Following a strong set of full year results, we look at Oxxo parent FEMSA's next steps in expanding Mexico's biggest convenience store retailer.
7.0% same store sales growth over 2016
The key driver of Oxxo's same store growth was a rise in average transaction size, up 6.8%, and this, combined with the addition of over 1,000 new stores over the year, drove total revenue growth for Oxxo of 14.4%. This took total revenue to MXM137.1bn (USD6.9bn). While operating income growth was slightly behind, at 11.6%, this growth was still robust - the slower uplift was attributed to an increased investment in staff reimbursement and rising energy costs, as an increased electricity tariff impacted. Operating margin, at 8.4%, remained robust.
A strengthening focus on fuel sites
Compared with Oxxo's convenience store count of 15,225 at the end of December, its fuel sites business is a modest operation, with 382 stores at the year end. But it's growing faster than the broader business, and there's a desire to expand in this area, with the combination of fuel and a standard Oxxo convenience store seen by parent FEMSA as having considerable additional scope for expansion, enabled by recent deregulation in the Mexican fuel sector.
A notable recent development has been the opening of the first Oxxo stores in the Mexico City subway, with five stores opening in the year at selected stations. Clearly, the footfall these locations boast is a key advantage, and this follows trends we've seen in many other markets.
Driving health through a growing pharmacy/ drugstore presence
This is a relatively recent incursion for parent FEMSA, and forms a separate division from Oxxo, but it's one where broader consumer trends are creating a long term platform for growth. With a presence in Chile (where it operates close to 680 drugstores and 160 beauty stores) and Colombia (180 pharmacies), we see substantial long term growth opportunities. Further international growth and "cross-format" development have already been cited by parent FEMSA as future growth opportunities, as it becomes a more significant player in this market.
Broader business gives a potential route into more markets
It's easy to see the Oxxo business as an entity in its own right, but actually this isn't even the biggest component of the FEMSA business, which is as a bottler for Coca-Cola - it's the single biggest global bottler of Coca-Cola. And it does this across much of Central and South America, providing the wider business with on the ground insights into a wide range of Latin American markets. As the convenience business continues to develop, it will no doubt look to draw on these as it looks to both expand its fledgling presence in Colombia and Chile, and assess new market growth opportunities. At the same time, however, we expect Oxxo to continue to evolve its core domestic proposition, as it seeks to better serve even more on-the-go missions.
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