Cart full (of doubts): how OXXO is planting its flag in Brazil in such an aggressive and accelerated way

One of the great challenges of anyone starting a new business is to build that company’s brand — and, in that sense, the network of markets. OXXO achieved a rare feat: in a few months and in a very organic way, it consolidated itself as a player in the sector.

It’s not a trivial task: communication experts say that a brand is not what a company says it is, but the way it is perceived by consumers and the feelings it arouses. So getting a brand to be remembered in the right way can take years.

With 128 stores opened in Brazil since last year, especially in São Paulo, the impression of many people is that there is an OXXO on every corner, especially in regions like Centro, Faria Lima and Berrini.

On Twitter, the jokes are constant: the expansion of the network is so fast that many users joke and say they are afraid to be outside for a few days and find an OXXO unit instead.

On Uber trips, it is constant to pass by one of them and hear the driver chatting about the rapid growth of the new market: after many months of seclusion at home due to the pandemic, the impression is that every day there is a new OXXO in São Paulo .

OXXO markets spread across São Paulo; the network is part of a joint venture between Raízen (RAIZ4) and the Mexican group FEMSA

But it’s not just printing

In fact, the plan is more or less this: according to the brand’s press office, by March 2023 there will be a total of 309 proximity markets spread across the State of São Paulo, including Campinas, Jundiaí, Osasco, São Bernardo do Campo and Piracicaba, in addition to the capital and other cities.

The units follow the recipe for practicality: they are relatively small markets, located in regions with large circulation of people and 24-hour service.

The idea is that these stores meet a customer profile that has “urgent” demands: from the person who arrived at the office just in time for a meeting and wants to buy a quick coffee to those who need a frozen meal to eat between work. and the University.

Young people who want to buy drinks before the party without having to work hard and people who need a quick purchase for the home, but without facing long lines in bigger markets are also in the target audience of OXXO.

That is: it is a clientele that even accepts to pay more, as long as they have an uncomplicated and agile experience.

Raízen (RAIZ4) and Mexico: the origins of OXXO

A common question in the face of the profusion of OXXO stores is: where did so many stores come from to apparently fight with already known brands, such as Minuto Pão de Açúcar, Carrefour Express or even Americanas Express?

OXXO belongs to the Nós group, a joint venture between Root (ROOT4) and the Mexican FEMSA Comercio, also responsible for controlling the Shell Select brand, found at Shell gas stations.

It is an interesting partnership: on the one hand, a group with extensive knowledge in logistics; on the other, an expertise in convenience stores—and a desire to take that experience beyond gas stations.

For comparison purposes, Grupo Pão de Açúcar (PCAR3) currently owns approximately 141 Mini Extra stores and 100 Minuto Pão de Açúcar units, while Carrefour Brasil (CRFB3) owns 142 Express stores.

In the opinion of Rafael Couto, director of Special Solutions at Kantar’s Worldpanel division, the hardest blow at this moment should come to the neighborhood markets and bakeries, with less firepower against the new network, and not to the players listed above.

“These are businesses without the same capillarity, knowledge, level of competitiveness and available money, it is very difficult for them to compete. In the case of these other networks, whether GPA or Carrefour, we have different strategies and proposals”, he says. competition keeps an eye on it, but I still see each one looking for their space”.

Couto emphasizes the fact that the supermarket sector as a whole has been undergoing transformations in recent years, with the trend of smaller and closer stores to the detriment of hypermarkets, for example.

What OXXO represents for Raízen (RAIZ4) in numbers

According to Raízen’s results report (RAIZ4), its Marketing & Services area — responsible for operating convenience and proximity stores, in addition to the fuel and lubricant business — had an EBITDA of R$ 1.0 billion, a down 7% in the quarter ended March 31. The annual closing amounts to R$ 4.1 billion, an expansion of 52%.

It is important to remember that these numbers include operations in Brazil, Argentina and Paraguay. Specifically in the local market, Raízen (RAIZ4) reported an increase of 7% in sales volume in the quarter and 14% in the crop year, highlighting the expansion of the network. OXXO-specific data is not reported.

