Hello, everyone. I'm Salvador Villaseñor, responsible for Investor Relations at Walmex, and I want to thank you for joining our live Q&A session following our Q3 2024 E arnings Release, which were published yesterday evening. Joining me today is Ignacio Caride, President and CEO of Walmart de México and Centroamérica, Dolores Fernández Lobbe, our CMO, and Paulo García, our CFO. We will make every effort to answer as many questions as we can in the 45 minutes we have scheduled for this call. We kindly ask you to limit yourself to one question, as courtesy to others. Now, I will pass over to Ignacio for his initial remarks before moving on to the first question. Please, Ignacio.
Yeah. Thank you, Salvador, and hi, everyone. Thank you for joining us. Let me start by saying I'm happy with the resilience of our company and continue gaining market share against the industry, even though we are in a decelerating consumer demand. But overall, the ecosystem is doing very well. We keep accelerating with Bait, reaching more than fifteen million customers, Connect, and very happy with the first numbers we are sharing with you with Walmart Beneficios and Bodega Beneficios. But overall, let me say, I'm not very happy with the performance of the quarter, but I have the confidence that we are going to win again the Q4 season, and our top priority as a company is to continue gaining market share.
I'm very confident with the team and all the actions we are taking towards the high season, but we are facing a decelerating consumer demand that is always challenging for our industry. But overall, happy with the resilience of our business. So with that, let me start taking questions.
We will now start the Q&A session. If you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. The first question is from Mr. Ben Theurer from Barclays. Please go ahead.
Hi, yeah, good, good afternoon, and thank you very much for taking my question. Ignacio, Dolores, Paulo, Salvador, nice to meet you. Ignacio, let me maybe take it off from your very honest opening remarks you just shared with us as to you're not happy with the performance, right? I mean, it was clear in your tone and the way you presented this, so help us maybe understand what you have identified since you took on the role of CEO a few months ago, as where you want to work on. What are the things that you target and which are the things you prioritize in the short term to get things going into the direction where you want them to go, that might be independent from market dynamics? That would be my one question for you.
Yeah, so what we saw during the last quarter, and especially after mid-July, is a deceleration in consumer demand, and that's, as you know, for our industry, it's very difficult, and it was much larger than even expected. If you ask me, it took us too long to determine what's happening and what were the actions we needed to take, and we're finally where I feel we understand, and we know what we need to do and how to react and change the trend, and the other part that I'm not very happy with is we saw much higher competition during the season, during the summer season that was not expected, and I expect that to be not to get surprised by our competitors.
Having said that, we're still, you know, we're still growing. We're still a company that keeps delivering, focused on operating on our operations, controlling our expenses, so overall, I have the confidence and we are doing the right things, but we got a little surprised during the summer season, and that's not where we want to be, and then I would love to see, even though we are growing ahead of the market in e-commerce, we're still growing ahead of the market. We are not growing at the pace the leaders of the market are growing, and I expect us to be leading the growth on e-commerce in the industry or be much more closer to that, so for us, it's not enough to grow ahead of the market. We need to grow ahead of everyone else in the industry.
Thank you very much.
Thank you very much for your question. Our next question is from Mr. Andrew Ruben from Morgan Stanley. Please go ahead.
Andrew, are you there?
Our next question is from Mr. Alejandro Fuchs from Itaú BBA. Please, go ahead.
Hola, Ignacio, Paulo, Dolores, Salvador. Thank you for the space for questions. I only have one brief one, if I may. My question is on the new identified customers of the Beneficios program, right? 28 million customers for one quarter seems pretty massive. So I wanted to ask how do you think, you know, this is going to be adding value to the flywheel and the ecosystem that you are creating, and how you see the profitability of this going forward, and how this is gonna add? Because I would imagine that you expect this to continue to grow materially. So I wanted to ask you, how do you see this Beneficios program adding to the ecosystem overall? Thank you.
Thank you for your question. Look, we are very, very happily surprised with the engagement our customers are having with Walmart and Bodega Beneficios. The important part of this is it's just the beginning of something that we expect to be very, very important for us going forward. If we consider top of the funnel, we are onboarding customers and starting to get a lot of data of customers, especially of customers that in the past were unknown for us because they were paying in cash, and it's very difficult to understand their consumer habits.
This will unlock a huge amount of data that we will be able to leverage, not only us, but together with our suppliers, to understand consumer trends, to understand the connection between the whole ecosystem we are building, and will allow us to build better services, better products, better pricing for the customers by understanding the consumer trends. So this will unlock a lot of value into the future. It's important to say we just started; this started three months ago, so we're still in the early stages. So the benefits is gonna be very important into the future.
