Fomento Economico Mexicano S.A.B. de C.V.

Welcome to the FEMSA's first quarter 2025 results conference call. My name is Alan and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you'll have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you'll be connected to an operator. I'll now hand you over to your host, Juan Fonseca, to begin the press. Thank you.

Thank you. Good morning, everyone. Welcome to FEMSA's first quarter 2025 results conference call. Today we are joined by José Antonio Fernández Garzalagüera, CEO of our Proximity and Health Division, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola FEMSA's industry relations team. The plan for today is for Jose to open the conversation with some comments on the performance of the business during the first quarter, particularly at Proximity Americas, and then to provide a quick update on our retail portfolio. After Jose's remarks, Martin will provide more detail on our quarterly results. Finally, we will open the call for your questions. Jose, please go ahead.

Thank you, Juan. Good morning, everyone. During the first quarter, FEMSA was able to navigate a challenging environment across several markets, particularly in Mexico, taking advantage of its resilient, geographically diversified business platform. Within proximity and health, however, Mexico is by far the biggest component, and the division results will inevitably reflect whatever is happening in these core markets. Our results for the first quarter reflect a challenging set of headwinds particularly in proximity America, combining a persistently soft consumer environment in Mexico with a tough calendar setup and against a demanding comparison base. Therefore, I would like for my remarks today to provide you with three things. First, our assessment of the causes of the underwhelming numbers, particularly related to same-store traffic in OXO Mexico. Second, an overview of some of the actions we're taking to offset or mitigate the impact in Mexico, and finally, our expectations for the remainder of the year, including what we foresee will be a better second half in Mexico that should help us deliver a solid full-year result despite the slow start. After that, we will give you an update on the rest of the operations. During the first quarter, Same-store sales for proximity Americas contracted by 1.8%, with average ticket growing 5.1%, slightly ahead of inflation, but average traffic contracting 6.6%, continuing a trend that has been in place for several quarters. The calendar effects are straightforward. We had one day less in February, and the entire holy week shifted to the second quarter this year. Adjusting for those differences, we estimate that same store sales would have been flat. Beyond that, there is an undeniable weakness in the consumer environment that first manifested itself around the middle of last year, just after the election, and consistent with previous electoral years. Moreover, the ongoing uncertainty around trade with the U.S. has exacerbated What we already expected would be a slow start to the year due to the postponement of many investment decisions until greater clarity is achieved. Other negative traffic drivers include a particularly colder month of January impacting high traffic categories such as alcoholic and non-alcoholic beverages, cigarettes and snacks, as well as certain localized markets where consumers have reduced their movement outside the home after certain hours as a response to a heightened perception of risk. Finally, in terms of channel dynamics, we continue to see the traditional trade gradually recover some of the market share it lost to modern channels during the COVID pandemic. Historically, the traditional trade has done better in economic slowdowns as people cut down on impulse buys and seek the smaller price point SKUs of this channel. As a result of the consumer environment and consistent with what we have seen in similar downturns in the past, some of the TPG suppliers are adjusting their package strategy accordingly. For example, increasing the availability of smaller price point multi-serve and returnable presentations that are also well-suited for the traditional phrase. However, we do not have any clear evidence that other channels may be gaining competitiveness relative to OXO. And our reading to date is that the majority of the slowdown is attributable to factors outside of our control, such as the macro environment, weather, and calendar effects, and consistent with untapped figures for other channels. And this is a good segue to move on and discuss some of the actions we're taking. We have launched several commercial and cost initiatives with three clear objectives. One, to drive traffic and top line. Two, to maintain our positive trajectory of gross margin expansion. And three, cost containment initiatives to ensure the leanest organization possible, while not mortgaging our future by cutting transformational initiatives. Within the top-line initiatives, we should highlight our push for increased affordability across categories, working in tandem with our key supplier partners. These initiatives aim to expand our assortment to include more affordable brands and presentations, including in key categories like tobacco, soft drinks, beer, spirits, and salty snacks. We have launched targeted plans to reactivate the Andati coffee offering and to support the beer and soft drink categories, including returnable multi-serves. Furthermore, we continue to increase the breadth of our financial services and correspondent partnerships with banks and fintechs, while also increasingly leveraging the insights from our SPIN Premier Loyalty Program to improve the effectiveness of our promotion. And this connects with our efforts to drive profitability at the gross margin level. As we keep working with our supplying partners to find incremental value through the precise execution of more targeted promotions. On this front, as you saw in our results, a bright spot at Proximity America was once again the continued margin expansion at the gross level. As we look at the pipeline of commercial collaboration we see in the months ahead, we are optimistic that we can continue to drive these metrics higher. There are several important negotiations underway in key categories that we expect to provide us with continued tailwinds at the gross margin level. Further down the income statement, we again face pressure from another low double-digit increase in the minimum wage, as well as a loss of operating leverage from the soft traffic trends and the incorporation of the results from the lower-margin decay operation in the U.S. We also maintained our pace of store-based expansion and capability-building activities. In an effort to offset rising expenses, we have made great strides reducing the FTE or full-time equivalent per store, generating real efficiencies at scale, as well as a reduction in overhead. Despite these efforts, we saw a swing from an expansion of 120 basis points at the gross level to a contraction of similar magnitude at the operating level. I have asked all of our operations to drill into overhead expenses where I think opportunities to be a leaner and more effective organization. And that brings me to the general outlook for the remainder of the year. Based on our projections, we believe we will see a sequential improvement in top-line dynamics beginning in the second quarter and peaking for the year during the third quarter. Such improvement is partly within our control through the implementation of all the commercial and cost control initiatives I just described, and partly outside of our control, requiring economic activity and consumer sentiment in Mexico to gradually peak up. Therefore, as a slow start, our base case expectation for the full year remains for a high single-digit increase in revenues with stable operating margins relative to 2024. Moving on, let me give you a brief update on some of our other formats and markets that we know are top of mind for investors. In the U.S., We continue our testing and experimentation as we advance in the definition of our optimal value proposition for this market. As you may remember from our last call, we have already started the first conversions of some of the DK stores into OXO. Back in February, we announced the first one. And since then, we have reached 15 OXO units, all of them in the Midlands-Odessa metro area in West Texas. While consumer reaction to the rebranding has been very positive, there is a lot of work to be done as we close the value proposition gap, including in the key prepared food category. On that front, we have already made progress bringing the Andati coffee offering from our Mexico operations, and we are testing improved food offerings in approximately 20% of the store base. The OxoMexico team is also sharing with the U.S. team some of its expert capabilities, such as pricing, assortment, and segmentation, and there is more to come. Again, very early days, and we will keep you posted on our progress there. In Brazil, we continue to make progress reducing shrinkage and employee turnover, which have been two areas of operational focus in recent quarters. We continue to see the brand and value proposition grow in consumer preference. and our expansion plans for this year are unchanged, with approximately 100 new OXOs in the state of Sao Paulo. At Vara, we had a good start to the year in terms of store-based expansion, adding roughly twice as many stores during the quarter compared to last year, and on track to add approximately 235 net new stores in 2025. We recently opened a new distribution center in Querétaro, And we're making progress as we set up our second region in northern Mexico, while also advancing as we develop and grow the supplier network for our key private labels. In Europe, Valora's results show solid growth in Mexican pesos, given the meaningful weakening of the peso against European currencies year on year. But on a comparable basis, the numbers are sluggish. We see positive trends in retail supported by certain categories like tobacco and from a growing commercial income platform. However, B2B service is lapping a very difficult comparison base from the successful one-time pretzel project we executed last year. We continue to work to improve traffic to B2C food service, which is somewhat dependent on German economic growth. And on the retail front in the coming months, we expect to rebrand a meaningful number of our DV stores in German train stations to our successful ABEC banner, which over time should help us in our organic growth efforts as the ABEC brand becomes better known in Germany. At Oxo Gas, we did well in the first quarter, but in the coming quarters, we will be increasing headwinds from the voluntary price commitments we have put in place for regular unleaded gasoline together with the rest of the industry in Mexico. And finally, at Pensa Health, we saw improving operational trends across most markets except Mexico, helped by the positive impact of FX, as was the case in Europe. The brightest spot continues to be our retail operation in Colombia, but results out of Chile and Ecuador were also solid. For each part, Mexico is in full operational turnaround mode. including a meaningful reciting as we rationalize the store base and continue to fine-tune the valuation of our two-format strategy. Expect further news on this front as the new management team completes its work of getting up to speed and fine-tuning the new strategy. Wrapping up, we would like to leave you with the message that even though the start of the year was slow in the core proximity America's business, Based on the information we have today, our expectation remains that the numbers will improve as we go through the year, positioning us well to deliver another solid set of results for the full year of 2025. And with that, I will now turn the call over to Martin to discuss SAMHSA first quarter results. Martin, please go ahead.

