Coca-Cola Femsa SAB de CV (KOF) 2022 Q2 法說會逐字稿

Good morning, everyone, and welcome to Coca-Cola FEMSA's Second Quarter 2022 Conference Call. (Operator Instructions) At the request of the company, we will open the conference up for questions and answers after the presentation.

During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as a good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based on current available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance.

At this time, I would now turn the conference over to Mr. Jorge Collazo, Coca-Cola FEMSA's Investor Relations Director. Please go ahead.

Good morning, everyone. Thank you for joining us today to discuss our second quarter 2022 results. Our earnings release was published yesterday, and is available in the Investor Relations section of our website.

Joining us today is Constantino Spas, our Chief Financial Officer, who will conduct today's call. Due to a conflict in his agenda, John Santa Maria, our Chief Executive Officer, will not be able to join us today. We look forward to having him back for our third quarter earnings call next October. As usual, following prepared remarks, we'll open the call up to take your questions.

With that, I'll hand the call over to Constantino.

Good morning, everyone, and thank you for joining us today.

Let me begin by saying that we're very pleased to report a solid set of second quarter results. We continue building on our positive momentum with strong volume performance across our territories. This solid volume growth, coupled with the pricing initiatives and mix recovery resulted in an impressive 19.9% top line growth, while our operating cash flow increased by 6%.

Additionally, when adjusting for the extraordinary one-time effects we recognized in 2021 related to tax credits in Brazil, our operating cash flow margin remained virtually flat. This reflects the resilience of our company and our team's outstanding ability to substantially mitigate margin pressures in the face of increasing input cost inflation. As we will discuss during the quarter, we continued executing against our key strategic initiatives.

We continue accelerating the rollout of our omnichannel digital platform and developing a consumer-centric winning portfolio, especially focused on innovation and affordability. Together with the Coca-Cola Company, we continue executing against ambitious growth plans, bolstering execution and investment across our markets.

Aligned with our vision, we continue exploring complementary revenue streams as exemplified by our recently announced distribution agreement with Grupo Perfetti Van Melle in Brazil, one of the world's largest manufacturers of confectionery and chewing gum.

Now, I will switch gears to review our consolidated results. With our acquisition of CVI in Brazil included in our results as of February 2022, I will refer to certain figures as comparable, which is the year-on-year comparison excluding M&A and currency translation effects.

Our consolidated volumes for the quarter increased 11.9% year-on-year and 11% on a comparable basis. The growth was driven mainly by double-digit volume growth in Brazil, Argentina, Colombia, Guatemala and most of our territories in Central America. This growth was also driven by our operations' strong performance in Mexico and Uruguay. Once again, all of our categories posted accelerated volume growth as compared with the previous year.

Our core sparkling beverage category grew 9%, driven by 8.5% growth in brand Coca-Cola and 10.9% growth in flavors. Our still and personal water beverage categories grew 26% and 44%, respectively, growing in all of our categories as compared with the previous year. It's important to highlight that these numbers represent growth over growth achieved last year. This is evident when comparing against the second quarter of 2019 with consolidated comparable volume increasing 12.4%.

By channel, we continue to see strong recovery in the on-premise. To give you a sense, in Mexico, we saw growth in all of our channels, underscored by double-digit growth in both the on-premise and modern trade channels, with resilient performance in the traditional trade. In Brazil, the on-premise and traditional trade primarily drove our channel growth, outperforming supermarkets.

Importantly, despite inflationary pressures on consumers across our markets, our affordability and mix initiatives continue to drive single-serve mix growth. Year-to-date, our single-serve mix in Mexico has increased 1.8 percentage points, reaching 29.8%.

In Brazil, we are on track to reach 24% single-serve mix this year, reaching and matching our 2019 baseline. This is almost 3 percentage points more than 2021. On a consolidated basis, our single-serve mix has increased 2.1 percentage points to reach 31%. Our affordability capabilities, we believe are second to none.

We have a deep base of returnable presentations in our affordability initiatives that allow us to provide our consumers with our unparalleled level of choice. Additionally, we continue accelerating the rollout of our universal returnable bottle to boost affordability and strengthen our revenue growth management capabilities. Our 2.5 liter bottle is now present in more than 85% of our territory in Mexico, and we also have expanded our 500 ml returnable glass option to more than 40% of the territory and this continues to grow.

Another important growth engine is innovation. We're very excited about the Coca-Cola Company's innovation pipeline. For example, we launched limited editions from Coca-Cola creations in key markets, such as the gaming inspired Coca-Cola Byte. And we are now launching the new Grammy-nominated artist from Coca-Cola, Marshmello, both of which include Zero Sugar options and are new ways of generating consumer engagement.

