Good morning. Thank you for joining Becle's first quarter unaudited financial results call. During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments, and business strategies, and may be identified by our use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, goals, target, strategy, and similar terms and phrases, and may include references to assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements. For all the foregoing reasons, you are cautioned against relying on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Now, I'll welcome Mariana Rojo, Corporate Treasurer and Investor Relations Director. Miss, you're now on the line.
Thank you. Good morning, everyone. I'm Mariana Rojo, Corporate Treasurer and Investor Relations Director. Thank you for joining us to discuss the unaudited financial results for the quarter ended March 31st, 2020, of Becle, commercially known as José Cuervo. I am joined today by Juan Domingo Beckmann, Chief Executive Officer, Michael Keyes, President and CEO of Proximo Spirits, Steve Shelley, Senior VP of Commercial Strategy for Proximo, Luis Félix, Managing Director of Mexico and Latam, Gordon Dron, Managing Director of MEA and APAC Region, and Fernando Suárez, CFO. Before we begin, I would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards, or IFRS, and published in the Mexican Stock Exchange.
The information for the first quarter of 2020 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in the appropriate electronic form. At this time, I would like to remind participants that your lines will be in listening mode only until the Q&A session. Now, I will pass the call on to Mr. Juan Domingo Beckmann.
Good morning, and thank you for joining us today to discuss Becle's first quarter results. All of us at Becle hope that each and every one of you is staying safe and healthy, and we hope you are all successfully navigating these unprecedented and challenging times. I will begin with opening comments, and then I will ask Mike Keyes to discuss the performance of our U.S. and Canada business unit. Luis Félix will review our Mexico and Latam results. Gordon Dron will discuss our results in the MEA and APAC regions, and Fernando Suárez will then walk you through our financial results. We have all encountered an unprecedented and unparalleled situation with the global COVID-19 pandemic. This challenge has impacted each of our daily lives, our families, and how we do business on a daily basis.
We hope for our return to more normal times and an economic recovery across the world, but in the interim, we need to be cautious and careful how long will this take? At Becle, we responded quickly to the rapidly developing crises and evolving macro environment. Before the pandemic declaration from the WHO, we had already begun early in the year with a war room approach in our global integrated supply chain by working closely with our supplier and distribution partners to develop plans to ensure we can continue to support our customers around the world. Once the pandemic was declared, we took on business continuity measures and transitioned many of our employees to working remotely from home while maintaining production and business activities, as well as ensuring the health and safety of all our employees.
We are extremely appreciative of the efforts of each and one of our employees and their dedication during these extraordinary and unprecedented times. As the first quarter progressed, the impact of COVID-19 containment measures across our global markets accelerated and began to impact volumes. This has continued into the second quarter, in particular as the on-premise shop has been mostly shut down. Notwithstanding these challenges, during the first quarter, net sales increased 5% year-over-year on an underlying basis, despite a volume contraction for the same period. Our strong financial position with a solid balance sheet and global liquidity enabled us to better navigate these complex macroeconomic and business conditions.
Additionally, the strength of our brands, along with our high exposure to off-premise sales in key markets, is mitigating the impact on on-premise volume, and we remain well-positioned with the leading portfolio brands in high-growth categories across the global spirits industry. On the social responsibility front, we are committed to support those in need during these extraordinary times. In this sense, I'm proud of our recent charitable activities, which include donations of $1.2 million and other efforts as part of our commitment to help families and individuals who have been affected by the economic impact of the COVID crisis. The funds will be directed to the children of restaurant employees and nonprofits dedicated to serving the children of food and beverage service employees who are facing the crisis.
The World Central Kitchen, a team of food first responders, mobilizing with urgency and getting meals to those who need them most, including children, families, and seniors, as well as frontline healthcare workers and to the United States Bartenders' Guild Emergency Assistance Program. Additionally, we have donated hand sanitizers to first responder teams and health centers around the production facilities in Indiana, Colorado, California, New York, and Northern Ireland. In Mexico, we donated to the Ministers of Defense and Navy 40,000 liters of sanitizing product, which is being used to protect the field of first responders and others in the handling of the crisis. Next week, we will also announce a plan to support 11,000 food service employees. Now, let me turn the call over to Mike Keyes to discuss our U.S. and Canada results.