Thank you, Jose. Good morning, everyone, and thank you for joining us today. As you have seen in our press release, We've added a column to the various income statements representing comparable figures to help you isolate the effects of currency fluctuations as well as acquisitions. We are using the same definitions and following the same methodology used for many years by Cogarcoa La FEMSA in their own disclosure, which will surely be familiar to many of you. Hopefully, you will find this information useful. Let me begin with FEMSA's consolidated financial and operational results for the first quarter of 2025. Total revenues increased 11.1% while operating income grew 4.9% year over year, reflecting mixed results from our business units as several of them faced a challenge macroeconomic backdrop and softer consumer demand in our key Mexican market, as well as unfavorable calendar effects throughout our businesses. On a comparable basis, total revenues and operating income grew by 5.6% and 1.7% respectively, evidencing the currency tailwinds which helped us this quarter. Net consolidated income increased 54.3% to 8.9 billion pesos, mainly driven by, one, a 630 million peso increase in income from operations, two, a 3 billion peso increase in the other financial income related to net foreign exchange gain, and gains in our financial instruments, mainly as a result of an increase in the price of our remaining high-income shares. And three, a 2.4 billion peso increase in net income from discontinued operations driven by a gain from the sale of PTM. All of this despite interest expense, higher interest expense and income taxes as we have explained in our earnings release. Moving to the operations, I will try to be brief so as not to repeat most of what Jose already touched on. Proximity America has delivered a 6.8% or 1.4% on a comparable basis increase in total revenues and 11.8% decline or 11% on a comparable basis in income from operations. The decline in operating income reflects soft top line growth. accompanied with a solid gross margin expansion. However, offset by higher operating expenses resulting from increased labor costs, continued investment in transformational initiatives, and reduced operating leverage. As Jose mentioned, we are implementing a series of top-line growth and cost containment initiatives, which we expect to bear fruit in the second half of the year, ideally with a reactivation of the Mexican economy. On the expansion front, OXXO-México opened 361 net new stores during the first quarter, a good start to the year, while net additions reached 31 in Colombia and 21 in Brazil through our Grupo NOS joint venture. Now turning to Proximity Europe. Previews increased 18% in peso terms, or 1% on a comparable basis. Gross profits rose 14.8% in pesos, but declined 1.9% on a currency-neutral basis, resulting in a margin contraction of 110 basis points, primarily due to software performance in the higher margin B2B food service segment, and flat results in the other businesses. At the operating level, Biloda reported a 14.6% decrease in income from operations, or 27.7% on a comparable basis, reflecting a 90 basis point margin contraction, reflecting the impact of the weaker higher margin B2B performance against a very demanding comparison base. The health division delivered revenue growth of 21% in pesos, or 7% on a comparable basis. Colombia had stellar performance, while Ecuador and Chile had solid results, driving the division's momentum for the quarter. In contrast, Mexico remained challenging, but we have begun the process of closing underperforming stores, which we expect to total in excess of 400 by the end of the year. Operating income rose 27.4% or 11.7% on a comparable basis, with the margin expanding by 20 basis points to 3.5%, particularly reflecting the stock growth in the retail segment in Colombia and solid performance from Chile and Ecuador. Shifting to SPIN. We are executing against our vision to build an omnichannel ecosystem anchored in customer engagement, loyalty, data-driven innovation, and financial services. SPIN by OXO continues to gain traction, with our active user base showing double-digit growth year-over-year to 8.9 million active users. We are also seeing increased modernization through a higher number of transactions. The SPIN Premier Loyalty Program is expanding its relevance, now linked to 42.5% of Oxfam Mexico sales and becoming an important lever for engagement, reaching 25.2 million active users, an increase of 16.1% compared to last year. As we continue to grow, our focus is shifting towards improving unit economics using advanced analytics to refine our offering and drive incremental value across the system. Lastly, Coca-Cola Pensa delivered another solid quarter, underscoring the strength of its diversified portfolio, geographic footprint, and discipline operating model. Despite soft volume trends in Mexico, this was largely offset by growth in Brazil and certain other markets. Top line grew by 10% or 5.9% on a comparable basis. supported by revenue growth management initiatives, while income from operations grew at a slightly slower pace of 7.4% or 3.2% on a comparable basis, reflecting mostly higher distribution expenses. The team remains focused on protecting profitability through ongoing efficiency initiatives and by leveraging its proven execution capabilities. As always, we invite you to refer to Coca-Cola FEMSA's earnings call webcast for further details. Before closing, let me briefly update you on our capital allocation strategy. As we announced last February, we remain fully committed to balancing disciplined reinvestment in our core businesses while maximizing returns to shareholders as we advance towards our target leverage. During the first quarter, We deployed 8.8 billion pesos in CapEx, representing approximately 4.5% of total revenues. There's a continued focus on expanding our retail footprint and strengthening our supply chain infrastructure. Regarding the return of capital to shareholders, in the first quarter, we repurchased approximately 1.3 billion pesos of FEMSA BD units in the local market. We also paid in January the last installment of last year's declared ordinary and extraordinary dividends for a total amount of 6.1 billion pesos or nearly $300 million. Additionally, last Friday, we distributed the first quarterly installment of both the ordinary and extraordinary dividends for 2025 for a total amount of nearly 12 billion pesos or approximately $610 million at current exchange rates. as approved by our recent annual shareholders meeting. The total amount allocated for shareholder returns from March 2024 to March 2025, including both ordinary and external distribution amounts, is 44.8 billion pesos, or around $2.5 billion. For the period from March 2025 to March 2026, We have committed to returning 66 billion pesos, or nearly 3.2 billion at current exchange rates. Looking ahead, we remain optimistic about the opportunities ahead. And while we acknowledge that this year represents somewhat of an uphill battle, the first quarter usually is our least important quarter. As the macroeconomic and competitive environment continues to evolve, we are confident in our strategy, our team, and the resilience of our diversified portfolio, and trust our results will revert back to the long-term growth trajectory as they have always done. As we move forward, our focus will remain on discipline execution to deliver solid results for the rest of the year and beyond. And with that, we will now open the call for questions. Operator, please go ahead.

