Alsea SAB de CV

BMV:ALSEA

Earnings Call Transcript

[Operator]

Welcome to Alsea's Earnings Conference Call. With us are Renzo Casillo, Chief Executive Officer; Rafael Contreras, Chief Financial Officer; Gerardo Rojas, Managing Director of Alsea Mexico; and Salvador Villaseñor of Investor Relations. Our speakers will present the results for the third quarter 2018. At the end of the presentation, we will have a Q&A session.

As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in Alsea's most recent annual report.

At this time, I will now turn the conference over to Mr. Renzo Casillo. Please go ahead.

[Renzo Casillo, executive]

Good afternoon, and welcome to Alsea's conference call. We will be presenting the most significant events of the third quarter 2018. Last Wednesday evening, we published our quarterly results where we reported sales growth of 5.8% for the third quarter, driven by 14% growth in Spain and 9% in Mexico, the addition of 235 -- and the addition of 235 units. Argentina impacted our consolidated sales growth in 6.4 percentage points due to the strong devaluation that the country has faced through the year. Excluding the impact of the foreign exchange arising from the impact of Argentinian currency versus the Mexican peso and the effect of closing 24 Burger King stores in the first part of the year, our sales growth would have been at 13%. I will share by division the global and international. Then Gerardo will follow with his review of the results in Mexico.

In Spain, our total sales grew by 14% in the third quarter. Our operations presented a negative 0.8% same-store sales. This was mainly due to the negative effect from the slowdown of tourism during the summer season, especially from tourists from the U.K. and Germany, and a negative effect of the last 2 weeks of the work off mainly impacting Foster's Hollywood sales. We ended the quarter with 41 new units year-over-year, ending the quarter with 404 corporate stores and 167 subfranchises.

Domino's Pizza Spain continues to strengthen its market position, gaining 1.1 percentage points in share versus the same period last year, mainly through product innovation, like on products like Come y Bebe and Megaweek. In Burger King, in the second quarter, we accelerated the implementation of digital kiosks in our stores, which have helped increase the average ticket more than 10% and improving, at the same time, customer experience. We expect to have at least 1/2 of those stores with kiosks by the end of this year.

As it relates to South American operations, same-store sales in Chile presented a low single-digit growth, mainly driven by high single-digit same-store sales in Burger King, where we're rolling delivery through a third-party aggregator. The growth in same-store sales was partially offset by lower-than-expected traffic on our Starbucks' units. This was mainly due to important decrease in tourism coming from Argentina during the winter season, given that more than 50% of the total tourism during this time of the year comes from Argentina. We're announcing our Starbucks Reward app next month, which should accelerate growth in membership and traffic. We ended the quarter with 8 additional units, including our fourth Chili's store in the country, which also have been above our expectations.

Turning to Argentina. During the third quarter, we reported a 4% negative traffic figure with Starbucks being the most affected brand. The Argentine economy recorded a strong devaluation in the first 9 months, surpassing 100% and resulted in an increase in inflation, which is expected to exceed 40% by the end of the year. This scenario impacted consumption in general. We're implementing additional programs to restore traffic growth and gain share, while we're deploying cost consolidation initiatives to help offset the impact of this tough economic situation.

In Burger King, we continue expanding our delivery strategy in our stores which have generated around 8 percentage points of additional sales in the units that have implemented. During the quarter, we opened 12 units, reaching 261 units in Argentina.

Regarding our newest market in the region, we have opened our third Starbucks in Montevideo, Uruguay. All 3 units still with high volume and great reception from our customers. We expect to end the year with 5 units in Uruguay.

In Colombia, we have low single-digit same-store sales growth, reaching a low single-digit growth for -- in both Domino's Pizza and Burger King even with a strong comparative base for the third quarter of last year, where both brands reported same-store sales growth in the range of 30%. Regarding Archie's, we have seen for the second quarter in a row positive same-store sales figures. We're confident that this positive strength in Archie's will continue in the future.

In Starbucks Colombia, we have faced a tough competitive environment, which has impacted stores. To recover positive traffic growth, we're implementing a new [bake-in-store] food program driving traffic and more value proposition. In Domino's, we are increasing our efforts on dining programs, complementing the strong delivery execution that we have. We expect to end the year surpassing 100 Domino's stores in the country, by strengthening our #1 position. At the end of the quarter, we have 170 units of different brands operating in Colombia. We have also started with our delivery strategy with the most relevant third-party aggregator in the country in support of Archie's and P.F. Chang's, results in additional transaction with higher average tickets.