Good morning, everyone. We're pleased with our commercial performance in the United States and Canada during the first quarter of 2020. Consumer takeaway for our brands in the United States, as measured by Nielsen data, grew over the past three months by 16%, outpacing the top 15 multi-branded suppliers in the industry. Wholesaler depletions were also up 16% for the quarter. Our tequila portfolio was up 23% for the quarter, driven by the continued strength of our super premium tequilas. Our ready-to-drink margarita category performance was strong in March, which helped to drive 17% growth for the quarter. Our whiskey portfolio also grew 8% during the quarter, led by our Irish whiskey brands, which were up a total by double digits. Last quarter, we discussed a change in the depletion reporting policy for our California distributor.
The reversal of that effect is reflected in this quarter's depletions and represents 4.5% of the 16% growth that we've reported. Strong consumer takeaway and underlying depletion growth during the quarter continued to drive strong shipment trends. We recognize 6% growth in shipments for the quarter compared to the prior year. During the quarter, we continued to advance our premiumization strategy, with net sales value growth outpacing volume growth in the United States and Canada at 11%, due primarily to the mix of products sold during the quarter. We experienced a net positive impact from the shelter-in-place orders that were imposed during the month of March. Gains in the off-premise outweighed the losses in the on-premise from the closure of bars and restaurants as consumers stocked up on well-known and established brands.
Due to our strong ready-to-drink business, Proximo Spirits is over-indexed within the off-premise channel, with approximately 87% of our value coming from the off-premise accounts, providing us less exposure than most with the closure of the on-premise channel. We will continue to monitor the situation and adapt to this ever-changing business environment. We have worked hard to keep our supply chain functioning while we partner with our distributors to meet the increased demand in the off-premise, and we are developing contingency plans to address the unknown changes that will materialize as the on-premise reopens. I will now turn the call over to Luis Félix to discuss Mexico and Latin America.
Thank you, and good morning, everyone. We had a difficult first quarter in Mexico, primarily driven by the non-alcoholic category, but to a lesser degree, softness in the whole tequila category. Our energy drink, called B:oost, underwent a reformulation as a result of recent excise tax on energy drinks implemented with the new year. We did not ship B:oost product from the middle of January until late March. We did begin to ship reformulated products at the end of the quarter, and we'll work to stabilize B:oost shipment volume. Additionally, we continue to be challenged by a difficult economic situation across the country with an expected sharp GDP contraction this year. Underlying volume in the Mexico region declined 40%, with net sales declining 16% during the quarter. Excluding the effect of B:oost, the volume decline in the quarter was - 23%, with net sales value declining - 10%.
As the quarter progressed, we also began to see the impact of the COVID-19 containment measures across Mexico, with nearly all on-premise locations closed beginning in March, which represents approximately between 20%-25% of our net sales. We expect the on-premise closures to continue at least through May, mainly impacting our wholesaler channel. Within the modern trade, we experienced flat depletions resulting from COVID containment measures in the country, as well as alcohol sales restrictions in five states and certain municipalities in Mexico City. In Latin America, we saw a very positive result with strength in Brazil, Peru, and Colombia. We are, however, now seeing the same impact from COVID-19 in Latin America, which has begun to impact our shipments.
Despite the industry challenges to volume as a result of the economic environment in Mexico, the COVID-19 containment measures, as well as the B:oost reformulation, we continue to see strong market share with value share gains through February, and we remain well-positioned across Mexico's spirits industry. I will now turn the call over to Gordon Dron to discuss the MEA and APAC results.
Many thanks, Luis Félix, and good afternoon from Europe. The MEA and APAC region had an overall positive first quarter despite the impact of COVID-19, which started to impact China from mid-January and reached Europe at the end of February. Initially, the impact was felt in Italy and then spread across Western Europe. Social distancing practices have been adopted uniformly, and the majority of the on-premise channel is now effectively shut down. The MEA and APAC regions overall grew volume by low single digits year on year in quarter one, although showing a slight loss of value reflecting the challenges of the on-premise environment and the country mix. With the specific regions, there were differing results depending on the lead time of supply to market and the timing of the COVID-19 impacts.
