2023-10-25 16:35:02 ET
Alsea, S.A.B. de C.V. (ALSSF)
Q3 2023 Earnings Conference Call
October 25, 2023 12:00 PM ET
Company Participants
Nicolás Espinoza – Investor Relations
Armando Torrado – Chief Executive Officer
Rafael Contreras – Chief Financial Officer
Conference Call Participants
Rodrigo Alcántara – UBS
Ulises Argote – JPMorgan
Alvaro García – BTG Pactual
Ben Theurer – Barclays
Alan Alanis – Banco Santander
Fernando Herrera – Compass Group
Thiago Bortoluci – Goldman Sachs
Presentation
Nicolás Espinoza
Good morning, everyone. And welcome to Alsea’s Third Quarter 2023 Earnings Video Conference. My name is Nicolás Espinoza from Alsea’s IR team. And today, our Chief Executive Officer, Armando Torrado; and our Chief Financial Officer, Rafael Contreras will be presenting the quarter results.
Now, I would like to hand it over to Armando for his initial remarks. Please, Armando go ahead.
Armando Torrado
Thank you, Nicolás. Good morning. Good morning everyone, and thank you for joining our third quarter 2023 earnings video conference. I’m pleased to present Alsea latest financial results, provide insights into regional and brand performance, and discuss the main highlights for the quarter.
Overall, we deliver strong sales performance across all the company’s brands this quarter and it’s clear that our commercial strategies, product innovations and our digital strategy has again solid results. Specially, we reported an 8.8% year-over-year increase in total sales reaching MXN18.6 billion pre-IFRS or an 18.5% increase when excluding the impact of peso appreciation.
Same-store sales also saw a substantial 17.3% year-over-year increase reflecting continued customer loyal across all regions and brands. EBITDA pre-IFRS grew by an impressive 24.6%, totally MXN2.6 billion for the quarter with a 14% margin way above our guidance. Post-IFRS EBITDA grew by a still strong 30% to MXN3.5 billion for the quarter with a margin of 20.2%. We serve over 12.1 million orders by home delivery in the quarter amounting at MXN3 billion sales. Home delivery sales accounted now for 16.1% of our total sales.
Regarding our brands, Starbucks reported an impressive year-over-year same-store sales growth of 24.9%. In Mexico, same-store sales increased 26.5% year-over-year. Europe a 13.1% and South America reached a 35.7%, and excluding Argentina 6.8%. Domino’s Pizza posted a solid sales in Mexico and Spain with an increase of 8.1% and 3% respectively. We are pleased to see that our range of commercial strategies had an effective contribute to boost our total sales in the pizza sector.
Regarding Burger King, in Mexico, we had another overall successful quarter with sales increase of 9.6%. We are focused here on expanding the national rollout of our digital kiosks, which have proven to increase the average ticket by a double-digit number.
Our global restaurant business, excluding Vips Mexico also reported a solid quarter with same-store sales of 8.8%. Regarding Vips Mexico, it continues with a strong same-store sales performance reporting an 11.3% year-over-year increase with guests of 9.5%. Regarding Vips, it’s been improving in store experience and product diversify, we will remain very focused on the product and experience with our customers. We started the first overall celebration with a remarkable that will be a remarkable year.
Vips next year will have a 60 years in Mexico. We’ll celebrate their 60 years in Mexico and we will have several events to celebrate with guests and our Vipster [ph] members along this year. In Vips Mexico, we increased the brand profitability based on remodeled stores, during this year we are remodeling 30 units reaching 177 stores remodeled of a total of 238. With this improvement, we have increased the average weekly unit sales in 15% compared to the same-store sales before remodeling.
Going further with the strategy of Vips Mexico, we are working on major improvements. For example, in cost as a percentage of sales, we decrease 100 basis points and in terms of menu efficiency, we are focused on best selling products as part of the strategy. We took out 17 items regarding to perform this food cost in the brand.
We will continue developing strategies in order to make our guests have the best experience possible. Continuing with our global business, regarding our organic expansion strategy, we have opened 30 corporate restaurants and 25 franchises. As always focuses on the most profitable ones, and the high growth opportunities. Additionally, we have placed special emphasis on the drive-through format in Starbucks Mexico with a total of 185 drive-through units in the country, which has shown a 30% increase in sales comparing to the standard format. In line with our digital transformation strategy, our loyalty sales grow 28.7% versus last year reaching a MXN3.5 billion at the end of 3Q of 2023. This represents 19% of share of the total sales.
