Rodrigo Alcantara

Rodrigo Alcantara asked how Coca-Cola FEMSA (KOF) fits into FEMSA's new 'Fit for Purpose' structure, given the company's pragmatic approach to its businesses. He also requested comments on the recent security events in Jalisco and their impact on OXXO stores.

Answer

CEO José Antonio Fernández Garza-Lagüera stated that FEMSA continuously evaluates its businesses and, while pragmatic, sees a strong future for KOF and Retail. He acknowledged that merging them if they were separate would not be considered, but for now, the current structure works. Regarding Jalisco, he recognized the heroic efforts of employees and customers, reported no customer injuries, and only minor injuries to four employees. He noted that up to 6,000 stores were temporarily closed as a precaution, with 90% reopening the next day, and about 200 stores affected by damage, most expected to be operational within a week. He praised the collaboration with security authorities and the quick return to normalcy.

Rodrigo Alcantara asked about Coca-Cola FEMSA's (KOF) fit within FEMSA's new 'Fit for Purpose' structure and sought comments on the recent security events in Jalisco affecting OXXO stores.

Answer

CEO José Antonio Fernández Garza-Lagüera stated that while FEMSA is pragmatic and constantly evaluates its businesses, the current structure with KOF works well, and a separation has many implications. Regarding Jalisco, he acknowledged the sudden unfortunate events, praised employees and customers for protecting stores, reported minor injuries to 4 employees, and noted that 6,000 stores were temporarily closed for precaution, with most reopening quickly and authorities providing close collaboration.

Rodrigo Alcantara questioned the renewed excitement for OXXO's food strategy, given its historically slow adoption, asking what makes this time different and if faster progress is expected. He also inquired about the potential impact of OXXO Brazil's consolidation on Proximity Americas' margins.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, expressed encouragement from South American operations' success in food, emphasizing a new focus on coffee as a traffic driver paired with breakfast items. He noted experimentation with convenient, on-the-go food items, differentiating from complex offerings like tacos. Regarding OXXO Brazil, he stated that its current 600 stores would not significantly impact Proximity Americas' margins, with plans for clearer reporting next year.

Rodrigo Alcantara from UBS questioned the new CEO's renewed excitement for OXXO's food business, asking what makes this time different and if faster adoption is expected. He also inquired about the potential impact of OXXO Brazil's consolidation on FEMSA's consolidated or Proximity Americas margins.

Answer

José Antonio Fernández Garza-Laguera, CEO of Fomento Económico Mexicano, expressed excitement for food, citing the success of South American operations focused on food and the potential of coffee as a traffic driver paired with breakfast items. He emphasized focusing on convenient, hand-held items rather than traditional street food. Juan Fonseca, Head of Investor Relations, stated that OXXO Brazil's consolidation (600 stores) is unlikely to significantly move the needle on Proximity Americas margins, and a different outlook for proximity numbers will be proposed next year.

Rodrigo Alcantara from UBS Group asked about the sustainability of operating expense efficiencies at Proximity Americas, particularly on the labor front, and questioned the drivers behind rising G&A expenses.

Answer

CFO Martín Yániz explained that while not yet compliant with a potential 40-hour work week, the company is actively experimenting with dynamic shifts to prepare. He attributed higher G&A to transformational projects and the OXXO USA consolidation, expecting improvement ahead. He affirmed they will continue using technology and flexible policies to mitigate rising labor costs.

Rodrigo Alcantara questioned the sustainability of OpEx efficiencies at Proximity Americas, OXXO's readiness for a potential 40-hour work week, and the drivers behind rising G&A expenses.

Answer

CFO Martín Yániz explained that while not yet compliant with a 40-hour week (as it is not yet law), OXXO is actively experimenting with dynamic shifts to prepare. He attributed G&A growth to transformational projects and the OXXO USA consolidation, expecting improvement. He affirmed the company will continue battling labor cost inflation with efficiency measures.