In MEA, tequila sales grew by mid-double digits, reflecting the early positive consumer trends for our brands, most notably Cuervo. Indeed, even analyzing depletions, we can see year-on-year growth through to mid-March and then a drop-off as the impact of the on-premise closures began across the region. The net sales value encouragingly grew slightly ahead of volume. On the rest of our portfolio, the impact is different for several reasons, but mainly driven by the COVID-19 impact on travel retail. Early pantry loading by consumers began to slow by mid-March, and the distributors slowed orders with shorter lead times in Europe. On a positive note, our own in-market company in the U.K. and Ireland recorded strong portfolio sales growth in the first quarter versus last year. All that said, overall, MEA volumes were broadly in line with last year, although value declined by high single digits.
In APAC, partly due to China, but also volume shortfalls in other major markets hit by COVID-19, tequila sales fell by double digits. Additionally, in Japan, fourth quarter orders ahead of a market price increase impacted Q1 volumes. However, in Australia, we had an exceptional first quarter, reporting double-digit growth on tequila and even stronger growth on rum, helped by our brand innovations towards the end of February. So overall, despite the challenging times in which we are operating, we are encouraged by the overall performance of the MEA and APAC regions during the first quarter and look forward to a gradual normalization of business conditions in our markets. I will now turn the call over to Fernando Suárez to review the financial results.
Thank you, and good morning, everyone. Let me walk you through the first quarter financial results. During the first quarter, the company reported a 5.3% increase in consolidated net sales to MXN 5.2 billion on a pro forma or underlying basis. This pro forma or underlying growth adjusts for the non-renewal of the distribution agreement of the Cholula Hot Sauce brand during April of 2019. During the first quarter, gross profit decreased 3.4% year-over-year to MXN 2.7 billion, and although a sequential quarterly gross margin expansion, gross margin decreased to 51.7% from 52.8% for the first quarter of 2019, primarily reflecting year-on-year agave price increases in costs, partially offset by a Mexican peso depreciation against the U.S. dollar impacting our net sales. A&P expenses increased 15.7% during this quarter, primarily driven by solid depletion trends in the U.S. and Canada and MEA regions.
We continue with our efforts to optimize our A&P investment on a full-year basis across our regions. In the first quarter of the year, distribution expenses decreased 14.3% to MXN 188 million, mainly driven by lower logistics and fuel costs. As a percentage of net sales, distribution expenses decreased to 3.6% from 4.2% in 2019. SG&A expenses increased 10.6% during the first quarter, representing 14.7% of net sales compared to 13.1% in the first quarter of 2019, mainly due to a base effect in last year's period related to variable compensation schemes. Operating income in the first quarter of 2020 decreased 48%, as the operating margin decreased to 9.9% from 18.7% in the first quarter of 2019. First quarter EBITDA decreased 40% year-over-year to MXN 688 million, while EBITDA margin was 13.2%. Net financial results were a gain of MXN 429 million during the first quarter of 2020.
As a result of its exposure to the exchange rate risk between the U.S. dollar and the Mexican peso, as of January 1st, 2020, the company has designated its $500 million senior notes as a hedge against its net investment in its U.S. operations. As disclosed in our earnings release, the adoption of IFRS 9, IFRIC 16, Net Investment Hedge Accounting Treatment, all foreign exchange gains and losses associated with the company's senior notes have been recognized in the other comprehensive income line. The specific amount that resulted from this accounting criteria adoption was MXN 2,334 million in OCI. First quarter consolidated net income decreased by only 0.8% to MXN 698 million, and the net margin increased to 13.4%. Earnings per share were MXN 19 per share for the first quarter.
As of March 31st, 2020, cash and cash equivalents were MXN 9.9 billion, and total long-term debt was MXN 11.6 billion. We continue to maintain a solid balance sheet with conservative financial leverage, comfortable debt maturity profile, and liquidity to execute our long-term growth strategy. We have no refinancing requirements for the next five years. Regarding our CAPEX program, we will maintain our strategic expansion projects, the most significant of which are our 1800 distillery in Tequila and the OBD expansion in Northern Ireland. This, of course, is on top of our normal and customary maintenance CAPEX. All other lower priority non-essential CAPEX projects are being reassessed and potentially recalendarized in light of cash optimization measures. Moving on to guidance for the year, given the uncertainty surrounding the COVID-19 crisis and impact, we will hold off on yearly volume guidance for now.
