Good day everyone, and welcome to today's Arca Continental conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star one on your touch-tone phone. Please note that this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of i-advize Corporate Communications . Please go ahead.
Thank you, operator. Good morning, everyone. Thank you for joining the senior management team of Arca Continental this morning to review the results for the second quarter of 2022. The earnings release went out earlier today. It's available on the company website at arcacontinental.com in the investor relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutiérrez, the CFO, Mr. Emilio Marcos, and the Chief Commercial & Digital Officer, Mr. Jose "Pepe" Borda, as well as the investor relations team. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release. With that, I'm gonna go ahead and turn the call over to the CEO, Mr. Arturo Gutiérrez, who is going to begin the presentation. Please go ahead, Arturo.
Thank you, Melanie, and good morning, everyone. Let me begin by saying that we are pleased with our second quarter and year-to-date results. At the halfway mark of 2022, we are delivering consistent top-line performance and seeing solid momentum in our underlying businesses, despite an unpredictable global economy. Our business reported solid results this quarter, growing total volume by 6.7% and reaching 614 million unit cases. Year- to- date total volume grew 6.1%, with all our regions delivering sequential volume expansion. Total consolidated revenues rose 16.5% in the quarter and 15.2% year to date to MXN 53.4 billion and MXN 99.4 billion respectively. Consolidated EBITDA grew 11% in the quarter, reaching MXN 10.4 billion. Consolidated EBITDA margin for the quarter reached 19.6%.
Notably, this is the highest EBITDA for a quarter in our history as a publicly listed company, and for the first time, we surpassed the MXN 10 billion mark in earnings for a quarter. This performance underscores our strong market focus, our ability to successfully navigate through supply chain disruptions, and our disciplined expense management initiatives to offset input cost inflation. Let me now provide you with an overview of our business performance and highlights for our five markets. Our beverage business in Mexico maintained its positive momentum, delivering another solid quarter of volume growth, up 5.3%. This was the seventh consecutive quarter of volume growth for Mexico. Water led all categories, up 7%. Brand Coca-Cola was also up a healthy 4.2% in the quarter.
In June, we reached a historic milestone in our Mexico operation, with volume sales of more than 100 million unit cases for the first time in a single month. These outstanding results were due to the resilience of the traditional trade, up 2.8%, and the sustained recovery of relevant channels such as supermarkets and convenience stores, which were up 24.8% and 10.1% respectively. Total net sales in Mexico rose 15.1% in the quarter to reach MXN 23.9 billion. Remarkably, our beverage business achieved 8 consecutive years of net revenue growth. Average price per case in Mexico, not including jug water, rose 8.1% in the quarter, reaching MXN 74.17.
EBITDA increased 6.3% to MXN 5.8 billion in the quarter, representing a margin of 24.3%. Single-serve mix sequentially grew 1.1% in the quarter. Growth in immediate consumption packages was driven by the steady recovery of the on-premise and leisure channels. It is important to mention that there is still an upside opportunity to capture additional volume in these channels as they continue to fully normalize to pre-pandemic levels. Moving now to our beverage business in South America. Total volume grew 15.7% in the second quarter, resulting from solid performance across our three markets. Total revenue was up 26.7% in the quarter, reaching MXN 9.6 billion, while EBITDA increased 36.7% to MXN 1.7 billion, representing a margin of 17.3%.
Despite high inflation and interest rates dampening domestic demand, our most relevant channels continue to recover. We are making great strides in the rollout of our B2B platform in the traditional trade. Over 120,000 customers in the region consistently place orders through our mobile app. In Peru, volume was up 16.6% in the quarter, driven by solid growth in the sparkling and water categories, up 17.8% and 16.7% respectively. All channels posted outstanding results. The traditional trade was up 1.4%, supported by our affordability initiatives. Wholesale on-premise and supermarkets delivered double-digit growth on the back of eased mobility restrictions. Meanwhile, single-serve mix in Peru increased by 4.1 percentage points, supported by outstanding performances of core brands Coca-Cola and Inca Kola.
Turning to Argentina, our beverage business continued its solid momentum, growing volume 22.6% in the second quarter, cycling double-digit volume growth from the same quarter in 2021. Volume growth was broad-based once again and driven by sparkling up 22.1%, still beverages 22.6% and water with 27%. As for Ecuador, President Lasso declared a state of emergency during the last two weeks of June due to civil unrest throughout the country. Curfews were also implemented as protesters blocked exits, entries and ports in Quito and Guayaquil. Our beverage business in Ecuador posted a solid 8.7% volume growth in the quarter in the face of this challenging backdrop and the resulting impact on our supply chain. The sparkling category sustained its strong momentum, with flavors up 15.4% driven by Fanta and Inca Kola brands.
From a channel perspective, on-premise supermarkets and traditional trade delivered strong growth as we continued promoting returnable packages and driving immediate consumption in Ecuador. Single serve mix increased 6.4 percentage points, in line with the sequential recovery of the on-premise channel across the region. Tonicorp, our value-added dairy business, posted double-digit sales growth in the quarter, driven by solid increases in yogurt, flavored milk and oatmeal categories. Despite the shortage of milk resulting from the protests affecting the country, we gained value share in our core portfolio as we capitalized on the recovery of relevant channels such as schools. Moving to our beverage operation in the United States, Coca-Cola Southwest Beverages closed out the second quarter with positive momentum, delivering a strong operating performance and sound financial results.