But already started with 28 million customers joining the program and hundreds of thousands of customers joining the program every single day, give us a lot of confidence that all the insights we will get in the future will add a lot of value to our business.
Just maybe, just to build, if I may, Alejandro, to your question on the flywheel. Ultimately, it needs to translate, of course, to incremental sales, Alejandro. That's also the reason why we're doing it, and of course, those incremental sales will come from higher tickets and increased frequency for customers that will be part of this program. As Ignacio said, they are off to a very good start. And it's been easy to get the traction because it's only about giving the mobile number.
And the other thing that we can build on this is, we start to know a lot more about the customer, when a customer joins Bait, for example, or how the frequency of purchase going to a store increase or not, and if they're using cash or not. So we start to interconnect our customers between the whole ecosystem. That's another powerful part of this.
If I can add, we already started doing some use cases with some suppliers to start to test this, and this allows us to have better commercial activities with our consumers and be more targeted. And I think it also eventually, thinking about the flywheel, it will help with advertising and connect. So I guess that's part of unlocking the whole value of the ecosystem in different ways.
Muchas gracias, Ignacio, Paulo, Dolores.
Pleasure.
Thank you very much for your question. Our next question is from Mr. Antonio Hernández from Actinver. Please go ahead.
Hi, good afternoon. Hi, hope all is well. Just a quick one regarding Bodega Aurrerá and overall performance and competition. You mentioned overall the competitive environment, which has been harsh as in the industry. But if you could provide a little bit more light specifically on that segment and also from a regional perspective. Thanks.
Yeah. So talking a little bit about Bodega, first, we have to take into account that last year we had very high basis, Bodega being the highest growth format that we had last year. Second, when we talk about traffic, what we saw is, as we mentioned before, a lower consumer demand. And Ignacio already mentioned that the summer season this year was very promotional, right? So one of the things that we have been doing to connect with that is investing in unit pricing. One of the things we've realized with the Bodega customer is not only thinking about having the lowest prices, but having the prices that our customer can afford. So we have been investing a lot in going to the unit pricing, investing in increasing our competitiveness.
T hose are the things that we think will help accelerate again the growth in Bodega. Regarding the competition, we keep investing in this format. Bodega is our vehicle for growth. We keep opening stores, and the Bodega Aurrerá Express, which is our proximity format. We keep opening stores, keep increasing our market share, and we'll see those as bigger for growth in this competitive environment.
Perfect. Thanks a lot, have a nice day .
Thank you very much for your question. Our next question is from Mr. Ulises Argote from Santander, please go ahead.
Hi, everyone. Thanks so much for the space for questions. I had just one quick question. So on your remarks from the webcast yesterday, you mentioned kind of some initiatives there that you were looking to implement to accelerate traffic growth. So I was wondering if you could give us a bit more color on that, maybe to the extent that you can, obviously, and in which format maybe you had the biggest impact around those traffic trends. Maybe tied to that, if you can just comment if you're already seeing some sequential improvement in traffic, maybe just normal dynamics or maybe some of these initiatives. Thank you.
Yes, I would start with talking about some of the biggest initiatives. One is regarding the high and lows in the market that we have managed, that we have seen during the summer season, so one of the things we are doing is investing in price to make sure we have the best competitive price in the units, right, so we know our customers prefer to buy only one unit instead of four or three because of the affordability, so we are making these plans. We started one month ago already, and we start to see the first numbers of increase in traffic in these programs that we're putting in place to invest in unit price, and the other activities that we are doing and initiatives is regarding the proximity, so investing in our Bodega Aurrerá Express to make sure we get all the traffic.
We have seen increases in the proximity market now in Mexico, to make sure we have the best prices and the best value proposition to compete in that space. And in another aspect that we have talked in the past regarding Walmart Express and the more premium stores and the clustering we have been doing, we have already invested in the past in experience, in fresh, and in more premium items. And we have seen in the past months already that the penetration of those premium items in the basket of our customers and the traffic in those formats, like Walmart Express, have been giving the first good indication that the customers are liking the new value proposition that we are putting in our supermarkets.
Gracias, Dolores. Very clear. Thank you.
Welcome.
Thank you very much for your question. Our next question is from Ms. Irma Sgarz from Goldman Sachs. Please go ahead.