As soon as we have better clarity, we will evaluate a public announcement of such guidance. However, rest assured that we are committed to regaining top-line growth as soon as practicable. On the capital allocation front, we will be proposing a dividend payment, treasury share cancellation, and share repurchase program extension in our next general shareholders meeting to be summoned for the month of June. Details of such amounts will be proposed at that time once we have a better understanding of the developing business environment. Now, we will turn the call back to the operator for questions and answers. Thank you.
Thank you. At this time, we'll now be conducting a question-and-answer session. If you'd like to ask a question, please press Star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press Star two if you'd like to remove your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question is from the line of Ben Theurer with Barclays. Please proceed with your question.
Yeah. Good morning, Juan Domingo, Fernando, and team. So first of all, Juan Domingo, I hope you're feeling better, and glad you made it over the COVID situation you personally had. So that's at least good news to hear you're back on the phone, so thanks for that. Two quick questions. So first, in Mexico, you've mentioned the B:oost reformulation and the impact it had from mid-January until late March and that you're basically now backed into shipments. Can you give us a little bit of a sense on the velocity of getting back on shelf, getting the shipments out, particularly under the light of the restrictions that might be surrounded from the shutdown here in Mexico, as well as what costs were associated with the reformulation?
If you could try to at least give us a little bit of a sense on how much the loss of that had an impact on profitability, that would be my first question.
Thank you, Ben, for your comments. I'm feeling great now. Thank you very much. I'll ask Luis Félix a little more in detail regarding the B:oost reformula and the status as of today.
Thank you. Yes, we did shift to Jumex by a strong volume by the end of the year in December, so they were able to maintain distribution in January and February. So we took the month of January and February to reformulate, and then we came back in the last week we shipped back to Jumex in the last week of March. So Jumex is taking back the distribution, and they have been very effective in continuing supplying basically the self-service stores. And remember, they also have a strong direct distribution to traditional stores. So they continue to operate their business, and we have been checking all the distribution. We are back in Walmart. We are in their distribution level in the direct to traditional stores. They are back, so we expect that B:oost will go back quickly into the shelves.
The reformulation. There was a 25% IEPS imposed on energy drinks. With the reformulation that we did, we will not be exposed to that IEPS, which will give us a good pricing opportunity in the market.
Okay. And then, Juan Domingo, that's more of a strategic question and considerations in the current environment. I mean, clearly, it's challenging the fact that you lose for a certain period of time on some of your on-premise exposure. You've seen significant increase on the off-premise side, so there might be certain disruption challenges from a distribution point of view, getting product into retail, and so on. Now, in light of that, and we know you have your M&A strategy, and I was particularly wondering with some of the commentary we've got recently from Campari's CEO around looking for potential mergers, acquisitions, and so on, could you envision at some stage to potentially go together with someone to further strengthen your global footprint, your brand footprint with someone like potentially a Campari who now might have some financial flexibility?
Or do you still stay more on the view of you being the one going after brands, acquiring without being maybe part of a larger complex?
For the moment, I think our focus is to do as best as we can during this year. Obviously, we are always open to if we see opportunities to acquire more brands and a more strategic, let's say, big opportunity. I think for the moment, we are okay, but you never know in the future what could happen. For the moment, I think we are doing great. We are one of the two companies that grow most. We're the multi-brand company in the U.S. We're the one that grows the most. The only other company that grows more than us is Tito's, so that's a one-brand company, which at the moment they stopped, but they're dealing with facing difficulties. Now we're in great shape.
Okay. Perfect. Understood. Thank you very much.
The next question comes from the line of Andrea Teixeira with JPMorgan. Please proceed with your questions.
Hey, good morning. This is Peter Graham on for Andrea. Can you guys hear me okay?
Yes.
