Four ways OXXO has adapted to the pandemic

Date : 23 April 2021

Oliver Butterworth

Retail Analyst

Retailer OXXO, owned by the FEMSA beverage and retail company, is the largest chain of convenience stores in Latin America. It ended 2020 with 19,566 stores, of which 19,295 are in its domestic market Mexico.

Government restrictions on mobility throughout the pandemic has led to challenging trading conditions for the businesses, which relies heavily on sales from on-the-move and transient customers.

OXXO’s revenue for 2020 was MX$181,3 bn (US$9.1 bn), a 1.9% decrease year-on-year. Its same-store sales decreased by an average of 5.4%, which it said was driven by a 16.8% decrease in store traffic, but partially offset by a 13.7% increase in the average ticket.

The conditions of the pandemic led to significant reduction in store expansion versus previous years and the business was forced to close many unprofitable stores.

Source: IGD Research

Here we explore four ways the business has responded to change and strengthened its value proposition.

1. OXXO launches a home delivery service

Prior to the pandemic, OXXO operated as a fully offline business. As Mexican’s were encouraged to stay at home it needed to adapt to continue reaching customers. In November 2020, it launched its new online service, Mi OXXO.

To facilitate home deliveries, it has formed partnerships with third party last mile delivery businesses, including Cornershop (a Chilean startup recently acquired by Uber Eats).

Source: OXXO

Source: Uber Eats

Those living in Mexico City (and the State of Mexico), as well as the cities of Monterrey, Querétaro and Villahermosa can order home deliveries which are fulfilled within 60 minutes.

Customers can choose from a wide assortment of ambient groceries, drinks, snacks, pharmacy items, and more. Shoppers have the flexibility of being able to pay by credit and debit card, or by cash on delivery.

2. Supporting financial inclusion and using this to drive footfall

Mexico has a large informal economy, meaning the country is highly cash driven. OXXO is developing solutions that enable customers to ‘conveniently execute their day-to-day financial transactions’.

This year (March 2021) OXXO launched its new fintech app Spin. This was initially launched in the city of San Luis Potosí, with plans to expand it to other parts of the country.

The app enables customer to carry out various transactions, including deposits and withdrawals (from any OXXO store), balance inquiries, purchasing, and sending/receiving money between other Spin users. According to the Spin website, it allows users to open a digital debit account, with no opening cost, no minimum amount commissions and without annuity, with the possibility of having a physical Visa card.

Source: OXXO

In 2020, OXXO expanded its OXXO PAY service, which enables customers to make cash payments (in store) for digital services, e.g., Spotify. Also, through an alliance with Amazon Mexico customers can pay for their online Amazon orders (within 48 hours of ordering) using cash at any OXXO store.

3. Launched a loyalty programme

Following the launch of its Spin app, OXXO introduced its new loyalty program OXXO PREMIA. A pilot test began in March 2021 in Ciudad Juárez and was quickly extended to Chihuahua. OXXO will continue to extend this service to other regions, with the North Bajío Zone first on the list.

Customers can obtain a physical and/or digital loyalty card (digital is within the Mi OXXO app). Once registered, they collect PREMIA points for each purchase made and receive rewards, such as free products and exclusive promotions (redeemed in-store). Every Spin by OXXO app-user is given an OXXO PREMIA account for them to receive the full benefits of the program.

The programme will allow OXXO to get to know its customer better and to offer more personalised communications.

"Together with [Spin], we should give ourselves a clearer idea of ??who our customers are, what they are doing, what they are consuming, what their trends are, so that we can better adapt to promotions and product offerings for them." Eugenio Garza y ??Garza, FEMSA CFO.

4. Strengthened its at-home offer

OXXO stores have a popular hot coffee-to-go offer. Their 100% Mexican coffee brand Andatti, which was launched in 2005, is premium quality and enjoyed by customers throughout the country. In response to the decline in footfall, it extended its assortment to include more premium coffee options for at-home consumption. It has launched a new dedicated ecommerce platform for its coffee.

Source: OXXO Andatti

Our view

OXXO has shown impressive agility in adapting its proposition to meet changing consumer demand and to tackle the decline in footfall. It continues to find new ways to improve its value proposition and encourage customers back into the physical store.

It has tapped into changes to in-home consumption, by innovating in its coffee category and launching its grocery delivery service.

Its Spin app and the improvements it has made to OXXO PAY align with its strategic aim to simplify the lives of its customers. Enabling customers to withdraw money in-store (via Spin), allowing them to pay for Amazon orders, and rewarding them with loyalty points for in-store purchases, will be key for fundamental in reviving footfall as restrictions lift.

 

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