Also during the quarter, the Coca-Cola Company announced plans to debut a Jack Daniel's and Coca-Cola ready-to-drink cocktail, which will be launched in Mexico in late 2022. Importantly, the new visual identity and formula of Coca-Cola Zero Sugar continues growing across all of our territories. For example, in Mexico, during the first half of the year, it achieved 26% growth. While in Brazil, it achieved 20% growth and now represents approximately 10% of the Coca-Cola brand volume mix in that country.

On a consolidated total revenue growth, we accelerated, increasing 19.9% and 16.4% on a comparable basis. This growth was driven by the solid volume performance, coupled with the pricing initiatives, revenue growth management and favorable currency translation effects. Notably, we achieved solid top line performance despite the decline in beer revenues resulting from the transition of Heineken's beer portfolio in Brazil.

Our gross profit increased 12%, and our gross margin contracted 310 basis points. However, if we were to normalize the effect of extraordinary one-time income we recognized during the second quarter of 2021, our gross margin would have contracted by 80 basis points. Our pricing initiatives, revenue growth management and favorable raw material hedging strategy partially mitigated high raw material costs, mostly from PET and sweetener costs across our territories.

Our operating income increased 5.6% year-on-year, leading to an operating margin contraction of about 180 basis points. But again, by normalizing the previously mentioned one-time effects, our operating income margin would have expanded by 50 basis points, reflecting our ability to achieve expense efficiencies across our operations. On a comparable basis, excluding M&A and currency translation effects, our operating income increased 1.8%. Finally, our operating cash flow for the quarter increased 6% year-over-year, resulting in an operating cash flow margin of 18.5%.

Moving on. Our comprehensive financial results recorded a decrease of 56.6% as compared with the previous year. In accordance with IFRS 9, as of the second quarter, we are recognizing the hedging gain or loss on the debt instruments that are being hedged using interest rate derivatives. As a result, we are now recording a one-off gain in market value, gain or loss in financial instruments of MXN653 million, corresponding to the first value -- to the first quarter of 2022 and offsetting the loss recognized in the previous quarter. Including this effect, for the second quarter of 2022, we are reporting a gain of MXN355 million in market value in financial instruments.

Additionally, our comprehensive financial result recorded a foreign exchange gain of MXN80 million, MXN80 million and a decline in our interest expense net, driven mainly by an increase in interest income. Mainly as the result of these effects through comprehensive financial results, our controlling net income increased a solid 39.5% to reach MXN4.6 billion during the second quarter.

I will now expand on our divisions results. In Mexico, our volume growth accelerated, increasing 7.2%, while our total revenues increased 13.1%. This was driven by solid performance across channels, coupled with the pricing initiatives and revenue growth management capabilities. In Central America, our operations continued to deliver a strong performance with 15.7% volume growth and 18% revenue growth, compared with the second quarter of 2021. Guatemala, Costa Rica, Nicaragua achieved double-digit volume growth during the quarter. As a result, our quarterly revenues in the division increased a solid 13.9%.

On the profitability front, our gross profit increased 8.7%, which resulted in a gross profit margin of 47.8%. This represents a margin decrease of 230 basis points as compared to the previous year. Our raw material hedging strategies partially mitigated this contraction driven by relevant raw material inflation, mainly from PET and sweeteners and higher concentrate costs in Mexico.

As part of our mutually beneficial relationship with the Coca-Cola Company, an increase in concentrate costs for sparkling beverages in Mexico became effective this month of July. This increase is not only in line with previous adjustments as we did in previous years, we expect to offset this effect with revenue growth management initiatives and efficiencies.

Together with the Coca-Cola Company, we will continue to invest behind the market to continue driving growth. As was the case during the first quarter, our focus on savings and efficiencies enabled us to mitigate the effect of higher freight and labor costs. As a result, our operating income in the division increased 11.6%. Our resilient operating income margin of 16.6% reflected a 40 basis point contraction in the Mexico and Central American region. Our operating cash flow margin for the quarter was 21.9%, representing a slight contraction of 60 basis points. This margin resilience was achieved in the face of an increasingly complex inflationary environment.

Now moving on to South America. We once again achieved solid double-digit volume growth. Our volumes increased 18.4% as compared to the same period of 2021. This was driven mainly by 15.6% growth in Brazil, which includes the consolidation of CVI, 25% growth in both Argentina and Colombia, while Uruguay delivered high single-digit growth. On a comparable basis, excluding CVI in Brazil, volume in the division increased a solid 15.9%.