Convenience and proximity segment data in Raízen’s most recent balance sheet (RAIZ4). Source: Raízen

Copy but not the same

OXXO’s revenue proved successful in Mexico, where there are already at least 21,000 units, making it the largest proximity store brand in Latin America. There are also 133 stores in Colombia, 122 in Chile and 55 in Peru, according to FEMSA’s annual financial report.

Some adaptations were made for the Brazilian operations, and the stores follow an offer of products that are more appropriate to the place where they are located. There are also novelties that make more sense in the São Paulo market, such as bakery and hortifruti.

Kantar Worldpanel data show that Brazil can be a promising market for the Nós group plans: in a sample of consumer buying missions, it is estimated that only 15.7% of purchases made by Brazilians are made in proximity stores . In other words, there is a lot of space to be occupied.

See also: Risks for the economy in the second half

The same survey shows that, when buying something in stores of this type, the most sought after products are perishable items and beverages. Not by chance, they take up much of the space in any grocery store with this style.

According to FEMSA Comercio’s annual financial report, the company’s proximity division — excluding Brazil — saw its revenue grow 9.5% compared to 2020, reaching US$9.8 million.

For Gustavo Pazos, a research analyst at Warren, it is plausible to replicate the same model here in Brazil, given the similarities in the market, but macroeconomic obstacles can make such ambitious plans difficult.

“It is a business with a low barrier to entry, in addition to being an operation still immature, which does not clash with larger networks. In the short term, high inflation is an additional concern”, he says.

Pazos reckons that it will still take some time before competition worries the nearby Carrefour or Minuto Pão de Açúcar stores in the local market — and that, until then, the only way out is to burn cash.

“Today we have inflation data that always surprise the market, more and more economists play forward its cooling down. Thus, the perspective with which the company worked to grow in Brazil, which was not a pandemic scenario, is also played for the future”, he explains.

Having two giants like FEMSA and Raízen behind it helps a lot, but it remains to be seen when both will be willing to spend this money while waiting for a more favorable macroeconomic scenario.

Until then, the expansion of OXXO remains firm

Today, the Nós group operates with its own operations for OXXO, but the idea is also to take advantage of the knowledge acquired in years of Raízen (RAIZ4) operations with the 1,200 Shell Select franchises to open franchised units, which is a central part of the growth strategy.

This model ends up being more viable, especially due to greater logistical maturation and reinforcement of the supply chain.

And of course, after two years of the pandemic, no retail chain can afford not to have a digital presence, no matter how good the structure offered in physical stores.

Keeping an eye on this, OXXO currently operates three dark stores, those stores exclusively dedicated to receiving orders placed through apps, with two of them in Campinas and another in São Paulo. According to the press office, an application of its own will also be launched soon to serve the residents of the capital of São Paulo.

But compared to what the company has already done in Mexico, all this still seems pretty basic: in its home country, the OXXO markets resemble the lottery houses we see here in Brazil.

In addition to being able to buy food and drinks, consumers can also make real-time bill payments, bank transfers, deposits, bank statement consultation and cell phone recharge, among other financial services.

For the time being, Grupo Nós does not publicly express the desire to replicate the same model here, but it is not difficult to imagine that this offer of convenience would gain supporters in Brazil, especially in smaller cities with less offer of the genre.

The competition doesn’t sleep while OXXO spreads

If the profusion of OXXO stores in São Paulo does not go unnoticed by the consumer, it would be no different with Raízen’s competitors (RAIZ4) in this segment. In its last quarterly release, Grupo Pão de Açúcar announced the opening of a new store format called Pão de Açúcar Fresh.

According to the balance sheet, it is “a model focused on the replenishing purchase of fresh products and that allows to occupy the format space between Minuto Pão de Açúcar and the traditional Pão de Açúcar.”

Also according to the document, the first quarter of this year brought a 5.5% increase in same-store sales of this banner, driven mainly by the return of people to the offices.

Carrefour already informs, in its last balance, the opening of four proximity stores, under the Express banner, in the first three months of this year, with the closing of another six units.