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FEMSA's (FMX) Entry in Ecuador to Fortify Drugstore Business

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Fomento Económico Mexicano, S.A.B de C.V. (FMX - Free Report) , alias FEMSA, is ready to include another chapter to expand the drugstore business. In sync with its strategy, the company’s FEMSA Comercio unit has agreed to acquire Quito, Ecuador-based Corporación GPF (“GPF”), through its majority-owned subsidiary, Socofar.

GPF is a leading drugstore operator in Ecuador, with over 620 points of sales across the country, operating under banners — Fybeca and SanaSana. With nearly 90 years of experience in the business, GPF is likely to be a value addition for the company’s drugstore business in South America, taking it to the next level.

We believe FEMSA Comercio’s retail expertise combined with GPF’s attractive growth avenues as well as Socofar’s profound knowledge of the Ecuadorian market should significantly bolster its position in the South American drugstore industry. The transaction, which is subject to regulatory clearances, is expected to complete by first-quarter 2019.

FEMSA laid the foundation of drugstore expansion in South America by acquiring 60% stake in Chile’s leading drugstore operator, Socofar, in September 2015. With this, FEMSA Comercio acquired controlling stakes in the drugstore and distribution platform of Socofar, with a consumer base of more than 16 million.

FEMSA remains focused on expanding drugstore operations as it witnesses significant potential in that space. The company has been aggressively seeking to capitalize on the growing drugstore business. As of Jun 30, 2018, the company had 2,251 points of sales across all regions, of which 16 net new stores were added in second-quarter 2018.

Notably, the company is on track to build infrastructure and integrate its four legacy drugstore operations into a single operating platform. These include its previously acquired Mexican drugstore businesses — Farmacias YZA, Farmacias FM Moderna and Farmacias Farmacón — as well as the aforementioned acquisition of Socofar.

We believe, FEMSA’s venture into the drugstore business strategically fits its chain-store business and is likely to be accretive to both top and bottom lines in the long term.

Despite embedded positives of entering the Ecuadorian drugstore market, FEMSA stock has declined 1.6%. However, this Zacks Rank #3 (Hold) stock has rallied 9.8% in the last three months, outperforming the industry’s growth of 3.2%. The company has been registering notable gains, driven by actions — including expanding store base, diversifying business portfolio and focus on core business activities.


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