Last November, Walmart announced that it would enter the convenience store market in Mexico. The US retail corporation reached a partnership agreement with Gazpro gas stations which will implement and operate Walmart’s convenience stores in gasoline service stations across the country.
The move pits Walmart directly against FEMSA’s convenience store brand, Oxxo. FEMSA is the fifth largest business in Mexico with operations across Latin America mainly through bottling plants, convenience stores, drugstores, fuel stations, and third-party logistic services. Oxxo is the market leader with 17,400 outlets, followed by 7-Eleven, 1,800; Extra, and Circle K, both with less than 1,000 stores.
A board director at FEMSA provided some market context, “Mexicans have grown up with the ‘corner-store’, all social groups went through that, but the market modernised and specialised in such a way that Mexican consumers began to choose franchises for their higher standards of quality. This niche is a business opportunity that has still not reached its maximum in Mexico or elsewhere in Latin America, we are already exporting the model to Colombia, Chile and Peru and we’re looking at the Caribbean.”
Local corner stores (in Spanish: tiendas de abarrotes) have accused convenience store franchises of unfair competition as they are allowed to offer bill payments and other financial services in what they call predatory expansion practices.
Walmart claimed that the competitive advantage of its convenience stores would be the offering of Walmart Mexico’s products at competitive prices. A strategic advisor to Walmart in Mexico commented, “We will start with gas station stores but will grow progressively in other areas. We will not be anywhere near the size of Oxxo to begin with but we will grow and may compete over time.” Walmart has not publicly revealed further details of its business plan such as the brand and number of stores it plans to open.
“We will start with gas station stores but will grow progressively in other areas.”
Strategic advisor, Walmart, Mexico
Meanwhile, Oxxo already has a presence in ten countries in Latin America, having recently reached an agreement with Shell Select to open 500 establishments in Brazil, and plans to open 402 new stores in Mexico by 2023 with a USD 25 million investment. The board director was not concerned about Walmart, yet, “Competition is positive for Oxxo and we seek to strengthen the 20,000 branches that are not franchises but depend on our corporate. Oxxo’s advantage over the competition, such as Walmart, is that our products are also sold by them, so the fight is for the best service, comfort and consumer experience.”
“Oxxo’s advantage over the competition, such as Walmart, is that our products are also sold by them, so the fight is for the best service, comfort and consumer experience.”
Board director, FEMSA, Mexico
Despite Oxxo’s dominant position, it has recently found itself at the centre of the political debate after the president of Mexico, Andrés Manuel López Obrador, in the context of the government’s energy reform, accused the company of paying less than its fair share. The board director responded, “With more than half of the convenience store market, Oxxo has co-responsibilities, one of them is the generation of electricity for our 20,000 branches and the entire logistics distribution and storage structure. Oxxo has invested millions of dollars in generating electricity, does not violate any laws and is strengthening its commitment to the environment.”