Regarding our social responsibility strategic pillar, we are happy to inform that Alsea was included for the first time as part of the Dow Jones Sustainability Index in its regional index, MILA, which stands for Integrated Latin American Market. We're very proud to be recognized for all the social, environmental and corporate governance efforts that our company has made over the years. Being placed as one of the leading Mexican companies in sustainability, both nationally and internationally.

Finally, I would like to comment on our most recent announcement about our advanced negotiations on acquiring the rights to develop the Starbucks brand in France and Benelux countries. In order to fully finalize the deal, we are waiting for the French and Dutch works council approvals which we expect could be resolved in a couple of months. We see this expansion as a rare opportunity to further establish and enhance our Alsea Europe operations with a powerful brand that we have operated successfully for 16 years. This is yet another opportunity for us to develop the Starbucks brands in the regions with low brand penetration. We are proud to become Starbucks' strategic partner in another region. It is important to comment that this move complements our strategy of primarily strengthening our presence in the regions that we operate today.

With that, I would like to now hand it out to Gerardo, who will share a brief review of our Mexico business.

[Gerardo Blázquez, executive]

Hello, everyone, and thank you for joining our quarterly conference call. In Mexico, we presented a 2.8% same-store sales growth, mainly driven by the high single-digit increase in our quick-service restaurant formats and the low to mid-single-digit growth on our Casual Dining brands. Our Coffee Shop and Family Dining segments suffered from a low level of service of manufacturing problems out of our new distribution and operations center. This a result of difficulties mainly related to labor, given that we faced higher turnover and longer learning curves of our new employees. During the quarter, we implemented corrective actions to address these opportunities. By the end of the third quarter, we have already reversed the vast majority of the setbacks.

Domino's Mexico continues with a strong performance, ending the quarter with a high single-digit growth in comparable store sales, still with an online platform share of sales higher than 25%, with more than 3 million downloads from Domino's app and 23 openings during the first 9 months of the year. Burger King Mexico continues presenting a strong performance on transactions, reaching a high single-digit same-store sales figure equally driven by both ticket and traffic. We have introduced delivery in 50% of our units, where the orders through this channel almost doubles the average tickets than a regular order has.

In Starbucks Mexico, we opened 20 additional stores during the Q3, representing 62 new units in the first 9 months of the year and reaching a total of 707 units at the end of the quarter. Starbucks continues with strong total sales growth of low double digits.

Our Coffee Shop segment reported a flat performance in same-store sales compared to the same period of the previous year. Additionally, as a way to further enhance our reach and improve our customer satisfaction, we now have 9 coffee shops in our delivery brand, working with one of the leading food aggregators in the market.

Our Casual Dining segment presented a low single-digit growth in comparable store sales. We continue working on food cost efficiency strategies within our Casual Dining segment, where we have been able to achieve improvements, mainly through menu optimization and locally sourced -- and locally sourcing some ingredients. We will reinforce our digital marketing campaigns and seasonal menu launching to drive traffic in the strongest quarter of the year. As well, we are pushing promotions through our growing [supplied products], which will avoid pushing marginality while increasing traffic. At quarter end, we had a total of 273 Casual Dining restaurants operating in Mexico.

Regarding our Family Dining segment. During the third quarter, this presented a low single-digit same-store sales growth. We have been working on further improving our products and increasing traffic in all of our dayparts by offering breakfast menus starting at MXN 79 as well as value propositions in lunch and dinner. We will relaunch our Christmas season menu, which will help drive average tickets. And we'll continue to incentivize redemption of food stamps and brand's loyalty program points in all of our units. We now have 66 units fully adapted with the new image, and we expect to have 76 by the end of the year at quarter end. At quarter end, we had 272 corporate units, with 10 new restaurants compared to the prior year.

In addition, we continue developing new revenue streams with our multi-brand loyalty program, Wow Rewards. So far, we have more than 3 million registered users in our platform, which continues bringing more traffic to all of our units while increasing the average ticket on each visit. We have now fully included Domino's Pizza into the program, which was the last brand in our Mexican portfolio that we were planning -- planning to get into this platform.