Yes, so first off, Juan Domingo, I'm also glad to hear that you are feeling better. So my question is just, as we look ahead, how should we think about the dynamic of on-premise versus off-premise for Q2 and maybe through the balance of the year? And then maybe just building on that, the takeaway data has been very impressive in the U.S., and I think it would be helpful to get your view on what was kind of consumer stocking up, pantry load, versus maybe what could be more permanent as a channel shift with bars and restaurants closed.
Your question was worldwide or focusing on the U.S.?
Yeah. I mean, this is probably more directed at the U.S., but if you have views, I would love to get the view on all the geographies if possible.
I mean, worldwide, every country behaves differently. Mexico, the problem in Mexico is that on-premise is closed, but also a lot of states are closing, prohibiting the sale of alcohol. So then it's even worse than probably any country, and in the U.S., maybe Mike and Steve could add up more there, but our U.S. numbers are great, I believe, and that's part because, well, we have great brands that are leaders, and that's what consumers are buying now, like leading brands that they trust. And some of our brands are more focused on the majority of our brands in the U.S. are more focused on the off-premise, but maybe Mike and Steve can add to that.
Yeah. This is Mike Keyes. I think there's a lot of things going on. We hear a lot about pantry load. I don't know that that is as accurate as it seems. People tend to look a lot at Nielsen and IRI data, and obviously, that shows big increases across the board for most major suppliers. But with zero business basically being done, as you spoke about in the on-premise, I don't know that there's a lot of pantry loading, and I don't know that there's more consumption. I think the consumption has just shifted, obviously, from the on-premise to the off-premise. And as I said in my opening comments, we are uniquely positioned in that we have a very large successful RTD business in the margarita category, and that business is all off-premise. And so it insulates us a little bit from what's going on in the on-premise.
The on-premise will, it already is beginning to open up in some states across the United States, but I think it's going to be a very, very slow and deliberate opening. I think consumers are going to be guarded, and I think that you'll continue to see a lot of home consumption, a lot of, as Juan said, big familiar brands that are easily mixable and easily prepared at home, and Steve, I don't know if you have anything you'd like to add.
Yeah. I think the one thing that I would add is that Nielsen does represent only 25%, or I guess maybe during these times, maybe up to 30% of our depletions business. So I think when you look at those weekly Nielsen's, there was one spike around March of the 21st where you saw an inordinate amount of volume compared to the other weeks that surrounded it. So I think that might have been your pantry loading, but since then, I think it's really just replenishment. And I think those consumers who were going on-premise and ordering a different drink week to week had to fill their liquor cabinet with maybe some different spirits.
So I think we're enjoying some of that, as well as I think it's indexed very high for us in those stores that are reporting to Nielsen, which tend to be the more big-box retailers where I think they're picking up a majority of the shopping right now.
Okay. That's very helpful. And maybe a bit of a longer-term question, and it could be too early, but a theme that keeps coming up on earnings calls over the past month is just consumers going back to trusted brands and retailers focusing more on these big brands. And you kind of mentioned that in your prepared remarks, but over the past few years, clearly, tequila has seen a fair amount of new entrants. And so it would be helpful to get your view on how you see that evolving as we move through the balance of the year and maybe longer-term. Thanks.
Yeah. I think we're going to have to wait and see how quickly we return to whatever a new normal is. The biggest thing I would say, the best description I have heard was from our sales director who told me early on. He said, "The difference now is that consumers aren't shopping. They're buying." And if you look at even the we talk about the off-premise being open, but the off-premise isn't open in the way that it was open pre-coronavirus. You have the state of Pennsylvania had shut down until recently. You had some other control states that cut back on the number of their stores. People cut back on the hours of operation. But the biggest thing from a shopping standpoint is consumers are uncomfortable being in places that are not their homes.
And so as they go into the off-premise, sometimes they'll go in one at a time or five at a time, depending on the size of the store. They're not shopping. They're in there. They're buying. I think that's part of the reason that big 1.75 familiar brands are doing better than discovery brands. And we're going to have to wait and see how that shakes out over time.
Thank you for that.
Yeah. I think.
That's very helpful. Sorry. Go ahead.
Yeah. One additional thing, Peter. I think when you look at tequila as a percentage of spirits, just over the last four weeks, ticked up just slightly ahead as far as picking up their share of spirits. I think tequila and cocktails just moved up slightly, but that share has remained pretty constant if you look at the 13-week.
