Earnings Call Transcript - FMX Q4 2020

Operator, Operator

Good day and welcome, everyone to FEMSA's Fourth Quarter and Full Year 2020 Financial Results Conference Call. During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance.

Juan Fonseca, Moderator

Good morning, everyone, and welcome to FEMSA's fourth quarter 2020 results conference call. Today, we are joined by Francisco Camacho, FEMSA's Chief Corporate Officer; Eugenio Garza, our Finance and Corporate Development Director; and Jorge Collazo, who heads Coke FEMSA's Investor Relations effort. The plan for today is to have Francisco comment on some higher level trends and more strategic considerations and to have Eugenio walk us through the numbers for the quarter, and we will follow the remarks with Q&A as we always do. So with that, let me turn it over to Paco Camacho.

Francisco Camacho, Chief Corporate Officer

Thank you, Juan. Good morning, everyone. Thank you for joining us today. We hope you and your families are in good health. In today's call, I will start by reflecting on the year 2020, including some specific comments about the fourth quarter. I will then share a few thoughts on how we will continue to navigate throughout the short-term volatility. Eugenio will then get into the details of the performance, and I will come back to share a few thoughts on why we remain confident about the future. I guess I do not have to tell you that the year 2020 was a difficult one because of the global pandemic. The volatility and the overall changes felt prior year certainly tested everybody's ability. Without a doubt, our Company proved its resilience, flexibility, and agility across the board in these trying times. As an organization, we have to prioritize, collaborate, become more agile and put the decision making to the operations and the teams from the ground like never before, all while trying to keep everybody safe. Moving on to discuss our performance. During 2020, each of our businesses quickly adapted their operations, applied learnings from the different stages of the pandemic and recognized shifts in local needs. In OXXO, the challenge was to ensure that our over 20,000 stores remained staffed and operational while facing supply imbalances, regulatory restrictions, and drastic reductions in mobility across the market. In Coca-Cola FEMSA, the teams quickly saw that their millions of clients across our geographies were always served with the right beverage portfolio, even as consumers shifted preferences looking for more affordable options, different shopping venues, and moments of consumption. In our distribution business, the teams ensured that our 1,000 suppliers across the Americas were serviced properly, with products shipped and received in a timely manner, regardless of the situation, be it a pharma company in Sao Paulo, a global CPG player in Mexico City or a large hospital in Chicago or Santiago. This was successfully done every day throughout the year, despite the ever-changing conditions and requirements from our clients.

Eugenio Garza, Finance and Corporate Development Director

Thank you, Paco, and good morning to everyone on the line. Starting with FEMSA's consolidated quarterly numbers, total revenues during the fourth quarter decreased 1.5% while income from operations decreased by 3.5%. On an organic basis, total revenues decreased 5.3% and income from operations decreased by 3.8%. For this quarter, the difference between reported and organic figures reflects the results of AGV in Brazil as well as those of WAXIE and North American Corporation in the U.S.

Francisco Camacho, Chief Corporate Officer

Thank you, Eugenio. Thinking about 2021, it is clear that near term there will still be volatility and uncertainty related to the virus in most of our markets. However, directionally, our expectation is that mobility and thus consumption will improve as the months go by, particularly as vaccination efforts gain traction and more normality is brought back over the second half of this year. We know that the vaccination phase will be different by countries and we are prepared to adjust and adapt to this different COVID wave. Relative to 2020, the comparison base for most business units will get easier in the summer and then level off toward the end. Our expectation is that OXXO and OXXO GAS will continue to improve through 2021, gradually closing the gap and reaching performance levels in the fourth quarter that begin to match pre-pandemic levels. For its part, the Health Division set a new benchmark in 2020 and we will seek to build on that. The pandemic has accelerated digital momentum. We are poised to capitalize on this opportunity as we embrace and accelerate our digital initiatives across the board. For example, in OXXO, efforts are led by the launch of our digital wallet Spin by OXXO. We are doing an initial deployment in San Luis Potosi as we speak, with the objective of a national rollout in the coming months. We will keep you posted on our progress. In terms of dividends to be paid during 2021, the Board of Directors will determine a proposal to shareholders when it meets in a couple of days. So we do not have the number yet, but we will share it with you as soon as we can. And for capital expenditure expectations, we are modeling our consolidated total CapEx at around 5% of revenues for 2021, of which approximately two-thirds will be deployed in Mexico. This, of course, would be subject to how the year progresses. We are confident about the future of our Company and energized by the prospects we have in our clear and defined business verticals. I would like to thank you for your continued support and trust in FEMSA. And with that, we can open the call for questions.