Our revenue management initiatives continued to prove very successful, with net sales growing 13.8%, reaching $932 million, marking the second consecutive quarter with double-digit revenue growth. Net price grew 12% in the quarter, sustained by strong execution and improved management of our promotional spend, supported by our advanced analytics tools and capabilities. Volume for the second quarter grew 1.6%, reaching 118.2 million unit cases. All our three major channels posted solid volume growth. We saw a recovery of the convenience retail channel as increased transactions drove revenue growth. Sparkling soft drinks delivered solid sequential gains, up 1.9%, supported by 12-ounce cans and immediate consumption packages. Coke Zero grew double digits. BODYARMOR brand grew 18.5%, driven by BODYARMOR MP and BODYARMOR Edge.
Package mix performance shifted favorably in the quarter as the FSOP channel continued to grow, up 3.6% in the quarter. Our e-commerce sales grew by 33% as we expanded our digital commerce footprint with both myCoke and e-retailer sales. We have made significant progress in digitalizing customer engagement. More than 19,000 customers have ordered through myCoke year to date. Just in June, 74% of FSOP orders were processed through our eB2B platform. EBITDA increased 7.4% to $148.7 million, representing a margin of 16% and marking the 16th consecutive quarter of EBITDA growth. Looking ahead, due to the volatility in commodities, we are working towards implementing an off-cycle price increase during the third quarter that will help us alleviate pressure on our margins.
To wrap up the review of our operations, our food and snacks businesses posted a double-digit sales increase in the quarter, driven by the sustained recovery of the traditional and modern trade channels in Mexico and Ecuador. The e-commerce channel in the US continued its strong performance with over 50% growth versus last year by expanding our online connection between consumers and core brands Wise, Deep River and Carolina Country Snacks. We are accelerating the deployment of our AC Digital mobile platform across our snack businesses with a strong focus on segmentation, promotions and discount management. I'd like to close with an overview of our ESG initiatives during the quarter. As part of the World Recycling Day framework, we announced the third phase of expansion of PetStar, the worldwide leader in food grade PET recycling.
This is an investment of MXN 175 million to strengthen the collection and recycling infrastructure in Mexico. I'm also proud and honored to say that we were ratified for the seventh consecutive year as part of the FTSE4Good Index in the London Stock Exchange, which measures the performance of companies demonstrating strong sustainability and anti-corruption practices, human rights initiatives and strong labor standards. Moreover, we were also ratified as part of the ESG Index in the Mexican Stock Exchange and Standard & Poor's, which recognizes Mexican companies with best practices in environmental, social, and corporate governance matters. Our determination to be assessed based on the strictest international standards and sustainability indexes is in line with our principles to operate with transparency and ethics while creating a positive impact on the environment. With that, I will turn it over to Emilio. Please, Emilio.
Thank you, Arturo. Good morning, everyone, and thank you for joining our conference call. Supported by positive volume and our successful pricing strategy, we navigated through the complexity of the macroeconomic challenges in our industry, such as raw material pricing volatility from inflationary pressures and supply chain disruptions. Despite these challenges, we continue with consistent positive results, delivering double-digit revenue increases along with a solid financial performance. Now, moving on to the quarterly results. During the quarter, for the first six months of the year, consolidated revenues rose 16.5% and 50.2% respectively, driven by our consistent pricing strategy and market execution delivering volume growth. Considering a currency neutral basis, net revenue grew 17.3% in the quarter and 16.2% in a cumulative manner.
Gross profit increased by 13.6% in the quarter to MXN 23.6 billion. 820 basis points dilution in the contribution margin was mainly due to the incremental cost of raw materials. For the six-month period, gross profit grew 12.9% to MXN 44.3 billion, with the gross margin reduced by 100 basis points for the same reason explained before. As part of our ongoing business relationship with The Coca-Cola Company, we're committed to enhancing the value we create for our customers in Mexico, and we jointly align on investments that will strengthen the system. In line with this commitment, we have reached an agreement for an increase in concentrate price for sparkling beverages in Mexico, which came into effect July 1st of the year.
For the quarter, operating income was MXN 8.1 billion, increasing 16.5% against the same period of the previous year. Operating margins remained flat year- over- year as inflationary pressures were offset by our commercial initiatives and operational efficiencies. Operating income for the January to June period was MXN 14.4 billion, up 17.8% in a 30 basis points expansion in margin compared with the previous year, primarily driven by operational efficiencies. Our SG&A organizational discipline continues to capitalize on lessons learned during the pandemic, driving a 100 basis points reduction in its ratio to sales. Consolidated EBITDA for the quarter reached MXN 10.4 billion, representing an increase of 11% and a margin of 19.6%.