Okay. Well, thank you very much. That was very helpful. I'll pass it on.
Our next question is from the line of Miguel Tortolero with GBM. Please proceed with your questions.
Hi. Good morning, everyone. Thanks for the space for questions. The first one is from Mexico. First, thanks for the call regarding volumes, excluding the B:oost issue. In this same regard, could you elaborate a bit more on this volume decline? Could you say it is fully explained by the on-premise channel? And related to one previous question, how has it evolved towards the start of the second quarter, especially in Mexico? And the second one is more of a general question. Taking Europe as a precedent, given that lockdown measures started before and probably the activation of economy is going to be sooner at least than Mexico, what are the trends that you have seen in terms of volume during all these stages of the process? Starting with some points of sale closing, the complete lockdown, and probably some early signs of a potential activation soon?
And more importantly, what is it that you can learn from there to probably bring it into other territories to try to mitigate a potential slowdown? Thank you.
Okay. This is Luis Félix. Thank you, Miguel. In the case of Mexico, the volume decline, putting aside the B:oost effect that we just explained, was coming basically from the wholesaler channel. Wholesaler, as you know, is the one that serves the on-premise. And we have seen since in February, they were very cautious because they knew that COVID-19 was coming, and they were very cautious to ship and to sell to the on-premise, and on-premises started to close. So basically, the decline in our brands were coming in the wholesaler channel. Then the other channel, the self-service, and when in March when this started, people were basically buying groceries, and they were buying medical stuff and cleaning products and not alcohol.
So, we have seen the effect in both sides, in the wholesaler and the self-service. And you also mentioned, how is the start of the second quarter? It's been tough. As Juan Domingo mentioned, we are basically five states are declaring prohibition in terms of selling alcohol in their states, and many municipalities basically prohibiting selling over the weekend or have time restrictions. So, we continue to see the wholesaler channel starting in the second quarter to see difficulties because now they're facing the problem. Some of them are closed, and also the ones that have stores, they have seen less rotation in their stores. So, we see a very changing second quarter as well.
Perfect. Yeah.
The second question is just regarding your ability that you can learn from there to bring it to all the territories given that lockdown measures and all that stuff started before than the other regions?
I'm sorry, Miguel. We're having a tough time hearing your question. Can you restate it, please?
Sure. Yes. Just taking Europe as a precedent, given that lockdown started before and probably the reactivation of economy is going to be sooner, the question is, what is it that you can learn from those territories to bring it to the other ones to try to mitigate a potential slowdown that probably has a lag compared to Europe?
Do you want me to take that one, Fernando?
Hi. Yeah. This is Gordon Dron speaking. What we've seen around Europe, of course, varies by market because the mix of on-premise and off-premise in markets is different. But what we have seen in the markets that are strongly on-premise, Italy is a good example. We've seen the move of consumption away from the on-trade, which is now closed, into the off-trade. What we have been doing with our investments is rescheduling investment to focus more activity to the off-trade. One of the things we have to look at is distribution because we have to ensure we have broader distribution in the off-trade for brands that perhaps are more traditionally on-premise focused.
And we are also looking at how we can drive activity in the major retailers that is easily implemented because social distancing measures, even if the virus goes away or sorry, doesn't go away, but becomes less impactful and people are allowed to move around, social distancing is very likely to be continuing as an issue for the rest of this year. So we need to make the activities that we put in place in retail as easy as possible for the retailers to implement. So providing pre-packed pallets, which have got the promotions on them so that there is no handling required in outlet, is one of the areas we're looking at. To manage the downturn in on-trade consumption, we're also looking at how we take up online activity where we're putting drink suggestions to consumers that they can simply make at home.
We have a specific Cuervo activity called Cuervo Squeeze, which we've been using extensively in Europe now, and we've been trialing it actually for a while and now rolling it out, which is a very simple Cuervo long drink, which brings refreshment, which is a critical component for home. So it does require us to make some changes in behavior. We need to be ready for when the on-trade does start to open. And indeed, the Spanish this week, two days ago, have announced a provisional plan of how they intend the on-trade to reopen between now and the end of June. But that, of course, is subject to the continued control of the virus. But where that happens, it's our job to ensure that we reestablish the distribution of our brands in these outlets, which have been closed for a long time.