Operator, Operator

Your first question will come from Benjamin Theurer with Barclays.

Benjamin Theurer, Analyst

Hey. Good morning, everyone, and thank you very much for taking my question. Just wanted to follow up a little bit on the dynamics in the Proximity Division. And I mean, clearly, same-store sales was very - I would say, was almost a positive surprise with just about a 4% decline. But could you elaborate a little bit about the trends you've seen throughout the quarter of the last quarter of 2020? And what you've been seeing in the first two months, January, February? And particularly in light of what basically last year in March started to impact because of COVID, so just to give us a little bit of a better sense of how restrictions have impacted during the quarter, at the beginning of the year, and what are your expectations going forward?

Eugenio Garza, Finance and Corporate Development Director

Yes. If you remember last year, the second quarter was clearly the worst part where we experienced significant drops in traffic, and over the summer months, it got better, and we reached a little bit of a plateau in terms of negative comps during the year. For the fourth quarter, we did see significant pickups in - mostly in traffic as the holiday season approached, especially in November and December, and that's what caused the good surprise that we saw in our numbers in the fourth quarter for OXXO. Having said that, as you know, the contagion numbers during the holiday season for the COVID pandemic increased significantly, and that caused the authorities to impose restrictions regarding alcohol sales, operating store numbers, etc., and those hit the first few weeks of January. Having said that, most of those restrictions with the case counts now under control and the better progression of the pandemic have been lifted for the most part. So at this point, we are back to where we were. And then in March, we would expect to see the beginning of the easier comps because of the COVID restrictions. So that would be with regards to the dynamic of the same-store sale and the comps. Regarding the opening pace, we do expect a little bit of a front-loading this year. We will obviously wait and see how the comp stores are doing at the beginning of the year. But as opposed to years in the past because of the pipeline of real estate that we have and the locations that we have now fine-tuned toward the new COVID reality, we would expect a more front-loading of the openings in the first half of this year as compared to previous years.

Francisco Camacho, Chief Corporate Officer

And Ben, this is Paco. The one thing that I would like to add to your question is that we also need to remember that there is a difference by city in how each of the cities are reacting and implementing specific things on mobility restrictions, and every city is deciding differently. So it's important to remember that OXXO is actively monitoring the situation to adapt to the specific circumstances happening in each of the cities. And I believe that it is essential to keep doing that as we start the New Year, and that is exactly what the team is doing.

Juan Fonseca, Moderator

I think I would add. Hey Ben, this is Juan. Just following up on what Paco and Eugenio just said. To keep in mind that if you look at some of the restrictions that were put in place in the final weeks of the year and through our January, where you had, for example, the state of Nuevo Leon where we have more than 1,000 stores, Mexico City where we also have probably more than 1,000 stores, where you could not open at all on Sundays, where you had a number of states in the country under red code in terms of the traffic light rankings. And in the opposite direction, just a few days ago, as I'm sure you're aware, there was a big improvement in the color codes across the country; there are no more reds, almost 20 states are in yellow, and a couple of greens in the Southeast. So what was explained by here and as Paco was saying, we will look very closely at what's happening in each locality because these restrictions are local for the most part, but it is looking a little bit better, and that's part of our cautious optimism.

Operator, Operator

We'll take our next question from Miguel Tortolero with GBM.

