The three divisions of FEMSA Comercio —Proximity, Health and Fuel— deliver strong economic and social value for all our stakeholders. Our brands include OXXO proximity stores; drugstores (under the brands YZA, Farmacon, Moderna, Cruz Verde, Fybeca, SanaSana, and Maicao beauty stores); and OXXO GAS service stations.

Proximity Division

FEMSA Comercio’s Proximity Division operates the largest chain of small-format stores in the Americas and is the second largest retailer, in terms of revenues, in Mexico. Under the brand name, OXXO, our aim is to deliver convenience and simplify the lives of our customers. With an average of more than 3,200 SKUs per OXXO store, we employ a variety of strategies that strengthen our value proposition while driving same store sales and profitability.

 

Food and Beverage Convenience
Every day, approximately 13 million people make a purchase at an OXXO store in Mexico, Colombia, Chile, or Peru. One-stop shopping means responding to our customers’ needs in a fast, simple way—from grabbing a cup of coffee or a snack to picking up some grocery essentials. We know our customers lead busy lives and increasingly require quick, on-the go alternatives to have a tasty meal.

In 2010, in Mexico, we began expanding our fast food variety, offering freshly prepared foods and complete meals.

We have continued to invest in this capability by developing our fast-growing prepared food brand, ¡O’Sabor! in Mexico which includes a variety of specialized items such as tacos, tortas, and fresh sandwiches. We have also refined the flavors and varieties of these choices based on the regional preferences of our customers. As of the end of 2019, 1,271 stores offered the ¡O’Sabor! concept and we expect to continue its expansion to more stores.

In addition to prepared food, OXXO stores offer a wide selection of beverages and refreshments. Historically, OXXO stores in Mexico have only carried beer brands produced and distributed by Heineken Mexico. Beginning in April 2019, following the start of a new commercial relationship with Grupo Modelo, the Proximity Division began adding their beer brands to our beer assortment in select regions of Mexico, further expanding the beverage selection we can offer our customers. These brands are expected to gradually become available at all OXXO stores around the country by the end of 2022.

Digital Proximity Services and Accessibility
In the Proximity Division, we continue to expand and diversify our value proposition. This constant innovation enables our customers to satisfy different needs in one single place close to their homes. One of the advantages OXXO stores have long offered customers is access to important services, such as utility bill payment, deposits into bank accounts held at our correspondent bank partners, remittances, prepayment of mobile phone fees, and other financial services. Currently, customers have the ability to pay for more than 5,000 services in an OXXO store, and we expect that offering to continue to grow. In fact, we know that facilitating access to a wide range of products and services is a fundamental part of our value proposition. For this reason, we are evolving our offerings and strengthening our digital strategy. For example, e-commerce transactions carried through OXXO PAY are able to facilitate cash payments to affiliated businesses with real-time application in exchange for their respective purchased digital goods at more than 19,000 stores in Mexico. In this way, in 2019, OXXO PAY increased the total number of services that a single OXXO store has to offer more than 700.

Health Division

FEMSA Comercio’s Health Division responds to the healthcare needs of the communities where it operates. Through a growing network of drugstores and related operations, we distribute and sell patented and generic pharmaceutical drugs, beauty products, medical supplies, and wellness and personal care products, among other categories. In 2019, we continued to expand our presence in Latin America and consolidate a fragmented industry. As we standardize our business model across regional brands, we are building a solid platform for regional growth.

FEMSA Comercio started to build its Health Division in 2012 and, as of December 31, 2019, the brands that make up the Division already represent the second largest pharmacy chain in Latin America, operating a total of 3,161 points of sale.

 

Strengthening and Scaling Up the Organization
2019 saw several strategic developments for FEMSA Comercio’s Health Division that have resulted in our ownership of 100% of our health platforms in Mexico and South America. In Mexico, we became the sole shareholder of our drugstore platform through the purchase of its minority interest. In Ecuador, we successfully completed the acquisition of Corporación GPF, a leading drugstore operator with attractive growth prospects, operating 634 points of sale nationwide under the Fybeca and SanaSana banners. And just before the end of 2019, we became the sole shareholder of our South American drugstore and distribution platform, Socofar, by acquiring the 40% stake that we did not own from our minority partner.

These important developments represent another successful milestone in our long-term effort to continue gaining relevant scale and brand recognition by building a leading regional drugstore platform. We believe this will create more opportunities for our operations in Mexico and South America to collaborate and generate value together.

We also know these advancements will not be possible without a strong team of diverse employees. Supported by our inclusive hiring policy, there are currently more than 7,000 employees within the Health Division in Mexico, of which more than 75% are women. In addition, our workforce includes 42 senior citizens.

As we grow our business, we are also committed to powering our operations responsibly. In line with FEMSA’s corporate commitment to source 85% of the total electric energy demand of our operations in Mexico from renewable energy by 2020, the Health Division currently has 622 stores in Mexico that are powered by wind energy.