So important to get calls with the key outlets to get activation in place and ensure we have promotions ready for the consumers as they start to slowly go back to these outlets. Because what we're already seeing from China is that where the on-trade has been open now for a good four weeks, the uptake in the on-trade is still relatively low. Perhaps penetration levels are only around 30%. And so activation to get consumers and entice consumers back will be very important.
That's great, Gordon. Thank you.
Thank you. Our next question is from the line of Fernando Olvera with Bank of America. Please proceed with your questions.
Hi. Hello. Good morning, everyone. Thanks for taking my question, and I also thought your panel was fine. My question is regarding expenses. Given the existing environment, I want to ask you how should we think about targeting advertising and promotion expenses going forward? How much can we stop such expenses given the environment?
Fernando, can you restate the question? We're really having a hard time.
Yes. Sure. I was wondering if you can share, I mean, given the uncertain environment, how much can you cut your expenses of marketing, advertising, and promotion in coming quarters just to mitigate any weakness on top line on volume?
Thank you, Fernando. Regarding A&P and potential optimization of A&P, we do have some levers, various levers to optimize A&P spend. The first quarter print is slightly above what should be the yearly average, and yes, we are constantly reviewing A&P, how can we optimize it, and how will we manage it in the rest of the year, so yes, we're very on top of that, and we'll be active in optimizing A&P and see how the markets respond based on the developing business situation and how markets gradually open up.
Great. Thank you so much.
The next question is from the line of Felipe Ucros with Scotiabank. Please proceed with your questions.
Yes. Good morning, Juan Domingo and team. Thanks for the space for questions, and happy you're feeling better. I second those thoughts from the rest of the analysts. So a couple of questions on my end. The first one is about agave prices. Is this in some way a blessing in disguise? Do you feel that maybe this will be a time where the small producers that have come up over the last few years maybe don't have the financial muscle to survive, and that may cost some demand to exit the market and hopefully relax things a little bit on the agave price side? And then the next one, the next question I had was on Mexico.
And kind of forgetting a little bit about this period of COVID and going further ahead into what might look like a recessionary period that will go beyond this year, we don't have the historical data exactly on how consumption of tequila behaved in previous economic crises, but I was hoping you could give us an idea of how you expect volumes to behave in a period of recession. Typically, we think of alcohol being kind of countercyclical, but every category is different. So just thinking of how you think about the category in a recessionary environment. Thank you.
Regarding agave, we haven't seen anything happening because production is still happening. Everyone's still producing like if nothing had happened. So we don't know if there's going to be some, how you say, any disruption in the agave supply or even changes in prices. So far, we haven't seen anything. And regarding what's going to happen regarding tequila in Mexico, it's hard. I don't think it's just tequila. I think the economy in Mexico is kind of slowing down very fast. So I think people will have less money in their pockets. And I'm not sure that I mean, we haven't seen this happening anywhere because you have all these on-premise closings. And even when it opens, we don't know exactly when are people going to be coming back. And so it's hard to predict, but you know exactly that it's going to be difficult for the Mexican economy.
I'm not sure that they will continue buying with confidence as they did before this happening.
Just to complement, this is Luis Félix. We have seen that tequila in the last five years, tequila has been gaining share in the whole industry. tequila has moved to get to 40% of the total industry from 35% in three years. tequila before the COVID was gaining share and was very strong in the Mexican market. I think the real challenge now is that because of the price increases that we have taken, the whole industry in tequila has taken pricing very aggressively. That is the only difference versus the last recession that we had in 2009. With the new prices, yes, there will be a challenging environment to continue on that premium pricing, but I think tequila is well positioned in Mexico.
Thanks a lot.
Thank you. At this time, we've reached the end of our question-and-answer session, and I will turn the floor back to Juan Domingo for closing remarks.
I would like to thank you again for your continued interest in Becle. We remain extremely confident in our family of brands and our prospects for long-term growth and hope that everyone stays safe and healthy. Have a good day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.