Our revenue growth management capabilities, the affordability of our portfolio and a favorable translation effect of the Brazilian real into Mexican peso enabled us to increase our revenues in the division by 30.3%. This growth was achieved despite the decline in beer revenues, resulting from the transition of our beer portfolio in Brazil. If we exclude currency translation and M&A effects, our top line would have increased 20% during the quarter.

On the profitability front, our gross profit in South America increased 18.8%, while our gross margin contracted 370 basis points. However, excluding the effect of the extraordinary one-time recognition of tax effects in Brazil, our gross margin would have expanded, reflecting the positive effect of volume growth, favorable price-mix effects and raw material hedging strategies.

Finally, in the face of the challenging comparison base that includes the previously described one-time effects, our operating income for the division decreased 9%, mainly driven by higher freight and labor costs. Finally, our operating cash flow decreased 3.5% for the quarter.

As John described during the previous earnings call, we have renewed our strategy under a new concept that we call Re-Evolution. This is based on 6 strategic corridors; building an omnichannel multi-category platform -- commercial platform, developing a consumer-centric winning portfolio, fostering an agile-digital savvy and people-centric culture, place sustainability at the heart of our organization, digitize our core and actively pursue value-enhancing acquisitions.

Let me now provide you with an update on the first pillar; the build out and rollout of our omnichannel multi-category digital commercial platform. In Mexico, we reached approximately 290,000 active monthly buyers by the end of second quarter. This means we added 70,000 monthly buyers during the quarter. So now more than 40%, 4-0, of our total client base in Mexico is an active monthly buyer.

Additionally, our direct-to-home platform in Mexico is progressing according to plan, focusing on accelerating our digital transformation and continuing to increase order fulfillment to better serve our customers. Notably, during the quarter, we added more than 200 new home delivery routes to reach 320 routes added year-to-date. We also continue to improve key metrics, such as our delivery effectiveness and net promoter score.

We move to Brazil. We now have more than 180,000 monthly digital buyers, which is close to 60% of our total client base. And the percentage of digital orders has reached 40% of our total client base. In other markets such as Colombia, Costa Rica and Panama, we have also accelerated the rollout. Notably, Colombia has reached an impressive 60% of monthly active digital buyers from our total client base, while Costa Rica and Panama are already close to 20%.

In summary, on a consolidated level, we have reached more than 645,000 active digital monthly buyers, up 245,000 from 400,000 at the end of the first quarter of this year. Our digital revenues in June amounted to more than $90 million, more than a 50% increase from at the beginning of 2022. We are confident that the accelerated rollout of the digital B2B and direct-to-home omnichannel platforms will continue to enable us to expand our customer service and keep taking important steps towards our vision of becoming the world's preferred commercial ecosystem.

Now, I also want to take a moment and emphasize the importance of implementing the right strategies across our markets in order to ensure we maintain our positive momentum as we continue navigating a very dynamic consumer and raw material environment.

First of all, recognizing inflation is not new to Latin America. We will continue to leverage a playbook that is familiar to us. It has allowed us to develop industry-leading revenue management capabilities. We will continue implementing portfolio initiatives across our territories to ensure we have accessible prices for it. Affordability has been and will continue to be key in our markets. For this reason, we are expanding our returnable capacity and the coverage of a returnable universal bottle.

Second, we will continue leveraging our capabilities to increase our single-serve mix. By leveraging multi-packs, increased cooler coverage and execution across our markets, we are confident that we will continue growing our single-serve mix. Third, we will continue leveraging our disciplined hedging strategies and our capabilities to generate savings and efficiencies across our territories.

As we previously mentioned, we have hedged approximately 75% of our PET needs for 2022 in Mexico, and more than 90% of our high-fructose corn syrup needs. We have also hedged more than 35% of our aluminum needs. While in Brazil, we have hedged more than 75% of our sugar needs for the year. We remain confident that these hedges, coupled with our ability to segment our consumers and our revenue growth management capability will continue to enable us to substantially mitigate margin pressures and protect the profitability as we enter the second half of 2022.

We're also investing to digitize our core. It's fundamental for the future of our platform and bringing a tremendous amount of transformation to our supply chain, which allows us to complement the revenue growth management capabilities. As an example of these initiatives is dynamic routing, which provides us with the ability of flexible dispatching and has 2 important effects; an increase in productivity and a reduction of our cost of delivery.

