Arca Continental SAB de CV
BMV:AC
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Arca Continental SAB de CV
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Good day, everyone, and welcome to today's Arca Continental Conference Call. [Operator Instructions] Please note that this call may be recorded. [Operator Instructions]
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 arcacontal.com in the Investor Relations section.
It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; and the Chief Commercial and Digital Officer, Mr. José 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.
And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So 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 the 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 5 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% of 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 3 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 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 2 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 continue 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 oat milk 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 3 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 my Coke year-to-date. Just in June, 74% of FSOP orders were processed through our B2B 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 U.S. 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 anticorruption 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.
And 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 to 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 and for the first 6 months of the year, consolidated revenues rose 16.5% and 50.2%, respectively, driven by a 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, [ 120 ] basis point dilution in the contribution margin was mostly due to the incremental cost of raw materials. For the 6-month period, gross profit grew 12.9% to MXN 44.3 billion when the gross margin was 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 on enhancing the value we create for our customers in Mexico and will 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 in effect July 1 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% and a 30 basis point 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 point 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 6 months of the year, EBITDA grew by 11%, yet represented a 70 basis point dilution, led by the above-stated pressures in the contribution margin. During the quarter, net income grew by 34.9%, [ 110 ] basis point expansion in net profit margin. For a 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 beneficiated by the operating income growth.
Continuing with the balance sheet. At the close of June, cash and equivalents reached MXN 30.2 billion, while dollar debt was MXN 50.2 billion, leading to a leverage ratio of 0.5x. 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 2 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 market, the bond obtained the lowest interest rate for 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 has 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.
And 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. And 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 2 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.
So 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.
And with that, I would like to open the call for questions. Operator, we are ready, please.
[Operator Instructions] Our first question will come from Marcella Recchia with Credit Suisse.
Emilio. Arturo. I have 2 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 improvement? 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. So my question is, if we could expect an upward revision to the guidance?
Thank you, Marcella. Let me take the -- your first question, and then I'll turn it over to Emilio to address your second point.
Well, yes, we have been working -- it is a continuous effort on efficiency in our organization throughout the last few years. And there's always a justification to make an additional effort to do that. So 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. So we also have capitalized on the lessons that we've learned throughout the integration of businesses and then during the pandemic, I think some of the learnings there of things that we really could adjust on a definitive basis after the pandemic will 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 cost level that we are working on. And 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 make our manufacturing more productive. And then the -- 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 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, many years ago. And we had -- there's the adaptation of that technology to improve dilution of carbon dioxide in beverages during the filling process. So 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.
So from like those projects, we have a long list that we continue to pursue and it's -- I would say, a mindset that it's not really that you reach an optimal level. You find the technologies, you find your processes and you optimize based on your scale as well. So we believe that is a continuous effort.
So we have very precise targets of what we want to 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 probably several MXN 100 million in this year. So it becomes significant once you add up all the projects.
So I'll turn it over to Emilio for the second part of your question.
Yes. Thank you, Arturo. Thank you, Marcella, for your question. Well, as you know, we have given a number between 6% to 8%, -- but thanks to all the initiatives and the pricing and all that, we were double-digit -- mid-double digit right now. We are not -- we haven't given a number, a specific number because the second half of the year will be with higher comps and volatility is still there, psychoeconomic situation. But we could say that we're going to be, for sure, on the double digits. Maybe between, I mean, low double-digit list. But we will maybe work in that number on the next quarter.
Our next question will come from Ben Theurer with Barclays.
Perfect. Thank you very much, and good morning, Emilio. Good morning, Arturo. Congrats on the results. The question for Arturo, 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 heat wave that's been impacting the region. And 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, how you work together with the authorities to really solve for the needs here given the scarcity of water that we're having in the region?
Yes. Thank you, Ben. Well, certainly, it's been a great quarter in terms of growth and a great month of June, as I mentioned, because even with the challenges and disruption of supply chains, we were able to reach 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. But we -- 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 worst scarcity situation is it's a big crisis in the northeast of Mexico. Also, it's worth mentioning that, that was the region where we have been growing the most recently. So -- the market is very solid. But we have been facing this challenge, and we have been supporting the government and the community to face the challenge. As you know, in the aggregate industries in the state would consume a small fraction of concession water, it's around 4%. But 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 that -- of the projects that we've collaborated with, it's more than 3x our concession water volume in the state of [ Monterrey also ].
So that's, for us, very, very important as we sustain our commitment to the community. We've rehabilitated 15 wells operated by the state. These not ours, these are state-owned wells and that supply the municipal drinking water infrastructure. And we've also signed temporarily some of our concession water to supply clean water to public infrastructure. So 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, I've been leading in terms of water use efficiency. Our efficiency indicator is around 1.5 liters of water per liter, which is -- it's something much better than the average of the industry. So in some -- we are convinced that all of these efforts in a coordinated manner between government and private sector, and the community is really the best route to move forward from the crisis and especially avoid other crisis in the future, we're also working on a longer-term solution.