Thank you. If you'd like to ask a question or make a contribution to this call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You will be advised when to ask your question. We will take our first question from Tiago Portolucci. Goldman Sachs, your line is open. Please go ahead.

Yes. Hi. Good morning, everyone. Jose Martin Juan, thank you very much for the call and the opportunity of talking to you guys. Always a pleasure. I would like to explore a little bit more the momentum for Proximity Americas, particularly Mexico, right? Jose, the initial remarks that you shared were super helpful, but double-clicking into those, I think the first point I would love to hear from you is what's your feeling regarding traffic share, right? You alluded to NTAD, but obviously we can't imply necessarily how much traffic has moved there. But I think it's fair to assume OXO has apparently lost some traffic sharing the quarter, right? So just to understand if this is your reading and if you have a clear view on to who you are losing this and what are the efforts to adjust, this is number one. The number two, you mentioned this being the fourth quarter in a row that you are declining traffic, right? Does this trend change at all your appetite for further growth or, you know, the projections for the returns on capital of these new stores that are opening in the region? And then, finally, at the third point within this proximity debate, mix has been an important source of compensation at the gross margin, right? Could you please give us the ballpark how your mix has evolved over the last two years? More curious to see how much financial services and commercial income penetration you have there and potentially to where you believe this could get over the next two years. Those are the questions. Thank you very much.

Tiago, thank you very much. Very spot on question. A lot of color to address on these things. So I would say First, on the traffic issue, the biggest impact that we see are the calendar effects, particularly, obviously, the loss of the Holy Week or the shift of the Holy Week to the second quarter, the very cold weather in the north of Mexico in January, and the broader economic downfall. So those are what we think are the biggest drivers of traffic slowdown, and we see it we saw how in January we were grading in hot beverages and we were very soft on cold beverages. I mean, it's very particular to what happens when we have a colder than expected January. If you look at share, we've been monitoring closely our meals and measurements of share. And we, what we call the modern trade, or the convenience modern trade or the OXO channel, we lose marginal market share, but on the low single percentage of single digits, so it's very granular. But we do see a gain in share from the traditional trade. And then if you look at the six regions that Nielsen measures, 80% of our market loss decline is in the Pacific region, which is a region that includes all the way to Tijuana, to Nayarit, going through Sinaloa, and the Northeast region, which includes all the way from Chihuahua to Tamaulipas. So basically, the north of Mexico is 80% of our share loss. And those are regions where other channels, like the hard discount channels, are not really present. So it's really the traditional trade took a gain. And we see a much bigger share loss from the modern trade non-convenience and the modern trade autoservicio losing much more share than us. So that's where I think... I think we're covering some of what they lost. Yeah. And that's where we see the biggest share. So I'm not too concerned about other channels gaining or not. If you look at categories where we're losing share and the traditional trade is gaining share, the biggest driver is tobacco. And that is obviously a concern for me because I do see a shift towards tobacco on a per single deployment. We are not allowed to do that in OXO, but the traditional trade can sell on a per cigarette basis. And also lower priced tobacco products even some tobacco products that are without all its proper customs paid in. So that is something I'm concerned with. We are working with our suppliers to launch some value brands in tobacco and what we're impressed, we've already launched a brand with the help of one of our bigger tobacco players and we did see a huge increase in traffic and not a lot of shift from higher value brands to the value brands. We're just getting incremental traffic from people that are already into the value brands of tobacco. I'm not too concerned about traffic from other channels. That doesn't mean we're not doing the best we can to increase traffic in value or affordability presentations. There's a huge opportunity for OXO to execute even better the beer value brand categories in soft drinks, go back to affordability and returnability packages. We have a huge campaign with our beer suppliers to drive growth there. So I'm positive that we're going to be able to drive growth. In the store expansion front, I'm still seeing huge opportunities for us to grow, and so that's why we're not very aggressive on declining the number of store expansions. We're very aggressive on measuring the quality of the stores we're opening. We're really prioritizing quality over hitting a number per region. We see, obviously, there's going to be some cannibalization as we continue to grow, but It's still very profitable return on invested numbers, and we still see a huge opportunity for us to expand. So I'm not seeing a decline yet, but much more discipline and incentivizing the regions towards quality of the stores we're opening. And finally, I would say financial services is a category that's still growing. mid-single digits, it's helping us. We're growing with all these FinTech initiatives with a lot of alternative payments. Some of these e-commerce sites, people are really excited using Opsopay to do their payments and we're growing a lot there. We're growing a lot in the using OXO as an ATM machine, basically going with your debit card or with your FinTech credit card and going for cash. That's a big growth segment and we still see that as a huge growth opportunity and it's going to keep growing as we increase the number of players that we let into the OXO Pay network. I would also say, obviously, the OXO income or retail media things have is just getting started and has huge opportunity to keep growing. We are seeing a lot of excitement from our key suppliers to use the SPIN PREMIA information to expand, and we see a huge opportunity still for gross margin expansion from retail media, from services, and from promotional income that we still see a lot of opportunities.

I think I would add, Tiago, to what Jose just said. I mean, the way you framed the question about mix, certainly financial services and commercial income, I mean, I'm surprised myself at how quarter after quarter, year after year, we continue to talk about these two drivers. And then, of course, you look at where the growth margin is. And, you know, kind of in the mid-40s and in some, you know, fourth quarter of last year, we almost approached 50%. It's been completely incremental. We've added the number of SKUs. We've strengthened and enriched the mix of actual merchandise. But there's no question that financial services and commercial income have been doing a lot of heavy lifting in terms of the margin performance. And I think that's fantastic, right? Because to Jose's comment a few moments ago, it looks like certainly on the commercial income front, we think there's a lot more where that came from.

