Mergers & Acquisitions

FEMSA Has Big Ambitions for Its OXXO C-Stores in the U.S.

Mexico-based retailer leveraging global and granular ‘know-how’ to guide conversion of former Delek US sites in Southwest, with sights set on more expansion beyond the region
oxxo
Photograph: Shutterstock

Fomento Economico Mexicano S.A.B. of C.V., the Monterrey, Mexico-based beverage bottler and convenience-store retailer, has big ambitions for the fragmented U.S. convenience-store market. FEMSA has set its sights on becoming a major player in the United States, and its acquisition of the 249-unit retail network of Delek US Holdings Inc.completed earlier this month—is only the beginning of what could be a national rather than a regional strategy, Constantino Spas, CEO of FEMSA Proximity Americas & Mobility (PAM) Division, told CSP.

constantino spas, FEMSA

The $385 million deal with Brentwood, Tennessee-based Delek US establishes FEMSA in the Southwest United States, primarily in Texas, but also in New Mexico and Arkansas. The stores currently operate under the DK and Alon brands. FEMSA began operating the former Delek US stores on Oct. 1.

Proximity to the U.S.

FEMSA owns the world’s largest Coke bottler, Coca-Cola Mexico. Its Proximity Americas Division operates the OXXO c-store chain and related retail formats in Mexico, Central America and South America, and now in North America. Its Proximity Europe Division operates Valora, its European retail c-store unit.

Spas said it is difficult to say exactly how many OXXO stores the company has because it opens three stores per day on average in Mexico and closes some stores that don’t achieve the full value proposition. He puts the total number of locations at around 24,600, including about 23,000 in Mexico, 550 in Brazil, 550 in Colombia, 200 in Peru and 300 in Chile. And the pace of growth globally is also picking up “quite fast.”

FEMSA also operates more than 1,200 Shell Select franchised stores in Brazil through a joint venture with Raizen. It also has 560 gas stations in Mexico under the OXXO Gas brand and operates some Pemex stations.

While the Valora unit in Switzerland does not carry the OXXO brand, there is still “a lot of capability sharing that’s part of our focus going forward, and how we leverage that global network and process the capabilities and the know-how that we create through all of these different experiences and enhance our everyday operations in every market where we operate,” Spas said.

That capability sharing is part of the U.S. strategy, as well, he said.

Long Time Coming

FEMSA has long held aspirations to expand OXXO into the United States. The chain opened “proof-of-concept” stores in Eagle Pass, Texas, in 2014 and Laredo, Texas, in 2015. It said it planned to invest more than $850 million and open as many as 900 U.S. c-stores over 10 years; however, Texas law prohibited firms with wholesale ties to the liquor industry from owning retail outlets, and the two stores could not sell alcohol. At the time, FEMSA had a 20% stake in Dutch brewer Heineken.

In 2023, after a “very thorough” strategic review, the company announced the FEMSA Forward strategy, focusing on three core businesses—beverages, retail and digital. The review triggered a series of strategic decisions, including the divestiture of the Heineken stake. “Once that happened, we were clear to go forward without any of the three-tiered system restrictions in the U.S. and that was the first stepping stone for the U.S. strategy,” he said, “We underwent another strategic analysis, and we identified our path to growth in the U.S., and that’s how we ended up acquiring the Delek assets.”

The Laredo store is still open, Spas said. “It was very difficult to manage a business so small. We had to have a platform, and Delek is the moment, the time and the opportunity. Eventually that store in Laredo will be incorporated into our platform.”

To Rebrand or Not to Rebrand?

It seems obvious that FEMSA will rebrand the Delek US c-stores to the OXXO brand. But the company is approaching the matter methodically. “You can’t impose a model,” said Spas.

“We’re a very confident company,” he said. “But at the same time, we are super humble. Every time we approach and enter a different market, the first thing we need to do is understand thoroughly the consumers, their needs, the market context, the operating environment—we start from there and then we define the way to go. It is clear that in the case of the U.S. and particularly in Texas and El Paso and New Mexico that the OXXO brand has very strong equity. From direct experiences of consumers in Mexico going back and forth, there’s high brand recognition. And there’s a high appreciation for the value proposition that the consumers see in Mexico. So it is absolutely clear that we will rebrand some of these stores.”

