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Convenience stores are thirsty for expansion

Mexico's brewers and soft-drink makers that own the chains are driving the sharp growth as a way to push their products.

January 06, 2007|Marla Dickerson | Times Staff Writer

MEXICO CITY — Clutching a hot dog and a Coke, Mauricio Sanchez described himself as a convenience store regular as he left a 7-Eleven one recent afternoon.

The office worker often grabs lunch at this store near the central business district here. He snags milk for the family at a chain called Extra near his house. He buys beer at the Oxxo outlets that dot Mexico's capital.

"There are more of these [stores] than there used to be," said Sanchez, 32.

Slurpee and Big Gulp are not yet household words in Mexico. Still, convenience stores are expanding at a clip that would make Homer Simpson smile.

More than 7,600 chain outlets are scattered across the country. That's a fivefold increase in less than a decade, with thousands more independent operators hanging out shingles as well, according to industry estimates.

Those figures are tiny compared with the presence in the United States, where more than 140,000 convenience stores sell Twinkies and Budweiser to the masses, and where "The Simpsons' " indefatigable Kwik-E-Mart counterman Apu Nahasapeemapetilon has become a TV icon.

But Mexicans are warming to the notion of microwave burritos. Mexico's biggest chains are planning major expansions, taking advantage of changing lifestyles and consumer tastes.

With more two-income families and lengthy commutes in urban areas, Mexicans increasingly are stopping in at convenience marts, attracted by bright aisles, longer opening hours and a wider selection than at many traditional mom-and-pop corner stores.

"We saw a good opportunity," said 7-Eleven Mexico's president and director general, Luis Chapa, whose family left the full-service grocery store business to open a convenience mart in 1976. The company now operates 700 outlets and is looking to launch 100 a year in each of the next three years.

Expansion has been slower for 7-Eleven and its competitors in Mexico than in other international markets, partly because they cannot sell gasoline.

About 80% of U.S. convenience stores sell fuel, according to Alexandria, Va.-based National Assn. of Convenience Stores. Fuel accounts for three-quarters of the typical U.S. outlet's revenue and 40% of profit and drives traffic to the stores.

In Mexico, however, only 2 in 10 consumers have cars, and state oil company Pemex has a lock on gasoline retailing. Convenience store owners can strike deals with Pemex franchisees to locate outlets next to their filling stations, but they typically have no say in how the fuel operation is managed. That's a drawback in a country where station owners are notorious for cheating motorists.

With only 7,400 Pemex stations across the entire country, and no deregulation of retail gasoline sales in sight, Mexican convenience store operators have turned to other liquids to fuel growth -- namely soda and beer.

The nation's dominant brewers and soft-drink makers have seized on convenience stores as a way to push their products. They are constructing thousands of stand-alone, urban retail shops that function like giant vending machines for their brands.

Oxxo, the nation's largest convenience store chain with nearly 4,500 stores, is owned by Monterrey, Mexico-based Femsa. That's the parent company of the nation's largest soft-drink bottler, Coca-Cola Femsa, and the nation's second-largest brewer, Cerveceria Cuauhtemoc Moctezuma.

The company opened almost one store a day in 2006, and has announced plans to grow a network of 10,000 stores to distribute its Coca-Cola, Tecate, Sol and Dos Equis labels.

Runner-up Extra is controlled by Grupo Modelo, Mexico's largest brewer, whose most recognized brand is Corona. U.S. beer giant Anheuser-Busch Cos. owns a 49% interest in the Mexico City-based company. The Extra chain boasts 2,100 outlets and is bent on expansion to get its beer into the hands of more thirsty Mexicans.

"[Femsa and Modelo] want vertical integration from the hops all the way to the consumer," said Jeff Murphy, head of Murphy Group, an Ashburn, Va.-based consulting firm that works with fuel retailers and convenience store operators around the world. "That's what's driving store growth."

7-Eleven Mexico has taken a different path. A joint venture between Dallas-based 7-Eleven Inc. and Grupo Chapa, a family firm in Monterrey, the firm set out to professionalize the traditional tiendas de abarrotes.

These tiny corner stores are still ubiquitous in Mexico and are handy for picking up a six-pack or some tortillas. But they tend to be cramped and dingy, offering few products and limited hours. Many have exclusivity arrangements with suppliers, who provide coolers or shelving in exchange for carrying only their brands of milk, beer, bread or ice cream.

Breaking free of those monopolistic ties has been one of the toughest challenges for 7-Eleven, Chapa said in an interview in the company's Monterrey offices.

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