To this end, we're working to improve end-to-end last mile distribution focus on omnichannel customer experience and process effectiveness. As part of our supply chain reinvention process, we have generated more than $30 million in savings year-to-date. Building on the sustainability update, we provided during our previous earnings calls, we are proud to be recognized for the seventh consecutive year as members of the FTSE4Good Latin American Emerging Markets Index, in recognition of Coca-Cola FEMSA's leading sustainability practices.

According to the this index methodology, Coca-Cola FEMSA ranks ahead of our other industry participants due to its environmental and social initiatives. This recognition not only reaffirms our sustainability commitment, but also provides us with a positive reinforcement to accelerate towards a long-term sustainability ambition as we play sustainability at the heart of our organization.

Finally, I want to underscore once again our solid financial position and the acceleration of investments in our company with a positive trend of results. Year-to-date, we have increased our CapEx by more than 65% as compared to the previous year, all this while returning cash to shareholders and maintaining a solid cash position of more than MXN45 billion.

Notably, during the quarter, both S&P and Moody's rated Coca-Cola FEMSA's credit rating above Mexico's sovereign, reflecting Coca-Cola FEMSA's track record of outperformance during economic cycle downturn, our ability to protect our profitability as well as the market's trust in our prudent financial policies. As we enter the second half of the year, we remain confident that our capabilities to continue growing, accelerating and delivering results across all of our strategic fronts and Coca-Cola FEMSA's transformation is gaining speed. And despite the economic environment, I am very encouraged by Coca-Cola FEMSA's capabilities to achieve our short-term and long-term objectives.

Thank you for your continued trust and support and for joining us today for this call. Now, operator, I'd like to open the call for questions that both Jorge Collazo and myself will address. Thank you so much.

(Operator Instructions) We will take our first question from Fernando Olvera from Bank of America.

I'll keep with one, which is related to Mexico. Can you comment what explains the solid growth seen this quarter, since it was the largest one, I believe, since 2016? Have you seen same trends in July? And how do you expect volumes to perform in coming months in the middle of a tough economic environment?

Yes. Thank you, Fernando. Thank you for the question. Volumes in Mexico were definitely benefited by a series of variables, right? First of all, we had very favorable climate. That is something that we need to take into consideration account and be very open and transparent about it. We're very sensitive to weather and we had very favorable climate, Number one. At the same time, as we have mentioned during our remarks and previous calls, we're taking a very adequate, we believe, revenue management growth strategy and pricing stats.

So I think that the adequate pricing strategy and the offering of affordable options and solutions for the consumer has allowed us to continue serving the best consumer occasions possible with the best offering and at the same time, providing for a solid retainment of our consumer base. All of our channels are growing. That is something that we also are starting to see.

There is a more homogeneous behavior across channels. Due to the pandemic in the previous quarters, we have seen some lagging behavior in the on-premise. Now, we're seeing all channels growing. And I believe that also less mobility restrictions and reopening of all the channels have impacted positively our performance. At the same time, these rates, Fernando, in the market is about focusing on the strategy and executing it consistently over time. I think we're starting to see that in Mexico. It's also the compounding effect of great execution, great revenue growth management strategies and a focus on the long-term.

What do we expect for 2022? We don't provide guidance for the future in our -- and the way we see the business. And volatility is definitely here. I think that we can say that we continue to see, as of today, positive momentum. We believe that affordability and returnability will continue to allow us to sustain our consumer base. And we are focusing on implementing, operating our portfolio measures to continue growing. Maybe the growth that we saw in this quarter might taper down a little bit. That would be something that we could foresee. But as of today, we continue to be positive on the consumer environment in Mexico in the category.

I don't know, Jorge, you want to add something?

Well, Constantino, I think maybe adding to that, the strong performance was very consistent also throughout the quarter. And even in May, we achieved a record month for our Mexican operations. So that, I think, it's a very interesting highlight to point out. And also that consistency across regions in Mexico, which, as you know, is something that in the past sometimes we were seeing certain regions of Mexico outperforming others. What we saw in the quarter was very consistent across the board, across the regions where we operate in Mexico now from the center to also the South and Southeast. So that, definitely, I think is a proof of what you just mentioned, Constantino.

We will take our next question from Marcella Recchia from Credit Suisse.

I have 2 questions. First one is how concerned you are about the parallel FX rate in Argentina, if you think that it could become a problem at some point in terms of companies being able to get money out of the country or having to report at the parallel rate.

And the second question is with regarding the rollout of the multi-category pilots. What can be shared in terms of unit economics so far? What have been the main learnings and synergies of service?