Regarding Starbucks Reward program starts for everyone. That was launched in Spain, France and Portugal. In last quarter, we had more than 280,000 new members that joined our programs. That it's also happened with a 10% in tender in average. In Starbucks Mexico Rewards tender, the Starbucks Mexico Rewards tender has 28% now and we expected to grow the tender also in Europe in these levels.
Regarding ESG, during the third quarter of 2023, we continue to sponsor significant environment and social initiatives in the line with objectives of our ESG model. In our fight against food waste, we expanded our partnership by placing new brands on that Too Good To Go app in Alsea Europe. This app allow us to maximize product sales during the final hours of stores operation to prevent waste. Through this partnership we have sold over 66,000 food packages this year while avoiding 174 tons of CO2 emissions.
In a collaborative effort with the Planet Water Foundation, Alsea South America has provided clean and safe drinking water to the community of Cáqueza in Bogotá, Colombia, through our new water tower. This completes the two existing towers provided by Alsea in Puebla and Veracruz, Mexico and established the first of its kind in South America. The Éxito Foundation has honored Alsea Foundation with a Child Nutrition Award in the business category, recognizing our dedication to the protection and promotion of food security and child nutrition in Colombia.
In line with our commitment to inclusion and accessibility, we have begun the countrywide introduction of Braille menus for the blind and visually impaired of all the Mexican brands. We anticipate that the compilation [ph] initiative will be ready in early 2024.
I am very pleased with our year-to-date results. The effective execution of our commercial strategies and our commitment to innovation supported by a solid consumption moment has paid off, with all the main regions and brands performing well. I remain optimistic about the company's outlook with our brand-strong position in the marketplace, our logistical, operational and financial strengths, and as a decisive competitive advantage. And of course, our team with more than 76,000 team members across 12 countries providing their excellence day in and day out.
Now, I will hand over to Rafael so we can give you more detailed overview of our brands, regions, results and balance sheet items.
Thank you very much.
Rafael Contreras
Thank you, Armando. Good morning, everyone.
As Armando mentioned, all the Alsea team members are pleased with Alsea's performance as quarterly sales increased 8.8% on a pre-IFRS basis year-over-year, driven by a positive trend in all regions. Costs were down 20 basis points versus last year, and EBITDA pre-IFRS 24.6% to MXN2.6 billion.
In Mexico, sales were up 17.8% to MXN9.9 billion, and adjusted EBITDA was up 20.7% pre-IFRS to MXN2.2 billion. This improvement was driven by robust consumption trends and effective expenses management. Also, the growth in sales help us improve our operating leverage, and the appreciation of the Mexican peso help us cut costs by 40 basis points for sales.
In Europe, sales increased by 3.7% to MXN5.6 billion, or by 14.1% in euro terms. Adjusted EBITDA increased by 46.8% pre-IFRS to MXN884 million and in euros by 62.3%. This sales boost was mainly attributed to the successfully execution of promotional and effective television advertising and product innovation. The stabilization of energy cost and the decrease in some raw material cost has also contributed positively to our results. While the summer seasons also helped bring double-digit growth in the cafeteria and casual dining segments.
South America sales decreased 6.1% to MXN3 billion, mainly impacted by a strong devaluation in the Argentine peso with a same-store sales increase of 41.4% and adjusted EBITDA pre-IFRS increasing 0.5% to MXN613 million.
Our net income pre-IFRS for the third quarter increased 60.5% to MXN540 million year-over-year, driven by the increase in sales and EBITDA. In the third quarter of the year, we posted a pre-IFRS earnings per share of MXN2.8, including IFRS earnings per share rose to MXN2.5, with an increase of 31.4% year-over-year.
In terms of our investments, the total CapEx year-to-date amounted to MXN3 billion. We allocate 30% of this amount to maintenance and 50% to store openings and remodeling, and the rest of the 20% for IT and other strategic projects.
In the last 12 months, we made amortization payments of MXN1,026 million. Our pre-IFRS gross debt decreased MXN1.3 billion year-over-year, closing at MXN26.5 billion at the end of the quarter. This reduction in debt corresponds mainly to the devaluation of the euro against the Mexican peso and debt amortization during the period. During this quarter, we refinanced the euro banking loans of €229 million ending in 2026 with a firewall condition of extending for two more years the amortizations of the credit after the Eurobond refinance.
Our pre-IFRS 16 gross debt to EBITDA ratio at the end of the quarter was 2.6 times and EBITDA to interest paid at 3.6 times. The debt structure at the end of the quarter was 92 long-term, with 64% in Mexican pesos and 36% in euros.