Yes, thank you. I was just curious to drill down a little bit into the consumer demand comments that you made, and I think there was some comment also in the release that the inventory level that was a little bit higher than perhaps you had also wanted to finish the quarter at was related to some slower demand in certain categories. So I was wondering if you could characterize a little bit where you're seeing most of that weakness. Is that at the lower end of the consumer, and is it specifically in the discretionary categories? So if you could drill down into that a little bit more, and any comment obviously related to the inventories would also be appreciated. Thank you.
Yeah. Let me say a few things, and Ignacio and Dolores can build if needed. By the way, thanks, Irma, for the question. Yeah, so we're seeing the softening consumer demand, as you all know it, and you've seen across the market. Indeed, we're seeing a bit of the softening of the consumer demand more in the lower part of the pyramid, so there feel a bit more difficulties in the second half of the year, which we all know, and we've discussed this before with all of you, that, of course, post-elections, you tend to see less money pumping in the economy, and therefore driving growth in the market that will be lower. I think we all were expecting that H2 versus H1.
I think what we're seeing in the softening of consumer demand in this part of the pyramid is probably a bit more than what we've expected. Ignacio already alluded to that. I think the discretionary cost, you may have seen that our general merchandise, sorry, has grown pretty much in line with foods and consumables. It very much depends on categories here. We actually have seen the electronics categories, where we tend to be very strong, particularly the mobiles and the laptops, to some extent, a few here and there, a few others, have been categories that there's not been as growing as they've done in the past. And as you know, we still are somewhat dependent on some of these categories. So this is something that we've seen.
That, but we still expect a strong Q4 season and Buen Fin Irresistible. We're still positive about that. As you know, the customers are more and more savvy, and they are waiting for the big season to do these big shopping baskets or items, so to speak. So I think that's something that we are confident in and connects with what Ignacio said at the outset of this call, Irma. So we take hope, we take a positive from that.
Yeah, let me just complete that, we saw at the same time elections, the change in consumer trends, and then the change in exchange rates. And that has affected pretty fast on certain type of items where we tend to lead, high-ticket items, where we tend to lead. So that generated a little bit of a contraction in demand, especially in e-commerce, where we overrepresent those categories in our e-commerce offering. So all of that got together in the same quarter. Yeah.
Yeah, makes a lot of sense. Thank you.
Thank you very much for your question. Our next question is from Ms. Viviana Vite from GBM. Please go ahead.
Hello, Vivian. Vivian, is this I? Let's move to the next one.
Our next question is from Ms. Renata Cabral from Citi. Please go ahead.
Hi, everyone.
Hello.
Thanks for taking my question. I have two here. The first one about the private brands. I saw that in the quarter, the variation in private brands was negative and also in the last nine months. And I was expecting, especially in this quarter, that we are seeing economic slowdown across the board, not only for Walmex, that consumers might want more private brands, not lower number. So can you give us a sense why that happened? It's something strategically from Walmex, or it was from the part of the consumers? And the number two question would be in terms of the Walmart Express. I think Dolores already comment something about the, this format, but just to understand if the rollout was made for 100% of the stores already.
Renata, let me just take the beginning part of one comment you make, and I'll leave it to Dolores to give more the content of the response. Actually, not sure what you're referring to, where it was negative on private brands, Renata. Actually, we kept on increasing penetration of private brands. Actually, this quarter increased 50 basis points, the penetration of private brands. Increased 100 basis points in Sam's and 30 basis points in self-service, in line with our strategy. We can always do more, but we definitely have been increasing, and I will pass the baton to Dolores so that she gives a little bit more on the content of the things we're doing and the things that we still want to do going forward.
Yeah. Adding to what Paulo just mentioned and connected to your comment, yes, of course, the customer in this timing, they look for more private brands. So with everything, all the launches and the new products that we've done, we've seen that reaction from the consumers. We have increased fifty basis points overall, but when you go at some, look at some key categories like milk or toilet paper and so on, where private brands are really important, in those categories, you might have seen, like, increases of one hundred or two hundred basis points. So we keep consistent with our ambition to reach mid-twenties private brand penetration in our business. So we keep working on quality, we keep working on having the brand attractiveness with the consumers. We keep launching new products and innovation and renewing the image of our private brands.
So we keep consistent growth. We always want to do more. We can do more, but we are growing and the customer is responding well to that.
Oh, thank you so much. Just to follow up here, no, you make a lot of sense, and actually, I have not mentioned that I was referring to Central America, actually. For Mexico, make a lot of sense. Sorry.
