Femsa to Buy Dona Tota to Expand Into Restaurant Operations

Fomento Economico Mexicano SAB, the owner of Latin America’s largest convenience-store chain, agreed to buy a majority stake in restaurant operator Dona Tota to spur growth with an expansion into food service.

Femsa, as the Monterrey, Mexico-based company is known, didn’t disclose the purchase price for the 80 percent of the maker of cornmeal patties. Dona Tota, whose founding shareholders will keep the remaining stake, has 204 outlets in Mexico and 11 in the U.S., Femsa said in a statement today.

Dona Tota offers “a compelling new avenue for growth,” Femsa said. Same-store sales at Femsa’s 11,000 Oxxo convenience stores have slowed and customer traffic declined this year for the first time in a decade. The company in May acquired pharmacy chains Farmacias YZA and Farmacias FM Moderna.

“It’s a bolt-on acquisition and it builds on the growth strategy they have announced, which is expanding into pharmacies and fast food,” Alan Alanis, an analyst at JPMorgan Chase & Co., said in a telephone interview from New York. “It fits pretty well into their existing business model.”

He rates Femsa’s American depositary receipts overweight, the equivalent of buy.

The Dona Tota transaction requires “customary regulatory approvals,” Femsa said. The restaurant operator is based in Ciudad Victoria, Mexico, according to its website.

Femsa fell 1.4 percent to 131.20 pesos at the close in Mexico City, the biggest decline in almost four weeks. The benchmark IPC index of 35 Mexican stocks advanced 0.2 percent.

Falling Traffic

The company, which also controls Coca-Cola Femsa SAB, the largest bottler of the soft drink in Latin America, may add Dona Tota products to Oxxo stores, Alanis said.

Same-store sales at Femsa’s retail unit rose 0.9 percent in the second quarter, the slowest pace since 2009. Store traffic fell for the second straight quarter, the first declines since 2003.

While Dona Tota’s reach is “very small” compared with Oxxo’s, the deal will bolster Femsa’s potential in the food service industry, said Karla Miranda, an analyst at Corporativo GBM SAB. She rates Femsa shares market perform, the equivalent of hold.

The acquisition is “positive because it gives the company more expertise in prepared food,” she said in a telephone interview from Mexico City.

Before it's here, it's on the Bloomberg Terminal.