So we can go now to the Q&A session.
Armando Torrado
Thank you.
Question-and-Answer Session
Operator
We will now start the Q&A session. [Operator Instructions] The first question is from Mr. Rodrigo Alcántara from UBS. Please go ahead.
Rodrigo Alcántara
Hi, good morning. Good afternoon. Thanks for taking my question. Hi Armando, Rafael, Nicolás, nice to see you there. So, well I was on Vips, maybe, Armando, if you can explain us better, I mean, how impressive the reduction that you have achieved there on the cork [ph] side, if you can comment us better, how you have achieved that? And is it fair to think about that as a function of the remodelings, therefore, the high remodelings, the higher profitability of Vips, would that be the correct grief?
And the second one would be on Starbucks, right? I mean, impressive to keep seeing Mexican same-store sales of such digits. So, just curious if you can comment on this quarter, which commercial initiatives gave you this uplift in sales, right? To understand what drove this, and for next year, which commercial strategies could give you the next uplift for sales? Right? I mean, in the context of we know how the baking store program was an uplift for you guys, right? Then the drive throughs, maybe you can give us an example of other uplifts that are helping you to maintain such impressive momentum on Starbucks. Those would be my two questions. Thank you very much.
Armando Torrado
Okay. Congrats, Rodrigo. There are actually three questions. Let me answer you a little bit of three ones. First, about the Vips I mean, as I told you when I saw you, we are very focused in that brand. I think that brand actually yesterday, where Head of Vips [indiscernible] just gave an update to the board, a 20 minutes update about where we stand and how we’ve been doing these impressive numbers. And we’ve been working very highly with our distribution center, with all our vendors. In order to keep the very food cost, as you said, we put 17 items back. We just focus in the items that are really represent 80% of the sales.
We since the beginning of the year, we try to not increase the price of the menu veldia [ph] that is really the focus in that business, 20% of our sales side. But menu of the day, that is really the anchor of the brand. That’s what make us makes the traffic and then we uplift with the suggesting sales for every customer. No, we’ve been in TV. The brand wasn’t in TV the last three years. We’ve been in national TV for promotions. Just September was the best season ever. We sold 280,000 Chiles en nogada for one week making a 2.1. Just making convenience for the consumer.
So I think the brand is just having a great momentum now. The next weeks, 10 more weeks to come. Things are looked very wealth too not only in [indiscernible], but only in the labor cost. So I mean we still momentum to go in 2019. We have the number is very fresh right now, but we had a 20% EBITDA unit level for that unit. We are in 17% now. So we have 300 basis point more to go, and I think we can achieve that. That remodelation of the stores have been a great achievement. It’s given us a return of investment of a 15% to 20%. I also have good news for next quarter, but there’s going to be some stores that are going to be franchised already for third parties, stores that are not performing well or stores that are really very far from us from the way we operate.
So that also would uplift the margin in that Vips in Mexico. As you know, Vips Spain is also performed very well. So I’m excited about that. Regarding Starbucks, I mean, we are capitalizing all the drive-through openings that we told you all the openings that we’ve been having in Mexico are above expectation, above seismital package. That drive-throughs is 30% higher volumes so that and with better margins paying rents of 4% to 5%. The brand has about 8% or 9% average.
So all the drive-throughs really that we open just when we see the rent and economics are fantastic. We do have innovation still with the highest prime point. As you know the pumpkin latte that also went 20 years in the states, it goes 10 years here in Mexico. We had increase of a pumpkin latte 22% higher than the third quarter of 2022. Also we’ve been having a good momentum with Agos [ph] still the summer there is a food increase of 31% higher ticket and that higher ticket is not driving by price, it’s driving by an increase in second items.
So we are great there. Cold drinks right now represent 48% of our mix. So that has a better ticket average. So I think we are working also in IT. Regarding with speed of service, we are measuring all the speed of service that we do in the drive-throughs in all the stores. We are putting better at POS systems, new POS systems, better communication systems, changing the credit card tools to gaining better momentum. And that also comes again with a job with a rotation on turnover with our partners. We have a record 39.5 turnover in that unit. So that makes a very solid experience with the partners.