Just connecting to Walmart Express and the second question you made, I mentioned some of the things that we've been doing and the initiatives we have planned. I could tell you that we have around 70%-80% of the whole plan that we have in place for Walmart Express. We're not there yet because there are some changes that are related to people, associates in the stores or infrastructure, so those are the ones coming later on. But what we have seen is that all the new products and premium items that we have included in these clusters and some of the learnings we have done in Walmart Express, probably we will replicate to other stores and Walmart Supercenters because they have been really successful. So good news there, still 20%-30% of the plan to be implemented regarding infrastructure and service in the stores.
Maybe just because you mentioned Central America, if it's that question, let me just say towards around that, Renata. So there, as you know, we have high penetration of private brands than we have overall in Mexico. We still want to increase the private penetration there as well. This particular quarter and recently, you've seen a little bit of a reduction of participation because in this, there's been promotional activity, very strong, particularly in Costa Rica from A brands, and that across the market, and of course, that's something that also we had to ensure that we had the lowest prices there, and therefore, there was a little bit of a change or trading between the private brands and A brands.
Strategically, the intention is the same, and we're doing a lot of the same things in Central America that we've been doing in Mexico, and we have just slightly high penetration there.
Thanks so much for the call. It makes a lot of sense.
You're welcome. Thank you, Renata.
Thank you very much for your question. Our next question is from Mr. Jorge Izquierdo from BTG Pactual. Please go ahead.
Hi, everyone. Thank you for the space for questions. A quick one from my side. Marketplace GMV grew 10%, but sellers increased 60% and SKUs 50%. Maybe if you could provide some color on what explains the difference, please. Thank you very much.
Yeah, great. One of the things we have mentioned, the ambition that we have to keep accelerating the growth in our digital business and our marketplace, that's what we are doing with, as you mentioned, we have increased a lot our assortment, we have increased a lot our sellers. Part of what we've seen as a slowdown during this quarter in marketplace has to do with what Ignacio mentioned and Paulo mentioned at the beginning. We have over-indexed in tech categories. We have seen a slowdown during this quarter, but what I could say is that we have invested in the basics, we have invested in technology and in the platforms to make sure we have the right service for the sellers and for the consumers in the future.
But the slowdown and the 10% that you see there has to do a lot with the categories where we over-index. We know we have a depth where we have to grow in developing the rest of the soft line categories and the long tail, in order to reach the growth and the ambition that we have. But that's the difference between assortment, sellers, and the growth that we see overall in the quarter.
Very clear. Thank you very much.
Thank you very much for your question. Our next question is from Ms. Irma Sgarz, from Goldman Sachs. Please go ahead.
Yeah, thanks, allowing me a follow-up question. I was curious, with the implementation of the Project Glass now pretty much, I think, finalized or in the final stages, I know there's more to do at the back end, and there's some exciting sort of system upgrades also from the Walmart technologies that you can leverage into 2025. But I was curious, when you sort of think about when we may start seeing sort of the benefits of that really materializing into growth, sort of like, just sort of to give us an idea and of timeline there. And also, in terms of the SG&A expenses that have pretty consistently grown in the last couple of quarters, I would imagine that's mostly related to a number of different initiatives.
You've always sort of pointed out three. With Glass, Project Glass now in, sort of in pretty much completed, should we expect those SG&A expenses to be a little bit softer in terms of the pressure going forward, or is that too far an extrapolation?
Yes, so as you know, migrating tech platforms is quite costly, it takes time, a lot of time and a lot of dedication. We're very happy that we finalized the front end part of the migration with Glass, and we started already migrating the back end part, where Marketplace is already migrated with what we call WCP, it's Walmart's Commerce Platform. Again, the vision with this is we're moving into exactly the same tech platform as in the U.S. So you will expect us in the following quarters and during next year to start seeing improvements in our usability and the functionalities of our technology. And basically, you can see the future if you go into the U.S. site or apps. So it's not a secret.
That's our roadmap. Things like unifying our hallway, for example. Today, in our app, when you get into our app, we will ask you if you wanna do groceries or you wanna do extended assortment. Those type of things will be eliminated, reducing one of the frictions we're having in our platforms right now. So we will keep investing in here. The job is not done yet, but we are much closer than before, and several milestones were completed during the third quarter. During fourth quarter, we turn to decelerate a little bit this, because we are focused on the season, and we don't want any disruption and lose of focus. And then Q1, we'll start again, accelerating all the migrations that are pending. In terms of cost, I will let Paulo give you a little bit more color on this.