For the first six months of the year, EBITDA grew by 11%, yet represented a 70 basis points dilution, led by the above-stated pressures in the contribution margin. During the quarter, net income grew by 34.9%, 810 basis point expansion in net profit margin. For the cumulative period, net income reached MXN 7.3 billion, 28% more versus the same period of the previous year. Both quarter and year to date increases were benefited by the operating income growth. Continuing with the balance sheet, at the close of June, cash and equivalents reached MXN 30.2 billion, while total debt was MXN 50.2 billion, leading to a leverage ratio of 0.5 x. Our strong balance sheet allow us the possibility to evaluate further growth opportunities that will generate shareholder value.
We executed MXN 3.5 billion of CapEx so far this year, a 46% growth when compared to the previous year. This was driven by reinforcing investments in production and commercial capabilities in line with volume growth and the post-pandemic recovery. Now, let me elaborate on our successful bond issuance completed during the quarter. On June 10, we completed the issuance of MXN 4.4 billion in Certificados Bursátiles or local notes. This transaction consisted in two tranches, one for MXN 1.2 billion with a 7-year term at a fixed rate, and another MXN 3.2 billion with a 4-year term at a floating rate. Despite complex macroeconomic conditions and financial volatility due to high inflation throughout the markets. The bond obtained the lowest interest rate for a corporate issuance in recent history for the Mexican debt market.
While we continue to anticipate headwinds for the upcoming quarters regarding the inflationary environment, we continue to look for windows to reduce raw material volatility through the consistent execution of our hedge strategy. Our operational efficiencies, as well as our organization's adaptability, have helped us navigate through the pandemic, and now during the global macroeconomic complexity our industry is experiencing. We'll maintain our commitment to protect profitability and prioritize cash flow management to preserve and sustain our positive results in both delivering P&L results and balance sheet strength through the year. With that, I'll turn it back to Arturo.
Thanks, Emilio. We are pleased with our progress in the first half of the year, and we are grateful for the commitment from the stakeholders across our ecosystem that contributed to our results. Despite a complex macro outlook that is pointing to an increasingly challenging backdrop of slow growth, volatile commodities, and inflation, we feel good about the rest of the year. We are taking the appropriate actions to manage the ongoing volatility using revenue growth management capabilities and supply chain productivity levers to achieve a healthy balance between volume, pricing, and profitability. We remain confident that the long-term dynamics of our industry are promising, and we are committed to driving execution and staying at the forefront of evolving consumer needs. We will do so by ensuring that we always place our highest priority on creating shared value with our customers and for our shareholders.
We will continue to build on our strong strategic partnership with The Coca-Cola Company. Our two companies continue developing shared goals on a clear and collaborative strategy for sustainable long-term profitable growth in our markets. We will also continue actively exploring how technology can transform the customer experience, how we can generate new revenue sources, and how we can become more efficient in our processes. To sum up, our growth story remains very robust. The strength of our balance sheet, our strong cash flow generation, and our dedication to quickly adapt to the ever-shifting needs of our customers and consumers will allow us to continue to generate consistent quality organic growth and at the same time, seeking opportunities for expansion and product diversification. With that, I would like to open the call for questions. Operator, we are ready, please.
Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press star one on your touch tone phone. As a reminder, due to high interest and time, please limit yourself to one question. Again, please press star one to ask a question. We will pause for a moment to allow signals for questions. Thank you. Our first question will come from Marcella Recchia with Credit Suisse. Your line is now open.
Hi, Emilio, Arturo. Thank you for taking my question. I have two quick questions. The first one is that over the last couple of years, you have delivered continuous gains in efficiency, which had optimized your sales to expense ratio accordingly, and this quarter was not different again. My question is, what has been the main drivers of such improvements, and how much more room do you see going forward? That is my first question. The second question is that during the first half, you already printed a 15% top line growth and 11% EBITDA growth, which are well ahead of the guidance previously provided. My question is if we could expect an upward revision to the guidance. Thank you so much.
Thank you, Marcella. Let me take your first question, and then I'll turn it over to Emilio to address your second point. Well, yes, we have been working. It's a continuous effort on efficiency in our organization, you know, throughout the last few years. You know, there's always justification to make an additional effort to do that. That's become part of the culture that we have. We have separate metrics. We even have a separate function within the organization to coordinate that as a kind of a project management office. We also have capitalized on the lessons that we've learned, you know, throughout the integration of businesses and then during the pandemic.
I think, you know, some of the learnings there of things that we really, you know, could adjust on a definitive basis after the pandemic were also very relevant. Let me give you some examples of what we're doing. It's not only at the SG&A and OpEx level, it's also at the costs level that we are working on. Even pricing, trade promotion optimization is a good example of things that are reflected in the top line but work as an efficiency project. The digital initiatives also have resulted in many opportunities to optimize.
Manufacturing is a great example of some of the platforms based on analytics that have helped us, you know, make our manufacturing more productive. You know, once the best practice is identified, we have a methodology to make sure it's shared, it's implemented across the organization. We have the recognition of people that have come up with the best ideas. Let me give you a great example of one of those projects that has had a you know a significant impact and it's still really not rolled out across the organization. We are using a technology that was originally used for submarines many years ago.
We have the adaptation of that technology to improve dilution of carbon dioxide in beverages during the filling process. What that means is that we can now fill at a much higher temperature, and that saves energy. That project was recognized by the Coca-Cola Company globally as one of the great innovation projects. The technology is not ours, but we've been able to adapt that to our processes, and that has also the benefit of reducing our carbon footprint. From like those projects, we have a long list that we continue to pursue. I would say mindset that it's not really that you reach an optimal level. You find new technologies, you find new processes, and you optimize based on your scale as well.
