Executive Summary / Key Takeaways

• Omnichannel Digital Transformation: FEMSA is strategically leveraging its extensive OXXO physical footprint to build a robust digital ecosystem, Spin, which integrates payments, loyalty, and emerging financial services. This omnichannel approach is a core driver of future growth and competitive differentiation.
• Resilient Core Businesses with Targeted Growth: Despite macroeconomic headwinds in Mexico, FEMSA's core Proximity Americas (OXXO Mexico) and Coca-Cola FEMSA divisions demonstrate resilience. Strategic expansion in high-growth markets like Colombia and Brazil, alongside the accelerated development of discount format Bara, underpins continued organic growth.
• Aggressive Capital Returns and Deleveraging: The company is committed to significant shareholder remuneration, planning to deploy approximately $3.2 billion between March 2025 and March 2026, and targeting a 2x net debt-to-EBITDA ratio by the end of 2026 through a combination of dividends and share buybacks.
• Technological Edge and Operational Efficiency: Spin's advanced data analytics and payment infrastructure are enhancing OXXO's value proposition, driving customer engagement, and improving operational efficiencies, including a 48% reduction in Spin's cost to serve. This technological integration creates a powerful competitive moat.
• Strategic Portfolio Optimization: FEMSA's "FEMSA Forward" plan has successfully divested non-core assets, streamlining the business to focus on high-return verticals and enabling strategic investments in promising areas like the U.S. convenience market and the Health division's turnaround.

FEMSA's Strategic Evolution: A Blended Future of Physical and Digital Retail

Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA) stands as a diversified powerhouse, deeply embedded in the consumer landscape of Latin America and increasingly, Europe and the United States. Founded in 1890, FEMSA has a long history of adapting to consumer needs, evolving from its beverage bottling roots to become a dominant force in convenience retail through its OXXO stores. This journey has culminated in a strategic pivot, the "FEMSA Forward" plan, launched two years ago, which has seen the divestiture of non-core assets totaling approximately $10.7 billion, sharpening the company's focus on its core verticals: Coca-Cola FEMSA , Proximity (OXXO, Bara, Valora), Health, Fuel, and its burgeoning digital ecosystem, Spin.

The company's overarching strategy is to create economic and social value by being the best employer and neighbor, participating in retail through its Proximity Americas, Proximity Europe, Health, and Fuel divisions, and in beverages through Coca-Cola FEMSA . A foundational strength, and a key differentiator in today's market, is FEMSA's integrated approach, particularly how its extensive physical retail network synergizes with its advanced digital platforms. This strategy is critical in a dynamic industry landscape marked by evolving consumer preferences, increasing digital adoption, and persistent macroeconomic volatility in key markets like Mexico.

The Digital Core: Spin's Omnichannel Innovation

At the heart of FEMSA's strategic evolution is Spin, its digital ecosystem, which is rapidly transforming the company's engagement with consumers and businesses. Founded in 2021, Spin was envisioned as an omnichannel platform centered on payments and rewards, leveraging OXXO's long-standing role as a hub for basic cash payments and services. This digital arm comprises Spin by OXXO, a digital wallet, and Spin Premia, a loyalty program. To broaden its reach, FEMSA acquired NetPay and a stake in Conekta, enabling OXXO Pay for e-commerce cash payments.

Spin's technological differentiation is evident in its rapid adoption and operational efficiency. Spin by OXXO has amassed over 14.5 million accounts, with more than 9.4 million active in the last 56 days. Approximately 3.5 million users trust Spin by OXXO monthly, averaging over 21 transactions per user, with 20% directly linked to OXXO cash-in, cash-out, or card purchases. The Spin Premia loyalty program boasts over 58 million accounts, with 26.6 million active in the last 90 days, and nearly 46% of OXXO sales are now identified through this program. This data-driven engagement allows for personalized services and products, enhancing OXXO's value proposition.

The tangible benefits of this technology are clear. Spin's cash burn has improved significantly, from approximately MXN 4 billion a couple of years ago to closer to MXN 3 billion per year for its core businesses. This reduction is partly due to a 48% decrease in cost to serve, achieved by renegotiating commercial terms with dealers and directly connecting to SPEI, Mexico's interbank electronic payment system. Spin is also exploring new use cases, including retail media, an expanded catalog, last-mile delivery, and click-and-collect features. The long-term vision includes building financial services, such as savings and credit products, tailored to underserved segments of the Mexican population. FEMSA has already launched its first personal loans and is actively working towards upgrading its license and establishing partnerships to enhance its risk-reward profile in financial services. This cautious yet ambitious approach to fintech positions Spin as a critical competitive moat, driving both customer loyalty and new profit pools.