Regarding next year, I mean I’m agree with you. We have very big top things to go next year. But I think we have the SDS. SDS will be installed next year, bundle two. That will give us a lot a better loyalty performance for starts for everybody. We are working there in the loyalty. We are already having an implementation of our food program for next year. There look very good with Europastry and other vendors. We’re working with some improvements in food that are going to be great. And also in beverage with Starbucks Corporation, there’s some new products that are coming next year. So, I see the future with the clear skies and hopefully we can still gain in this momentum of increasing of orders. That is important.
Rodrigo Alcántara
I see. Very complete answer. Thank you very much Armando. Nice to see you guys again.
Armando Torrado
Thank you.
Operator
Thank you very much for your question. Our next question is from Ulises Argote from JPMorgan. Please go ahead.
Ulises Argote
Hi guys. Thanks very much for the space for questions here. So just a quick one and a follow up, maybe two trends that we heard from you guys at the start of the year. So you mentioned in the Investor Day that you were kind of looking to consolidate the portfolio a little bit, maybe sell some of the brands that were underperforming or that were not at the core of the strategy. So just wanted to get an update from you guys as to where we stand there, if there’s anything on deck that we could be expecting? Thank you.
Armando Torrado
I mean, you saw this year we do the Mexican concept that we already pull out of our company. We don’t operate more. The CPK also is out. We did also the Mexican. We did also OleMole is out. And we are in advanced conversations with the TGI Friday 11,12 stores that we hit in Spain. We also are doing looking for some casual dining in Latin America where we only have seven restaurants in Chile to disincorporate for the group. But that’s what we are focusing. We’re going to still focus in that and just focus in the brands that really are core and making us a better return of investment in the portfolio.
Ulises Argote
Okay, no, that’s super clear. And then the other question that I had was regarding the European operations. You have that option upcoming with Bain Capital for I think it’s October of 24th. So just wanted to get like an update on where do we stand there and what can we expect and how that fits in the overall capital allocation strategy. Maybe if discussions on dividends are still there present for 2024 given this potential cash that you will need to be spending on this.
Rafael Contreras
Yes, in terms of the call option that we have with Bain, it’s in October 2024. We would like to go for it and buy back that 10.5% of Alsea, Europe. As I mentioned previously, the amount, it’s around €110 million. We will need some bank credit to pay that amount. And in terms of dividends, yes, we would like also to go back and pay some dividends next year. The amount we will see in the annual meeting that we will have, but as we would like to go back to the same amount that we used to pay it in terms of dividends next year.
Ulises Argote
Okay, perfect. Thank you very much. Super clear.
Operator
Thank you very much for your question. Our next question is from Mr. Alvaro García from BTG Pactual. Please go ahead.
Alvaro García
Hi gentlemen. Thanks for the space for questions. A couple on my end. Rafael, the first one is a housekeeping item on the MXN85 million impact from Argentina. How many quarters does that provision sort of reflect?
Rafael Contreras
Yes, in terms of Argentina, this is a new tax that it mentioned, Argentinian tax. It’s 25% of all the services and 7.5% of all the product. And it’s when you buy the U.S. dollars to pay that product or that service. We made a provision, because in Argentina we couldn’t pay some royalties and some products, because we can’t pay US dollars as easy as some years ago. So we provision that amount for all the 10 months in average of royalties that we own to Starbucks and Burger King.
Alvaro García
For this year?
Rafael Contreras
It’s for this year, it’s a one timer because all the royalty is that we have that debt. But we will have to pay this 25% every time that we have to pay some U.S. dollars in Argentina.
Alvaro García
Awesome. Great.
Armando Torrado
Alvaro, we are here waiting. As you know, in two weeks we will have the second round of elections and then the 10 of December, 11 on December, the new president coming, we will see what will be the economical package for the country regarding taxes, regarding everything that goes away. So we have more clear our path for next year in order to see what is going to be the effects of all these impacts in taxes.
Alvaro García
Awesome. That makes a lot of sense. And then just one on Mexico, on Domino’s. I was just wondering if you can maybe provide an update on competition versus Little Caesars and the outlook into next year for Domino’s in Mexico? Thank you.
Armando Torrado
For regarding Domino’s, I think, as I told you, we did a good evolution in sales regarding the carry out business, the counter business, that’s where we are gaining some share. Just to tell you, we did about four points regarding sales from last quarter. In last year three – 2022, we did 35.5% in carry out sales in this quarter, we do almost 39%. So we are just fighting there with a carry out business, doing an incredible number there. In same stores, we had also an effect of same-store sales regarding some other promotion that we did last year where we are implementing some other I mean good promotions.