Yeah, and I think just building on that, I think you'll see the full potential of all these things more towards the end of next year. Irma, to your point. I think on the expenses and the point you were making, yes, it's a relevant expense, Irma, but what you're just saying probably is a little bit of an extrapolation. So you see now that our SG&A is increasing by different areas that we've been investing, whether it's been on AVP, whether that's actually just the results of minimum wage salaries that you know, they've been increasing around 10% year on year. Also, the acceleration that we're doing with new stores, investment in the new stores and remodeling of the stores. I think a lot of that is there to say, because our strategy is a growth strategy, and our two, two... Sorry, it was a Zoom invitation.
That our strategy is a growth strategy, and our two key promises to the market is about our growth to the market and the fact that over that period, the next ten years, we want also to improve our returns. And that's also what we want to ensure that tends to happen. I think going forward, you should look for next year and going forward, where you probably can you will see a slowdown, and I alluded to that before, but also in the webcast, tends to be with the labor costs. With labor costs are not expected to grow any longer, around 20% year on year, in terms of minimum wage salaries. They probably will be hovering around 10% or so. So I think that will help in terms of what we'll see in terms of the growing the expenses.
At the same time, because it goes connected with that, that we've been building an ecosystem, that some of the, you see part of that reflect in the expenses, but you see a lot more than that contributing to the improvement of the gross margin. And there is an important, Irma, and all of you, that you actually look at the gross margin improvements in two different ways. One is that the contribution that we are there to see permanently from the new businesses, whether it's Connect, Bait or others, and that's that which is an advantage that we do, the other that we have versus the other competitors, certainly versus the brick-and-mortar competitors, which we can use to reinvest back in the business so or put it back into the P&L.
I think that's important also when we look at the gross margins improvements, because I think we need to look at our P&L in a slightly different manner than we have done in the past. Hope that helps, Irma.
Yeah, absolutely. Thank you.
You're welcome.
Thank you very much for your question. Our next question is from Mr. Andrew Ruben from Morgan Stanley. Please go ahead.
Apologies for the technical difficulties. Thanks for letting me back in the queue. I was hoping to dig in a bit further on pricing. So, we saw that the price perception gap narrowed, and I'd like to better understand. You've mentioned in the past how you see your price gaps. Is the price perception an issue of pricing, or is it marketing? Is it how consumers view your pricing? Trying to better understand the lever for how that can improve again, and maybe it relates, you know, Paulo, on the gross margin. We've seen the gross margin expand. Part of that is new business, but trying to understand how you think about just purely reinvesting back into price as a lever to drive gross profit. Thank you.
Let me just make one or two statements, and I'll pass the baton to Dolores to actually give you guys, again, a bit more content on the price perception. I think it's important to say, we've said it that in the previous live Q&A, we said it as well in the webcast script, our gross margins improvement is not done by jeopardizing our competitiveness in the market and our pricing competitiveness. It's not. Our DNA is clear, everyday low pricing. We want always to be the lowest prices in the market, as well. So I think that is important that you all get it, and that's why we always separated the way the construction that we have in terms of the gross margin improvement, Andrew.
I think price perception, there's lots of different KPIs across the different banners, but I, I pass now the baton to, to Dolores, that can tell you a little bit more about that, and if needed, we all can build.
Yeah. Y ou are right, when we talked about price perception, price gap is only one of the levers that drives that price perception. Oh, and connecting to this quarter and what we mentioned before is, like, the highs and lows during this summer season and the length and the depth of the discounts and promotions that we've seen this year, we haven't seen that in the past, right? So if you ask me today, it doesn't have to be only price gap, but the perception of the highs and lows and the discounts, and you know that we don't usually play that. We are everyday low prices, and that's the way we like to compete. That's our DNA.
So that, I think, impacted part of that price perception, that you saw it reduced the gap, but we think we will pretty much recover that price perception back again the way we want to play with everyday low prices, and we are not investing less in price gap. As I mentioned in a couple of questions back, we are investing more in price gap to win in proximity, to win in digital too, and to win with the unit price versus the high and lows that we see in the market. So our price gap keeps contact. We keep investing and improving our gross margin at the same time, and price perception has to do with the high and lows and the high intense summer season that we've seen.
Okay, that's very clear. Thank you both.
Thank you very much for your question. That was the last question. I will now hand over to Mr. Salvador Villaseñor for final comments.
Unless you have any other comment, we just want to thank you very much for attending the call, and we're open also always to any major requests that you will have on your end. See you next quarter.
Thank you, guys.
Thank you.
Thank you very much, for attending. Bye.
Walmex would like to thank you for participating in today's video conference. You may now disconnect.