Competitive Dynamics: Leveraging Scale and Integration

FEMSA operates in highly competitive sectors, facing both direct and indirect rivals. In beverage bottling, Coca-Cola FEMSA is the largest franchise bottler of Coca-Cola products globally by volume. Its digital capabilities are evolving into a platform for new lines of business, helping maintain leadership. Coca-Cola FEMSA 's strong market share and operational execution are critical in a market with other major players like Arca Continental (AC), another significant Coca-Cola bottler in Latin America. FMX's integrated retail arm provides a notable edge in distribution and market penetration compared to bottlers without such extensive retail networks.

In the retail sector, OXXO competes with traditional mom-and-pop stores, supermarkets, and increasingly, hard-discount channels and other convenience store chains like Alimentation Couche-Tard (ATD) (Circle K). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, OXXO's extensive network and integrated digital services provide a strong competitive advantage. Management analysis suggests that OXXO's convenience categories may have lost some competitiveness to other channels due to the mix of presentations (e.g., multi-serve returnable beverages, smaller snack presentations, low-cost cigarette alternatives) available elsewhere but not consistently at OXXO. However, the overlap with hard discount stores is estimated to be small, around 20% of categories, indicating distinct consumer occasions.

FEMSA's technological integration, particularly through Spin Premia, provides a significant edge. The loyalty program drives engagement and allows for personalized promotions, enhancing customer loyalty. This data-driven approach helps OXXO maintain pricing competitiveness without losing market share against traditional trade and supermarkets. The company's ability to offer a wide array of financial services through OXXO stores, including correspondent banking and e-commerce payment solutions like OXXO Pay, further differentiates it. This extensive service offering is a key driver of traffic and customer stickiness, even as new fintech players enter the market. FEMSA views these new entrants as opportunities to expand its ecosystem, managing them as part of its broader payment platform rather than unique strategic partnerships.

Financial Performance and Operational Resilience

FEMSA's recent financial performance reflects a mixed but resilient picture, navigating a challenging macroeconomic environment in Mexico while capitalizing on growth opportunities elsewhere. In the second quarter of 2025, consolidated total revenues grew 6.3%, driven by solid trends outside Mexico, currency tailwinds, and the consolidation of OXXO USA. However, operating income increased by only 1.2% year-over-year, as inflationary pressures on costs and expenses were not fully absorbed due to the challenging consumer environment in Mexico. Net consolidated income decreased by 64.3% to MXN 5.6 billion, primarily impacted by a non-cash foreign exchange loss of MXN 4.1 billion related to FEMSA's U.S. dollar-denominated cash position.

The Proximity Americas division, the largest component, delivered mixed results. Same-store sales declined modestly by 0.4% in Q2 2025, with a 6.6% increase in average ticket offset by a 6.6% contraction in traffic. This traffic weakness in Mexico was attributed to a persistently soft consumer environment and adverse weather conditions, particularly impacting core convenience categories. Despite this, total revenues for Proximity Americas grew 6.9% (2% on an organic and currency-neutral basis), supported by network expansion, strong performance in OXXO Latam (high teens same-store sales growth), and OXXO USA consolidation. Gross margin remained stable at 44.1%, expanding 120 basis points excluding operations outside Mexico, while operating income decreased 2.8%. Selling expenses grew in line with store expansion, reflecting efforts to offset labor costs through greater efficiency.

Bara, the discount grocery format, continued its accelerated expansion, with same-store sales growing 8.9% in Q2 2025. Valora (Proximity Europe) delivered solid results, with total revenues increasing 31.4% in pesos (5.9% currency-neutral) in Q2 2025, driven by strong retail performance in Switzerland. Its operating income increased 54.4% (24% currency-neutral), with a 70 basis point improvement in operating margin. The Health division saw total revenues increase 15.6% in pesos (6.7% currency-neutral), with strong same-store sales growth in Colombia and Ecuador. However, operating income declined 5.2% currency-neutral due to one-time restructuring charges in Mexico and Chile. OXXO Gas also showed positive same-station sales growth of 4.9%.