In September we did a Domino’s Pizza, Domino’s Mania, all types of pizza, 189 and we did an increase of sales of 29% versus the last one that we did in June. We increased orders in 6.5 times compared to June and actually the nine of this month we’re going to do again this kind of promotion. So, I think that the business is performing very strong, also helping, of course, by a solid consumption moment that is in this region in Mexico, the minimum wage increase also is helping and there’s this new profit sharing scenario that is also in the pockets of the consumer. And also, I think all these things are helping us to reach better sales and not only in Starbucks, also in Domino’s and I will say in the casual business and also in Vips now.
Alvaro García
Great, thank you Armando. Thank you, Rafael.
Armando Torrado
Gracias.
Operator
Thank you very much for your question. Our next question is from Mr. Alan Alanis from Banco Santander. Please go ahead.
Nicolás Espinoza
I think you’re on mute. Okay. Yep. No.
Armando Torrado
No, we can’t hear you yet.
Unidentified Analyst
No?
Armando Torrado
No. We can’t hear you.
Nicolás Espinoza
Sorry, Alan, we can’t hear you. But if you are okay, we’re going to take another question right now and we can try again. If you want to set your audio settings or you can send us by email and we’ll be glad to answer it right now.
Operator
Our next question is from Mr. Ben Theurer from Barclays. Please go ahead.
Ben Theurer
Hey, good morning. Does that work?
Armando Torrado
Yes.
Ben Theurer
Fantastic. I was already scared, because Alan couldn’t get through. Anyway, it’s a two-fold question, so obviously one thing I wanted to understand is, how you see Alsea going forward from a capital allocation perspective? Where do you think investment needs to be done? Is it more towards still opening stores to get the penetration higher in certain areas? Is it on the other hand, investments into loyalty programs on some of the other banners? Aside from what is very strong already with obviously Domino’s and Starbucks, where do you think the balance is going to be from a capital allocation perspective? Tech versus store? Or online versus offline, if you want to call it that way? That would be my first question.
Rafael Contreras
Going forward, what we are seeing is that we are growing still growing organically and as we mentioned, we can open 200, 220 new units, mainly Starbucks and Domino’s Pizza. 75% of that amount of number will be in Starbucks and Domino’s because the market holding capacity that we have and the opportunity that we have in different geographies that will be around 40% of the total CapEx of the year. In terms of the total CapEx, it’s going to be around 6% to 7% in terms of percentage of sales. So 40% will be openings.
Then we’re going to still put a lot of view in terms of maintenance and remodeling. So another – I will say another 35% to 40% will be that part, and the other 20% will be in terms of IT and strategic projects. Next year, as Armando mentioned, we’re going to implement SDS, Starbucks Digital Solution in Mexico and South America, the total amount of that investment will be around MXN300 million. And we’re still investing in Ole [ph] we’re going to end the Ole in Mexico we’re going to implement the U.S. cloud app for Domino’s Pizza. And we are still with some investment in all the digital parts.
Armando Torrado
Yes, and I think that digital – all the digital concept doesn’t need really a big, big amount, because it’s only a CapEx regarding the hardware, all those venues and all the product, the software, everything is just made in the U.S. And actually yesterday that we had a call with the Starbucks USA. They are the ones that are investing completely in the platform. We are just implementing that platform same in the U.S. we are bringing actually, you will see that number in the OpEx, you will see in the CapEx. We pay a monthly fee per brand per store, and that will give us the whole updates and the new versions of the whole platform. Digital inbound and outbound.
Now, I will say these also platforms are created for better administrative efficiency in the manager side inventories, what is scheduling for people, what is opening and closing the store. Be ready to put a better order to our commissary so all that comes together so we can dedicate more time to the customer and less to the administrative part of the business.
Ben Theurer
Okay, perfect. And then just one quick follow up on Europe. Just wanted to understand how you feel about the consumer in Europe in particular. Do you see any down trading trends? Anything to just be aware of? Because obviously the geopolitical situation and some of the inflation in Europe still very elevated. And maybe the consumers aren’t that used to high inflation for longer in contrast to Latin America. So just wanted to get your view from off the ground.
Armando Torrado
Actually, we had a very solid number in the quarter, because the summer for us was a lot better than the past two or three. I mean, we remain August, August was a very solid number. Still, the first two weeks of September was solid. No, we actually I have the numbers for inflation and inflation right now in Europe for us, in our internal, I’ll say a number is 6.2%, and it will go down to 2.5% by December rolling 12 months.
