As Mexico Cracks Down on Carlos Slim, Femsa Feels the Pain

  • Oxxo emerges as unintended victim of tougher phone competition
  • Cheaper mobile service means fewer shoppers for prepaid cards

Fomento Economico Mexicano SAB is best known for controlling Latin America’s biggest Coca-Cola bottler and operating the region’s largest convenience-store chain. Yet it’s getting hurt by an overhaul of Mexico’s telecommunications industry.

Traffic at Femsa’s Oxxo convenience stores fell 0.5 percent in the second quarter, the first drop in almost two years. That’s no small matter, since the chain’s revenue accounted for 35 percent of the company’s total.

The trouble is that fewer customers are visiting Oxxo stores to buy prepaid cards for their mobile phones. A law enacted three years ago to chip away at the dominance of billionaire Carlos Slim’s America Movil SAB allowed U.S. giant AT&T Inc. to enter the market and forced a 17 percent drop in costs last year. Since it’s now less expensive to make phone calls or even switch to a contract plan, there’s less reason to go to the corner store to add more minutes to an account.

“People have changed to postpaid, and those who haven’t, now have more options” to top up their phones, said Jose Antonio Cebeira, an analyst at Actinver. Oxxo stores used to be among the few places to buy prepaid cards, “so that market has been fragmented for them.”

Stock Drop

Femsa through Tuesday had declined 2.2 percent since July 26, the day before it reported the drop in Oxxo’s traffic in its second-quarter earnings report. Mexico’s benchmark IPC index meanwhile has advanced 1.5 percent. Femsa’s shares fell 1 percent to 170.10 pesos at 10:43 a.m. Wednesday in Mexico City.

For a story on Mexico’s crackdown on Slim, click here

While lower phone-service prices led to a decline in Oxxo store traffic in the second quarter, financial services and other categories “have made a positive contribution,” Femsa said in an e-mailed response to questions. Oxxo is teaming up with banks to offer credit-card payments and money transfers as it looks to provide new services.

Broad-based gains in Mexican retail sales helped the chain increase the average purchase per customer visit, fueling a 5.1 percent gain in same-store sales last quarter despite the fall in traffic. Femsa, based in Monterrey, Mexico, has also been buying drug stores and gas stations.

But traffic in Femsa’s more than 14,000 Oxxo stores will continue flagging as more callers take advantage of the clash between mobile phone companies and ditch prepaid plans, said Alejandra Marcos, an analyst at Intercam Casa de Bolsa.

“We’re still going to see several quarters affected because the telecom reform isn’t over yet,” she said by telephone. “All the mobile operators in Mexico have continued with aggressive phone plans. As long as this market ‘war’ continues, it’s unlikely we’ll see a change in Oxxo’s traffic numbers.”

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