Concerning our new operation centers, like I already mentioned, we experienced some setbacks affecting our operations. However, we have been focusing our efforts in solving them as soon as possible, implementing measures to normalize our flow rates and inputs on time deliveries, which already returned to our standard range above 95%. Also, we have fully established our [ new ] cutting and portioning plant, which is already generating efficiencies, especially on our Casual and Family Dining brands. We expect to start seeing the 20- to 30-basis-points benefits as a 12-month positive effect starting at the second part of 2019.

And now Rafael will give you a more detailed overview of our financial information. So please, Rafael.

[Rafael Contreras Grosskelwing, executive]

Thank you, Gerardo. Good afternoon, everyone, and thank you once again for joining. On the top line, during the quarter, we presented a MXN 610 million increase, mainly explained by the already-mentioned, same-store sales figure, coupled with the openings in the third quarter and the run rate effects, which together contribute with around MXN 918 million to our top line growth, impacted by the Argentinian devaluation. During the quarter, we've had an increase of around 80 basis points on costs, mainly related to promotional strategies in LatAm as well as for the impact of the import tariffs of some U.S. products imposed by the Mexican government since August. I'd also like to highlight that even with the pressure of operational expenses mainly arising from higher-than-expected inflation and impact from the devaluation in Argentina, the increase in energy in Mexico and Argentina, import tariffs before mentioned as well as for the impacts invested on the strategy implemented to reduce turnaround at stores, we were able to report an EBITDA growth of 7.7% and 20 basis points expanding during the third quarter, reaching MXN 1.5 million. The all-in cost of financing at quarter end present an approximate MXN 80 million decrease mainly due to a positive effect by the revaluation of the call and put options of Grupo Zena, which was partially offset by the increase in interest payments resulting from the rise in the Mexican interest rates and higher leverage.

Moving to the bottom line. During the quarter, our net income increased 36%, amounting MXN 311 million, therefore, an increase on EPS. This rise is mainly due to a 20% reduction in the all-in cost of financing, coupled with an increase of 8% in operating income and the reduction in the consolidated income tax. We closed the quarter with a total debt of MXN 16.8 billion and a net debt of MXN 14.3 billion, which had a decrease of MXN 770 million in comparison with the same period of last year, considering that the CapEx for the third quarter of the year amounted around MXN 3.1 billion. The debt structure at the end of the period was 76% long term, with 85% denominated in Mexican pesos and 13% in euros and the remaining 2% in Argentinian and Chilean pesos, with a total debt-to-EBITDA ratio at 2.4x, net debt to EBITDA at 2.1x and interest coverage paid at 4.7x at the end of the quarter. The company had complied with all the covenants established in our loan contracts.

Regarding our profitability metrics at quarter end, our return on investment capital, considering operating income after taxes, increased 10 basis points from 11.9% to 12% year-over-year, and our return on equity reached 15.2% in comparison with the 12.2% in the third quarter of the previous. And also, we achieved a reduction of 7 days in the inventory line.

Regarding our guidance for 2018, taking into account the negative impact from our Argentinian operation because the adverse economic environment, we are now expecting a high single-digit growth in consolidated sales for the full year, with a same-store sales growth around a mid-single digit. On EBITDA, we also expect a high single-digit growth, excluding the benefits from the sale of Grupo Axo at the end of last year, while we remain with our initial EBITDA margin estimate slightly above 14%, contemplating our capital investment between MXN 4 billion and MXN 4.5 billion for organic growth and a target net debt-to-EBITDA ratio between 2.2 to 2.4x.

Regarding our hedging strategy for 2018, due to the expected market volatility, we will continue following our internal FX hedging policy, where our focus today, we are covering up to 68% of our U.S. dollar needs for the following 12 months at an average exchange rate of MXN 18.79 per dollar.

Now we would like to open the call to Q&A.

[Operator]

[Operator Instructions] The first question is from Mr. Robert Ford from Bank of America Merrill Lynch.

[Robert Ford, analyst]

I was hoping you might be able to talk a little bit about the opportunities that may not have been fully developed in France and the Netherlands. In the press release, with the announcement of the transaction, there was a mention of synergies. And I was hoping for perhaps some detail in terms of the sources and the magnitude of the synergies you see there as well, please.