This is super helpful. Thank you very much both. Appreciate it. Thank you.

We will take our next question from Ben Thur. Barclays, your line is open. Please go ahead.

Good morning and thank you very much for taking my question. I would like to follow up a little bit just on what is within your control, right, within OXO. And you've talked a couple of initiatives. So I wanted to get a little bit more detail and granularity as to the initiatives that you're looking at, be it in-store or be it on the adite to achieve certain cost savings to really kind of like get maybe a little bit of a leaner structure in place within OXO in Mexico. to help drive that gross margin expansion also further down the line because it feels like a lot of it is lost and even more than is actually lost than what is gained on the gross margin level. So maybe help us understand with a couple of ideas, initiatives, what you're looking for in order to drive that gross margin expansion throughout the income statement down to the EBITDA. Thank you.

Just one second, please.

So yes, Ben, thank you. So first, on the growth margin initiatives, I think there's a lot of things that we're doing on financial services that will increase our growth margin. We are still to get authorization to begin again Banorte, and I think we already have Banco Azteca, but Banorte is set to come in as a new banking customer, and those are initiative that will help us driver our gross margins. We see opportunities for segmentation and adjusting the value proposition to increase certain categories that have opportunities for better margins by adjusting the space and the variety, and we see an opportunity there. And finally, we're expanding dramatically our retail media platform. Currently, we are promoting a little bit over 3,000 digital screens throughout our store networks, and we're more than doubling that throughout the rest of the year, and that brings incremental revenue increases. very dramatically. We are also very excited about our expansion of our controlled environment stores, what we call OxoNichos. Those are very profitable stores. They tend to mature very quickly. The investment required to open them are much smaller investment than the regular Oxo. And we're going to be opening almost about a quarter of our new store network will be OxoNicho. So over 300 stores will be that. And that will also help us in profitability. On terms of the overhead and opportunity, without giving you an estimate or a precise number, I would say there is – we see – We have some transformational initiatives that we're investing heavily on, and those weigh on the overhead. But they're already bringing a lot of revenue, so we're not going to cut on those. Also, things on the food service investment, things on retail media, things on the iCash investment, those require a full set of talented teams, a full set of people that are working hard on creating those new avenues that will – provide us a lot of value down the road. We're not cutting on those. But we do see opportunities on other sides of the overhead. Some on the region by centralizing certain administrative processes that are still scattered around throughout the region. We see an opportunity there. And then on other categories that, frankly, in some aspects of the OXO team, the teams have opportunities to become leaner and and address them. So I think those are the main issues. I would add there are other parts of proximity where I think we were investing heavily on developing teams, and now that the local teams, especially in OXO International, are more fully on in place, we can be leaner in the overhead in the central offices. So those are where I would say are the biggest opportunities. I think the number would be significant, but I would fail to give you a precise number as to how much savings will be there.

Let me also compliment some numbers. If you just drill down to Oxfam Mexico and you look at the growth of selling expenses, you can explain all the growth that we had this quarter by inflation and expansion. And despite there being an increase in the minimum wage of 12%, if I'm not mistaken, The reality is through the initiatives that were implemented with regards to staffing and much more dynamic staffing per store and taking into account peak periods, we were able to offset and keep the growth of the selling expenses at lower than you would have otherwise expected and very close to the sum of inflation and expansion.

I think that's a relevant point, Ben, the fact that even though this business is obviously super sensitive to top line and operating leverage is a key part of profitability, we have chosen to keep opening stores, not only to keep opening stores at the same pace of 1,100, 1,200 per year against a slightly slowdown of the top line, but that we again front-loaded the openings, if you look at kind of vis-a-vis last year, it wasn't quite the same number, but almost. So it's again going to be a year where a lot of the openings take place in the first half, all of which I think factors into the calculation that Martin just addressed in terms of just inflation plus that roughly 5% of the store base being added this year. It accounts for an important part of the expense increase.

Okay. Thank you.

We will take our next question from Bob Ford, Bank of America. Your line is open. Please go ahead.

Hey, thank you so much. You know, I actually think about the monetization of SPIN and SPIN-Premia. I mean, you alluded generally to some opportunities with Premia in data. But more specifically, when you look at the financial services opportunity, how are you mapping that out right now to the intermediate term?

Sure. The way the SPIN team thinks about this, the financial services, first, financial services is quite a broad concept. And obviously, it includes increasingly providing the customer with the ability to execute on its transactions through our app. and that in itself then generates the data that gives you insight into their spending habits. In order to do that and to maximize the effectiveness of the application as a method for payment, you ideally want to take that outside of the store. And we're running already some tests with our in one key city, putting out terminals, and allowing the mom and pop stores to actually be able to accept payments. So there are mom and pop stores in this city where people can actually pay their electricity bill, for example, and other utilities and other... And that platform then becomes a way where people can pay with a QR code. If you manage to create that ecosystem where you become the preferred payment system... In Mexico, the optionality there of a series of ancillary businesses around that payment platform are enormous. One distinguishing factor which our payment platform will have, which other payment platforms in Mexico will not have, is the loyalty component of the premia points. And I've actually been in the stores when I've asked the owner of the store what does the premia point bring to you? And they say, it allows me to be competitive with OXO, believe it or not. It allows me to offer a similar loyalty point that OXO offers. So they actually do not associate SPIN with the actual OXO store and they see this as a sort of advantage that allows them to be competitive relative to their other mom and pops. Once you create that ecosystem of payment platform, with this distinguishing feature of loyalty, you then, again, you're driving more data, more information, more engagement with the app, people using the app two, three times a day to make all sorts of payments, to transfer money, not only amongst themselves locally, but to receive their remittances, to do their cash-in, cash-out in the OXO store with the recycling machines that we're putting in And then you have the ability to layer in the actual financial products. And that includes taking deposits and making loans. As I've mentioned in previous calls, we do expect that over time we're going to upgrade what now is basically our FinTech license. We will upgrade it into a full banking license which will provide us with greater flexibility. Obviously we're at the very, very, very beginning days of that and we will give everybody ample time and guidance as to how that is evolving. There's no need to have any concern over the next few years of us all of a sudden growing our balance sheet dramatically because of a significant amount of lending and so on. It will be done in a very typical, very slow, very cautious way. So we avoid some of the mistakes that have been made by other retailers in rolling out these types of financial products. So again, the theme and generally the answer to your question is it's all about the ecosystem. It's not one initiative. It's integrating OXO. It's going outside of OXO. It's integrating a whole panoply of services and alternatives for the consumer for payment. that ecosystem then creates additional optionalities of all sorts of things as people engage ever more with the application. I hope that was helpful.

It makes sense. And just as a follow-up, separate question or separate topic, and that is ISA. The same-store sales in Mexico were particularly weak. I was wondering if you could just expand on what you're doing across price, assortment, and service, and what's different this time in terms of how you're changing the way you go to market. I think, as I said, something about going with two formats, which sounds a little bit more structural, but whatever you could say would be helpful.