We believe that is a continuous effort. We have very precise targets of what we wanna accomplish as well in terms of opportunities. We have identified opportunities in Mexico, not all with the same degree of certainty, and also in the rest of the operations that add up to, you know, probably MXN 700 million in this year. It becomes significant once you add up all the projects. I'll turn it over to Emilio for the second part of your question.
Yeah. Thank you, Arturo. Thank you, Marcella, for your question. As you know, we have given a number between 6%-8%, but thanks to all the initiatives and the pricing and all that, we were double-digit, mid-double-digit right now. We haven't given a specific number because the second half of the year will be with higher comps and, you know, volatility is still there, macroeconomic situation. We could say that we're gonna be for sure under double digits, maybe, I mean, low double digits at least. We'll maybe work on that number on the next quarter.
Perfect. Thank you so much, gentlemen.
Thank you, Marcella.
Thank you. Our next question will come from Benjamin Theurer with Barclays. Your line is now open.
Perfect. Thank you very much, and good morning, Emilio, good morning, Arturo . Congrats on the results. The questions for Arturo, and you've mentioned it on the call, the record sales during the month of June. I mean, I suspect it had a lot to do with the heatwave that's been impacting the region. Obviously there's been a lot of news around scarcity of water and the requests from the Mexican authorities to some of the bottlers to engage and support. Can you share maybe a little bit of context on what you're seeing in the market and how you work together with different authorities to really solve for the needs here, given the scarcity of water that we're having in the region?
Thank you.
Yeah. Thank you, Ben. Well, certainly it's been a great quarter in terms of growth and a great month of June as I mentioned, 'cause even this with the challenges and disruption of supply chains, we were able to reach a record volume. The volume in Mexico surpassed 100 million unit cases for the first time ever. So we're proud of that. I would say first, there are many things that we're doing in the market and sometimes we don't really connect with some of the capabilities that we're deploying in terms of how much of that is resulting in better growth.
Now we have a clear picture of how our digital deployment has been impacting growth as well. The AC Digital platform, for example, has grown significantly and there's clear correlation. So there are many things that I think we are seeing the benefits and reaping the benefits of that at this point. The water scarcity situation is a big crisis in the northeast of Mexico. Also it's worth mentioning that that was the region where we been growing the most recently. The market is, you know, very solid. We have been facing this challenge, and we have been supporting the government and the community to face the challenge.
As you know, you know, in the aggregate industries, in the state would consume a small fraction of concession water. It's around 4%. We know that we need to play a role in solving the crisis, so we are supporting the government and the community. The equivalent of the water of the project that we've collaborated with, it's more than 3 x our concession water volume in the state of Nuevo León. That's for us a very important as we you know sustain our commitment to the community. We rehabilitated 15 wells operated by the state. These are not ours. These are state-owned water wells and that supply the municipal drinking water infrastructure.
We've also assigned temporarily some of our concession water to supply clean water to public infrastructure. We have been again very aligned. We have made commitments jointly with the local industry, and that will address a good portion of the water deficit in the state currently. On the other hand, we, as you know, have been leading in terms of water use efficiency. Our efficiency indicator is around 1.5 liters of water per liter, which is, you know, it's something that much better than the average of the industry.
In sum, we are convinced that all of these efforts in a coordinated manner between government, the private sector, and the community is really the best route to move forward from the crisis. Especially avoid other crisis in the future. We're also working on the longer term solution of this type of crisis.
Okay. Perfect. Thank you very much.
Thank you. Our next question will come from Bernardo Malpica with Compass Group. Please go ahead.
Hi, Bernardo. Thank you for taking my question. Just a quick question related to the last one. I just wanna be clear, I mean, it was very helpful, but so I mean, the president comments regarding a potential cease of operations to save water in the north are not a worry. Is that correct? That would be my first question.
Yeah, we actually don't see any risk to the continuity of the business. As I said, we've been working very closely with the government in this immediate and long-term solution. We're comfortable in that regard.
Perfect. Thank you so much. I have another question. We saw an even bigger margin reduction in Mexico than we saw during the last quarter. Also in general terms, there is still margin reduction. Where are you still seeing the biggest cost pressures, and where do you see the biggest cost pressures going forward? Just an addition to this one, will you continue with the pricing strategy towards the second half to mitigate this cost pressure environment? Thank you.
Yeah. Thank you, Bernardo. Yes, let me give you some general comments, and maybe Emilio can expand. In Mexico, well, the biggest pressures come from raw materials. As you know, they continue to challenge our margins. The dilution basically comes from increases in PET and sweeteners. We have the positive volume trends, the OpEx discipline and also the hedges that have somehow mitigated that as well. The most important way to mitigate that is precisely with our revenue management strategy. Our price increase at the end of March helped. We had a second price increase that has been applied at the beginning of the month of July. That's actually not reflected in the numbers that we reported.
We're looking forward to continue to protect the margins as much as we can for the second half of the year. We're gonna continue to assess additional price increases and also optimize our discounts in the market.
Well,
Thank you.