Rodrigo Alcantara asked for more details on initiatives to create a leaner labor structure at OXXO stores, specifically how the staff-per-store could be reduced, and the timeline for these initiatives to reflect in margins.

Answer

Jose Antonio Fernández, CEO of the Proximity and Health Division, explained they are reducing the full-time equivalent per store from 6.7 towards 6.5 by using advanced analytics for more precise, dynamic staffing based on store-specific needs like coffee or financial services volume, rather than just transactions. CFO Martin Arias Yaniz added that this includes more dynamic shift scheduling. Fernández stated the goal is to get as lean as possible without harming the value proposition, in anticipation of future minimum wage increases.

Rodrigo Alcantara from UBS asked about the sustainability of OXXO's gross margin expansion and requested an update on the operational performance, customer reception, and profitability of the OXXO business in Brazil.

Answer

Executive Juan Fonseca addressed the gross margin, clarifying that 2024's 300bps expansion was extraordinary and that future, more moderate growth will be driven by commercial income, financial services, and enhanced pricing capabilities. Regarding Brazil, CFO Martin Arias Yaniz and another executive highlighted strong same-store sales, positive brand awareness in Sao Paulo, and a current focus on improving operational metrics to build a solid base for the next wave of growth.

Rodrigo Alcantara from UBS followed up on OXXO's gross margin, asking for a more granular breakdown between commercial income and services to assess sustainability, and questioned the contribution from the Amazon partnership.

Answer

Executive Juan Fonseca stated that while a specific breakdown would not be provided, commercial income is the larger contributor to gross margin expansion, partly driven by having major brewers compete for shelf space. He also highlighted a resurgence in traditional financial services through partnerships with banks and e-commerce players like Amazon and Mercado Libre, which drives both direct profit and crucial store footfall.

Rodrigo Alcantara asked for elaboration on the drivers behind Brazil's encouraging momentum in non-alcoholic beverages, including Zero Concepts, competitor performance, price relativity, and digital tools. He also sought an explanation for the significant outflow in working capital, specifically regarding accounts payable, and when normalization is expected.

Answer

CEO Ian Craig attributed Brazil's strong performance to a long-term sustainable growth model, leveraging brands, consistent investment, wide distribution, improved customer service, and digital enablers, highlighting the success of the 'Brazil playbook' for Coke Zero and Sprite Zero. CFO Gerardo Cruz Celaya explained the working capital outflow was a base effect from a significant increase in accounts payable in Q4 2024 due to ERP rollout delays, expecting normalization from Q4 2025 onwards.

Rodrigo Alcantara asked for elaboration on the strong momentum in Brazil, including drivers of category growth and relative performance against competitors, and for an explanation of the significant working capital outflow in Q4 2025.

Answer

CEO Ian Craig attributed Brazil's performance to a consistent long-term growth model, leveraging portfolio, investment, distribution, customer service, and digital enablers like Juntos+ Advisor, leading to significant share gains. CFO Gerardo Cruz Celaya explained the working capital outflow was a base effect from an unusual increase in accounts payable in Q4 2024 due to SAP S/4HANA ERP rollout delays, expecting normalization from Q4 2025.

Rodrigo Alcantara asked about the performance and relevance of the dairy category, particularly the Santa Clara brand, for Coca-Cola FEMSA. He also inquired about preliminary risks to Mexico's Q4 volumes due to weather and macro conditions, and the outlook for Brazil's Q4 volumes given its share gain momentum.

Answer

CEO Ian Craig highlighted dairy (Santa Clara) as an outperformer, with the stills business growing 20% year-to-date, and expressed excitement for continued innovation. CFO Gerardo Cruz noted that Mexico's Q4 weather is improving, and an uptrend in volume performance is expected, with macro conditions being the primary driver of Q3 underperformance. Investor Relations Director Jorge Collazo added that Brazil's Q4 weather is also improving after a cooler Q3. He clarified that the recent Veracruz disaster in Mexico had a non-material impact on overall volumes (approx. 350,000 unit cases over 8 days), with the company focusing on community support.