Our next question will come from Bernardo [indiscernible] with Compass Bank.
Just a quick question related to the last one. So I just want to be clear. I mean it was very helpful. But -- so I mean, the President's comments regarding a potential piece of operations to save water in the North are not a worry. Is that correct? That will be my first question.
Yes. 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 solutions. So we're comfortable in that regard.
Perfect. And I have another question. We saw even bigger margin reduction in Mexico that we saw during the last quarter. Also, in general terms, there is still margin reduction. And where are you still seeing the biggest cost pressures? And where do you see the biggest cost pressures going forward? And just in addition to this one, will you continue with the pricing strategy towards the second half to mitigate this cost pressure environment?
Yes. Thank you, Bernardo. Yes, let me give you some general comments and maybe Emilio can expand.
In Mexico, while the biggest pressures come from raw materials, as you know, they continue to challenge our margins, and 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.
So -- but the most important way to mitigate that is precisely with our revenue management strategy or price increase at the end of March helped, then 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 have reported. So we're looking forward to continue to protect the margins as much as we can for the second half of the year. So we're going to continue to assess additional price increases and also optimize our discounts in the market.
Our next question will come from Thiago Bortoluci with Goldman Sachs.
Thanks for the presentation. Congrats on the results. We also have 2 questions. During the opening remarks, Emilio mentioned and updated agreement with Coke regarding concentrate prices. I'll just like to explore a little bit more what could be the implication for gross margin and COGS going forward, it's [indiscernible] term? And the second one is a broader view on the momentum in Argentina, right? Performance, especially volumes have been solid, but macro has been deteriorated from a very weak base rent. So given persistently high inflation, the FX depreciation, what are the latest trends you're seeing from a consumption point of view? And what could we expect from the region going forward? And those are the questions.
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 -- and well, this is aligned with our agreement with the Coca-Cola Company. As we've said, that has -- this agreement has many other elements aimed at investing together and strengthening our market. So 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. And we also take into account that we are recovering from a market that has not been performing as we had expected in the last few years. So now we've had 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. And even with that, we continue to grow. We've also accelerated the expansion of digital in Argentina in the traditional channel and that's very important. We have, I think, about 21,000 active customers that are ordering through digital platform.
So if you look at the categories, all the categories are growing and all the channels look very healthy. Traditional channel has grown 23% versus previous year. And this is a positive trend that has continued over time, also modern channels growing more than 20%. So we have mostly double-digit growth in every channel year-to-date, which is quite remarkable, we also have similar growth in all regions -- so growth is very consistent in 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. So we are looking to probably reach a level of -- in the market -- the volume in the market that's close to the highest that we've had in previous years. So we're very satisfied with that.
And 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, we're going to 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, and we've been able, as we've done in the past, to offset that increase to pricing and some other initiatives like promotion optimization. So we don't expect an impact on contribution margin. And the last thing that I would like to mention is that we don't expect any incident adjustments in the near term. So that's also important to consider.
Our next question will come from Sergio Matsumoto with Citibank.
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 in 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?
Yes, Sergio. Thanks for your question. That's very relevant. There's a clear connection with the agreement with the Coca-Cola Company to pursue these opportunities and evaluate potential growth across Latin America in categories that would complement our portfolio 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 and its on.
So it kind of covers 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. But we're already working as partners in analyzing these opportunities particularly beer and other alcoholic beverages. As you know, we have run a pilot in Ecuador for beer distribution, and we plan to do a similar pilots in the rest of Latin America.
Okay. Great. And if I may, another question. Could you comment on the state of the reopening in the U.S. and Mexico. In your prepared remarks, you've mentioned FSOP and immediate consumption and single-serve several times and -- just wondering if what you see today as a consumption occasions may have changed through the pandemic and any remaining opportunities with respect to the reopening?
Yes. Pepe, maybe you can give some details. But in general, I would say that the on-premise channel even though it's been growing, it's a very positive trend in all markets, including the U.S. and Mexico. Still has an upside because it's not fully recovered just based on a number of outlets and volume, as you compare that with the prepandemic levels, continues to be an opportunity. So I think that will be a summary of where we think it's -- there's still an upside and some of the occasions have changed, but the trend is very, very positive.
Yes. I think part what Arturo is saying, -- we've been growing -- we've grown 17% in the on-premise channel, but as Arturo said, it's still below pre-pandemic levels, but we're seeing month-over-month improvement. So -- so this is a positive tailwind for the next quarters.
