Mexican business FEMSA Comercio, which controls the Coca-Cola bottler FEMSA and operates the OXXO convenience store chain, has reached an agreement to acquire OK Market, OXXO’s direct competitor in Chile.
OK Market is a convenience banner owned by SMU, Chile’s largest retailer by store numbers and third largest by revenue. After more than a year of negotiations FEMSA has reached a binding agreement with SMU to acquire OK Market for close to CLP43.5 bn (US$54.4m).
Source: IGD Research
OK Market is the leading convenience banner in Chile, with 123 stores, with the acquisition, therefore, making OXXO the biggest convenience retailer in the market.
OXXO’s expansion in Chile
In 2016 FEMSA acquired Big John, a local convenience operator in Chile. This gave OXXO its first opportunity to grow the banner in the market. The first OXXO store opened in Chile in 2017 and all 49 Big John stores were converted to OXXO the same year.
FEMSA began 2020 with about 90 OXXO stores in Chile. It has continued to open stores in recent years, although at a more subdued pace than in 2017 and at a significantly slower pace than in its home market, Mexico.
Despite its modest growth, the last few years have given FEMSA the chance to understand the market and develop the right value proposition.
“In recent years, we have made great progress developing the value proposition and footprint of our OXXO proximity stores in Chile. [This transaction] will allow us to improve the way we serve this key market and our Chilean customers.” Daniel Rodríguez Cofre, FEMSA Comercio’s CEO.
Further growth opportunities for OXXO
FEMSA’s acquisition of OK Market will enable the business to expand its presence in Chile, supporting its target of reaching 250 stores by 2021.
OK Market has been operated since 2002 and was well regarded by its customers. The stores have a strong geographical coverage and occupy many strategic locations, particularly in the capital city, Santiago.
This gives FEMSA a great opportunity to drive OXXO’s brand awareness and deepen its connection with local consumers.
How does this support SMU’s future strategy?
SMU is shifting its focus to developing in ecommerce, as well as opening and remodelling stores under its Unimarc (supermarket) and Alvi (wholesale) banners. It is also looking to expand its operations in neighbouring Peru.
Source: IGD Research
“The board approved that the funds from this transaction will strengthen our strategic plan, which considers important investments in ecommerce, new openings and remodelling of the Unimarc and Alvi formats, the promotion of the Wholesale 10 economic format and store openings in Peru.” Marcelo Gálvez, SMU’s CEO
Transaction expected to close in 2021
Femsa said it expects the transaction to close in 2021, subject to a "confirmatory diligence process, the signing of definitive agreements and the approval of… regulatory and competition authorities."
Given the speed at which FEMSA previously converted Big John stores to OXXO, we would expect these stores to be converted to OXXO in six to 12 months.
FEMSA committed to expanding in the region
Despite challenging trading conditions brought about by the pandemic, the acquisition reinforces FEMSA’s commitment to expanding the OXXO brand in Latin America.
In August 2019 FEMSA entered a joint venture with Raízen (one of Brazil’s largest energy companies), which will enable it to expand the OXXO banner in Brazil, with support from a partner that understands Brazilian consumers.
Source: Linked In, Grupo Nós
Brazil’s first OXXO store is due to open imminently and the businesses, under the new name of Grupo Nós, has announced plans to open 500 stores over the next three years. Based on our forecasts, this would make it the largest convenience retailer in Brazil.