[Renzo Casillo, executive]

Thank you, Robert. Let me give you some perspective on the deal there in Europe. You may have already read it through information from Starbucks. But it's a total about 250 stores in the 4 countries. About 1/3 of those are actually corporate and the 2/3 of those are subfranchises. They say -- we believe there's a significant opportunity compared to the market environment or penetration that we have achieved in contrast in Mexico or Chile and -- because right now, the value slope has achieved very low penetration. So the -- one of the opportunities is not necessarily on sales, on penetrating advantages in this region.

And the second one is, as we have built a team in Spain, we believe that its capabilities to be able to support a lot of the growth out of the infrastructure that we have in Spain. We expect to base a team, obviously, operational team in the region. But a lot of the back-office support and all of the -- hopefully, transaction support, we plan to do it from Spain where we already had that capability in place. We also will leverage the knowledge that we have in the brands from the other countries that we have operated the brand for over 16 years, primarily in Mexico. So our goal is to use the infrastructure built in Spain to support all of the -- of the administrative support for that region and adding on capabilities and knowledge that we have from the brand that we have operated in the multiple countries, again, primarily in Mexico.

That and the fact that we have been able to introduce consciousness and understanding of local customer is what give us that confidence that we'll be able to make the region and increase the penetration of the brands, just like we have been able to achieve in Mexico and the other regions in Latin America.

[Robert Ford, analyst]

That's helpful, Renzo. And then Gerardo, and I think also in the press release, there's a mention of different strategies in terms of delivery, right? And Gerardo mentioned many coffee shops working with aggregators, and I'm not sure if that's just Vips or Vips in other banners. I was curious if it were.

And then when you think about working with aggregators, I'm curious in terms of how important they are now. How rapidly they're growing? And then to what degree are you integrating? I mean, are you using them for the full stack, meaning their software platform, their delivery people or just on an execution basis, where you have a little bit more control of the information.

[Gerardo Blázquez, executive]

Thank you for the question, Ford. For delivery work, we're doing a dual strategy. So we're doing delivery through aggregators, but also through our own delivery capabilities that we have developed internally. As of today, we have close to 400 restaurants total, excluding Domino's Pizza in Mexico, that are working with aggregators and with our own delivery. We see that delivery's been growing very rapidly in the market, so we're taking advantage of that growth, and we should expect also a more -- restaurants joining into this strategy in the coming months. And also, we should expect to continue to grow through that channel as well. So aggregators are very important, but we're also doing this through our own internal capabilities.

[Robert Ford, analyst]

And Gerardo, how's that divided today? Which channel's growing faster? Is it your own pipe? Or is it the aggregator?

[Gerardo Blázquez, executive]

Both are growing fast. I would say that we're still in an early stage for some of our restaurants, so we're just starting to ramp up new restaurants into this strategy. But -- I mean, both are growing fast. I would say, delivery has been growing in the marketplace, at least from that, that we have, in homes above 30% in this year. So it is, for sure, an opportunity that we need to grow faster.

And Domino's, of course, has always been -- this has always been part of their business model or the brand business model. For the other brands, we're in a different stage, but we're getting into that very fast. We have brands that are growing high double digits in their sales in the delivery channel, and orders that are growing high single digits, but moving very rapidly into double digits. So we're happy with this, and we look forward on pushing it faster, on moving more restaurants into these channels.

[Robert Ford, analyst]

And do you track aggregators at Starbucks in Mexico? Or can you?

[Renzo Casillo, executive]

We have, Robert, agreements with the primary aggregators, and that one is -- we have agreed to that. It is growing at a very good pace. But there is a [strengthening] of aggregators that operate, sometimes not visible to us because they just go to the stores and pick out the orders and take it to the customers. So those are more difficult to track. What I would say is today, with the capability that Gerardo indicated of our own internal resources, we still delivered most of the orders. So -- and that's something that we continue to -- we plan to continue to have. We want to have capabilities of delivery for all the rest of the brands, in addition to Domino's. And like Gerardo said, both of them are growing at a good pace as both their capabilities and our capabilities grow.

[Operator]

Our next question is from Mr. Antonio Gonzalez from Crédit Suisse.