And obviously, this has helped us, among other things, to boost our single-serve performance that affects positively the price mix. As consumers gain mobility, and they are looking for more convenient packets, packaging, we have captured this trend, for example, launching the 250 milliliters PET on refillable package in all our sparkling and stills portfolio and many other initiatives to capture these trends.
So 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.
Our next question will come from Isabella Simonato with Bank of America.
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? So if you could explore that in the U.S. and Mexico mainly how you guys are expecting a little bit in the midterm performance of mix of channels and packaging? And also, in light of this momentum for macro, I mean, we saw government in Mexico doing some changes that didn't properly affect you. But any expectation of another measure or something that we should monitor? Or do you think that -- what its analysis, what is going to be out there?
Yes. Thank you, Isabella. Well, with respect to the premise and the impact of the macro situation, we really have not seen that. I mean, we probably going to see some slowdown in the future, and we're going to be expecting maybe that growth that we've seen recently to come to more moderate levels. But 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. And 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 -- we're not even at 80% in that metric. There's still an upside, we believe, although certainly growth is going to normalize and in the second half of the year, but we haven't seen that impact so far. And with respect to Mexico, we always evaluate the many risks that we have operating in Mexico and in any other country, but we are not anticipating any regulatory measure at this point that we'll be specifically concerned.
Thank you. Our next question will come from Álvaro García with BTG.
Thanks for the space for questions. One clarification and one question. I was going to ask about Yomp! and sort of the digital space and how it's figured into this new concentrate agreement, but 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?
Yes.
Well, it's documents of segments and sections for the different aspects of our alliance, but at the end, it's a comprehensive agreement that we have with the Coca-Cola Company. That includes new opportunities in beverages, that includes a digital alliance, that includes also the relationship in terms of the economic model of the core business. So we view that as a single agreement, and it's all connected. I mean it's -- it can be separate. It's a unified contract or agreement, the relationship that we have.
Okay. I mean and just I wanted to ask about still beverages as well as 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 steel beverages? How defensive they are relative to your sparkling portfolio, the likes of Monster, the likes of BodyArmor or the likes of a few different still product relative to Colas?
Yes. Thank you, Álvaro. So we see huge opportunities in still beverages, huge opportunities for growth at 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, and we are working fast with the Coca-Cola Company to see potential reformulations, localization of ingredients and capture that volume. But the demand -- on the demand side, still be just are -- have a very healthy demand, and we see that continuing for the near future.
If you look at Latin America and the mix of still beverages and you compare that with more developed markets in our own market in the U.S., you can clearly see that opportunity and where this is moving.
Our next question will come from Luis Willard with GBM.
Congrats on the results. So it's just a quick one. In your opening remarks, you mentioned -- I hope I'm not wrong, is you had over 20% growth in supermarket volume and 10% in convenience in Mexico. So there's, of course, a component of the weather, but do you see this type of growth sustainable in the long run and can you share with us a bit more detail on this performance?
Yes. Thank you, Luis. Yes, we've seen -- and 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.
So convenience stores are going back to -- going back to pre-pandemic levels. Supermarkets are -- yes, are growing very healthy in the short term. But that is also something that is specific for this quarter and 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 yes, that we're seeing.
Yes. Absolutely. Perfect. And if I may, a quick follow-up on another topic. I mean, how do you feel on your revenue management strategy going forward, especially given the strength that we've seen in volumes 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 and we're leveraging these capabilities that we're building over time of segmentation of the brand price pack architecture. And very importantly, of management of discounts. So our strategy continues to be increased prices in line or above inflation.
Raw material inflation can be higher at some point. But again, we believe that raw material in the second half of the year will have a more favorable comparison. So we had some carryover and price from last year, especially in Mexico and the U.S. So in those 2 markets, which are main markets, we're growing our price at or above inflation, and 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.
And then we also have, in the case of the U.S., shifting volume to high profit per case packages as a strategy. And we have also the price increases. We have an off-cycle price increase plan in the U.S. for August. And as I mentioned, an additional price increase in Mexico that was implemented this month. So the objective continues to be the same and to grow prices in line with inflation.
Our next question will come from Camila Azevedo with UBS.
Good morning, everyone, and congrats on the results. We have a question on your view on sector consolidation. So you have a quite robust balance sheet, and sector valuations appear [ cycled ]. So just curious if you have been out there looking for something in the U.S. or elsewhere in LatAm?
Thank you, Camila. That's a very important question. We -- as you know, we've been open to analyzing attractive opportunities that could arise either from the current situation or in any of the other 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.
And 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 align ownership of the different companies and franchises to move into a deal. So I think at the end of the day, this economic story prevails, but you got to be patient and disciplined. And that's what we're trying to do.
If you look at the value that is -- that can be captured or unlocked from the current fragmentation of the franchise system across the Americas, I think that's tremendous. But it's -- again, you need to align more than just the economic models many times. So we're working on that as well. But we think that it's just a normal trend of the industry into more consolidation, just for looking at the number of bottlers that we have in Latin America and in the U.S. as well.