No, again, I think, obviously, the numbers are weak, but they're weak particularly on traffic. We had a healthy ticket, but it's much more related to mix than to any price increases or anything. In the traffic space, Since, obviously, a big chunk of that had to do with the weather conditions and the calendar effects, but still, even as isolating for those effects, the traffic numbers are not where we want them to be, and we're not happy at it. We do think there is a shift in the economic conditions in Mexico, and there is an appetite to go back to certain value opportunities in our core categories. I think we should go back to providing value opportunities and affordability and returnable packaging in beer, in soft drinks, and we're already seeing an increase in traffic but in tobacco just by incorporating a few value brands. We're not seeing a shift from premium smokers to value smokers. It's just an incremental traffic. I'm confident that the full strategy that we're putting in place towards value and affordability in our core categories, but also in some of our supermarket categories or groceries and stuff will... will increase our traffic. And then we will compensate on the gross margin front with all of the activities we're doing in promotional income and some of the financial services. So that's why I'm very confident that we will turn it around. But yeah, there's a lot of things under our control that we need to work hard on to increase the traffic numbers again.

And I would add, Bob, this one. I mean, we've seen this in the past, right, where when slowdown kind of presents itself and then the consumer begins to shift from larger purchases, less frequent larger purchases in bigger boxes, they privilege from a cash flow standpoint going more frequently to the store that is close to them. And so, you know, there have been several instances in the past where also benefits, actually, from this change in habit when people say, well, I'm just going to go buy a smaller package that maybe on a per unit, per ounce basis is not the most economic way to do it, but it allows me to manage my cash flow better. And then, of course, you bring in this, we mentioned how, again, this is something that happens every time, the CPGs and, of course, being so close to Coke FEMSA, we know how good they are at this, coming up with more returnables, bigger presentations. In many ways, the SKUs that are well-suited for the mom and pops are obviously SKUs that are well-suited for us as well. And you notice how the changes in the mix, and this doesn't happen by itself, we obviously work on it, that you increase, and sometimes you had abandoned returnability because the consumer was not buying returnables anymore, And then they start asking for them again, and you obviously make sure that you can accommodate that. So I think that's another component of the confidence, which is, you know, there's really nothing unique to what we're seeing right now in terms of you look at a 20-year series. We've obviously been in these types of situations before. And also it's usually quite defensive and quite resilient. You start seeing, you know, we've talked a little bit about this You know, things like spirits, you know, the suppliers coming up with a special small 200 ml bottle, basically for Oxal, right? And so you work with these partnerships, and it ends up being, in some cases, I mean, certainly neutral, if not even beneficial in some cases.

The question was about ISA, and I should have said FEMSA Health Mexico, and I think you misunderstood me, but it was about ISA or FEMSA Health Mexico, where the same store sales number was down 11.5.

Ah, okay.

The FEMSA Health Mexico business, which is down 11.5 on the same store basis.

I'm sorry, yes. Sorry, we didn't get it.

Now we gave you another five minutes of comments, which I'm sure everybody appreciates.

I would just say our health Mexico operation is on a full turnaround mode. We had a business model that was set up towards a cost structure that was – sustainable when before the labor cost did not rise as dramatically. And when the costs of labor started to expand, the first few 20% increases in minimum wage did not hit any of our businesses because we were paying way above that, even for lower salaries. But eventually, after five years or more of 20% increase, minimum wage increases, it started to hit us and our health business in Mexico did not have the enough scale to have a very aggressive price to compete with the value players and had a cost structure that became too onerous and so we are transforming the business model into a more mainstream and premium type of store format that is giving us good results. But many of our old legacy stores are just not profitable, and we're doing a whole restructuring of that. The good thing is that we've been able to do that successfully in Chile, in Ecuador, and Colombia. We have a very strong business model where we have premium stores If you go to Ecuador, we have the Piveca store layout, which is a very good premium store layout. And we have the Sanasana, which is our value store format. And both businesses are growing dramatically. We have a similar model in Chile. And in Colombia, we're just growing dramatically with all these changes in the regulatory framework. Colombia has huge opportunities for growth in health. So in Mexico, we're rethinking and re-founding the whole business model. If you think about it, there's huge opportunities for that business to re-found itself on a more omnichannel strategy to take advantage of the OXO platform to deliver some of that OTC and even prescription drugs through a store network. So you will see a lot of initiatives of how we found that business model, but it's going to take us a few months, even a couple of years to turn that business around.

Yeah, I think I would remind everyone, I mean, how that operation really came to be in terms of the three very regional acquisitions where we bought three small you know, good brand locally operations and the effort to turn that into a national platform has been an uphill battle. And so it's always been a function of scale, I think. And, you know, as Jose was saying, the two-banner strategy that has served us well elsewhere is something that we're testing now in Mexico. But really thinking a little bit outside the box in terms of how to compete in an industry where there are two or three big incumbents that we haven't quite been able to catch up to.

Thank you so much.

We will take our next question from Ricardo Alves. Morgan Stanley, your line is open. Please go ahead.

Hello, Ricardo.

Hello, everyone. Thanks for the call. I hope you can hear me. Thanks for the opportunity as well. I have a couple of follow-ups in Mexico also, but then in the U.S. and Brazil as well. In Mexico, I think that the caller on competition in one of the first questions was really helpful, so thanks for that. But I wanted to explore a little bit more the cannibalization, so competition with yourself, if you will. It's been really impressive, the pace of growth of your stores. We have been highlighting that for a while. But I wanted to understand specifically from you, why is this major expansion, it has not been detrimental to your same-store sales? I don't know if perhaps you can share some metrics that you use to evaluate each OXO that you're opening, the betting ratios that we've talked in the past, maybe metrics that you use to assess the best spots to open new stores. I think that hearing from you why or where comes your conviction that there hasn't been a lot of cannibalization would be very helpful for the growth outlook in terms of new store openings in Mexico. In the U.S., very quickly, just a quick update on the expansion as we think about the inorganic side, if there's anything. I know you're limited into what you're able to comment, but qualitatively speaking, how you're thinking about the inorganic part of – how key the inorganic part will be for your U.S. expansion – And then as it pertains to your organic expansion, I am very curious to hear any updates on the prepared food side. If there is any, at this point, any updates in terms of targets that you have for prepared foods as a percentage of your total versus what you achieve in other regions like Mexico, and how could that be accretive to your margin? I think that this is the most interesting part of the ramp-up that you're doing in in the U.S., outside of the conversion into OXO stores, which you already mentioned. And then my last follow-up would be on the Brazil side. I appreciate the comments about the slower pace of openings in Brazil, which I think I understand, but I think that the pace of growth in terms of top line is still surprises to the upside. So let's say if the shrinkage is and employee turnover issues that you're facing, you resolve them before expected, how realistic would it be for us to model, you know, SAMHSA stepping up and speeding up the current growth scenario? Is there any bottleneck as it pertains to your partner in Brazil today that would make that impossible to execute? Or maybe the answer is not. So just assessing the possibility of speeding up Brazil if these operational struggles are resolved. Thanks again.

