One Oxxo per day and increasingly closer to your home. The aggressive strategy – which is very clear in the minds of consumers and investors – has already impacted the balance sheet We Groupa joint venture between Raízen and the Mexican femsaresponsible for stores in Brazil. In the accounting years 2022 and 2023, a period that marked the strong expansion of the network, the company operated with a negative margin and net loss, according to the InvestNews.
The financial statements reveal that the Oxxo operator in Brazil has been burning cash to implement its growth plan. After recording a net profit of R$69.9 million in 2019-20, a period in which it only took care of Shell Select stores, the company recorded a loss of R$165.7 million in the year ending in March 2023.
As a privately held company, Grupo Nós follows less strict balance sheet disclosure rules. But the numbers became public in October last year, when the company issued R$300 million in Real Estate Receivables Certificates (CRI).
On that occasion, the company presented its last three balance sheets: 2020-21, 2021-22 and 2022-23 (the company’s accounting year begins on April 1st of one year and ends on March 31st of the other). THE InvestNews asked Grupo Nós for 2023-24 results, but the company did not respond.
The numbers available in the balance sheets show that investments (capex) annual sales have jumped almost four times since 2020, to R$188.9 million in 2023 – an amount that helped finance 207 stores in that period, or one store every 42 hours.
“(The) Investments represent the main line of cash consumption, due to the company’s strong expansion plan”, explained Grupo Nós, in the presentation. Regarding cash burn, the company points out that consumption is “mainly associated with the maturation curve of new stores and fixed costs that have not yet been optimized and diluted.”
The net debt of Grupo Nós until the first quarter of 2023 was R$253.4 million and, since then, the company has raised at least another R$400 million in the capital market – including the CRI of R$300 million and notes commercial loans worth R$100 million, issued in mid-April this year.
Is there room to maintain growth under these conditions? For Grupo Nós, yes. With strong partners, the Oxxo operator in Brazil told the InvestNews “that the network’s financial results are in line with the bussiness plan foreseen and maintains its sustainable growth strategy in the country”.
Retail specialist Alberto Serrentino, founder of Varese Retail, considers that the numbers reflect the acceleration curve of Oxxo in Brazil and that there is a period of maturation for the business to become profitable. “A lot of things may have changed in this year and a half, so we need to be cautious,” he says. It is worth remembering that Grupo Nós chose not to provide its most up-to-date numbers.
Grupo Nós explained in the CRI issuance prospectus, produced for investors, that its funding strategy involves “financing with a composition of shareholder capital and debt to sustain growth”. All debts are guaranteed by Raízen, one of the group’s owners and a colossus of the energy market which profited R$1.1 billion last year.
“It’s a role that only makes sense from Raízen’s perspective”, says a credit manager who evaluated Grupo Nós’ CRI. “The ‘Oxxo risk’ is terrible, but we don’t even look at it here because the guarantor is Raízen.”
A joint venture which formed the Nós Group has existed since 2019. It is also the franchisor of more than 1,500 Shell Select convenience stores, operated by the owners of the chain’s gas stations.
It was only in 2020 that Oxxo entered the company’s portfolio. From 17 stores in the first year of operation, “ó-quis-sô” jumped to 525 units at the end of this first half – a 30-fold growth. All still in the State of São Paulo, within a 150 km radius of the capital. But the goal is even more aggressive: to reach 5,000 Oxxo stores in Brazil in the coming years.
“We continue with a major expansion plan. It’s going very well and we will maintain the pace of opening a store per day in 2024. The meme (of everything becoming Oxxo) will continue”, said Ricardo Mussa, CEO of Raízen, in an interview to the portal Uol at the end of last year.
One of the characteristics of Oxxo’s expansion, the proximity between stores, is defended by the CEO of Raízen. “When we place one store close to another, you reduce delivery costs and depend less on stock. We are at the right scale and it is going very well.”
“Their strategy is the right strategy for you to scale a sustainable proximity business. You need density, it means many stores in the territory to spread your costs”, recalls Alberto Serrentino. “This proximity business only stops if there are a lot of stores.”
Anticyclical
Oxxo’s strategy in Brazil contrasts with what traditional food retail chains have started to do in recent years. While “ó-quis-sô” accelerates in search of national expansion, more and more traditional brands, such as GPA, dono do Sugar Loafand the Carrefour have been seeking to concentrate their operations in more profitable regions, such as the Southeast. In contrast, more regionalized networks, such as Muffato, Savegnago e Matthewgain ground.
The profile of Oxxo stores, which are small and have a limited range of products, is seen as questionable by experts in the retail sector. According to an executive with extensive experience in this segment, who prefers not to be identified, the model adopted by Oxxo was tested – and disapproved – by other networks, as was the case with Yeswhich is in judicial recovery. “These are stores without a clear proposal, which do not guarantee the convenience that consumers are looking for”, he says.
Another important challenge for a chain of stores is security. So much so that many stores have recently stopped operating 24 hours a day. The cost of insurance for stores is not always worth it, which can leave the operation vulnerable in some regions more susceptible to robberies. “And, as rental contracts are long-term, closing a unit is not a simple decision,” says the expert.
“There are two big problems. It has a higher occupancy cost because they are located in central and upscale areas and there is a heavy operational cost due to logistics, as the stores need to be supplied daily”, says Serrentino, from Varese Retail.
In fact, the efforts of large retailers are more concentrated on cash-and-carry stores. It is the case that Assaí, Atacadão (Carrefour’s main bet) and Atakarejo (from Patria Investimentos).
In the niche known as “proximity”, the popular neighborhood grocery store, Oxxo has GPA, owner of Minuto Pão de Açúcar and Mini Extra, as its main competitor. At a time when the Dia chain is experiencing store closures, Oxxo and Minuto Pão de Açúcar continue to open units. Of the 51 stores that GPA opened in the last 12 months, 47 of them were in the proximity format, 39 of which were Minuto Pão de Açúcar and 8 Mini Extra.
Faced with the challenges, the CEO of Raízen relies on the experience of his partner Femsa, which takes care of more than 23 thousand stores in Latin America (Mexico, Chile, Peru and Colombia) and obtained 11.8 billion Mexican pesos (R$ 3.38 billion) of operating profit (Ebitda) in the second quarter of this year. “We have a partner who knows the business like no one else and who faced the same difficulties in Mexico,” added Mussa.
The operator of Oxxo in Brazil defends its growth model. “The Brazilian market has high potential for the local stores sector”, wrote Grupo Nós, to investors. “The first years of experience confirm the success of the group’s value proposition of delivering convenience, agility and speed, qualities that result in a valuable item: time.” (Contributed by Lucinda Pinto)
