Yet Another Value Podcast - $TBBB: Tiendas 3B is Mexico's Aldi. Is it too late to buy? | Fruit Tree Capital

Episode Date: September 7, 2026

Tiendas 3B has more than 3,700 stores in central Mexico, opens roughly 150 more every quarter, and earns its money back on a new store in about two years. It is the Aldi model, built by a founder who saw BIM work in Turkey, moved to a country where he did not speak the language, and has spent 21 years compounding it. Alberto Vadia of Fruit Tree Capital thinks it is a hundred bagger from here.My problem is the price. The stock is approaching $50, it has run a ton, and the bulls I was reading a few months ago were underwriting it in the mid 30s. So I push Alberto on the thing that actually decides this: do the unit economics survive the move from 3,500 stores to 15,000, or does a two year payback quietly become a four year payback once they leave central Mexico? We also get into the two equity offerings from a business that self funds every store it opens, why every other hard discounter on earth stayed private, what Costco at 40 times earnings implies for a Mexican retailer, and whether adding fruits and vegetables is an expansion or a risk.This episode is sponsored by Trata: https://www.trata.com/tbbb. Trata is two buysiders who own the stock talking about what they are actually worried about. They have two calls on TBBB that I used to prep for this one, and you can hear a sample at the link.Chapters:(00:00) Intro(01:48) Sponsor: Trata(02:50) Alberto Vadia, Fruit Tree Capital(04:22) What is Tiendas 3B, and the Aldi playbook(07:27) Why they own it: no debt, management, compounding(08:45) What is the market missing?(12:09) The chicken and egg problem in hard discount(13:25) Private label, 900 SKUs, and beating Walmart on ibuprofen(16:55) The stock has run: have we missed it?(18:52) Why every other hard discounter stayed private(21:12) Costco at 40x, and the Mexico haircut(26:43) Do the unit economics survive stores 5,000 to 15,000?(28:43) The self splitting distribution center model(31:46) The equity offerings, and who was actually selling(36:49) No loss leaders, and the missing fruits and vegetables(41:58) Why is a Mexican category killer listed in New York?(45:36) The bare bones deck and the HQ visit(46:50) Long term, volatility, customer firstAlberto Vadia / Fruit Tree Capital: https://www.linkedin.com/in/albertovadia/Links:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

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free of charge. BetMGM operates pursuant to an operating agreement with Eye Gaming, Ontario. You're about to listen to the yet another value podcast with your host me, Andrew Walker. Today, I've got a great one. Why? Because, well, if you're watching on YouTube, I busted out the mustache and my wife has been on me saying, you can't be wearing that mustache anymore. And I, I shaved it a few days ago. And I said, honey, it's going to have to wait. We're going until I can get proof of this beautiful thing on the YouTube and I'll probably shave it tomorrow. But more or more than that, today we've got Alberto Vodilla from Fruit Tree Capital.

This is his first appearance on the podcast. I think you're really going to like him. So we're talking about TBB. This is a dominant, burgeoning dominant discount retailer in Mexico. And as you're going to hear in our conversation, discount retailers have worked all across the world. This, you know, the potentials to buy into one is really interesting. I wish I'd done it when I first saw it about a year ago. But it's a really interesting, fascinating long-term story. And really the key question to, hey, they're at 3,500. Do the economics as they go from 3,500 stores to, potentially 15,000 stores in Mexico, do they stay the same? That's question one.