 

* Includes the acquisition of Corporación GPF in Ecuador

Enhancing our Customer Value Proposition
Delivering a consistent level of service across our brands to all customers in the markets where we operate. In 2019, we did this in several important ways:

• Building community trust: We pride ourselves on being trusted by the communities we serve. For cases where healthcare costs are often out-of-pocket and doctor visits may be unaffordable, visiting the local pharmacy for over-the-counter medicines and healthcare advice can be invaluable, and we take this responsibility very seriously. 100% of our store team leaders and pharmacists across all markets and brands are fully trained on an ongoing basis to assist our customers. We also ensure a consistent standard of care across markets and brands, which allows us to efficiently staff pharmacists wherever talent is needed in the community.
• Loyalty program: With nearly 5 million members in Chile and a growing membership in Mexico, our two independent loyalty programs not only reward customers with significant product discounts that support health and wellness needs, but also inform our product sourcing and geographic distribution decisions. For example, in Chile, more than 80% of all sales are processed through the loyalty program, which helps us offer a broader assortment, better options and increased availability of medicines, personal care, beauty, and health and wellness products and services.

• Digital strategy: We are developing a digital strategy based on our customer knowledge and omnichannel marketing insights. With the use of technological tools, we can anticipate the needs of our customers so that we can add significant value to their check-out process. This information becomes very useful for customers, particularly for patients with chronic ailments. We can also strategically allocate the distribution of personal care products by understanding patterns of consumption, or adapt the value proposition of our pharmacies to the needs of our customers. Although pharmacies are not the typical retail environment, we don’t believe they are exempt from the service expectations that customers have for other types of stores. For this reason, we offer several customer service conveniences, including a “click-and-collect” service (in which customers click on the products they need via our website or app, and collect their products at a convenient location); a last mile delivery service; and full visibility into our prescription inventories. These advantages not only save our customers time, but allow us to better serve them by efficiently distributing and transferring needed inventory between stores.

Supporting our Communities
Another important part of our business strategy is to contribute to opportunities that make medicines more accessible for lower-income and underserved populations. One of the key ways we did this in 2019 was by increasing the number of affordable generics in our stores. We also produce our own private label medicines and generics in Chile, and we’re in the process of bringing these products to other markets pending regulatory approvals. Having greater control of the production process in Chile allows us to deliver high quality products at lower prices, since we can work directly with the laboratories. More than 30% of the generic units sold in the Chilean market in 2019 were produced by our facility.

We are also committed to giving back to our communities in other ways. In 2019, Farmacias YZA in Mexico donated more than Ps. 455,000 (approximately US$ 24,000) to four local non-profit foundations that provide important health-related support services to community members in need.

 

Fuel Division

FEMSA Comercio’s Fuel Division operates the OXXO GAS brand of retail service stations across 17 states in Mexico, offering superior customer service and selling quality fuels (gasoline and diesel) and lubes. We continue to participate in the evolution of Mexico’s oil and gas industry, to a competitive open-market model in recent years. As of the end of 2019, OXXO GAS remained the largest participant in the fragmented retail service station market in Mexico, operating 545 service stations out of a total of approximately 12,500 stations across the country.

Although challenges throughout the year prompted a slower pace of service stations growth in 2019, the addition of six new OXXO GAS brand service stations contributed to favorable financial results and strong margins overall, including an increase in total revenues of 2.0% for the full year as compared to 2018.

Competitive Differentiation
In 2019, new players continued to enter the market, bringing the total of brands operating in Mexico to more than 75. This resulted in evolving competitive dynamics and in the Mexican customer being exposed to new value propositions. To adapt to this increasingly competitive environment, OXXO GAS remained clearly focused on adeptly navigating changes to the industry supply chain while providing superior customer service.

First, we continued our ongoing effort to re-brand our service stations with the OXXO GAS trademark image, which is supporting the easier identification of our service stations in the market. Next, we focused on improving our customers’ OXXO GAS station experience as a cornerstone of our value proposition.

At OXXO GAS, we differentiate ourselves in several important ways:

• Reinforcing customer trust by keeping extremely reliable processes for the maintenance and calibration of our gas pumps, in order to consistently achieve higher accuracy standards than those required by PROFECO (Procuraduría Federal del Consumidor), Mexico’s consumer protection agency. Due to this, our customers can be assured they are receiving complete liters while achieving better fuel efficiency.
• Improving the customer experience by focusing in understanding their needs and aligning our value proposition to better meet them, while leveraging our technological infrastructure to improve our offering. We also begun to implement cross-promotional strategies with those OXXO Proximity stores that come about to be located with OXXO GAS stations. For example, in 2019, to reward customer loyalty while generating additional sales, we offered discounts up to 50% on select OXXO products when refueling at OXXO GAS.