Rodrigo Alcantara with UBS asked about the dairy category's performance for Coca-Cola FEMSA, specifically what is driving the strong growth and the relevance of the Santa Clara brand. He also inquired about any preliminary risks to Mexico's Q4 volumes due to weather and weak macro conditions, and sought commentary on Brazil's Q4 volumes, including share gain momentum and consumer dynamics.

Answer

CEO Ian Craig highlighted dairy as an outperformer, with the stills business growing 20% year-to-date, driven by the Santa Clara brand's strong performance and innovation potential. He expects dairy to continue its strong growth despite macro weakness. Regarding Q4, Ian Craig noted improving weather patterns are expected to help, leading to a slight uptrend in volume performance compared to year-to-date. Investor Relations Director Jorge Collazo added that unfavorable weather in Brazil in early October seems to be ending, and while Veracruz in Mexico faced storms, the business impact was not material, with the company focusing on community support.

Rodrigo Alcantara from UBS Group AG questioned the drivers behind the company's price/mix performance, noting it held up surprisingly well in Mexico despite promotions. He asked for the underlying trends and second-half expectations for Mexico, and queried the sustainability of the strong price/mix seen in Brazil.

Answer

CEO Iain Craig García explained that while pricing was initially firm, the company is now adopting a more cautious stance in Mexico, focusing on affordability at the MXN 20 price point. For Brazil, he clarified that the strong price/mix was driven by favorable mix shifts towards single-serve presentations and Coke Zero, rather than aggressive price increases. CFO Gerardo Cruz Celaya confirmed the sharp pickup in single-serve mix in Brazil was a key factor.

Rodrigo Alcantara of UBS Group AG inquired about the drivers behind the resilient price/mix in Mexico despite a challenging environment and asked about the sustainability of the strong price/mix performance observed in Brazil.

Answer

CEO Iain Craig García explained that Mexico's price/mix reflected initial preparations for a strong season that did not materialize, and the company is now adopting a more cautious pricing stance for H2 with a focus on affordability. For Brazil, he and CFO Gerardo Cruz Celaya clarified that the strong price/mix was driven by favorable mix shifts, including a sharp increase in single-serve presentation and significant growth in Coke Zero, rather than aggressive price increases.

Rodrigo Alcantara inquired about Coca-Cola FEMSA's strategy for Mexico's uncertain environment, including promotional adjustments and price elasticity, and asked for details on the full-year 2025 savings target.

Answer

CEO Ian Marcel Craig García explained that KOF swiftly reacted to a competitive, promotion-heavy market in Mexico by intensifying its own promotional calendar, noting that price elasticity is currently high. CFO Gerardo Celaya quantified the 2025 savings target at approximately MXN 90 million, distributed across operations, with a particular focus on Mexico and Colombia due to softer consumer sentiment.

Rodrigo Alcantara from UBS asked for management's view on the portfolio's elasticity in Brazil given the economic outlook, sought clarification on a CapEx reporting discrepancy, and inquired about higher inventory-related cash outflows.

Answer

CEO Ian Marcel Craig García expressed confidence in the Brazil operation, noting that despite slower GDP growth, KOF has very favorable year-over-year comparisons starting in May due to the 2024 plant disruption. Executive Jorge Alejandro Pereda clarified that the larger CapEx figure includes commitments, while the smaller is cash paid. CFO Gerardo Celaya explained that working capital was impacted by the strategic consumption of reserve inventories to meet demand.

Rodrigo Alcantara requested the specific data points that support management's claim of improved brand equity, given the market share outcome. He also asked for an update on the progress of the revamped strategy for the Skol brand.

Answer

CEO Carlos Eduardo Klutzenschell Lisboa explained that brand equity is tracked via 'brand power' metrics (measuring how different, salient, and meaningful a brand is), which have shown improvement. He also noted the share loss was less than historical models predicted for the given price relativity. For Skol, he highlighted a 'v-curve' recovery since Carnival, driven by improved distribution and point-of-sale execution.