Miguel Tortolero, Analyst

Good morning. Thanks for the questions. My one question would be regarding Brazil. Could you share your first impressions of the market after opening your first OXXO there? It seems like that's a market that could open room for relevant growth and capital deployment as it continues to be highly dominated by their mom-and-pop stores network. So, in this regard, what's the potential you see for this market and how aggressive should we expect you to be in terms of capital allocated to this region for the development of the OXXO format? Thank you.

Eugenio Garza, Finance and Corporate Development Director

Sure. Thanks for the question, Miguel. I mean, as you know, we started to roll out the Proximity concept in the outskirts of Sao Paulo late last year with a few stores now open. So far, the results have been according to what we expected. It's a different value proposition that the Brazilian consumer is responding strongly to. We're still tinkering with the model to make sure that it adapts to local tax and customs. We are very optimistic that as we start to learn more and the Brazilian consumer becomes accustomed to this, we will be able to grow this in the broader Sao Paulo and other regions in Brazil as we go forward. So we do have a capital allocation plan for the venture. But you should recall, we also own and operate a franchise network of over 1,000 stores that are already generating cash. So a big portion of that will be hopefully self-funded with the operation we already control in conjunction with Cosan and Shell. So, we do see a very, very attractive growth platform going forward in Brazil, and so far we're going according to plan.

Juan Fonseca, Moderator

And I would add, Miguel, that as Eugenio was saying, on the gas station front, we have been able to open more quickly because the value proposition of the gas station stores which are operated under the Shell select banner, we're not really changing their value proposition nearly as much. And so, the opening of those stores is moving more quickly; some of those will be under the franchise mechanism and some of them will be company owned and operated. And then on the OXXO front, we need to do a lot more fine-tuning of the value proposition. We opened a handful of stores in Campinas and opened a distribution center, which is also a big part of the equation; that critical mass we have going on because of the two types of stores is allowing us to have a distribution center pretty much right off the bat, which is a significant advantage relative to what we've been able to do in other countries where we've started 100% from scratch. So that's also part of the reason we feel optimistic.

Operator, Operator

We'll take our next question from Alan Alanis with Santander.

Alan Alanis, Analyst

Thank you, and thanks for taking my question, Paco, Eugenio, Juan, and Jorge. So first is a housekeeping question. I mean this is the first call that a lot of the our regional CEO is not in the call, it's OK. And the now first question and I guess just checking he will no longer be in these calls, correct?

Juan Fonseca, Moderator

If you look, we are just - too many cooks in the kitchen. So I don't say.

Alan Alanis, Analyst

Okay, Okay. It looks like good things. Okay, that makes sense. Okay. My question has to do with the others business. I know you're going to bring additional disclosure next quarter, but I'm already tracking this and I saw something that caught my attention, and that might be relevant for all investors. In the other business, you are reporting a 61% increase in sales, probably mainly due to the acquisitions that you've done. But when you see the others line EBITDA, it seems that you had a contraction of around 51% over MXN540 million, that's almost as much of the increase of MXN600 million in Coca-Cola FEMSA. So it's a pretty material decline in EBITDA of the others business. So my question for you is, could you confirm that these numbers are right and what explains this discrepancy of such an important growth in Others sales but also such a relevant decline in the year-over-year EBITDA in the Others business? Thank you so much.

Eugenio Garza, Finance and Corporate Development Director

Sure. Thank you for that. And yes, you'll get more clarity as we start to disclose the figures of the logistics and distribution business going forward. But on the revenue side, you're right. It is the incorporation of WAXIE and North America into our financial statements. And I guess what you're referring to is a sharp drop in the EBIT, not necessarily the EBITDA. The reason for that is because of the way we structured the acquisition of WAXIE and North America; we were able to get a significant step-up in the asset base, which is obviously advantageous from a tax perspective, but part of the purchase price for those assets will be flowing through an amortization charge to the tune of around $26 million a year, hitting the operating income line but not the EBITDA line. So that is why you see the discrepancy there. We took that charge for the entire year at the fourth quarter as we were wrapping up the purchase price allocation. But you should see that flowing into the quarterly statements going forward once we have the full disclosure. It is basically the purchase price being allocated partially where a big portion of the purchase price is being allocated to an intangible customer asset on the balance sheet of the others division.