Thanks. Very grateful. Bye.
Thank you.
Thank you, Bernardo.
Thank you. Our next question will come from Thiago Bortoluci with Goldman Sachs. Your line is now open. Thiago, your line is open. Please make sure your phone is not on mute.
Yes. Hi, good morning, everyone. Arturo, Emilio, Arca team, thanks for the presentation and congrats on the results. We also have two questions. During the opening remarks, Emilio mentioned an updated agreement with Coke regarding concentrate prices. I would just like to explore a little bit more what could be the implication for gross margin and COGS going forward under this updated term. The second one is about our view on the momentum in Argentina, right? Performance, especially volumes, have been solid, but macro has been deteriorated back from a very weak base, right? So given persistently high inflation, the FX depreciation, what are the latest trends we're seeing from a consumption, point of view, and what could we expect from the region going forward? Those are the questions. Thanks.
Thank you. Thank you, Thiago. Well, with respect to the concentrate prices, we did have an additional increase, as Emilio mentioned, that was implemented effective as of July. While this is aligned with our agreement with The Coca-Cola Company, as we've said, this agreement has many other elements aimed at investing together and strengthenin g, you know, our market. Maybe Emilio can expand on that. Let me talk about Argentina for a second. Well, certainly the environment is challenging, but the consumer environment has been very favorable. We also take into account that we're recovering from a market that has not been performing as we had expected in the last few years.
Now, we've had a very good growth. Again, we're capitalizing on many of the things that we have been doing in the market, especially our affordability strategy. I would highlight that through both the multi-serve returnable and single-serve packages, managing pricing strategies in line with inflation, which is very important in Argentina. Even with that, we continue to grow. We've also accelerated the expansion of digital in Argentina in the traditional channel. That's very important. We have, I think about 21,000 active customers that are ordering through a digital platform. If you look at the categories, you know, all the categories are growing and all the channels look very healthy. Traditional channel has grown 23% versus previous year.
This is a positive trend that has continued over time. Also, modern channels growing more than 20%. We have mostly, you know, double-digit growth in every channel year-to-date, which is, you know, quite remarkable. We also have similar growth in all regions. Growth is very consistent and categories as well. Again, we're capitalizing on a better consumer environment, but we're also capitalizing on many of the fundamental things that we have been doing in the market for some time with focus on affordability, I would say. We are looking to probably, you know, reach a level of volume in the market that's close to the highest that we've had in previous years.
We're very satisfied with that. I'll turn it back to Emilio on your first point.
Thank you, Arturo. I think it's important to mention that part of this agreement, as you said, is that we're gonna invest together in Mexico to strengthen and improve the way that we serve to our customers. That's one of the comments. The other one is that the increase is similar to last year's increase. We've been able, as we've done in the past, to offset that increase to pricing and some other initiatives like promotion optimization. We don't expect an impact on contribution margin. The last thing that I would like to mention is that we don't expect any incentive adjustments in the near term. That's also important to consider.
Thank you. Our next question will come from Sergio Matsumoto with Citi. Please go ahead.
Yes. Good morning, Arturo , Emilio, and Pepe. Just taking further your comments on the agreement with KO. You also mentioned in your prepared remarks, Emilio, you mentioned further growth opportunities, and Arturo, you mentioned expansion and product diversification. Can you connect these comments to the Coke agreement? And perhaps anything interesting that you're able to comment at this time with regards to those opportunities? Thanks.
Yes, Sergio, and thanks for your question. You know, that's very relevant. There's a clear connection with the agreement with The Coca-Cola Company to pursue these opportunities and evaluate, you know, potential growth across Latin America in categories that would complement our portfolio, you know, other beverage categories and alcoholic beverages. As you know, this new agreement with Coca-Cola will align us in not only in our core business, in the economic model of the core business, in the growth projections and agreement on investment for growth in the current beverage business, but also to pursue other opportunities leveraging the capabilities that we have in the market. Both the logistical capabilities, the go-to-market infrastructure, and the digital capabilities that we're building.
This agreement also is an alliance on the digital space in its own. It kinda covers the you know the whole spectrum of the business, and that's why we believe it's really transformational. We have actually agreed on all the aspects. We have a conceptual agreement and everything. We're just working on drafting of documents for that agreement. We're already working as partners in analyzing these opportunities, particularly you know beer and other alcoholic beverages. As you know, we have run a pilot in Ecuador for beer distribution, and we plan to do similar pilots in the rest of Latin America.
Okay, great. If I may, another question. Could you comment on the state of the reopening in the U.S. and Mexico?
In your preparatory remarks, you mentioned FSOP and immediate consumption and single-serve several times. Just wondering if what you see today as a consumption occasion may have changed through the pandemic and any remaining opportunities with respect to the reopening. Thanks.
Yeah. Pepe maybe can give some details. In general, I would say that the on-premise channel, even though it's been growing, it's in a very positive trend in all markets, including the U.S . And Mexico, still has an upside 'cause it's not fully recovered just based on, you know, number of outlets and volume as you compare that with the pre-pandemic levels, continues to be an opportunity. I think that would be a summary of where we think there's still an upside and some of the occasions have changed. The trend is very, very positive.