Strategic Initiatives and Forward Outlook

FEMSA's strategic initiatives are designed to address current challenges and capitalize on long-term opportunities. For OXXO Mexico, the focus is on driving traffic through affordability initiatives, expanding assortment with value brands and returnable packaging, reactivating the Andatti coffee offering, and leveraging Spin Premia for targeted promotions. The company plans to add 1,000 to 1,100 net new OXXO stores in Mexico in 2025, prioritizing high-quality locations and formats like OXXO Nichos (stores in enclosed environments like factories or universities) that offer high returns and lower cannibalization.

The digital ecosystem, Spin, is poised for further monetization. Beyond payments and rewards, the company aims to build out financial services, including savings and credit products. While cautious, FEMSA has launched its first personal loans and is exploring a banking license and partnerships to manage credit risk. The data generated by Spin will also enhance OXXO's value proposition through personalization, retail media, and e-commerce features.

In its international operations, FEMSA is optimizing its portfolio. Bara is set for significant expansion, targeting a 30% to 40% growth rate in its store base in 2025, supported by its administrative and operational segregation from OXXO Mexico. OXXO Colombia is targeting 15% to 20% store base growth in 2025, building on its successful "foodvenience" model. Conversely, expansion in OXXO Chile and Peru is being deemphasized to focus on improving profitability. In the U.S., the conversion of DK stores to OXXOs is progressing, with 40 stores converted by Q2 2025, and early sales results are promising. FEMSA is testing food concepts and aims for organic growth in the U.S. market, with a goal of achieving up to 10% of in-store sales from food service in the long term. The Health division in Mexico is undergoing a turnaround, including the closure of 432 underperforming stores and a focus on new flagship drugstores. The Pronto initiative, aimed at traditional trade wholesale distribution, has been suspended due to high costs to serve, with resources redirected to more promising ventures like Bara. In September 2025, FEMSA announced it would take full control of OXXO Brazil, amicably terminating its joint venture with Raízen, retaining all OXXO stores and the distribution center in Cajamar, São Paulo. This move allows FEMSA to fully execute its strategy in Brazil, where it expects 20% growth for the foreseeable future.

FEMSA is committed to returning MXN 66 billion (approximately $3.2 billion) to shareholders between March 2025 and March 2026, through ordinary and extraordinary dividends and share repurchases. An additional minimum of MXN 41.4 billion (approximately $2 billion) is planned for 2026. These actions are designed to reach a target leverage ratio of 2 times net debt-to-EBITDA (excluding Coca-Cola FEMSA (KOF)) by the end of 2026. As of Q2 2025, the leverage ratio stood at 0.93x.

Risks and Challenges

Despite a robust strategy, FEMSA faces several risks. The macroeconomic environment in Mexico remains soft, with persistent weakness in consumer traffic due to post-election uncertainty and adverse weather conditions. Inflationary pressures, particularly from minimum wage increases (targeting 12%), continue to impact operating expenses. Competition from traditional trade and hard-discount channels, especially in certain convenience categories, requires continuous adaptation of OXXO's assortment and pricing strategies.

The expansion into financial services, while promising, carries inherent credit risk, which FEMSA is addressing through a cautious rollout and potential partnerships. Operational challenges include the ongoing turnaround of the Health division in Mexico and the costs associated with administratively separating Bara from OXXO Mexico. While management is cautiously optimistic for the second half of 2025, acknowledging potential volatility, the company's diversified portfolio and strategic focus are expected to mitigate these headwinds.

Conclusion

FEMSA is undergoing a profound transformation, strategically leveraging its established physical retail presence with an innovative digital ecosystem. The core investment thesis hinges on the company's ability to drive sustained growth by enhancing its omnichannel value proposition through Spin, optimizing its diverse retail formats, and executing a disciplined capital allocation strategy. While macroeconomic headwinds in Mexico and competitive pressures present challenges, FEMSA's proactive initiatives in affordability, digital integration, and targeted expansion in high-growth markets are designed to maintain its market leadership and expand profitability. The commitment to significant shareholder returns and a clear deleveraging path further underscores management's confidence in the long-term value creation potential. FEMSA's integrated ecosystem, powered by technological leadership and operational excellence, positions it as a compelling investment opportunity poised for continued evolution and growth.