Alan Alanis, Analyst

Got it. So basically if I'm understanding correctly, Eugenio, it's basically a one-time off adjustment that you did on the purchasing of some of the assets that you acquired throughout the year. You took the charge in the fourth quarter because that makes sense for the business, but it's not an operating decline of that amount in the others business, right?

Eugenio Garza, Finance and Corporate Development Director

I mean, partially yes. I mean, it was a one-time in the fourth quarter for 2020. Having said that, for 2021, we will continue to be amortizing this intangible customer list going forward, and it will - again, the way to see it is, it's a portion of the purchase price that is flowing through the income statement, but it's not affecting either how the business is doing or the profitability of the business is going according to our plan. But it should be about a $2 million per month charge of intangible amortization going forward for the next few years in the North America and WAXIE business.

Juan Fonseca, Moderator

Which is obviously non-cash, and, Alan, what this means for us is that going forward, probably, we're going to be focusing - I mean, because we're going to start opening this business up in the P&L in a couple of months, is that we're going to be looking at the EBITDA line probably more than we usually do to account for that.

Operator, Operator

We'll take our next question from Bob Ford with Merrill Lynch.

Robert Ford, Analyst

Thank you, and good morning, everybody. Eugenio, you mentioned digitalization in your comments. And I was quickly - I was curious, how quickly payments are going from physical to digital in Mexico during the pandemic, if at all? And how you're thinking about that larger opportunity beyond just payments as you explored fintech so far?

Eugenio Garza, Finance and Corporate Development Director

Sure. Thank you, Bob. I mean, as you did see during 2020, our services business grew significantly. Having said that, they continue to be the old-fashioned way, just using the OXXO stores and using the store as a platform to do money transfers, payments, remittances, etc., in an analog way. Having said that, as we did mention in the comments, we are, as of today, launching the Spin product by OXXO selectively in the San Luis Potosi area, and then hopefully be rolling out that product throughout the rest of the year in other places. The Spin product is basically just a starting point. What it allows you to do is to do the same thing that you would have done in the stores. I mean, paper services, peer-to-peer, paying for airtime, etc., but do it on your phone, being able to charge your Spin card through the OXXO stores and withdraw money from the OXXO stores as well. And then hopefully as that takes off, we should be able, as we attract more customers into the platform, to add other functionalities to the product. So we are hoping that this will be a good value proposition for customers to start to take the analog way of doing things and move more digitally, and hopefully be adding more functionalities both to that product and to our loyalty program, which we're also launching selectively this month - actually last month in a couple of cities and rolling out to be able not only to have now ticket level data for all our stores, but actually customer level data for our stores. So that coupled with the FinTech product should give us a clearer picture of who our customers are, what they're doing, what they're consuming, what their trends are, so that we can be more tailored with regards to promotions and offerings of products to them. And again this is just the tip of the iceberg and hopefully we get enough adoption, we'll be able to grow this into other revenue streams going forward.

Francisco Camacho, Chief Corporate Officer

And, if I may, Bob...

Robert Ford, Analyst

Of course.

Francisco Camacho, Chief Corporate Officer

Yes. This is Paco. I would like to add to that, that what is important is that, as you said, Mexico is obviously also part of this digital acceleration, but the good news is that we have a number of options, as Eugenio highlighted, that will allow us to not only stay ahead but importantly adapt to what specifically consumers need and require in Mexico and other geographies as they are different to what you see in other markets.

Robert Ford, Analyst

No, it's very interesting. And with respect to the back end, do you have a white-label bank that you're using or are you - do you plan on obtaining banking licenses? And I was just curious as you look forward to choosing the functionalities, are we going to be looking for just a basic L4 account or is it something more robust than that?