Well, I think we all know the complex environment in Argentina. Argentina has, for the last few years, experienced some high volatility and a complex economic situation. I think that in our case, our operation continues to focus on driving growth and winning in the market. That is the operations' mandate. And in terms of FX, we have no other view, but the official rate in Argentina is the rate that we account for and we strategize for it. We definitely monitor continuously situations in Argentina regarding FX. But for the time being, there is no difference in the approach and in the focus that we've had for the last few years.

In terms of the distribution agreements that we have, I would say that unit -- to your specific question on unit economics, unit economics are positive. They're value accretive for us in the places we have started implementing the pilots. Definitely, we continue to be at early stages, not most of these pilots have not been scaled to a national level in most of the geographies where we are operating in. But we consistently are seeing growth.

We're consistently seeing proof points that validate that this is an interesting avenue to complement our portfolio offering and winning in the market. And we're seeing very happy partners too on the other side. So from that angle, we're extremely optimistic about our commercial platform and the ability to continue pushing on that front, to be able to fulfill our ambition of becoming the world's preferred commercial ecosystem in the future.

We will now move to our next question from Alan Alanis from Santander.

And hope you can hear me well because I'm not in a good reception area. First of all, congratulations on the results. Constantino, could you expand a bit on the trends on Brazil beer, what you're seeing over there and the overall strategy for alcohol in the region? Now with the launch of Jack Daniel's and Coke in Mexico, what's next for alcoholic beverages in Coca-Cola FEMSA?

Thank you, Alan, for your question. And I can hear you very well. In terms of beer in Brazil, this is a recurring question quarter after quarter after a decline of approximately 30% in beer revenues in 2021 due to the transition, the effect of this transition. For 2022, as our portfolio gains traction, we expect beer revenues to decline somewhere between 15% to 20% in 2022 versus 2021. Now, this is very important to highlight that when we put together, when we built this new portfolio with our partners, which by the way, we're continuing to build. We built a portfolio for the long-term, right? We have mapped what are the consumer occasions, what are the brand offerings that can solve for those consumer needs in the future. And we had developed a portfolio that we believe will be a very solid and winning portfolio in the future.

Now building great brands doesn't happen overnight. And in the case of beer in Brazil, it requires great brand building on one side and a fantastic commercial platform with great coverage and great execution at the same time. Some of these brands will definitely behave more in a S-curve shape and that is what we're seeing today. So we believe that in the 2-year to 3-year timeframe, it's feasible to recover the volumes that we had before.

We're building on brands that have very solid brand equity that just need expansion such as Eisenbahn, which is having great traction in Brazil. And at the same time, brands that are totally new to the market such as Tiger that we need to build. We need to build in conjunction with the Heineken theme. And at the same time, our brand Tiger saw policy and the distribution strategically here, which are new brands, right? So all in all, we have -- we're very optimistic about the portfolio in the future. It's behaving, as I said mostly, as an S-curve on development pattern and that is where we're focusing on.

In terms of portfolio on alcoholic beverages overall, we're tackling this in 3 fronts, right? Beer in Brazil is one and we talked extensively about this. The other one is all the alcoholic ready-to-drinks, such as the Schweppes alcoholic ready-to-drink cocktails in Brazil and Topo Chico Hard Seltzer in other markets. We are also seeing a construction of the brands from a very small base. And we're very optimistic in most of the plays that we have today. We're extremely optimistic on the innovation as we mentioned. Jack Daniel's and Coca-Cola alcoholic ready-to-drink is something that we're very excited about. And I believe the Coca-Cola Company will continue focusing on great innovation on this front.

And finally and to complement this, we're also starting to make interesting partnerships like the ones in Brazil and in Mexico so far with the Azul and with Campari in the case of Brazil. And we're seeing interesting outcomes of the partnership in both markets so far. And this is something that we will continue to push in the different geographies and channels where we think this is relevant and it is value-generating, not only to us, to the Coca-Cola portfolio to the partners but evidently and very importantly to the customers, right, in the particular channels where these synergies make sense. So it's a very holistic approach to alcoholic beverages with these very 3 -- 3 very different approaches. And we will continue to push on that front.

No, that makes a lot of sense and congratulations for that. It sounds things converted -- as you said, it is a holistic and comprehensive strategy. And last question on a totally different topic, capital deployment. I mean, you have a very strong balance sheet. You have more than $2 billion of cash. Any update in terms of what are your priorities and preferences for the deployment of all of that cash?