Now, I want to talk about raw materials in all the company. We are already doing the budget ahead for 2024, and we are looking, but good news, just two or three items there in the sauce probably a pizza and two other others, but nothing that was really scarce regarding raw materials for the next amount. Also, as you know, the average cost in Europe went down dramatically from 2022. It was almost €300 megawide. Now we’re paying €107 [ph], so they decrease a lot. Europe has injected a lot of capital in new energy, so I think that is not going to be an issue. And energy, just is a cost that reflects in all the houses, hassles of our consumers. So, I think we don’t see any standby. So things are going that we see a strong solid number to close the year, to close the next to tenth weeks of sales that we will have that.
Rafael Contreras
Also to compliment Armando, Ben, when we see by format the participation and the same-store sales, we’re noticing that the casual dining brands are even performing better than the QSR. So that gives us the outlook that down trading is not happening yet in Europe.
Ben Theurer
Okay, perfect. Thank you very much.
Armando Torrado
Thank you very much.
Operator
Thank you very much for your question. Our next question is from Mr. Alan Alanis from Banco Santander. Please go ahead.
Alan Alanis
Let’s try it now. Can you hear me?
Armando Torrado
Yes.
Nicolás Espinoza
Yes, we can hear you.
Alan Alanis
Sorry about that. My bad luck. Well, first of all, Armando, Rafael, Nicolás, congratulations for the results and thanks for taking my questions. Very impressive. A couple of questions. The first one regarding labor costs in Mexico and Europe, are you seeing any additional pressures on labor costs on the back of the very tight labor market that we’re seeing in Mexico and any change in the turnover of labor? And that’s the first question.
The second question is more strategic as new CEO, and the relationship with your key partners, with Starbucks and with Domino’s, I mean, you must be like the best operator of Starbucks and Domino’s or one of the best in the world. How do you see that evolution going forward? What are the opportunities and the challenges that it poses? And when do you have to renegotiate terms with your partners.
Rafael Contreras
Regarding labor, of course, I mean, this year has gone. I think, Alan, this year the numbers are there. Things are not going to change. There is no loss that against us. But, yes, again, January 1 of next year, we expect at least a 20% increase on the labor in a minimum wage. We are budgeting 22%, MXN30 million for Mexico every point. So we have it very clear, but we’ve been with this deal or with this thing the last four years of this administration, so we know how to handle only 30% of our staff earns minimum wage, because those ones are the bps [ph] are waiters and casual waiters and some of the drivers of Domino’s Pizza.
So we know how to handle that, and I’m not scared about that. We cannot lose any margin. So we need to work in other details of the P&L in order to achieve. Yes, regarding the new law that is not passed yet, but it’s been talking in the press regarding the 48 hours of work. Regarding the 40 that is going to be done in April if it passes by, we are aware of that. That’s a strong impact. We already operate with 40 hours in South America and some others in Europe. So we are used to a 40 hours schedule. It’s nothing that is going to be new for us. But, yeah, that represents like 500 more [indiscernible],
Armando Torrado
MXN700 million.
Rafael Contreras
MXN700 million. That is a big amount. We are watching the all details and there’s other things that we are watching with all details regarding labor and see how can we compensate that, but we cannot do it regarding price, that is something that we cannot have to do it. Also I mean like my Board said yesterday, that is going to be affected in all the category. Not only in restaurants, hotels, everybody that creates more disposable income for the people and that has to produce something in sales. But yes, we are aware of that situation.
Regarding Europe, no, we had an increase of labor 8% last year. That was a big increase. But how we see the inflation next year, especially in Spain, we don’t see an impact as the one that are that is in Mexico. Regarding the best operator, we cannot say we are the best operator, but there is some good friend [ph] is there or every year there is a convention and they awards – they do an award for the best operators. And yes, this year we were award again in Spain and Mexico, in Domino’s Pizza for the best operator in our size. It’s by size, it’s not in our size.
And in Starbucks, they don’t do that kind of awards. But the same is just three big operators. They have Alshaya Coreanos [ph] and regarding the momentum that we’re having, the region we represent, Alsea represents 80% of the region of Latin America, and the region of Latin America is the one that’s performing better and same-store sales and everything and this is just the momentum Alsea that he’s been having, so pleased to have them as a partner. Regarding terms, in 2025…
Armando Torrado
2025 we have the Domino’s Pizza contract that we have to renew. Every time that we renew, the only new commitment that we have is the number of openings that we have to do for the next years. That’s the only change in terms of a new renewal of the contracts.
