Cokes, smokes and clicks: How Oxxo corner stores are cashing in on Mexican e-commerce

[October 12, 2018]   By Julia Love and Daina Beth Solomon

MEXICO CITY (Reuters) - Stroll the aisles of any Oxxo in Mexico and you will find the staples of convenience store sustenance: beer, cigarettes, enough candy to keep dentists at full employment.

Look closer and you will see this old-school chain is a linchpin of the country's e-commerce. The retailer, with more than 17,000 locations throughout Mexico, has cracked two of the biggest barriers to online shopping in the developing world: payments and pickup.

Shoppers lacking bank accounts - more than 60 percent of Mexico's population - can plunk down cash at their local Oxxo to make purchases from more than a thousand online merchants. Those who live in dangerous or remote areas where home delivery is complicated can then head back to Oxxo to retrieve their merchandise.

The pick-up program, offered with Amazon.com Inc <AMZN.O>, operates in nearly 3,000 Oxxo locations, with plans to expand. Oxxo is in talks with other merchants to handle their packages too, said Asensio Carrion, Oxxo's director of financial and electronic services.

Oxxo takes a cut from both merchants and consumers on most transactions. It's not rocket science. But analysts say Oxxo has seized on a lucrative opportunity to cement itself into the e-commerce supply chain in places where online shopping is not the seamless affair it is in wealthy countries.

That makes it one of the few companies in the world with the leverage to go toe-to-toe with Jeff Bezos, Amazon's billionaire founder. At a time when many brick-and-mortar retailers view e-commerce as a threat, Oxxo has found a sweet spot.

An employee of Femsa's Oxxo convenience store touches a screen displaying Amazon's system for packages pickup at a store in Monterrey, Mexico August 27, 2018. Picture taken August 27, 2018. REUTERS/Daniel Becerril

"Mexico runs on cash. This is the huge advantage of a company like Oxxo," said Enrique Culebro, head of Mexico's internet association.

That is good news for parent company Fomento Economico Mexicano <FMSAUBD.MX>, known as Femsa. Oxxo generates about 35 percent of Femsa's revenue and is the "driver of the company," said Jose Cebeira, an analyst at Mexico City brokerage Actinver. Femsa shares are up about 50 percent since the end of 2014.

(For a graphic on how Oxxo is spurring Femsa's growth, see: https://tmsnrt.rs/2yulhJv)

Not content with remaining a middleman, Oxxo is working on e-commerce efforts of its own. The company will test a home-delivery app next year, and is considering an e-wallet that would allow shoppers to store balances for online purchases, Carrion said.

But Oxxo must ensure that its e-commerce experiments do not clog registers and undermine its core business of selling Cokes and smokes, says Mexico fintech consultant Gabriela Zapata.

"For the person behind you who just wants a quick pack of cigarettes, waiting four minutes is not ideal," she said.

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