Yes. Well, first of all, Alan, that -- yes, that's a great, I'd say, appreciation of what we're doing in our strategic thinking. And thank you so much for the comment. In terms of our capital structure and cash position, I mean first of all, as we mentioned in the remarks, we are heavily investing behind growth into this. So far this year, we have invested 65% more CapEx behind the business. And that is something that we believe is necessary as we have jointly looked at the market with the Coca-Cola Company for the next 5 years to 10 years. And we believe investing behind our core capabilities and the brand and our execution capabilities in the market is fundamental. So part of it is CapEx.

On the other end, we have maintained a very strong dividend and we will continue to do so. And also, at the same time, we're analyzing, as we have stated before, different opportunities for inorganic growth, right? Now evidently, when you look at inorganic growth and M&A options for the future, we're now seeing it also through the lens of the platform, right? And this might entail not only continuing at the right price with the right value, with the right strategic alignment to continue growing geographically by more consolidation of bottling capabilities in the system, but also at the same time looking at capabilities such as technological investments that we can do to enhance our platform for the future. That is something that we're looking at heavily.

We're also looking at adjacencies that can enhance also our portfolio offering for the future in conjunction with the Coca-Cola Company. And also, we're looking at different types of partnerships, right? We used to see the world as a 100% acquisitions. We're also looking at possibilities of different types of investments, right? So there is a lot going on, on that front. At the same time, we continue to review our capital structure and we will provide recommendation for Board and for our shareholders whenever we think it's appropriate, right? So it's a very dynamic process right now. But we definitely recognize we're sitting on a lot of cash, to be straightforward to your question.

Got it. That helps. And again congratulations on the quarter.

Thank you, Alan.

We will now take our next question from Alvaro Garcia from BTG.

Couple of questions from me as well. One on Brazil. As we sort of defend the growth story here, I'd love to hear sort of more color on what you're seeing from clients. Very strong pricing, over 20%. Clearly the consumer is willing to take it. So what are you seeing from sort of these on-premise clients and get to sort of paint a picture of the growth you're seeing there that would be very helpful. That would be my first question.

Jorge, you want to take this one?

Sure. Sure, Constantino.

And I will complement you on it.

Sure. Just to give you some color on channels, as you mentioned, there's strong pricing, there is some mix associated to it, both in terms of packaging because we continue to see single-serve mix growing. Just to give you a sense, 30% increase on the single-serve one-way year-over-year, year-to-date. And on the on-premise, it has been the channel that has been growing the most in Brazil as in many other territories.

In the case of Brazil, just to give you a sense of growth year-to-date versus the previous year, it has been an increase of around 26%. So we're definitely seeing, in the case of Brazil, these external factors with a defensive labor market, social programs combined with more mobility, recovery on these channels. So those have been external factors. But there is internal factors as well, Alvaro, that I think is important to mention.

Now, we continue to see very strong performance from CSDs coming from our affordability initiatives, such as multipacks, dual packs, Coca-Cola Zero Sugar are also growing very interestingly not only in Brazil, but across our markets. And that's allowing us to also gain share. So it's a combination, Alvaro, I would say, both internal and also the macro factors that has caused it.

Great. And then just a follow-up on Marcella's question on unit economics around these complementary revenue streams or multi-category, the new multi-category, let's say, strategy. I don't even know what to call it anymore. But the sort of -- no, I really appreciate the color on the unit economics you gave Marcella. But I was wondering if you can maybe, now that you're well into some pilots in Brazil specifically, maybe you can point to maybe some incremental costs that you might be seeing. Or -- I know it's fair to say it's accretive, but just sort of qualitatively understand what incremental costs you might be seeing as you bring other products onto the truck?

Yes. So far, Alan (sic) [Alvaro] to be honest, the incremental cost is marginal, right, because we're leveraging on current capacities and capabilities. It's more on the field sales force that we're putting together, particularly on the on-trade channel. So on the on-trade channel, we're adding capacity and capabilities for execution, for developing the brand with the proper net brand narratives and executions at the on-trade. But at the same time, that incremental field sales force capacity and the ability to serve those customers with a broader portfolio are also driving incremental sales on our core business too, right?

So it's an equation that needs to be looked at, I would say, outlet by outlet. That's how we're seeing it. But there's a -- I want to emphasize that particular effect. For example, when you look at a set of outlets from a non-alcoholic beverage portfolio view only, they might be outlets then in our segmentation, we might call them silver accounts, right? Now when you layer alcoholic beverages, then there is a series of possibilities that actually provide for a re-segmenting and re-categorizing of those outlets to a higher tier, which allows them to invest heavier behind that outlet, which creates a virtuous circle that benefits the Coca-Cola FEMSA and Coca-Company core portfolio too, right? So some of these incremental costs, which is basically so far, given the scale of these pilots, associated more to the infrastructure to develop those outlets is being compensated in most of the occasions by increase of sales in our core portfolio. I hope that provides for a little more color.