FEMSA will adapt its U.S. retail value proposition to local needs, bring more or less of the OXXO Mexico “imprint” to the stores, Spas said. “I don’t know if we’re going to rebrand 100% of the stores,” he added. “We are not uncomfortable today in our thinking with potentially a multi-brand approach, given the fact that we all have an ambition to be a significant player in the. U.S., to be one of the top players in in the U.S., and we know that’s a long journey and that will require a lot of adjustments. But clearly the OXXO brand and the OXXO value proposition will be an important core component of our strategy in the. U.S.”

The company will begin converting the stores in El Paso.

“We have an initial hypothesis and schedule for this, but we will adjust it accordingly,” he said.

Throughout its global retail network, one of FEMSA’s “core capabilities is consumer understanding and hyper-segmentation and adapting that segmentation into or translating that segmentation into execution. Our segmentation is very granular, and that is something that we believe we want and can do in the U.S. too. In order to do that well, you have to understand your consumer.,” he said.

FEMSA operates “neighborhood by neighborhood,” he said. “You walk into an OXXO in Colombia and it looks extremely familiar to you if you’ve been in Mexico, but it’s definitely different—the offering, the food concepts, the value proposition in general is different from places in Mexico. But if you go into an OXXO in Monterrey, Tijuana, Yucatan or Mexico City, they also have significant differences.”

As for what U.S. customers might expect to find in the OXXO-operated stores, Spas touts the brand’s Andatti coffee program, launched in 2005. Andatti is a 100% Mexican coffee from a select mix of Arabic grains from the best coffee areas: Veracruz, Chiapas and Oaxaca, according to the OXXO website.

“Our coffee program is very good, and that’s going to be one of the first things that we’re going to be rolling out into the Texas market,” he said. “There’s clearly a lot of expectation from the consumers on some of the assortments that we have in Mexico that are not present in the U.S., so that is clearly something that we’re looking at.”

He also said that financial services are a very important part of OXXO’s offering in Mexico. “The OXXO store is not only a place to buy beverages and physical products, but it’s also a place where consumers go every day to solve a lot of their routine demands and needs, financial services being one of them, and that is also an area of focus that we want to develop strongly in the U.S. We recognize that many of our potential consumers in the U.S. do a lot of remittances into Mexico, and an OXXO-to-OXXO solution would be fantastic for them, and we’re working on that. So that is also something that we believe will be a very strong element of our value proposition.”

In-store changes won’t be obvious immediately, but the company “is rapidly moving along those lines” and will announce changes in “upcoming weeks.” It is working at “a very accelerated phase in that regard,” said Spas. “But we definitely have to respect all of the legal timings and everything that you need to do. So Oct. 1 was the first day, and from there on you will start to see some changes, and we will announce them properly in due course.”

Where Will OXXO Grow Next?

FEMSA’s global profile, and its vow to be a major player in the U.S. convenience-store industry, begs the question, where will the company expand to next?

“We have a preliminary view and hypothesis of where our areas of interest are in the U.S.,” Spas said. “Our focus is Southwest and Southeast of the U.S. But we definitely have an ambition to grow and be relevant to all consumers. We’re not focused on a Hispanic play or a Mexican-American play, but we want to appeal to the broadest audience possible within some geographical areas that we have set as a focus. So Southwest to South and Southeast of the U.S., we believe that’s our primary area of focus.”

He added that new-to-industry (NTI) sites will be part of the chain’s plan along with acquisitions.

“Our growth strategy will clearly be a combination of organic growth and inorganic growth. So expect more acquisitions going forward. This is clearly a market in a consolidation stage right now, and there’s still a lot of fragmentation. So that presents opportunities for us to create a platform and bring other players into our platform through acquisitions. But at the same time, the OXXO business model, the FEMSA retail business, is an organic growth machine. We have created a factory for organic growth, It’s very clear in its processes and in its model. And that has allowed us to grow at very fast rates. That is something that we believe we can also apply in the U.S. market.”

As for what to expect from this new-to-the-U.S. retailer and how it will tackle the U.S. market, Spas summed up the FEMSA approach: “We will speak to the markets through actions and hopefully through results,” Spas concluded. At FEMSA, “we have a very long-term view, but at the same time, we’re very structured in our processes and very disciplined and very rigorous. And that allows us, once we have clarity on what to do, to move very fast and be very agile. We’re a company that likes to innovate a lot. Trial fast. Fail fast. Move on and constantly learn. So that’s what you will end up seeing in the markets.”

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