[Antonio Gonzalez, analyst]

I just have 2, please. The first one -- thanks, Rafael, for the update on the guidance for this year. I know you'll be giving guidance for 2019 in due course, but I'd like to see if you can give any, at least, directional comments as it relates to expenses for next year. Obviously, there's been a lot of talk about minimum wages in Mexico, and some of the impacts that you're seeing this year partially, which was the import tariffs on pepperoni and cheese and so forth. Next year will be -- the impacts will be felt the entire year as opposed to just a fraction of the year. So I just wanted to see if, a, you can give us any of the examples of SG&A containment that you are implementing already to try to mitigate these headwinds next year. And b, I don't know if it's possible to comment at this stage but where you directionally would expect margins to go up or down next year. So that's number one. And then number two, very quickly, I wanted to touch on Starbucks. And I was curious to hear if after you've sorted out these logistics problems in the third quarter, a, are you seeing any impact in traffic currently in the fourth quarter? Or has the same-store sales trend fully normalized now?

[Rafael Contreras Grosskelwing, executive]

Okay. First, as you know, some of the impacts that we're going to have next year, it's going to be, first, the impacts in the tariffs of the -- some of the U.S. products. We don't know if when they sign the NAFTA or the new NAFTA, they're going to take out these new tariffs. But if they don't, the impact for the next year can be around MXN 60 million. Because we already did many things to mitigate the impact, because the first number was around -- more than MXN 150 million. Of course, we are looking if we can mitigate this number. Some of the things that we are thinking, if we can, we can increase a little bit in some products, the price to mitigate the impact in cost. The other things are the increased minimum salary. They are saying they can increase, maybe double for the next year, but we think it's going to be around maybe 10% to 15% for next year because we think it can be a huge impact if the salary, it's doubled just in 1 year. And for each 10%, I have mentioned that for each 10% of increase in the minimum salary can be an impact in the consolidated EBITDA of, say, around 8 basis points. And of course, we are working a lot trying to mitigate that, reducing some expenses. So at the end, we think that we can have a better EBITDA margin than the 14 or a little bit higher than 14%, of the one that we have today.

The other impact is Argentina. We don't know what's going to happen with the devaluation in Argentina. As you saw in this third quarter, LatAm hit us with 100 basis points in terms of EBITDA. So I will say that we are going to work a lot, trying to mitigate as much as we can to give a better EBITDA margin for the next year, higher than the 14% -- or higher than the 14 point something that we're going to have at the end of this year.

[Renzo Casillo, executive]

Let me just add a couple of points here, and then I'll pass it on to Gerardo on your question, Antonio, on Starbucks. Clearly, number one is we'll -- we're already doing a lot of the efforts on mitigating cost increases and labor cost increases. You mentioned the SG&A, yes, we're looking at SG&A assertively, not only in Mexico but in other countries to ensure that we are more efficient coming into the new year and be able to minimize the need for price increases, always with looking to continue to improve our EBITDA and profitability. So that's kind of the primary -- the marching notes that we have. And it applies to all the countries, not just Mexico, with the topics of minimum wage.

On the minimum wage, we want to clarify, we'll be monitoring very closely the topic. We think it's very unlikely, based on the information that we have, that it will go the doubling that has been indicated. But we do see that it will happen and will happen somewhere around this 15%, as Rafael indicated. So we'll stay tuned to that one, and we are already considering that as we -- in the plan for next year.

With that, I'll pass it on to Gerardo so he can comment on your question on Starbucks.

[Gerardo Blázquez, executive]

Yes. On respect to Starbucks, yes, I already explained that we have some setbacks on our operation center. That has been -- start to stabilize, and we're running at full with our full production in our production center, which delivers sandwiches and some of the pastries to Starbucks. So we should expect an increase in our consumers, in transactions in Starbucks.

Together with that, we've also done a lot of things around customer experience. So we've trained -- we've fully trained 100% of our staff in the last months to really exceed customer expectations. So we developed an internal program that we called Make My Day, which really focuses on delivering the proper experience to our customers. So we are very confident that now that the operation center has been stabilized and we're being capable to deliver the right product on time to all of our Starbucks stores, together with the training that we deliver to 100% of our store partners at Starbucks, we should be able to increase our consumer base.

[Antonio Gonzalez, analyst]

Are there any comments, Gerardo, you can share with us on the base of Starbucks Rewards users? And is there any meaningful evidence already of higher ticket or higher frequency for the rewards versus the non-rewards customers?

