Mexican Coca Cola bottler FEMSA, which owns the OXXO convenience chain, recently announced the chain had seen a 24.1% decrease in store traffic during the early phases of the pandemic. This led to a decline in sales, which was accentuated by a reduction in the average customer ticket as well.
For Q2, FEMSA reported an 8% decline in revenue for its proximity stores, with same-store-sales down by 12.4%.
Eduardo Padilla, FEMSA’s CEO, commented: “The second quarter was extremely challenging across our operations… At OXXO, we saw a meaningful impact from continuing lack of consumer mobility, that translated into soft performance for most of our categories and consumer occasions, and the challenge was compounded by the lack of beer supply that only began to recover in June.”
Source: IGD Research
Sales impacted by beer availability...
OXXO’s proposition is centred around convenience, snacking and on-the-move purchases. Its best-selling categories include soft drinks and beer.
At the start of April, Mexico’s two leading beer manufacturers, Grupo Modelo (part of AB InBev) and Heineken Mexico, were forced to halt production and distribution, which caused nationwide beer shortages throughout May and early June.
“[In May] we basically depleted our beer inventories, and saw the steepest contractions in traffic, making it the worst month of the quarter”. Eduardo Padilla.
In other categories, OXXO is having to modify its inventory, limiting the number of products with short shelf-life’s, e.g. perishables, which are experiencing low stock turnover due to the reduction in traffic.
...and store closures
OXXO operates 19,558 proximity stores, making it the largest chain of stores in Latin America. The bulk of these are in Mexico, but it also operates in Chile, Colombia, Panama, and Peru. It is about to expand into Brazil (more here), but operations have yet to begin.
Q2 is the first quarter in recent years where FEMSA has reported a fall in store number. Its store base contracted by 40 units, which is made up of 24 definitive and 16 temporary closures. During the quarter OXXO made 260 temporary closures.
“At the beginning of the pandemic, 50% of our units had a restriction, I would say that now it is only 35%, and same-store sales have improved a bit…The mobility index in Mexico has fallen by 40% and that is the main cause. But we believe that people are beginning to understand and adapt to this new normal.” Eduardo Padilla.
FEMSA has revised its number of openings in 2020 to 1,200, which although sizable, is lower than the 1,331 it opened in 2019 and 1,422 in 2018.
The time to evolve
In a report sent to the Mexican stock exchange in July, OXXO declared it needs to reconfigure its business to mitigate further closures. It stated: “The long-term economic effects of Covid-19 may include lower or negative growth rates in the markets in which we operate, less favourable exchange rates in several of our businesses, and lower demand for our products or a change to lower margin products.”
Prior to COVID-19, OXXO’s strength was in the size of its estate and proximity to the customer. Expanding its reach to more customers enabled it to win and, therefore, OXXO has been slow to move into ecommerce or home delivery. It could not have foreseen the restrictions to mobility or the vast shift to ecommerce brought about by the pandemic. As a result, FEMSA will need to evolve the OXXO proposition to drive future growth, at least in the medium-term.
Forming alliances could support growth
One-way FEMSA could evolve its proposition and stimulate footfall is by forming alliances with the major ecommerce players in the region, such as Amazon and Mercado Libre. It could then leverage its huge store network, using the stores as distribution and / or collection points.
Early developments with Amazon
On 14 September Amazon Mexico and OXXO announced a new collaborative payment method for online orders. As a result, Mexican’s can pay for Amazon orders in cash at any of OXXO’s stores. On the Amazon platform shoppers can select a cash payment option and complete the transaction in store by scanning a barcode sent to their email address. The service is already being rolled out and will be available throughout Mexico in the coming weeks.
This is highly desirable to the large proportion of Mexican consumers who do not have a credit or debit card and removes any apprehensions they have around card fraud when making online payments. At the same time, it helps Amazon to grow its own sales.
This is a great example of how OXXO can continue to drive footfall to its stores. This could evolve a stage further and customers could also collect (small-sized) online orders in store. Customers using these services are likely to make purchases, which would have a beneficial effect on sales.
“This constant innovation enables customers to meet different needs in one place”. Santiago Rivera, Manager of Electronic and Financial Services at OXXO.
If the sales decline seen in Q2 continues, another solution could be for OXXO to offer delivery in partnership with a third-party delivery provider. Partnering with a business like Rappi would be a quick way for the busines to enable delivery, particularly in the major cities.