Trying to keep pace with rapid growth is a problem many retailers wish they had. For FEMSA Comercio, which operates a chain of OXXO-branded convenience stores in northern Mexico, developing a computerized operating system that could track merchandising, warehouse operations, assortment planning, pricing and business planning during torrid expansion was a real problem.

By 2003, the chain was opening an average of 100 new stores per month. Today, OXXO has more than 6,000 stores and continues to grow at a rate of about 700 stores annually.

Such rapid expansion had caused real problems in managing operations. When the chain was a small company, it could effectively run things on its COBOL-based, internally developed computer system. But as the chain grew, the internal system was limited in what it could do. “It did not operate on a standard server and was not an open system,” says OXXO CIO Ruben Trevino. “We faced problems with flexibility and scalability. That was not a big problem when we were just 200 stores, but the system just could not handle our growth rate.”

The chain hired Andersen Consulting (now Accenture) to analyze its operations, and the consultants recommended that the company implement an integrated merchandising system. After looking at several proposals, OXXO installed a new IT foundation in 2006 and purchased the Oracle E-business suite of financial products to run on it. Included in that suite were Oracle’s database management and other retail merchandising products.

A year later, OXXO updated its warehouse applications and added new pricing and planning capabilities with additional components of the Oracle suite. It also completed the groundwork to put into place more sophisticated analytic abilities for the future.

The firm’s initial goals were to improve capabilities for segmentation, pricing, inventory control and replenishment, as well as to implement a modern approach to category management.

The new approach not only modernized and simplified the merchandising and processing systems, but it allowed the company to segment merchandise and pricing to fit the needs of individual stores. “Segmentation was impossible to accomplish with our old system,” Trevino says.

Store-level inventory control
The company has been able to implement an automated replenishing system that allows the chain to better control its inventory at the store level. As a result, OXXO has been able to reduce out-of-stocks from 12 percent to less than 2 percent. “We believe we had previously lost sales by being out of stock so much, so this change has most likely helped increase sales,” Trevino says.

The automated system also has “improved our value proposition,” Trevino says. “Previously, the chain had to carry the same merchandise in each store; the new system helps OXXO analyze sales at the individual store level, as well as demographic information and customer behavior, to determine the merchandise mix for each store.

“Before, we were a ‘one-size-fits-all’ operation and we could not react to different consumer behavior and space restraints” at individual stores, Trevino says.

In addition to customizing the merchandise carried at each store, the system helps OXXO perform price segmentation. By studying customer price tolerance and market competitive conditions, it can segment pricing for various products by region.

OXXO also receives more up-to-date sales reports. “Previously, we got monthly sales reports from our stores, but during each month, we did not get updates on how our sales were going,” Trevino says. “Now we can analyze sales on a weekly basis, and sometimes even daily. This allows us to react faster to changes in customer demand.”

OXXO is starting to use the system to perform market basket analysis. “We get about four million customer visits a day,” Trevino says. “That is a wealth of information that we are just beginning to look at in terms of helping us understand customer behavior.”

Ultimately, OXXO would like to analyze sales information to determine which products are typically purchased together. Once that information is known, the merchants can change store layouts so that these products are located closer together, or the chain might run special promotions where customers who buy one product get a discount on the other.

OXXO also found that the purchase of one product often leads customers to buy another, causing a halo effect. “Now we can promote the sale of the first product and expect an increase in sales of other products,” Trevino says.

Price optimization
OXXO wants to do an even better job of analyzing information being gathered through sales for price optimization. “We carry about 2,000 items per store, and there is a lot of price elasticity,” Trevino says. “We need to study the information we are collecting to develop the optimal price points for each store.”

The chain also wants to utilize its management system to help it sell services as well as products. It is looking to add banking services, the ability for customers to pay utility bills and the sale of cell phone air time.
“We’ve set up a great merchandising system,” Trevino says. “Now we can analyze what we know about our customers to see what they are looking for in additional services.”

OXXO works with 9,200 different suppliers; some provide perishable products that must be replenished frequently, while others have products with longer shelf lives. Better and more updated sales data can help the chain know what it needs for each store in order to do a better job in reducing waste and keeping products fresh.

There is also a wide range in terms of size and layout among the chain’s 6,000 stores. Therefore, the more information that can be gathered about what products are popular in each store can help the chain determine which SKUs can be added, increased, decreased or eliminated.
“We’ll be putting this function online within the next two to three months,” Trevino says.