[Gerardo Blázquez, executive]

Yes. There is a difference in consumer spending with our rewards programs and without it. We've been growing our base as well in that program, and we expect to continue to grow in the future months. Again, that is something that we see very positive as well.

[Renzo Casillo, executive]

There's been upsell on that one, Antonio. We, I think, we're reaching almost 30% of participation of the program on those transactions. This year, it's around 35%, so -- but we've been growing fast actually than the U.S. on trend there. Meaning, the number of transactions that are -- that touch My Starbucks Rewards program. So the program continues to be very successful, and the new app is -- had been rolled out and has been delivering a better experience for the customer.

[Operator]

Our next question is from Mr. Álvaro García from BTG.

[Alvaro Garcia, analyst]

We -- I have a couple of questions. First, on Wow Rewards, you mentioned Domino's is now integrated into it. I was wondering if you can talk to us about the traction you're seeing from Domino's, having them on the platform, the benefits of having them on the platform. And if there any restrictions of having sort of -- in the platform? That's my first one.

And my second question is on COA. First, do you expect any impact into the fourth quarter sort of this same-store sales guide? Any impact whatsoever into the fourth quarter because of COA? And if you could talk about sort of the main challenges as you get into the second quarter of 2019, and I appreciate your commentary on the human capital front. I'll leave it there.

[Gerardo Blázquez, executive]

Yes. Thank you. Thank you for your questions. In respect to the Wow Rewards program with Domino's, I think it's still too early to assess. I mean, we're very happy because that would definitely add a new consumer base to the program that we haven't reached. So we're very positive that, that will be something good for our program, although it's still too early to assess.

In respect to COA, we do not expect any additional setbacks for the last quarter of the year. We're pretty stable these days, so we expect to continue the same way. We have finalized the transition from [Plava] to COA, to the new division centers. So we're fully operating all of our brands from COA and outside of [Plava] and, we think, doing that successfully. I think the only caveat on that would be that we might not be capturing yet all the efficiencies that we were expecting. Because as I mentioned before, these have been delayed, and that's what impacted or affected us during precisely this quarter of the year. But we do not see any issues for -- at least we do not expect any issues for the end of this year, for the last quarter of this year.

[Alvaro Garcia, analyst]

Great. And if you can just comment on, I guess, that delay for the first quarter. Is that just higher wages in that particular area? Or -- I know that there's been some issues with regard to human capital sort of in this area of Mexico City. I don't know if you can expand further on that.

[Renzo Casillo, executive]

So let me add to Gerardo's comments, Álvaro. We expect to begin to see the benefit that we have shared with you in the past, from 20 to 30 points on the second quarter. Because our priority is to cover capabilities so we serve the store well not only at the end of this year, but also the first quarter of next year. The -- some limits of expense that are related to that were down market or that the COA is located in a more competitive area. And so yes, we will have a more competitive, but we don't see that, that will have any material effect on our business to deliver the 20 to 30 basis points of improvement. The only reason why the first quarter, we won't have to see that because we expect one to be cover of some duplication of personnel, on covering probably a little bit more than the traditional figure, the traditional staffing. We want to be over-covering that to ensure that the high turnover and leverage on this is fully covered. We resourced that. We [ now need ] the service levels to the stores. And that is -- we expect that to be even out through the first quarter, and then the second quarter, we start to capture the benefit that we built.

[Operator]

Our next question is from Mr. Luis Willard from GBM.

[Luis Willard Alonso, analyst]

I wanted to talk about a little bit more on Mexico specifically. I mean, excluding the [ QSR ] portfolio, the rest of the brands for the last 1.5 years or so have been comping around the low-single digits. Could you comment a little bit more on the trends that you've seen, I mean -- that you've seen around the -- your different brands, specifically around -- regarding traffic? I mean, the same-store sales growth have been, I would say, below potential, especially in Starbucks. And has been little transactions. So I'm guessing most of it comes from lower traffic trends. I know that there have been some one-offs, but the ballpark comments regarding the health of your target consumers would be very greatly appreciated.