Eugenio Garza, Finance and Corporate Development Director

Yes. At this point, we have basically obtained a FinTech license that allows us to operate on the Octavo Transitorio of the FinTech law and that allows us basically to open up an N2 account, similar to the Saldazo accounts that we have currently. And that's what we're operating under. To the extent that we need to add other functionalities that would need a different license, we will look at that. But for now, we are looking basically to do the same thing we were doing with Saldazo, except doing it digitally instead of analog. The product by the way also includes a physical Visa card so that people can use the balance in their account also through the debit card. So we believe that both the cash-in, cash-out functionality at OXXO plus the Visa card will allow for maximum flexibility from a consumer perspective.

Operator, Operator

We'll take our next question from Alvaro Garcia with BTG.

Alvaro Garcia, Analyst

Hi, gentlemen. Thank you for the call. Two quick ones. I'll be quick. One on Spin and it's just a follow-up to Bob's question. My question is specifically how it interacts with Saldazo? It seems to be somewhat of a competing product in the sense that you're capturing debit customers much in the same way as Saldazo does. Is Saldazo going to integrate into Spin or will they be managed in separate entities? And then just my second question on labor cost at OXXO, you continue to refer to a tight labor market in the release in Mexico. I think maybe the pandemic might have changed that a bit. But I guess, what's your outlook on the labor front for OXXO into 2021? Thank you.

Eugenio Garza, Finance and Corporate Development Director

Sure. With regards to Spin and Saldazo, we are maintaining two separate structures and really allowing the customer to decide what option is best for them, and we'll make decisions as need be regarding how those two products move forward. But at this point, we are allowing the customer to basically go their own way. And with regards to the labor market, there were two separate issues. One was obviously the health concerns and the fact that last year with the pandemic, several thousand of our employees were not able to work for a significant portion of time because they were in the vulnerable population. So we had to pick up a bunch of extra costs in terms of hiring people and then the concern that a lot of the new people had just in terms of being exposed to the virus and working at the store. So the labor market, specifically for the type of labor that we need for OXXO stores, was tight for the better part of the year. Having said that, at this point, because of the restrictions, more and more of the people that were in vulnerable populations are now coming back, people feel more comfortable regarding the safety of the store. With regards to contagions, as you know, most of the contagions are actually not happening at the store level; they're happening more at people's homes as they get together for social gatherings. So, more and more that pressure is easing and we see less of that effect going forward this year than we saw last year.

Francisco Camacho, Chief Corporate Officer

And I guess the other thing that we need to keep in mind is that for 2020 precisely because of what Eugenio said regarding the initial part of the pandemic, we had a one-time situation like a special bonus that we paid, that moving forward, we are not having.

Operator, Operator

We'll take our next question from Marcella Recchia with Credit Suisse.

Marcella Recchia, Analyst

Hi, gentlemen. Thank you for taking my questions. I have two quick questions here. The first one, taking the opportunity that Jorge is along with you, following the redesigned agreement between the Brazilian Coke bottlers and Heineken, does this friendlier agreement change anything about your willingness to - of keeping or divesting from the remaining stake in Heineken? That would be my first question. And secondly, about OXXO. How can we think about the margin recovery trajectory from 2021 onwards? Basically, I understand the lower operating leverage has been one of the main drags, but we also understand that you continue investing in digital and shifting your commission-based store teams to employee-based ones. So just to hear from you, any color you can give us about the margin outlook going forward. Thank you very much.