That was great color. Appreciate it. Very clear answers.

And actually, I want to -- I don't know if you're getting an echo. Sorry. But I would like to pivot on your question because we get a lot of questions on alcoholic beverages and on beer in Brazil, which is fantastic and it's part of our strategy and it also delineates our thinking for the future in terms of some of the focuses on multi-category. But there's also other very interesting things that are happening in the core portfolio that don't get as many questions or we don't provide -- we get the opportunity to provide some more color in these calls. And a great example of that, I would like to draw a little bit more on Coca-Cola No Sugar, right? So Coca-Cola No Sugar is about 4 times the size of beer in Brazil. And it's part of our core strategy in terms of portfolio.

It's got great innovation from the Coca-Cola Company and it's a fantastic option for our consumers. Uruguay has great momentum. Mexico, as we pointed out, is growing 26% year-to-date, 40% in transactions. Brazil is growing 20% year-to-date and 10% almost around in mix of the Coke brand so far. In Costa Rica, the brand is the second brand in our portfolio already and continuing to grow. Colombia growing double-digits. In Uruguay, it continues to grow despite the fact that it's already No Sugar offerings or 38% of the mix.

So this is a great example of great things that are happening inside our core portfolio. And in contrast to some of these other initiatives that are fantastic and part of the strategy for the future, as of today, they have different levels of matching reality and they're impacting our business quite positively. So I wanted to take advantage of your question to provide some clarity on other parts of the portfolio that are working super well. So thank you for that.

We will take our next question from Carlos Laboy from HSBC.

Constantino, just to stay with this same exact theme. You seem to be getting great traction on Coca-Cola in flavor multi-packs in Brazil and in the rest of Latin America now. And that also seems to be driving an awful lot of activity when we go to the supermarkets and we look around. Your approach to this has changed and your insights have changed. Can you speak to the scope and importance of this activity in the portfolio?

Sure, Carlos. And that is a -- it's a great question. We -- first of all, everything begins by recognizing that we have one of the best consumer brands in the world basically, which is the Coca-Cola brand. So that is a great asset to have in your portfolio. And when we look at some channels, when we look at consumer insights and we understand the power of the Coca-Cola brand, then you can start -- first of all, you need to recognize that and once you recognize that and you connect the dots, then you can start developing consumer programs that can leverage of Coca-Cola. And that's exactly what we have done with our multi-packs. We have bundled Coca-Cola with our flavor portfolio, which is a great portfolio of brands that in some occasions when the shoppers go to buy.

For stocking consumption occasions, they want to get the best out of the brand assortment that there is in the supermarket, and that's where the multi-packs come into play. Why is that so relevant even though it's such a simple solution as you're pointing out? Because this is a solution that's preconceived at the Coca-Cola FEMSA level. It is manufactured in a very efficient way. It is executed and exhibited in a very pleasant way in most of these channels. And it becomes a fantastic solution for our shoppers.

The same thing happens with single-serves. We're moving that logic into single-serves. We're mixing and matching different portfolio offerings for our consumers and it's starting to gain a lot of traction. It simplifies the consumption at the point-of-sale. It is very simple for our retailer and it leverages on the strengths of our brand assortment. But having said that, the underlying big driver of this is being able to connect the dots to use data, consumer and shopper and retailer data in the proper way and from there, develop and execute your portfolio offerings and your promotional offerings for the point-of-sale in the relevant markets.

So I think that I wanted to stress that final point because at Coca-Cola FEMSA, we believe that we are brand builders. We're not only executers of great brands. We do great brand building in conjunction with the Coca-Cola Company and in conjunction with our multi-category partners. And that's the way we approach it by connecting the dots and by using relevant consumer and shopper and market insights to develop our solutions. I hope this provides also a good color to your question.

We will take our next question from Felipe Ucros from Scotiabank.

Congrats on the results. Just a quick one on digital. Most of my questions were asked. But actually, a little bit of a decreased focus on WhatsApp ordering on the calls. And I just wanted to ask you if there is a little bit of a change in strategy maybe towards the platform that is not in WhatsApp and that works more as the other B2B platforms that we're seeing throughout the world. Just wondering if you could comment a little bit on that and what's the focus is going forward on the digital side?