[Gerardo Blázquez, executive]

I would -- thank you, Luis, for your question. I would say first of all, the 2 brands that were more impacted by our production facility and our distribution center were mainly Starbucks and Vips, so -- and we do believe that due to that impact, we did create an impact in transactions. We are starting to see a very interesting recovery on Vips. Also Starbucks, it's a little bit more stable now, and I see the brand ramping up. We should expect the brand to grow for the last part of the year. In respect to some of the -- and also, I would say that these 2 brands were also impacted by the World Cup at the last weeks of July, where due to the timing of the games, we did see a fall in traffic in some of these restaurants, in Starbucks and Vips.

For the other brands, in the Casual Dining segment, we had mixed results. We did a work up. Some of them had better growth: restaurants, like Chili's, which are more suitable for -- like World Cup and sports. But we continued to see strong performance in some of our brands that we feel very, very positive about, such as Cheesecake and as well P.F. Chang's, and also an interesting recent growth also in Italianni's. So we're positive that we will continue with growth in this segment as well.

[Operator]

Our next question is from Mr. Rodrigo Alcantara from UBS.

[Rodrigo Alcantara, analyst]

Just a follow up on Mexico. Could you just please tell us how much of this negative subtraction in gross margin is related with inefficiencies at the COA? And as you mentioned, that your company's service levels suboptimal levels, would it be fair to assume that next quarter, these incremental expenses should be 0 or lower? Or should we expect some impact in 4Q? That would be my first question.

[Gerardo Blázquez, executive]

So I don't expect I got your question right, Rodrigo, but let me -- what I would say is that we will -- again, we will see some of the efficiencies from COA, from the operation center later next year, so we shouldn't expect to see those efficiencies this year. It's now more stable, and we should see increasing in our restaurants in same-store sales due to the fact that we do not expect an impact related to service. I don't know if that was your question or you want to...

[Rodrigo Alcantara, analyst]

Yes. So -- I mean, so basically you have 2 impacts in gross margins in Mexico, right, the -- some impact from the import tariffs, but also some impact from the inefficiencies at the COA. So I was wondering if you could give us, like, a bit more color on how much can be attributed to those facts?

[Renzo Casillo, executive]

Let me complement what Gerardo said, Rodrigo. The majority of the impact comes from COA. Reality is we have been overinvesting on the capabilities, so that we don't miss servicing the stores. So most of what you see is there. As we have said earlier, the impact on the import tariffs has been -- as we would say, the MXN 25 million to MXN 30 million this year. That's already built into what we expect to have for the quarter. We will continue to have probably a little bit overinvesting in the COA to protect service level to the stores on this last quarter and the early part of next year. And by second quarter, we should then see the operation growing at the efficiency level that we want. So again, on your question, I think the answer is most of it is that already the new COA that we're doing.

[Gerardo Blázquez, executive]

And I would add to that, Rodrigo, that also, we've been working a lot in capturing some efficiencies in our cost of goods in several brands, in most of our full service restaurants to make sure that we offset some of the impact from the import duties. And we're also working on doing a lot of local sourcing as well as from different raw materials or sourcing it from different geographies where we get a lower impact. So we've been preparing ourselves as well to have less of an impact in cost of goods for the present and also the future.

[Rodrigo Alcantara, analyst]

And then my second one would be regarding your administrative expenses. I mean, what do you think -- will this figure add it to your store EBITDA numbers. It seems to me that as results show, proportion of these savings that's achieved in the quarter are related to [ this line ], especially in South America. So I was wondering if you could elaborate a bit more on this, on the administrative expenses and what do you expect going forward?

[Renzo Casillo, executive]

Clearly, we will remain focused on ensuring that, as we grow the company, we'll leverage scale. And so we will continue to look, as I mentioned earlier, that all of the G&A on every country is optimized year-over-year. So our commitment to the company as management is that we'll become more efficient on the participation of G&A year-over-year, leveraging the growth that we are doing both organic and inorganic. So that's part of we -- that's for next year as well.

And today, in Mexico, we've been particularly focused on that this year, with some of the challenges that we have, as we mentioned, on sales programs, like Vips and Starbucks. We've been cautious on the spending on G&A, and we've been able to save the money for the year. So you can expect that over the next year, we'll continue to build plans to leverage that, and lower the participation of G&A in the P&L structure of Alsea.

[Operator]

Our next question is from Sergio Matsumoto from Citibank.