Rafael Contreras
And the next ones in Starbucks are Mexico in February 2027 and then also Argentina and Chile, 2027.
Alan Alanis
Perfect. So they’re far away. Congratulations. Amazing execution, guys. Really great results.
Armando Torrado
Thank you.
Rafael Contreras
Thank you, Alan.
Operator
Thank you very much for your question. Our next question is from Fernando Herrera from Compass Group. Please go ahead.
Fernando Herrera
Hi, guys. Well, first of all, congrats on the results. I have a couple of questions related to EBITDA margin. First one in Mexico. In EBITDA margin post-IFRS, we saw a contraction of database points, I think that’s related to leases or something like that. So just want to be sure. And I want to know how to measure that impact, if there’s some for the coming quarters?
And the second question is regarding to Europe, I mean, amazing result with the EBITDA margin expansion related to the energy cost, but just want to know if there are some space left for the coming quarter, and how much you are targeting on that front?
Rafael Contreras
Okay. The first one in terms of post-IFRS 16, one of the main things is the variable part of the rents. Because of the increase in sales that we have, the variable rent increase. Also in terms of participation of sales. Last quarter was around 0.7 points all the participation of variable rents, and this quarter it was 1.8. So because of around 50% of our contracts are variable, it depends of the increase in each store and the contract that we have in each store. But I will say that – going forward I will say that it's going to be around 1.8% of sales, the part of the rents that stays as an expense and we don't take out to increase the EBITDA with this part of the rent.
In terms of Europe, we have two things. Yes, we increase EBITDA for around 400 basis points. One part is the cost, because if you see last quarter we had an impact of 250 basis points in terms of cost versus prior quarter. And this quarter is almost the same cost as the cost that we had last year. So one part is cost and the other part is energy. The average of the cost of energy for the whole year is around €100 per megawatt. And what we are seeing is that we think that it's going to be in the same average of 100. In terms of EBITDA, we think that for the end of the year, in the last quarter, because we increased sales in December. It's going to be a little bit higher than 10% the total EBITDA – the EBITDA division.
Fernando Herrera
Okay. Perfect. Thanks for the call guys. Congratulations.
Armando Torrado
Thank you.
Operator
Thank you very much for your question. Our next question is from Thiago Bortoluci from Goldman Sachs. Please go ahead.
Thiago Bortoluci
Yes. Hi. Good morning gentlemen. Thanks for taking my question and congrats on the results. I have a follow-up on your cost inflation, right? Obviously, the dynamics really depend on each market we're looking at, but arguably in Mexico you're going for a year of material improvement on COGS? In Europe, Armando already mentioned days of comp in terms of energy, right? When we think about how this will flow into your P&L, would you say the strategy is to capture this environment through margins? Or do you think there is a space eventually to invest part of discussion to accelerate growth? That's the question. Thank you very much.
Armando Torrado
Thank you, Thiago. I mean, as Rafael mentioned, the company is ready too. I mean, what we feel comfortable and we want to make sure is an opening plan of regarding 250 to 275 stores a year.
Thiago Bortoluci
With sub-franchises, yeah.
Armando Torrado
With sub-franchises, I mean, of course, that sub-franchises will be unlimited. If we can open more franchises, more franchises, we always will do it. We will have an aggressive plan of Vips next year. For that we will make a record high in Domino's Pizza franchisees open stores this year. So that is a good reflection of the momentum of the business P&L and return on investment. So I think that is not, we are not going to put more. I mean, with openings are going to be like that.
We don't want to pressure our operations. We want to do the great negotiations and site selection in order to not put some mistakes that we'll regret in order to do it. This is not a matter of speed. Right now, the company with all these openings that happened; it only represents 5% to 6% of the sales, Thiago. So at the end, if I open another 50, the number doesn't change much. So I am very focused more in the operation that we had. Same store sales is the key of the company. Same store sales is what it creates a margin.
And of course, because of the pressure of labor that we will have in Mexico, that I need to gain better negotiations with the raw materials in order to generate a good food cost. As you saw there, also we are doing 16% of delivery without excluding Domino's is around 10% of delivery that also has a commission, a commission for the aggregator. We didn't have that commission two years ago. Well you saw it, right now in our P&L. We have great conditions anyway, but that is another increase that we didn't have some years ago, I don't know what else, Rafael.
Rafael Contreras
I will say that, and this is not, think of money in terms of the new openings. Now, the bottleneck that we have is to find the right sites to open more than 200 new units and to have the right managers also to run these 200 new units.