I think, supporting what Arturo is saying, we've grown 17% in the on-premise channel, but as Arturo said, it's still below pre-pandemic levels. We're seeing month-over-month improvement. This is a positive tailwind for the next quarters. Obviously, this has helped us, among other things, to boost our single serve performance that affects positively the price mix. You know, as consumers gain mobility, and they are looking for more convenient packaging, we have captured this trend, for example, launching the 250 milliliters PET in a refillable package in all our sparkling and stills portfolio, and many other initiatives to capture this trend. We...
This is improving, but there is still space for improvement. There are still some customers that need to be reopened, and we see this as a positive, tailwind for the next months.
Thank you.
Next question.
Thank you. Our next question will come from Isabella Simonato with Bank of America. Your line is open.
Hi, good morning, Arturo, Emilio. Thank you for the call. Good morning, everyone. Following up on the previous question about the mix and the momentum, right? It's interesting to listen that you guys still see upside on the on-premise channel, but I wonder how that could be impacted or could be delayed, right, by a tough macro and high inflation, right? To understand it's below pre-pandemic, but also we see a tougher consumer environment in general, right? If you could explore that in the U.S. and Mexico mainly, how you guys are expecting a little bit in the midterm, right, performance of mix of channels and packaging.
Also, in light of this momentum, right, for macro, I mean, we saw government in Mexico do some changes that didn't properly affect you. Any expectation of another measure or something that we should monitor? You think that what is announced is what is going to be out there? Thank you.
Yeah. Thank you, Isabella. Well, with respect to the on-premise and the impact of the macro situation, we really have not seen that. I mean, we probably gonna see some slowdown in the future. We're gonna be expecting maybe that growth that we've seen recently to come to more moderate levels. We've seen so far and even with the inflation environment that we've seen in the first half of the year, the volume in the on-premise has been growing consistently, as Pepe is saying. I think it's probably because the baseline that we have from last year is still fairly low. Again, in terms of the number of outlets, if you think about the U.S., we're still not even at 80% in, you know, in that metric.
There's still an upside we believe, although certainly growth is gonna normalize and in the second half of the year. We haven't seen that impact so far. With respect to Mexico, we always evaluate the many risks that we have, you know, operating in Mexico and in any other country. We're not anticipating any regulatory measure at this point that we'll be specifically concerned about.
That's very clear. Thank you.
Thank you, Isabella.
Thank you. Our next question will come from Alvaro Garcia with BTG. Your line is now open.
Morning, gentlemen. Thanks for the space for questions. One clarification and one question. I was gonna ask about Yomp! and sort of the digital space and how it figured into this new concentrate agreement. You mentioned, I think, that there's separate documentation and separate agreements. I just wanted to confirm that first.
You mean that it's a separate agreement? Well,
Yes.
Well, documents have you know segments and sections for the different you know aspects of our alliance. At the end, it's a comprehensive agreement that we have with The Coca-Cola Company. That includes you know new opportunities in beverages, that includes a digital alliance, that includes also you know the relationship in terms of the economic model of the core business. We view that as a single agreement, and it's all connected. I mean, it can't be separated. It's a unified contract or agreement or relationship that we have.
Okay. Okay.
Y-um.
I mean, I wanted to ask about still beverages as well. The outlook for still beverages, sort of in the context of a potential slowdown. How do you think? Maybe it's a better question for Pepe. How do you think about the outlook for still beverages? How defensive they are relative to your sparkling portfolio? The likes of Monster, the likes of BODYARMOR, the likes of your different still products relative to Colas. Thank you.
Yeah. Thank you, Álvaro. We see huge opportunities in still beverages, huge opportunities for growth as Monster, as you mentioned, BODYARMOR are growing. Del Valle is growing. What we've had in still beverages is some supply chain issues that have affected some global supply chains. We're working fast with the Coca-Cola Company to see potential reformulations, localization of ingredients and capture that volume. The demand on the demand side, still beverages have a very healthy demand, and we see that continuing for the near future.
Yeah. If you look at Latin America and the mix of still beverages, and you compare that with more developed markets, you know, our own market in the U.S., you can clearly see that opportunity and where this is moving.
Thank you very much.
Thanks, Alvaro.
Thank you. Our next question will come from Luis Willard with GBM. Your line is now open.
Hi, guys. Good morning. Thanks for taking my question, and I'm looking at the results. It's just a quick one. In your opening remarks, you mentioned, and I hope I'm not wrong with this, you had over 20% growth in supermarket volume and 10% in convenience in Mexico. There's, of course, a component of the weather. Do you see this type of growth as sustainable in the long run? Can you share with us a bit more detail on this performance? Thank you.
Yes. Thank you, Luis. Yes, we've seen. To your example, in Mexico, we've seen 15% growth in supermarkets and in convenience stores. But if you look at volumes versus pre-pandemic levels, the convenience store channel, the on-premise channel has not recovered yet, but the modern trade is growing very similar to the traditional trade, around 10%. Remember that the modern trade, especially convenience stores, were specifically affected during the pandemic, while the traditional trade kept on growing. Convenience stores are going back to pre-pandemic levels. Supermarkets are growing very healthy in the short term.
That is also something that is specific for this quarter. We think that the growth will continue, but it will decelerate a little bit in the next months, becoming more in line with the other channels.
