The Mexican convenience store firm Oxxo, controlled by Femsa, put one foot on the brakes on its aggressive growth strategy in Chile.
In 2017, the company opened its first store after buying the Big John chain from businessman Juan Pablo Correa, which had 48 stores, and then from Álvaro Saieh’s SMU, more than 120 OK Market stores. Today, The Mexican company has about 300 stores distributed in five regions and serves almost 3 million customers per month.
However, in the last call with investors, José Antonio Fernández Garza-Lagüera, General Director of Femsa Proximity and Health Division, revealed a complex scenario in Chile and Peru.
“We are de-prioritizing expansion and focusing on improving profitability drivers. This strategy will also help us reduce overhead in both markets. As a result of these initiatives, we hope to improve Oxxo Latam’s results in general and reduce the level of investment required in the short term,” he said. And he deepened that “Chile is much further back on the curve towards profitability, particularly considering that the country has been going through economic stress. Therefore, we are reducing the speed of growth in that market. “This includes potential adjustments to overhead to reduce cash burn.”
This has meant that openings have been much slower this year, and by 2025 they will be even more so and the permanence of each store will be constantly evaluated.
In fact, Now it is not strange to see closed Oxxo stores in various areas of the capital.
Lower growth and crime
The reasons behind this slowdown are due to macroeconomic factors, such as lower growth in Chile, which has affected consumption. Convenience stores are characterized by being very elastic to consumer behavior: as economic activity declines, salaries come under pressure and inflation rises, they are the first to be affected.
This has made, for example, many consumers choose to go to fairs or wholesale supermarkets more, seeking savings in their monthly budgets, avoiding passing through a store on the go. Added to this is the increase in costs that the brand has faced in Chile. For example, last month they had to internalize the 45% increase in electricity prices from one day to the next.
The excess of permits has also affected them, especially due to the delay in obtaining construction permits, even for minor works, obtaining patents or permits for outdoor advertising.
Another reason has to do with crime. Oxxo is a “on the way” store, that means that when people go outside a store they choose to enter, it is not always a final destination. If traffic decreases due to criminal activities in the surrounding area, sales drop considerably. This has meant that stores in the center of Santiago, for example, are closed today.
They are not leaving Chile
When consulted by DF, they said that “in an economic context of low growth and contraction of consumption, like the one we experienced a few years ago, our commitment has been to gradual, controlled and orderly growth. This involves constantly evaluating the profitability of our locations, and making relocation and opening decisions according to market needs.”
They also noted that “we are currently in the process of slowing down or reducing expansion and evaluating some of our stores, which will allow us to strengthen our operations, improve our profitability indicators, optimize our processes and design an even more satisfactory purchasing experience for our customers, to whom we owe and appreciate their preference and loyalty.”
The brand rules out leaving the country. “Oxxo continues to work in accordance with its strategic plan that aims to consolidate its leadership as the main convenience store in Chile,” they stated.
Another factor they mention has to do with the greater competition from actors in the segment. The aggressive growth of Cencosud’s Spid; Copec Point and Soon; UPA! from Shell; Castaño, in addition to Aramco Stop, the former Spacio 1 of Petrobras, has caused product prices to go down, putting pressure on margins.
One of the paths that Oxxo has taken is to better differentiate the types of stores and thus personalize the range of products it offers. For example, In the more residential neighborhoods they promote basic goods such as toilet paper or rice, while in the locations closest to offices the product mix is more focused on quick purchases, cigarettes and fast food.
However, at a global level Femsa, which is worth US$33.53 billion on the stock market, will follow an aggressive expansion plan. Today its main focuses are the latest forays it has made, particularly in the US and Europe. In its northern neighbors, They bought DK stores in August for more than US$385 million, while in Europe in 2022 they bought more than 2,600 Valora brand stores for about US$1,115 million, which operate in Germany, Austria, Luxembourg, the Netherlands and Switzerland.
In Latin America the focuses are Brazil and Colombia. But without leaving aside their country of origin, where they hope to open 1,100 stores in 2025, which would be added to the 21,970 they have in Mexico. They open, on average, three new Oxxos a day.