[Sergio Matsumoto, analyst]

I have 3 questions. The first one is, if you could give us some updates on the Vips initiatives, such as the convergence to the new layout and moving on to other dayparts with the menu and on the rollout of the small formats for Vips?

[Gerardo Blázquez, executive]

Sure. So as I mentioned, we've been both renovating some of our image in Vips in many of our restaurants, but as well, opening restaurants with the new image. We've seen an interesting effect on consumer's profiles. We've seen a younger crowd joining restaurants in the ones that the new image, the ones that we've renovated. And we've seen also an interesting double-digit growth in same-store sales for these restaurants that we have renovated. So we will continue to move forward with this strategy next year, and that's somehow what we should expect. We should continue to see renovations and the growth due to that initiative.

[Sergio Matsumoto, analyst]

How many of the restaurant base -- of the base is converted now or under the new image?

[Gerardo Blázquez, executive]

So we have -- so today we have 66 new -- 66 restaurants with the new image.

[Renzo Casillo, executive]

And there will be 10 more before the end of the year. We'll close the year with 76.

[Gerardo Blázquez, executive]

Correct.

[Sergio Matsumoto, analyst]

And my next question is on the Wow program. Now that you have other brands, such as Domino's in it, can you give us an update on the difference between the -- difference in the spending between the members and the nonmembers? And how much the single-brand users versus the multi-brand users spend at the stores?

[Renzo Casillo, executive]

Yes. We shared with you in the past, Sergio. We continue to see the trends for the users or the members grow. Transactions range somewhere between 20% to 25% to 30% higher transactions. And the opportunity remains to continue to move faster to multiuser. We showed you once you move to the 2 user, the transactions actually are [ stable ] [ up to about 55% ]. So now that the base have increased to over 3 million, today our priority is to leverage that much higher base. If you may recall, probably by this time of last year, we were reporting probably 1.5 million to 1.2 million members. We have more than doubled that versus last year, and there's actually increased resources internally at Alsea that are penetrating the information, accelerating the conversion from single brand to multibrand and obviously, accelerating the participation of members with that.

We believe Domino's, since we have accelerated growth, is one of the most attractive brands in the portfolio. Now members can actually -- when they place the order via app or web or when they...

[Gerardo Blázquez, executive]

Dine-in order.

[Renzo Casillo, executive]

Dine in, in their locations, they'll be able to accumulate or redeem points. And with the number of locations that we have, it will make the program even more valuable to the customers. So this continues to be the primary agenda, and we're excited that the number of members have increased significantly. So we have a lot more potential customers to accelerate some pressures with.

[Sergio Matsumoto, analyst]

Okay, that's terrific. And my last question is on Starbucks in France and the Benelux countries. Can you give us an idea of how the EBITDA margin compares to other European countries? And specifically, if it's higher or lower than the U.K. and Germany?

[Renzo Casillo, executive]

Thank you, Sergio. Well, at this point, we cannot comment on that, because as you know, it's still pending approval of the authorities. So we cannot disclose neither Starbucks nor I can disclose the numbers of the transactions. Once that gets approved, we'll be sharing with you a lot more details on the status of the financial as well as the brands. What we can tell you is that, yes, this is up to about 260 locations. About 2/3 of those are actually subfranchised, which is a unique model. And I forgot to mention earlier that our capabilities in Spain are very developed for managing subfranchises, because both in Domino's and in Foster's Hollywood, we have strong capabilities internally on managing. That was one of the reasons why Starbucks liked our capabilities in Europe, because we know how to manage corporate stores as well as subfranchisers. But we'll be sharing with you, hopefully, by our Alsea Day, more details on your questions so we apologize we can't answer that specifically today.

[Operator]

[Operator Instructions] That was the last question. I will now hand over to Mr. Casillo for final comments.

[Renzo Casillo, executive]

Once again, thank you for taking part on this call, and I want to remind you that on November 9, we will be hosting our Investor and Analyst Day, this time in Mexico City. And it will take place in our COA, our central operations world. We're looking forward to have you with us and be able to not only talk to more details about our sales today, but our sales tomorrow. But as well, I'll see you have opportunity to walk the operations and get to know it a little bit closer. So if you have not been able to confirm, we would ask you to please contact Salvador Villaseñor, which I think most of you already know, so we can include you in the list of participants in the event. Thank you, again, and have a great weekend.