There's some catching up, certainly.
Yeah.
that we're seeing.
Yeah, absolutely. Perfect. If I may, a quick follow-up on another topic. I mean, how do you feel about the revenue management strategy going forward, especially given the strength that we've seen in volume so far?
Well, as you know, this is very important, considering also the raw material environment. We've been using pricing as a key top-line driver. We're leveraging these capabilities that we're building over time of segmentation, of brand price pack architecture, and very importantly, of management of discounts. Our strategy continues to be increase prices in line or above inflation. Raw material inflation can be higher at some point, but again, we believe that raw materials the second half of the year will have a more favorable comparison. We've had some carryover in price from last year, especially in Mexico and the U.S.
In those two markets, which are main markets, we're growing our price at or above inflation. We plan to continue to do that as a balance from true rate increases. A positive mix. We have a positive change in mix in both countries as single serve is growing. We also have, in the case of the U.S., shifting volume to high profit per case packages as a strategy. We have also the price increases. We have an off-cycle price increase planned in the U.S. for August, and as I mentioned, an additional price increase in Mexico that was implemented this month.
The objective continues to be the same and to grow prices in line with inflation or above.
All right, thank you.
Thank you, Rich.
Thank you. Our next question will come from Camila Azevedo with UBS. Your line is now open.
Hi, good morning, everyone, and congrats on the results. We have a question on your view on sector consolidation. You have a quite robust balance sheet and sector valuations appear quite low. Just curious if you have been out there looking for something in the U.S. or elsewhere in Latin?
Thank you, Camila. Well, yeah, that's a very important question. As you know, we've been open to analyzing attractive opportunities that could arise either from the current situation or in any of the markets where we operate in the Americas. The premise is that we need to find a way to create value in the transaction. We don't feel to be pressured to rush into any deal. Many things have to be aligned. Sometimes, aside from the economic value creation, we need to know that we need to find a way to, you know, align ownership of the different companies and franchises to move into a deal.
I think at the end of the day, you know, this economic story prevails, but you gotta be patient and disciplined, and that's what we're trying to do. If you look at the value that can be captured or unlocked from the current fragmentation of the franchise system across the Americas, I think that's tremendous. It's again, you need to align more than just the economic models many times. We're working on that as well. We think that it's just a normal trend of the industry into more consolidation, just by looking at the number of bottlers that you have in Latin America and in the U.S. as well.
Thank you.
Thank you, Camila.
Thank you. Our next question will come from Carlos Laboy with HSBC. Your line is now open.
Yes. Good afternoon, everyone. Arturo, different bottlers seem to have different views on what multi-category model is right for them. Are you philosophically inclined to move toward a total beverage model, the beer, spirits, et cetera? Or are you more inclined to pursue arrangements with a narrow set or of brand suppliers or go broad? I mean, pet food, diapers, et cetera. Where do you philosophically sit on multi-category efforts? And related to that question is this an LTRN agreement that you've signed with Atlanta? And are you operating under the same or a different profit split and incidence price adjustment arrangement in Mexico and Argentina than KOF now?
Thank you, Carlos. Let me talk first about the first part. You know, what we believe is that we have an infrastructure in our go-to-market that can serve more than just the categories that we're distributing and commercializing at this point. If you think about us as a bottler and not the owner of the core brands, what do we do? We actually connect strong brands with the customers and the consumers in a very effective way. I see that not as in a logistical way, but in an effective way in terms of account development, in terms of having the right dollars in the market, and actually building brand value as well in those categories. That's what we are.
Historically, we've focused first on sparkling beverages, then we transitioned to water, still beverages. I think it's a natural expansion to go into other categories. We have not a preconceived idea of which of those would make sense and in what combination. We have to analyze this by the building blocks of our go-to-market model. There's an order-taking effort. There's an account development effort. There's a logistic effort of delivering. There's an auditing effort in the market. There are a number of things that can be combined in many different ways. We do believe that there's an opportunity for expansion if you think about those building blocks and how they can be aligned in many, many different ways for different categories.
For some categories, order taking might be as far as we can go. In other categories, I think it's gonna be very similar to what we do with Coca-Cola. This is an experimentation that's been going on in our system for, you know, maybe 15 years, since we've had Del Valle in the operation, and we're gonna continue to do that. The good thing now is that The Coca-Cola Company has an open mind to explore that as well. We're gonna share the profits, but it's an open mind that, you know, did not exist years back. That's where we stand at this point. The agreement is a precondition to do that. The new LTRN is not signed yet by us, but we're pretty much aligned on the concepts.
It's just a matter of the, you know, drafting the logistics. That agreement is gonna be similar to the other bottlers for Latin America. We have obviously different relationships in the U.S. This is also very much aligned to what we had in Mexico, and they were agreed in 2016 in terms of the economic model for Mexico. We're gonna expand that to South America with adjustments that I think are positive, and good for us as a bottler, and we're gonna include these other aspects in the agreement that cover, you know, other categories and digital as well.
Are you currently operating under a different incidence price adjustment arrangement in Mexico and Argentina than Coca-Cola FEMSA?