No, thank you. Very good questions. I will start with the last one to be quick, and I think we should spend more time on the cannibalization issue. But in Brazil, we are incredibly happy with the last few months in Brazil, not only on on cost controls, on turnover and shrinkage, but also on top line. We are incredibly happy with the momentum we're seeing. And we want to, I mean, just in the last, if the year continues like that, we are very happy that it's going to turn out to be a great opportunity for us in Brazil. We need to... We like the rate of expansion around 20 to 25% of our base. That was the rate of expansion of Oxxo even at its highest number. So I think those are the numbers that you should expect going forward, about 20 to 25% of our store base. And I think Brazil could certainly continue to grow that for the foreseeable future. So you should see from 100 to 120 to 140, et cetera, and eventually get to a level of growth that's similar to Mexico in a decade or so. So we're happy with Brazil and we will continue. And in terms with our partner, As you know, we are in a JV there. We have a great partner there, but we will continue to invest heavily behind our Brazil business. I mean, for any reasons or for any financial complications they do not follow through, we would come to an understanding with them. On the U.S., It's too early to talk about the food issue. We're iterating a few formats. We are already launching the Andati coffee brand and we're seeing incredible results. We are going to try some stores with Doña Tota and we have a partnership with a pizza chain that we are very excited to continue growing. It's a great opportunity for us to learn a category that we have not developed well in Mexico, and I think it's a huge opportunity. And we are trying a few other things in terms of fried food, et cetera, but it's too early. We would love to achieve up to 10% of our revenues of in-store sales on food service, but it's too early to tell yet how that will turn out. We need more months to iterate.

If you allow me, I think in the U.S. question, there was also an issue about organic versus inorganic growth. Ah, yes.

And I would just add on inorganic, we are obsessively focused on getting the value proposition right. I think exactly the wrong way to do it is try to be M&A-driven without the value proposition right. I mean, you see what's happening in the U.S. You guys follow it probably more than I do. The players that are winning shares are the super regionals, these WAWAs, these KCs, these quick trips. Those are the ones that are not obsessed with the big M&As. They're obsessed with getting the value proposition right and expanding organically. That's what we want to do. Obviously, we eventually will look for a good M&A opportunity if it comes. in the regions that we think we could be a big consolidator, which is the southwest and the southeast, without California and without Florida. We've been very public on that. But the most important thing is for us to have the right value proposition. We're very happy with what we're seeing in terms of excitement around the OXO brand in West Texas, in Midland and Odessa, but it's too early yet. to claim any type of victory or to expand, but our obsession would be organic growth with certain inorganic opportunities they present. And then I would just, on the cannibalization aspect, Look, I came into also in 2018, and the first project I had to work on was a big cannibalization project because we were concerned. It was an electoral year, very similar to this one. It was 2018, right after the election, and there were a lot of concerns of traffic declines in the Piedras Negras, in Moncloa, all these northern cities in Mexico. And they're still our highest return on invested capital stores. We never stopped opening. We're still opening stores today. And that's where we have a much more density of stores. There is cannibalization. We measure it. Last year, of the 1,200 or more than 1,200 stores that we opened, about 600 of them had some type of cannibalization effect around... the stores in the vicinity. Having said that, that is within the margin of we feel okay with it. The return on investment capital is still way, way above what that gives us confidence that some level of cannibalization is tolerable. As we move more into OXO niche and OXO in controlled vicinity, We are seeing much less cannibalization and that's a huge opportunity for us to continue growing. We love that format and we will continue to expand it. And I think that will limit a little bit of the cannibalization impact. We are incentivizing our regions and our expansion to focus on stores that limit cannibalization as much as possible. and that increase return on invested capital as much as possible. So we prioritize quality over quantity, but with that, we still see an opportunity to grow above, I would say, above 1,000 stores per year for the foreseeable future, and I think that will continue for at least several years ahead.

I think there was also embedded in your question a broader question about food service in Mexico. And the reality is we have high expectations and high hopes for food service in Mexico. When you look at places like the U.S. where food is 20% to 25% in the leading players of sales, and you look at places like Japan, which is over 50% of fresh food, there's definitely an enormous amount of room to grow for FEMSA. Now, Mexico's a different place. It's in a good and a bad way. And the bad way is it has significantly broader informal food offering throughout Mexico. So, you know, the taco stand at every corner, the food carts and so on, all those are potential competitors. On the good side, you know, Mexicans have many meal occasions. They have... breakfast, they have the famous mid-morning snack, they have lunch, then they have another mid-afternoon snack, and then they have dinner. And each one of those eating occasions has a variety of breads, cookies, tortas. It really is a very wide variety of things. And so we believe there's plenty of opportunity here. We definitely have to do better. We don't have a specific target. There is an ongoing debate about in how many of the stores that we have will ultimately have a food offering. And there's a general consensus it's not gonna be in all 24,000 stores. In the home occasion or the home segment of stores that are really meant to cover daily repositioning needs, probably you won't have food. But definitely you're gonna have it in the downtown, high traffic, office related or school related, or near a hospital-related type storage. So that is still a work in progress, and we don't have any clear targets to share with you at the current time.

I would just add, Ricardo, that the analytical data that we've been exploring on cannibalization tells us that it's no more than 20 to 30 basic points of same-store sales that it affects. So we're... I mean, we want it to be as near as zero as possible. Within that range, we are okay with continuing to expand given our hyroids, our marginal hyroids in our stores.

That was 20 to 30 bps, right? Sorry.

Yes, bps.

Got it. Thank you. Thank you so much, everybody. Thanks for answering all the questions and the questions within the questions. Appreciate that.

You guys are doing three questions in one. We're being very generous here. Apologies.

Apologies, Juan.

No worries. Tiago started at the very beginning setting the tone, so that's okay.

We will take our next question from Alvaro Garcia, BTG. Your line is open. Please go ahead.

Gentlemen, thanks for your time. I was wondering if you could give us more color on OxoNicho, on what it is exactly and why you think it might have higher ROICs. And then, too, a follow-up on the pilot in Puebla between SPIN and Juntos, or SPIN and COFF. What are some of the early learnings and what are the early challenges you're seeing in sort of really firing up that flywheel? Thank you.