Armando Torrado
It's important. I will tell you probably the next quarter how we're doing regarding average weekly unit sales for the new units. You will say probably when we open store number 820 in Mexico, that average store is doing less than the first one that we opened 20 years ago, and it's not the case. In the case of a Starbucks, it's amazing that the stores that we are opening now, they're above the average of our portfolio. So that it creates a good – a very good news for us to still create it. And also, as I've been mentioned, drive-through takes longer. Drive-through for us takes around 12 months to complete, instead of six months, that is just a quarter abbreviated unit, so that is also making us a little bit more slowly in openings.
Rafael Contreras
Also, you were mentioning the cost at the beginning, and what we are seeing here in Mexico, for give you an example, we have Mozzarella Cheese. We did that number stock until March 2024, and we did it cheaper 12% compared to the last year. So we see other raw materials like the boxes of the pizza and other products going down. So we see a good outlook in terms of costs for Mexico.
Thiago Bortoluci
That's clear. Thank you very much, guys, and once again, congrats on the numbers.
Rafael Contreras
Thanks Thiago.
Operator
Thank you very much for your question. Our next question is from Alvaro García from BTG Pactual. Please go ahead.
Alvaro García
I didn't have a question, actually. But if you can comment, I guess I stayed in the room by mistake, sorry about that. But if you can comment maybe on same-store sales quarter-to-date, what you've seen through October, that'd be very helpful? Thanks again. Congrats again.
Armando Torrado
Yes, sir.
Rafael Contreras
Yes, Alvaro, we have some numbers here to share. We did in the first weeks of October; we see that the same-store sales are growing on a more moderate pace. Just give me one second to give you more detail on the last week of October.
In Mexico, looking at the numbers, I have a same-store sales growth of 13%. Then if I go to South America, I have a growth of 64%, which inflation makes this number a little bit bigger. And then in Europe, I have a growth of 7% of same-store sales, that's the last week of October. And then if I look at the first week of October, it's pretty similar. Just give me one second. In Mexico, I have a same-store sales growth of 13%, no, sorry, 13%, sorry. And then in South America, I have 62%. And then in Europe, I have 12% of same-store sales growth. That's the trend that we see until the first two weeks of October.
Alvaro García
Great. Thank you very much and congrats again.
Rafael Contreras
Thank you.
Armando Torrado
Thank you.
Operator
Thank you very much for your question. Our next question is from Mr. Federico Galassi. Please go ahead.
Unidentified Analyst
Hi, guys. Congrats for the results. Quick question, according to – for Mexico; how is the capacity of the [indiscernible]? How much with this all CapEx plan that you are having in Mexico is enough? Do you need to increase the capacity, open new distribution centers, et cetera?
Armando Torrado
Good question. Nobody asked that question, but I do ask every quarter when these results are going in and the momentum that we have in, the orders that we have in and the plan of. And we're going to open just from here to December 64 new stores in Mexico. So imagine a capacity of distribution center and logistics strategy is important. Mexico, as you know, we have five distribution centers. The only ones that and the bigger one is Mexico City and the capacity there is, we have a – it's complete to 80%. So we have another 20% flexibility, open space to grow.
Nevertheless, we are now already looking for some to build. The project is rolling to build another facility in the State of Jalisco that we already are working with some third parties – real estate parties to see if we can build next year another distribution center that will be ready in 2025. And we will give you more update in the next conference in September regarding what it will be, why and how, and what will be really the cost implementing this new distribution.
Not only distribution, we always will do and we can tell you a little bit more details of how is the capacity distribution center by distribution center. And when we open Guadalajara, how these things looks. And we also saw, we're going to do some manufacture in that facility. So that is a little bit of what we are. But from now on, we are covering the next 18 months.
Unidentified Analyst
Okay, great, thanks.
Operator
Thank you very much for your question. That was the last question. I will now hand over to Mr. Armando Torrado for final comments.
Armando Torrado
Thank you. Thank you everybody. Thank you, everyone that I was connected today. Thanks for attending our quarterly video conference. And like always, if you have any further questions, please be in touch with our Investor Relation Team. And thanks again. Have a great day. And we see you in February.
Rafael Contreras
Yes, that's right.
Armando Torrado
Thank you very much. Bye-bye.
Rafael Contreras
Thank you.
Operator
Alsea would like to thank you for participating in today's video conference. You may now disconnect.
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Alsea, S.A.B. de C.V. (ALSSF) Q3 2023 Earnings Call Transcript