Eugenio Garza, Finance and Corporate Development Director

Sure. Thank you, Marcella. First, regarding your question on Brazil, we're definitely thrilled from various perspectives about what happened in Brazil, but you have to remember that there are two separate things. One is just the commercial agreement reached between Coke and Heineken on how to move forward in terms of the beer distribution agreement. And on that one, we're thrilled as shareholders of both companies, both Coke and Heineken, that they were able to strike an agreement that maximizes value for both in the medium term. In the case of Coke, it allows them to have a base volume of beer to not reduce drops significantly and also allows flexibility to carry other brands going forward. And for Heineken, at least, in Brazil, which is an important market for them, it gives them more clarity on the competitive situation going forward, and it also allows them to focus on their two stellar brands, which are Heineken and Amstel. So we couldn't be more thrilled and happy that both were able to reach an agreement. And then with regards to our stake in Heineken, again that is a separate decision. And at this point, as we said in the last conference call, we continue to like the way that they've been handling and performing through the pandemic. Clearly, the on-trade exposure they have has been a significant drag on earnings in the past few months. That said, they are doing things very well with regards to cost containment, investing in digital, so we are optimistic about the future and continue to be happy shareholders as we believe the stake provides significant value in our portfolio now. But again, the two questions are separate. That's the way we see it, and on both fronts, we are very pleased with what has happened in the past few weeks. The second question, yes. The second question, sorry, was regarding the trends for OXXO in 2021, clearly the most important effect is the operating deleveraging. I mean we have same-store sales down, high-single digits. And that clearly has an impact regarding operating costs, which is partially contained frankly and I don't think we mentioned this enough, but the cost containment measures improvements in the supply chain to continue to deliver products at prices that are competitive. But in any case, that continues to be the main thing. As we go forward, we are investing, as you said, a lot in digital, mostly on the backbone of the POS and some in distribution centers. But on digital, we are investing some money to ensure that the backbone of the stores continues to allow for growth, not only analog but also in a digital format. But that said, there are still a lot of headwinds in our way regarding the mix sale of beer not being rolled out in all of the categories. We believe that with this new Spin product, there will be an increase in the customers' attractiveness to this product to push the category as well as other modes of consumption, fast food and the needs that have not been met during the pandemic, which will come back once we are on the other side of the pandemic with hopefully better terms for us. So, we see again these headwinds in costs being compensated through other growth avenues in the store going forward.

Juan Fonseca, Moderator

I would add. Hey, Marcella, this is Juan. I would add on top of what Eugenio just described. Some of the structural initiatives that we've been working on for years remained. And so we are at the point where we can again look at those initiatives and continue to invest behind them. I’m talking about a gradual shift from commission-based to employee-based, which among other benefits has the advantage of addressing turnover and improving long-term turnover numbers and we continue to work on that. The other highlight is international efforts, which are things that in the past we've discussed that put pressure on the margins pre-pandemic, and this is something that will continue to go on. For example, if we talk about 800 stores at OXXO in Mexico for this year, international actually has another 10% on top of that planned for especially for Chile and Colombia. Until we get the critical mass we need in those countries, they are slightly dilutive to the overall margin. So I think it's for the right reasons obviously because we continue to find attractiveness in growing OXXO outside of Mexico, but we are returning to the growth path as Paco said in the beginning, and part of that includes continuing to grow internationally in addition to the transaction that he mentioned that we're doing in Chile and in terms of the process of being approved.

Marcella Recchia, Analyst

That's pretty helpful. Just a quick follow-up if I may. Can you give us just an update on the current status of your workforce between commission-based and employee-based?

Eugenio Garza, Finance and Corporate Development Director

I think something like 55-45 employee versus commission. So we're slightly now more employee than commission.

Marcella Recchia, Analyst

Okay. Then the target is 100%?

Eugenio Garza, Finance and Corporate Development Director

No, this is dependent on the geography. There are some markets, a lot of them in the North, where the commission format actually works incredibly well. And there are some places, some of them happening to be in Central and the South, where we have found the employee format is a better fit. So there is not one size fits all; there is no goal to have 100% of either one; it will very much continue to be market by market.

Operator, Operator

Thank you. We'll take our next question from Rodrigo Alcantara with UBS.

Rodrigo Alcantara, Analyst

Hey, good afternoon, and thanks for taking my question. Have two quick ones, if I may. First one, if you can have any special consideration regarding the upcoming energy reform, labor reform, any potential impact that we should be aware? That would be my first question?

