards our expertise in retail dynamics.

2016 highlights:

• We added 75 new service stations in the year; this rapid pace of growth rate led to short-term operating deleverage, as new service stations take some time to ramp up.
  


• We continued to invest in the expansion of our infrastructure to enable accelerated growth across more territories.


• We launched and began the rollout of the new image and branding for OXXO GAS, in order to further differentiate our stations.

We are expanding our infrastructure to accommodate rapid growth across more territories."