Okay, so on the OxoNicho, I will give you more color. On average, an OxoNicho is, imagine we get a call from a factory, a big factory here in Monterrey, and they tell us, hey, you know, I have 2,000 workers here, and our cafeteria is not enough, and they are all, you know, they are from out of town. They want to do financial services. Can you go and put one? And I actually did one shift in the Oxo in... in the Kia factory and they have that's a huge and they already have over two oxes in that Kia in the Korean auto manufacturer there and the way it works is usually they are asking us for us to come in so rents tend to be sometimes negative and then they tend to pay our electricity bills and And so you can imagine. And then most of the installation and the cost of the CAPEX requirement is already there. So it's very friendly economics. They tend to mature very quickly because it's already a controlled environment. People know the store and they love it. I mean, the workers see it as a benefit. Obviously, there's some SKU controls. So that works against it. So they tend to sell less. They usually do not sell alcohol. Some of them do not allow bubble gum or stuff like that. There's some SKU controls. There's some hour shifts. But even taking all that into consideration, they sell less, but their cost, their investment cost is much less. And so they tend to create... value expansion because people that were usually not getting a snack get an extra snack for the day, get their whatever other products. So that's an OxoNicho and they have been phenomenal for us. And obviously we have the network effect that most people want to have an Oxo there because it allows them to connect to financial services and send money to their home. So we tend to have a much higher market share in OXO initial concepts and what we have in the street. There's more types of OXO. There's in universities. There's in buildings. There's the OXOsmart. But I would say on average, that's the gist of it.

On your second question, with regards to learning on spin, one... in no particular order of priority, the relationship of the mom and pop with the sales force of Cobra Colafemsa is extremely valuable. That doesn't mean they have to participate in the execution of the actual sale and implementation of the platform, but the relationship within the simple introduction by the sales force of Cobra Colafemsa is very valuable to getting your foot in the door with the mom and pop. Number two, premium points do seem to be a differentiating factor relative to other payment platforms that don't have the same thing. And we are noticing in the stores, people sometimes have two to three terminals. So they haven't yet committed to any one terminal yet. So they will have a MercadoLibre terminal, and they will have the Santander product, and they'll have a third one, and they will pick and choose which terminal they use depending on the value proposition. So you need to have a value proposition which basically can compete in all the different elements with all the different platforms. Next thing we've learned is points of sale, mom and pops, values cash flow. They are a CFO's dreams. in how they understand their cash flow needs and managing their cash cycle. It really is spectacular to see. And for example, you need to move to crediting balances almost immediately for them as opposed to doing it once a day or doing it twice a day. If you're not doing that for them, you will not be able to maintain competitiveness over time. So a lot of these smaller fintechs whose model was based on a float for two, three days of the money that was coming in, that's not going to work and that's not going to cut it. There is definitely kinks to work out in terms of how you allow that mom and pop to use the cash flow for buying points and for crediting the payment of bills that they've received. that's a bottleneck that needs to be worked out and nobody's really figured it out. And finally, training the mom and pop owner is fundamental. You can just see the difference between a mom and pop where the owner of the store understands the value that this brings to them and how they engage with the consumer to remind the consumer that they give points, they remind the consumer to consume points, And there was one lady in particular that I met who was just amazing at how she did. She has a balance of the points that she receives and the points that she gives out. She's not buying any points. She's net-net zero because she manages constantly the points that she receives versus then making sure she uses those points to generate revenue for her store. So those are the learnings we're having. And we purposely kept the experiment in one city and relatively small so that we learn all those things before we do massive rollouts in either any city or in any region. Awesome.

Thanks for the call.

Thank you, Oliver.

We will take our next question from Hector Myers, Scotiabank. Your line is open. Please go ahead.

Thank you very much, José Antonio and Martín Juan, for taking my questions. Just if you could please expand on the initiatives for more affordable grants at OXO, just to understand the potential extent of the push for value grants and affordability, and to know if this could eventually translate into a longer-term strategy, maybe also focusing more on private label, or if this is more strategic and short-term, and more focused on the size of product presentations due to their current macro context.

Great. So I would say, obviously, private label would play a part in certain, especially in our groceries, with our aceite, our cooking oil, posada, we have our beets, snacking, and those will play a part. But I would say the biggest contributors are Things we're working on with our major suppliers in, hey, let's launch either a value brand together. We're doing it with tobacco with quite impressive results now for this month. We're not seeing a big shift, again, from their premium brands to their local brands or the value brands, and we're trying to privilege that. They have to be marginal expansion in traffic and growth margin, even if it's a smaller growth margin, that it helps us with incremental revenue. And then for beer and soft drinks, we are doing two types of strategies. One is coming back to returnable packaging. Returnable packaging is a complex operation for us in the convenience store. It's messy. It saturates our warehouse. But we know how to do it, and we know how to do it well, and we're going back to that with our soft drink partners and with our beer partners, and that's going to play a major plan. Then I would say we are doing some things with Andati, our coffee offering, some promotions on Andati, and get some extra... a small piece of bread or a small snack or something when you buy two coffees and things, and we're seeing good opportunities there, and we're rolling out more promotions there. But I would say those are the main ones. Juan mentioned the mini spirit bottles that we launched back actually in 2018. We're launching them again soon. I mean, they've been already there, but we're launching new flavors, new variety, and they tend to work very well. We're also doing some cookie assortments and some snacks on the value. And all of those things will help us. I would say we have an opportunity to expand on grocery, as Juan mentioned. tend to become a very interesting point of interest for the value-conscious consumer that values smaller packages, more frequent visits to the store with the cash on hand. We want to remind everyone that we are a great player for the consumer. for those basic promotions that we executed in the past with a lot of success that I think we need to showcase again. So all those things are being launched as we speak and we'll get some results.

Got it, thank you. And also quickly with what you are seeing in the US and your view on adapting the value proposition, how much time do you think it could take you to say, Okay, we've got it right now. We are ready to push for much stronger organic growth with the right assortment of prepared food. So could we consider that this could happen maybe in the next two years or should it be more like five years from now? I'm just getting a feeling on how you are thinking.

Yes, I was gonna tell you, I'm not ready to give you an update, but I think within the next two years, we should be able to have a winning value proposition given what we are seeing in the momentum uh in in west texas with with oxo given that we get a lot of feedback from from the consumer of what they want what i do think we need to be not only better than the rest but also unique and unique means it's a tough thing to to nail uh i mean there's very good players out there uh uh But I think it's very easy to go to the stores, learn what's working, and copy that. What's going to really make us win is something that only OXO can deliver and that really drives traffic away from the mainstream big players and from the big regionals that I mentioned.

Thank you very much. Thank you.

We will take our next question from Ulysses Argoat. Santander, your line is open. Please go ahead.

Thank you very much. Hi, Jose Martin. Juan, thanks for the added insights. As always, that's very appreciated. I just wanted to see if you could provide some more color into the rebranding there of DK to OXO in the U.S. I know it's super, super early, and Jose, you've made some comments already on this, but any readings or maybe any expectations into sales and profitability profitability, sorry, lift on the rebranding and the fine tuning of offerings you're doing there on the value proposition. And also, is there any timeline you guys are targeting? And maybe should we expect to see 100% rebranding of the stores or what's the strategy there? Thank you so much.

