FEMSA's OXXO Stores To Bring More Beer Brands To Mexico

Fomento Economico Mexicano, S.A.B. de C.V. (NYSE:FMX) or FEMSA’s Cadena Comercial OXXO S.A. de C.V. (OXXO stores) has made a new commercial pact to sell Grupo Modelo’s beer brands. Per the deal, OXXO stores will now sell Grupo Modelo’s leading beer brands, including Corona and Pacifico. This agreement is likely to be formalized in March 2019.

Grupo Modelo’s portfolio includes some of Mexico's most popular beer brands including Corona, Pacifico, Victoria and Modelo. Further, this Anheuser-Busch InBev (NYSE:BUD) subsidiary imports Budweiser and Bud Light. On the other hand, OXXO is the largest convenience store chain in Mexico.

Notably, OXXO stores have exclusively sold beer for Heineken N.V’s (OTC:HEINY) Mexican subsidiary—Cervezas Cuauhtemoc Moctezuma, S.A. de C.V. (“HEINEKEN Mexico”)—under its 10-year commercial agreement that dates back to 2010. Concurrent to signing of the deal with Grupo Modelo, FEMSA extended its existing commercial pact with HEINEKEN Mexico for another five years with some key changes. This extension marks a renegotiation well ahead of the expiry, scheduled for 2020.

The extended deal includes provisions for the sale of beer brands from both Heineken and Grupo Modelo in Mexico beginning April 2019, with a gradual expansion thereafter. Starting 2019, OXXO stores will simultaneously sell both brand portfolios in Mexico’s biggest cities including Mexico City and Guadalajara. This will be extended to stores nationwide by 2022.

Here it is imperative to mention that these deals will not only enhance the productivity of the beer category, but also add value to the Mexican beer industry. This will also boost the value proposition of OXXO stores, which contributes nearly 35% to FEMSA’s revenues.

A glance at FEMSA’s price performance shows this Zacks Rank #4 (Sell) stock has lost 8.1% in the past six months, wider than the S&P 500 index's 3.6% decline.

FEMSA, which belongs to Beverages-Soft Drinks industry, has been witnessing higher operating expenses on gradual shift of store teams to employee-based, higher transportation costs, higher electricity tariffs and organic growth of OXXO’s international operations. Higher tariff on steel and aluminium leading to higher input costs (particularly packaging) is an added concern.

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