Yeah. In Mexico, we have an agreement with The Coca-Cola Company. We don't know exactly the terms of agreements with other bottlers. We have an agreement for Mexico and we have a different agreement in South America, and they're gonna be all aligned in the same model going forward.
Thank you.
Thank you, Carlos.
Thank you. Our next question will come from Felipe Ucros with Scotiabank. Your line is now open.
Good morning, Arturo, Emilio, Pepe, and team. Thanks for the space for questions and congrats on the results again. I want to explore a little bit the question of how do you manage pricing and revenue growth management as well when commodities are coming down? It feels like it's been so many years of commodities going up that eventually it's gonna come, and we've had a little bit of that over the last month and a half, but still historically high prices. You know, let's assume that over the next two to three years, commodities start coming down, start normalizing to the averages we had, you know, before the pandemic. How do you think about pricing on the way down?
How do you think about revenue growth management, specifically price pack architecture, where, you know, you've driven a kind of a portfolio that's a lot wider with smaller packages? Do you reverse a little bit of that to have that lever back again when commodities are rising, or do you tend to keep everything you've gained on those fronts? How do you strategically think about that?
Yeah. Thank you, Felipe. First, I would say is that our pricing approach is not really based on commodity pricing. It's not a pass-through of commodities. In fact, this year, our raw materials have increased much more than our prices in most of our markets. So it's a different methodology, quite sophisticated based on, you know, competitive environment, on opportunities, on, you know, elasticity, on segmentation as well. So we're gonna continue to do that and take advantage of opportunities. Certainly, a more favorable commodity environment may create a different competitive situation in the market. So that translates into a different approach based on the competitive situation, but not on the raw material pricing in itself.
The model actually addresses, you know, our share market, our growth expectations, our development of certain categories, and also, you know, how well we can segment the market and growth of particular channels. The management of promotions, for example, I think that is completely separate from the raw materials environment. It's an analytical tool of, you know, the promotions that we're making and discounts in the open market, how effective they are, what is the return on investment, if you may, on those small promotions that we carry out week by week. I think that we're gonna continue to refine those capabilities, independently from the raw material environment.
Theoretically, I guess, if you'd like to keep a lot of this in place and continue managing things how you have thus far, and raw materials were to plunge, then we should see a very steep expansion in margins? I mean, I know.
Well, it all depends. Again, I go back. It depends on the competitive environment.
Yeah.
Certainly, if you talk about raw materials by themselves, I think, you know, the pressure certainly is gonna ease in the second half of the year as Emilio explained, and we're gonna see a more favorable comparison. Again, you know, pricing has to take into consideration some of the factors.
Yeah, Felipe, just to your question, well, if the competitive environment is that we need to reduce some prices, we will do it. We won't have any problem with that. Obviously, the easiest way to manage that, causing less disturbance in the channels, is to increase promotional activity that at the end is what generates the lower price. We would first increase promotional activity, and if we have to adjust prices down, we will do it. As Arturo said, it will depend on a balanced equation between market share, growth, opportunities and volume.
Okay. Now, very clear how you think about it on the way down. Let me ask you a follow-up on the pilots and that's maybe a little more for you, Pepe. You know, you've announced a few pilots over the years. I'm just wondering if you can give us an update on a couple of these, specifically interested in the returnables pilot in El Paso. On Yomp!, you know, you've been talking a little bit about digital B2B outside of Mexico, and I just wonder how much of that intersects with the broader portfolio that you're already piloting in northern Mexico, where I know you already have more than, like, 24 CPG brands listed on Yomp!.
Just wondering how much of that is already being kind of experimented on in Latin America or if the digital B2B that you guys mentioned in those countries is mostly focused on your portfolio at this point.
Thanks, Felipe. Let's try to do this in parts. Regarding the pilot, the multi-category pilots and to Carlos's question, before, we are experimenting with many different things. As you know, here in Mexico, we're experimenting with a full portfolio, 24, close to 30 companies, a multi-category approach. In some other places, as in Ecuador, we are experimenting with beer in our trucks, in our whole system. The most important thing is that, as a system, we are learning from what every bottler is doing. They're independent pilots, but we share learnings, and we are looking for the best solution that suits every market.
If you ask me, I see order taking for multi-category as something that we can definitely do. We are still working on which is the share of wallet that we want to have, or that can maximize our relationship with the customers and our profit. Where are synergies in the warehousing and which products should be in trucks or not. FEMSA is trying something, we are trying something, and Andina is trying other things. We are all learning of what every other one of us is doing.
With respect to returnables in the U.S., just to mention, Felipe, that this is a long-term initiative, and we're in the first stages. This is just about 125 customers, some in home market and some in the on-premise market. The early adoption numbers are very promising for both customers. There are a number of things that we need to figure out if we wanna expand this further, but this is an interesting project and interesting learning so far. We're using this opportunity as, you know, as an exploration of this possibility for the U.S. market in the future.
Okay. That's very clear. Thanks for the update, guys.
Thanks, Felipe.
Thank you.
Thank you. This does conclude today's Q&A. I would now like to turn the call back over to management for closing remarks.
Thank you. I wanna thank everyone for your time this morning and for your continued interest and trust in our company. We look forward to speaking with you again soon, and have a great weekend. Enjoy your weekend. Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.