Femsa Opens Oxxo-Branded Gas Station, Taking on Pemex

(Bloomberg) -- Fomento Economico Mexicano S.A.B., the owner of the Oxxo chain, is the latest player to enter Mexico's private fuel market, leveraging its huge presence in Mexico's retail sector to compete with state-owned Petroleos Mexicanos.

The Monterrey-based company inaugurated its first fuel station Wednesday under the Oxxo Gas brand in San Pedro Garza Garcia in northern Mexico, part of the greater Monterrey metropolitan area. The station had previously been branded as Pemex, the only company in Mexico's fuel retail market for almost eight decades.

Oxxo Gas aims to rebrand 49 additional stations this year, mostly in Monterrey, that it now operates under the Pemex name, Oxxo director Rolando Vazquez said in an interview.

Although the stations will be renamed, Oxxo Gas will continue to sell Pemex fuel for the time being. It could eventually start to import fuel in some regions and is considering leasing Pemex energy infrastructure to do that, though this will depend on further liberalization of the market.

"Pemex does not participate much in providing services at gas stations, it just provides the gasoline, so this is a major change because now different service station operators will have their own brands and compete for customers," Vazquez said. "We expect to be very competitive because we already have a strong presence in the country, and we are in a strong growth phase right now."

Opening Market

Oxxo operated a total of 335 gas stations under the Pemex name as of the end of the second quarter, mostly in northern and central Mexico. It eventually plans to rebrand them all with the Oxxo Gas name. The company may also look to expand to other parts of the country, including Mexico City, Vazquez said.

Oxxo is among the gasoline retailers launching retail operations in Mexico to take advantage of legislation approved this year allowing companies other than Pemex to have their own brands and import fuel.

Companies are still awaiting plans by the government to eliminate fuel price caps at the pump in the next 18 months and set leasing rules for using Pemex infrastructure for imports.

"In theory, you can import gasoline under the law, but in reality the economic conditions are not ready; you still have government-controlled fuel prices and the infrastructure that exists today is completely owned by Pemex," said Vazquez. "So from an economic standpoint, the more convenient option is to buy from Pemex."

Parent company Femsa, as the retail-and-bottling giant is known, posted profit that fell short of analysts' estimates in the first quarter, partially as a result of its expansion in the gas station sector.

--With assistance from Andrea Navarro To contact the reporter on this story: Amy Stillman in Mexico City at astillman7@bloomberg.net. To contact the editors responsible for this story: Margot Habiby at mhabiby@bloomberg.net, Anne Riley