Our next question will come from Carlos Laboy with HSBC.
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 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, is this an LTRM 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. 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 we do, we actually connect strong brands with the customers and the consumers in a very effective way. And I would -- I see that not us 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. So that's what we are.
Historically, we've focused on first on sparkling beverages, then we transitioned to water, still beverages, so I think it's a natural expansion to go into other categories. But we have not -- we can see idea of which of those would make sense and in what combination. We might -- we have to analyze this by the building blocks of our go-to-market model. So 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. So there are a number of things that can be combined in many different ways. So 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.
So for some categories, order-taking might be as far as we can go. In other categories, I think it's going to be very similar to what we do with Coca-Cola. And this is an experimentation that's been going on in our system for maybe 15 years since we have Del Valle in the operation. And we're going to continue to do that. And the good thing now is that the Coca-Cola Company has an open mind to explore that as well. We're going to share the profits, but it's an open mind that did not exist years back. So that's where we stand at this point. The agreement is a precondition to do that. The new LTRM is not signed yet by us, but we're pretty much aligned on the concepts. It's just a matter of the drafting and logistics. That agreement is going to be similar to the other bottlers for Latin America. We have obviously a different relationship in the U.S. And this is also very much aligned what we had in Mexico and they were agreed in 2016 in terms of the economic model for Mexico.
So we can expand that to South America with adjustments that I think are positive and good for us as a bottler. And we're going to include these other aspects and the agreement that cover other categories and digital as well.
Are you currently operating under different incidence price adjustment arrangement in Mexico and Argentina than Coca-Cola FEMSA?
Yes. 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 going to be all aligned in the same model going forward.
Our next question will come from Felipe Ucros with Scotiabank.
Thanks for the taking 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 for commodities going up that eventually, it's going to come, and we've had a little bit of that over the last 1.5 months, but still historically high prices. But let's assume that over the next 2 to 3 years, commodities start coming down, start normalizing to the averages we had before the pandemic. How do you think about pricing on the way down? And how do you think about revenue growth in an specifically price pack architecture where you've given 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 intend to keep everything gained on those fronts? How do you strategically think about that?
Yes. 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, raw materials have increased much more than our prices in most of our markets. So it's a different methodology, quite sophisticated based on a competitive environment, on opportunities, on elasticity, on segmentation as well. So we're going to 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.
So the model actually addresses our share market, our growth expectations, our development in certain categories and also how well we can segment the market and growth of particular channels. So the management of promotions, for example, I think that is completely separate from the raw materials environment. It's an analytical tool of 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. So I think that's going to -- we're going to continue to refine those capabilities independently from the raw material environment.
So 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?
Again, I go back, it depends on the competitive environment. Yes. But certainly, if you talk about raw materials by themselves, I think the pressure certainly is going to ease in the second half of the year, as Emilio explained and we're going to see a more favorable comparison. But again, pricing has to take into consideration some of the factors.
And Felipe, just to your question, if the competitive environment is that, 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 costing less determinant in the channels is to increase promotional activity that at the end is what generates the whole price. But -- so we would first increase promotional activity. And if we have to adjust prices down, we will do it. And as Arturo said, it will depend on a balanced equation between market share, between growth, between opportunities and volume.
Okay. Now that's very clear on how you think about it on the way down. And then let me ask you a follow-up on the pilots, and that's maybe a little more for you, Pepe. But you've announced a few pilots over the years. I'm just wondering if you could give us an update on a couple of these, specifically interested on the returnables pilot in El Paso. And then on Yomp!, you've been talking a little bit about digital B2B outside of Mexico. And I just wonder how much of that intersect 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 has already been kind of experimented on in Latin America or the digital B2B that you guys mentioned in those countries is mostly focused on your portfolio at this point?
Thanks, Felipe. So let's try to do this in part. Regarding the pilots and 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, 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 and the most important thing is that as a system, we are learning from what every bottler is doing. They are not very dependent 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 have -- we are still working on which is the share of wallet that we want to have or that can maximize a relationship with the customers and our profit what are synergies in the warehousing and which product should be in trucks or not. FEMSA is trying something, we are trying something, Andina is trying other things. So we are all learning of what every other one of us is doing.
And with respect to returnables in the U.S., just to mention, Felipe, that this is a long-term initiative and we're the first stages. We -- this is just about 125 customers, some in home market and some of the on-premise market. So the early adoption numbers are very promising for both customers. There are a number of things that we need to figure out if we want to expand this further. But this is an interesting project and interesting learning so far. So we are using this opportunity as an exploration of this possibility for the U.S. market in the future.
Okay. That's very clear. Thanks for the update.
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 want to 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.