Eugenio Garza, Finance and Corporate Development Director

Sure. I'll start with the labor reform. Clearly, we're keeping an eye on that. As I said that it's been deprioritized from what we hear in Congress, so we're waiting to see what happens with that, and we are obviously - we will obviously respond the way - we do believe that we have enough margin to comply with whatever regulation or different things that are being discussed there. So I think it's less of a concern. With regards to energy reform, as you know, we've been investing heavily, especially regarding our wind energy. We had an ambitious goal of 85% of our energy needs in Mexico coming from renewable sources, and we basically almost got there. So we will continue to see what happens with that. And if we need to make a change, we'll make a change, but we will continue to be heavily committed toward having a significant portion of our energy needs going forward be in renewable energy. We've also been testing in other areas, testing electric vehicles for our small vehicle fleets. So I'm sure there will continue to be challenges on both the legal and regulatory fronts, but we will obviously continue to comply with those frameworks, but again continue to keep pushing forward toward achieving these targets of getting most of our energy from renewable sources.

Rodrigo Alcantara, Analyst

Thank you. So let's say considering the draft, just as it is now from the energy reform, do you see any friction at this point from the way you operate and from what the draft is mentioned? Is there any friction that we should be aware of?

Eugenio Garza, Finance and Corporate Development Director

It will all depend on how the private generation and consumption of energy portion of the bill comes out of, and if that will not continue to be allowed or continue to be allowed, but at some cost we'll have to evaluate and adapt to that new regulatory environment. But as I said, we continue to be committed to supplying a significant amount of our energy with renewable resources.

Operator, Operator

We'll take our next question from Rodrigo Echegaray with Scotiabank.

Rodrigo Echegaray, Analyst

Thank you. Just a quick question on OXXO. This, I guess, you have answered directly or indirectly throughout the call. So I'm just curious if you think that the strategy and the sales mix at OXXO could change post-pandemic, whether in terms of the SKUs that you carry, the price points, locations where you're opening stores, cities where you focus? Are there any - is there any impact from the pandemic on the OXXO commercial strategy? Thank you.

Francisco Camacho, Chief Corporate Officer

Hi, Rodrigo. This is Paco. I mean, clearly, as we said, this has been a very dynamic exercise of the teams in OXXO. They have done tremendously well; just to pick a few examples to your question. On one hand, consumers have been more careful with their out-of-pocket expenses. So you can imagine that when it comes to our private-label offering, we have been doing a very good exercise in terms of understanding what additional things we need to offer. That's one. Second, you can imagine that when it comes to beverages, for example, the OXXO stores are usually very strong on single-serve. But the pandemic came, and people were limiting their consumption of single-serve because traffic growth was lower, and they were buying bigger sizes, returnables, and sometimes even multi-packs. And once again, the portfolio was changed accordingly. And these are the kind of things that we need to continue doing as we move forward. I mean you have seen that the private-label offering has increased, and this is partially because of all the things that we are doing. So, it is probably fair to say, or safe to say that some of these will remain once the mobility comes back, once the pandemic slowly starts moving away. Some of these new ways in which the portfolio has moved will remain. Which ones? I think that what is important is that we stay close to what consumers are doing and what the shoppers want, and we are confident that as the teams have done, that will continue to be adapted accordingly.

Rodrigo Echegaray, Analyst

If I understand correctly, I mean - sorry, go ahead, Juan.

Juan Fonseca, Moderator

Hey, Rodrigo. This is Juan. I think also in terms of locations, following up on what Paco just said, adjustments that you should expect, given that there will be a percentage of consumers that may spend more time at home, maybe working from home. In terms of our own segmentation of stores, we probably will overemphasize stores in certain residential neighborhoods and deemphasize the opening of stores in office parks or inside office buildings where we have a model of stores that go into the basements or the parking lots in some office buildings to get the captive traffic from that building. Probably there are going to be fewer of those, and we're taking a look at those stores that are in neighborhoods where people are actually spending time during the week because they're working from home. What else do they need throughout the day, right? To Paco's point, the same-store sales number that we see today for the quarter involves a double-digit increase in ticket and a double-digit decrease in traffic, and we've seen the categories that are kind of pantry-loading or supermarket-type items driving some of that increase in ticket. Things like spirits as well, which was discussed in the past; I think the absence of beer in the middle of the year made people discover that we carry a portfolio of spirits. So if we are able to retain some of those increases in certain categories and the average ticket remains above trend and we recover most of the traffic, then that will put us in a pretty good place.