Yes. I mean, on our omnichannel strategy, first of all, I would like to stress what omnichannel means for us, right? And for us omnichannel means a myriad of touch points for our customers to interact with Coca-Cola FEMSA, and be able to have a seamless experience, no matter what touch point you use, right, first high-level description. Secondly, we believe that the anchor point in our omnichannel strategy remains in the pre-seller, right? So we have not eliminated our pre-seller. We have no intent to look at the omnichannel strategy as a way of driving efficiency, but actually as a way of driving effectiveness. So our pre-seller remains the anchor touch point.

Having said that, our customers have primarily 3 interaction points, right? Our URL system, laptop-based, then we have our WhatsApp-based chatbots. And we have and we are developing our -- and continue to roll out and enhance our mobile app. We're definitely seeing, as we deploy our mobile app into different countries, we're seeing a significant shift through the app as a means of being the preferred choice of interacting with Coca-Cola FEMSA. But at the same time, WhatsApp remains a core interaction tool particularly for smaller customers and because it is extremely organic through the way a consumer and the shopper and a retailer behaves on an everyday basis.

So it's extremely organic to everyone in Latin America basically that is interacting with Coca-Cola FEMSA. So mobile devices are by far the largest in terms of the focus. Web remains relevant for larger customers because of the complexity of the portfolio, which is difficult to scroll on a mobile application or in WhatsApp due to its limitations. But as much as most of our customer base is on the traditional trade and their small stores, they tend to interact more on a mobile app in the WhatsApp chatbot solution that we have in our different markets. I hope that helps.

And Felipe, just to complement to Constantino's comment and provide you with some numbers just to give you an idea. Look, for Brazil for a second. So for example, in December 2021, from all of our omnichannel clients, basically around 93% of these clients were using WhatsApp. So it was a WhatsApp-based interaction year-end last year. If you look at it today, June 2022, WhatsApp is around 45%.

So we have seen that migration that Constantino is talking about. First, WhatsApp is very good for us to recruit customers into the omnichannel platform. And so far what we have seen in the first 6 months of this year has been an important adoption of clients using the app and also the web-based application. So Brazil has been very advanced in this migration of the omnichannel platform. As you know, we have been discussing about that.

Now if you look at Colombia, which is a little bit behind in that sense and Constantino mentioned that during the prepared remarks. He mentioned an impressive 60% of the clients in Colombia being monthly active purchasers. Most of it today in Colombia are WhatsApp-based. But the idea is that as we continue to roll out, we will complement these with the broad omnichannel strategy. So I hope that provides a little bit of additional color to complement Constantino's part.

No, that's absolutely great color. It explains a lot of the question marks I had around the WhatsApp strategy. It seems like it's a way to channel into the mobile app, which is obviously more robust and better for a wider portfolio. So that's very, very clear.

We will take our next question from Ben Theurer from Barclays.

Yes. Perfect. And congrats on the results. I wanted to follow-up on your prepared remarks. You talked about the level of hedging you've put in place into 2022. But I wanted to kind of zoom out and look into 2023 if you've done anything yet, because in some of the core ingredients if we think about aluminum but also corn, corn-related high fructose could have potentially come down a little bit. Have you took some opportunity at the more recent commodity price coming down into 2023? Have you hedged anything? Or is it still too far out to share any details on 2023?

Well, Ben, I think it allows us to explain the way we operate. The way we look at our hedging for raw materials and FX, we go through a very disciplined process every month. This is called the commodity and risk management process when we have a 12-month rolling outlook and we start taking based on some operational guidelines and based on the analysis on the information that we have available, hedging positions and hedging decisions with a 12-month rolling outlook.

So we definitely have hedged some of our materials for 2023 and some of the FX needs for 2023. But since it's the tail of that 12-month outlook, we don't like to provide for that information that far ahead. But we're definitely starting to take opportunities. And the most important thing that I want to stress out that this is not a subjective view of management, if I may. This follows a very rigorous and disciplined, a multi-disciplinary process where both, corporate finance and the operations take part of.

Due to time constraints, we will now -- that will conclude today's question-and-answer session. I would like to hand the call back over to Constantino Spas for any additional or closing remarks.

Well, thank you, operator.

And thank you all for your confidence and your interest in Coca-Cola FEMSA. As always, our Investor Relations team headed by Jorge is available to answer any of your remaining questions. And we'd be more than happy to continue engaging with you. And hopefully, we'll see you very soon in our next call. Thank you so much, and have a great day.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.