February 28, 2019 / 6:23 PM / 5 months ago

UPDATE 1-Femsa's Mexican Oxxo stores feel squeeze from cost of taking cash

(Recasts with Oxxo problems, adds details on cash payments from analyst call, byline)

By Daina Beth Solomon

MEXICO CITY, Feb 28 (Reuters) - Mexico's ubiquitous Oxxo stores, run by conglomerate Femsa, are grappling to control the escalating cost of accepting cash from the millions of Mexicans without bank accounts who rely on the chain for basic financial services, Femsa said on Thursday.

On a call with analysts after reporting fourth-quarter results, Femsa Chief Executive Eduardo Padilla said the company would likely roll out a better system to manage the cash influx in about a year, in effort to ease the pressure on margins.

More than 60 percent of people in Mexico have no bank accounts. Many rely on Oxxo, rather than banks, for basic financial services such as paying a gas bill or sending money to family members. Shoppers can also make cash purchases from more than a thousand online merchants.

"A business that we considered would be a marginal business is now a major business for us," Padilla said. "It took us by surprise the amount of cash we're managing. ... The cost of handling cash went up dramatically."

That cost is largely tied to the expense of safely removing and transporting cash from Oxxo stores across Mexico on a daily basis.

Every four out of five pesos collected by Oxxo cashiers in cash are for financial services, rather than purchases of sodas, cigarettes and other goods, Padilla said.

Femsa reported an almost six-fold jump in fourth-quarter net profit on Wednesday, driven by higher Oxxo sales as well as a favorable comparison with the previous fourth quarter, when earnings sank due to a change in the reporting for Femsa's Coca-Cola bottling unit in crisis-hit Venezuela.

Femsa opened 1,422 net new stores in 2018, bringing its total of Oxxo stores to nearly 18,000. The majority are in Mexico, although Femsa is also expanding in Colombia, Chile and Peru. Padilla told analysts that Femsa expects to maintain that pace of growth this year as well.

Padilla also said the company was considering investing in Brazil over the next three to six months in "small-format businesses," but did not elaborate.

In Mexico, Oxxo's package pick-up service for Amazon will likely grow as the e-commerce leader expands its presence throughout the country, Padilla said, adding that the program is active in 3,000 to 4,000 stores.

"So far, the commercial agreement is proving to work well," he said. (Reporting by Daina Beth Solomon; Editing by Frank Jack Daniel and Richard Chang)

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