Francisco Camacho, Chief Corporate Officer

And if I may add a - follow Rodrigo, the fact is that what is important is that the team has demonstrated to be very flexible with the product portfolio, so that they are offering for the shopper. And that basically means that, that's why we are very optimistic about what the future looks like because we - that flexibility will allow us to - once mobility is back, that the traditional categories which are very strong for us, such as fast food, the fast craving, those will be back. Those will be back when mobility comes back. And so we'll be in a better position, understanding that consumers might continue to be concerned regarding out-of-pocket expenses; we are in a perfect condition to offer all sorts of solutions for them. So we are very confident that more than ever, the OXXO format is very relevant for consumers when we start moving out of the pandemic. So we remain very positive.

Rodrigo Echegaray, Analyst

Got it. Very helpful. And so from the comments you've made, the comments around deemphasizing office and emphasizing more residential: probably something like the more - a more structural versus a tactical shift. Any other structural changes? I mean, perhaps in terms of regions as people work from home, so have they - some of these are you seeing in other countries are leaving the and are essentially buying houses that are cheaper in the interior and elsewhere? Have you seen some of that? Do you think that will happen in Mexico?

Francisco Camacho, Chief Corporate Officer

As we said, Rodrigo, the averaging that you are highlighting is something that has become a day-to-day for the OXXO team, starting to work. This is fairly - this is true that that is happening. It is also true that you will see differences in the case of Mexico, for example, when it comes to tourist areas. I mean, it depends on how the traffic is - the tourist traffic is going, then obviously we will adapt and will see some differences. The same applies to the regions, but again, depending on what we have seen on the restrictions that the local authorities are doing because it's different, it's different. As Juan said, in the north of the country we had certain restrictions throughout December that were not in place for other parts of the country. So at the end of the day, what we need to ensure is that this flexibility that the teams have shown to adapt and to offer to the shopper and to comply with the regulations and take the opportunity to add new categories, we need to stay like that in 2021, and I assure you that that is the plan.

Operator, Operator

We'll take our next question from Carlos Laboy with HSBC.

Carlos Laboy, Analyst

Yes, good morning, everyone. I think you said earlier that you pretty much started with the new expansion into new businesses. Does it mean that you will not go into some stores in the U.S.? And if you are going to go into some stores in the U.S., do some stores become prohibitively expensive? And the reason I ask is because organic growth can be really slowed. So is there a point at which the Heineken stake just represents too much opportunity cost for you and not being able to go into the U.S.? I mean we've already rolled about 11 years of sitting on the U.S. sidelines in the USC store business. Are you okay for another long run of not participating in that business?

Eugenio Garza, Finance and Corporate Development Director

Yes. And from a portfolio perspective, as you know, Carlos, we have mentioned that which will be complexity, but Proximity continues to be one of the main pillars in which we expect to fund growth. So clearly there is room to grow in Mexico still, there is room to grow in the rest of the countries where we are present in Latin America and elsewhere. We continue to actively monitor our convenience formats in Proximity formats throughout the world, including the U.S. We are aware of the restriction that the Heineken stake brings us there. That said, some of the assets there will have to evaluate on a one-by-one basis and see what the opportunity cost of having one asset versus the other is. If opportunities come along that warrant, we'll take a look at them. But again, there are plenty of opportunities I think still outside of the U.S., including in our regions, which is we're not currently in that at least would allow us with our current business model to create value. So we will look at any and all, but again, always considering a relative risk-reward perspective in our portfolio. So for now that hasn't materialized, but we continue to actively monitor all situations.

Operator, Operator

That will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Francisco Camacho for any additional or closing remarks.

Francisco Camacho, Chief Corporate Officer

Thank you all for attending the call. Thank you all for your support. Continue to support FEMSA. And we want you to stay safe and see you next time.

Operator, Operator

Ladies and gentlemen, if you wish to replay the webcast for this call me. You may do so at FEMSA's Investor Relations website. This concludes our conference for today. Thank you for your participation and have a nice day. All parties may now disconnect.