It's too soon to tell. They've been surprising us on the upside. the increasing sales and traffic has been significant. I would say even in the double digits for the first store. We just rebranded another 14. We're seeing very similar increases. There's probably a honeymoon phase and they should stabilize. Again, it's too soon to tell. But yeah, eventually we would convert, if not all the stores, 99%. I mean, maybe there's a couple of them that are either on the issue of probably closing. And we're also going to open a few stores. We're planning to open a few stores even this year to try out. But again, it's below $10,000. and we're just going to see how the momentum of it works. And we're trying different concepts. We're doing one store more geared towards grocery and like a blend of a dollar store with a convenience store. We're doing one much more geared towards coffee offering. We're willing to take those experiments because we really want to learn what works and what we can roll out nationally. So we're going to take our time, but so far we're very happy with the OXO brand in West Texas. It's been a very happy surprise, and we see a lot of excitement for the brand in the region.

Perfect. That's great to hear. Thank you very much.

We will take our next question from Froyland Mendes. JP Morgan, your line is open. Please go ahead.

Hello, guys. Thank you very much for taking my question. I want to dig a little bit more into VARA. Given the opening of the new distribution center, should we expect the pace of openings to accelerate in coming years, even this or the next? And what is the long-term store size that you see for this format? And also, in the same route. What was your intake on how the format performed during this quarter specifically? What you saw losing in OXO? Was this something that was captured by the VARA format? What was your take on the downtrend that we're seeing in Mexico? Thank you, guys.

So VARA keeps doing great. We did see a slower momentum from the fourth quarter of last year where we were growing high on the themes on the same store sales basis and we saw single growth or single digits. But still, VADA is doing incredibly well. The new stores are performing even better. and we see a huge opportunity ahead. Yes, we want to accelerate the expansion. The reason we are not expanding as fast as we want is because we are working hard internally on decoupling from OXO. It's a concept that's still on the same LLC or equivalent of OXO, the same systems. So we're changing all that and that's taking us some time to do that, but we are using, basically we're having to invest in a big set of teams to have the new data in place and that will allow us to basically double our rate of expansion from 230 that we're planning for this year to more than double that in the next couple of years. We do think there's room for many thousands of varas. I wouldn't give you a precise number, but there's going to be thousands of varas in Mexico and That segment is gaining a lot of momentum, and there's a lot of people that are understanding the great value that the discount stores bring. And we have a huge opportunity because we know what works. Basically, we've done a lot of ops in regions where Bara would have been successful, and now we're learning a lot how the Bara concept can bring success. a lot of value in those neighborhoods. So we're very excited from what we're seeing and we're just getting, our stores keep getting better and better and performing better and better. So yeah, the sky's the limit.

And I would add, Freud, on the Vara side, I mean, we talked a little bit about private label and how, you know, the mix of private label at Vara is still lower than we would like. We're probably somewhere in the 20s, 30s, approaching 30s, and some of our competitors are higher than that. And so what we're seeing is having some really good conversations with potential partners on the private label side, large corporations from different parts of the world that look at the opportunity for VAR and say, I'm happy to accompany you. I'll build a plan for you. if we can, you know, we have the confidence that we can work together for the long term. So, again, I think scale is a beautiful thing, and we're getting a little bit bigger. And, of course, there's the overall FEMSA umbrella, if you will, and the OXO umbrella that gives potential partners the confidence that, you know, we're going to do what we say we're going to do. And things are, you know, moving into place quite nicely. Okay.

Thank you very much. Appreciate it.

We will take our next question from Rodrigo Alcantara, UBS. Your line is open. Please go ahead.

Hola, Rodrigo.

Hi, thanks for... Hola, que tal, Jose? Thanks for taking my question, Juan, Martin. Just one, I promise. Just, I mean, in a context of, you know, an average store having... seven employees per store, right? Three turns. It's a bit difficult for me to understand how much more lean could the staff, the labor structure of a store could get. So just curious if you can elaborate a bit more here on precisely on these initiatives of having a more efficient staff per store. And just for the sake of modeling, if you can comment on when you started to deploy these initiatives, kind of like the of the initiatives, just for us to kind of have an idea of when we could see the implications on margins already reflected. That would be my question. Thank you very much.

We've been working a lot in the number of people per store and we are already below the seven threshold. Actually, we were at 6.7 last year and we're aiming for 6.5 this year. As you can imagine, at our scale, going from 6.7 to 6.5 is a huge endeavor without damaging the value propositions. And that is giving you that some stores are going all the way to 10 or 12 people per store. Some high traffic stores have much more people. And some stores are working with five people. And we are being much more precise on our analysis. We used to do a number of transactions and pretty much that's it. Now, if it has a lot of coffee and coffee requires a lot of cleaning and We may put more people. If there's a lot of financial services, they may require a little bit more people. Sometimes they require, in regions like Oaxaca and Chiapas, we need people with banking experience that have been bank tellers because they need to count bills very quickly. And so we seem to specialize much more in the level of people and the type of people that we can hire. We have an initiative we call TRAIL that is basically using all these machine learning and analytics to be much more precise on the amount of people that the store needs to have. Where can we get? I mean, our ambition is let's get it as low as possible without harming at all the value proposition. If that is 6.3 or 6.2, I think it's doable, but it's going to take us a while to get there. Obviously, the retail landscape is changing, and there's more and more tools for automation. Some of them are still decades away in this part of the world, but some of them are not, and we will use and we're leaning aggressively on understanding how machine learning, how even LLMs can help us optimize not only the store but the supervisor is part of the role and get to more stores per supervisor and we see an opportunity there as well to gain some scale there and I think we will continue to monitor that number and get leaner and leaner on the front. Not necessarily requiring to less people because we're still opening enough stores so we will be able to accommodate hopefully all of our good performers and all of our good supervisors. We see still a lot of opportunity for growth and for becoming leaner.

I think another thing, Rodrigo, and maybe we've talked about this in the past a little bit, but It involves, as you might imagine, certainly the number of people, but also things like, you know, what time do they start their shift? So going from the kind of the basic three shifts, each shift comes in at the same time to a much more dynamic, well, you know, one person can come in at X hour and then the other person comes in, you know, three, four hours later because that's what the numbers tell us. They're not needed at the same time. So again, something that sounds relatively... but you need the data to tell you how to do it. And obviously, you know, we're assuming there are going to be more minimum wage increases in the coming years. So this is something that not only addresses what's already happening, but we need to be ready for the coming years where this probably will continue.

That was super helpful, Jose Juan. Thanks for the call on that.

Thank you, Rodrigo.

We have no further questions in the queue, so I will hand you back to your host for closing remarks.

Thanks, everyone, for joining. Obviously, you know where to find us. If you have follow-ups, you can get in touch with my team and myself anytime you need. Otherwise, just have a great week. Thank you, everyone.

Thank you for joining today's call. You may now disconnect.