And then question two is, hey, the valuation here is rich. The stock has run a ton. And I hate to just look at a stock price and say, did we miss it? But did we miss it? You know, I hear from a lot of people who used to be bulls who say, hey, it's hard for me to underwrite this at really attractive IRAs anymore. But again, 3,500 to 15,000 stores at two-year paybacks. That's how you get, it kind of doesn't matter if you paid 20 times price earnings,

40 times or 100 times price earnings. at the start because when you go from 35 to 1500, to 15,000, the earnings go up really quickly. So I push Alberto on all of that. He's got great answers. I think you're really going to enjoy it. I think this is an awesome interview. So we'll get there in one and second. But first, let's just go straight into the word from our sponsor. My sponsor, this time, as so many of my podcasts are trata.tra, t rata.com. If you like this podcast, you will love Trada. Why? Because it's two bysidersiders talking about socks. This podcast is two byisiders talking about stocks. There are two bysiders talking about stocks. But it's two smart bysiders who have a position in the stock talking about

what they're thinking about with the stock, what they're worried about, the upsides, the downsides, why they own the stock. And guess what? They've got not one but two interviews on TBBB, which I used to help prep. You'll hear me throughout the conversation saying it was so used for me for prepping for it, for getting ready for this, for thinking about the business, for understanding, you know, as somebody starting from almost here on this company, what's the history here? So if you like this podcast, I can guarantee you will like Trada. Go to trada.com slash T-B-B-B-B. That's Trot-T-R-A-T-A dot com slash T and then three B's behind it.

And you'll actually see a sample of one of the calls that I use to prep for this podcast. So thank you to Trada for sponsoring this podcast. And now let's get to the interview. All right. Hello. Welcome to yet another value podcast. I'm your host, Andrew Walker. What's you today?

I'm happy to have on for the first time, Alberto Viata from Fruit Tree Capital. Alberto, how's it going? Good, good. I just butchered your last name tonight. It's Vidia. Vadilla. Sorry. Don't worry.

I was reading it. Well, hey, that's an embarrassing start on my end, but we're going to push through it. Two things before we get started. First, disclaimer, remind everyone, nothing on this podcast is investing advice. There's a full disclaimer at the end of the podcast and in the show notes. And second disclaimer, Alberto, you came highly recommended by David Bastion from Kingdom Capital. He's a friend.

I think really highly of him. When I first trained my first AI model, I actually fed it, Kingdom's letters. I've said, anything that Kingdom is interested in, I want it to be. So my AI loves him. I love them. You're coming highly recommended. So I hope you're ready to bring the heat. Yeah.

Let me just say that David is brilliant in the sense. First of all, David Bastian of Kingdom Capital. Like I learned about, I started doing research on Warrior Metckel. He was like a year ahead of me on that one. So. HCC, yeah. Yeah. Yeah.

And then I'd also like to say that in your, case, what I really like about your podcast is you bring on people that actually have in most cases skin in the game. And two of our ideas have come from. And one of them we still have, have come from this podcast and we're very concentrated. We have like eight names. Well, I really appreciate that. And look, I'm happy to have you on. So let's dive into the company we're going to talk about today. The company we're talking about, it trades on the NYSE under TBB. It's Tiendas 3B is the company. They're a Mexican retailer. I believe it sends for when it's good, cheap, and better in Spanish as to what it is, but I can't remember for sure.

But I'll tell us it over to you. What is TBBB and why are they so interesting? Yeah, it is good, cheap and better. But in Spanish, it's like an alliteration. So it sounds, it actually sounds nice. So Tinas SESB is I consider the most affordable way to buy groceries in Mexico You know, they do it really simply by They copy the Aldi model Instead of selling you 30,000 products, they sell you a thousand And they're able to buy them in bulk

Get a better price there and also move them a lot faster than the other groceries And they're able to pass those savings along the consumer. And then, so really a quick history that's, I think, important is started by a guy named Anthony Hattum. And Anthony invested in a BIM, which is the Turkish version of this company. And he said, this is an amazing model. Where can I do it for myself?

And he looked, he said, Mexico has all the characteristics I need to be. be successful. The guy did not be Spanish, moved to Mexico in 2004, 2005 opens his first store. Today, he hasn't hit northern Mexico or southern Mexico.

He's only in central Mexico, and he has over 3,700 stores. Just to put him perspective, that's more than all he has in the U.S., and that's the second largest growth in the U.S. So, the guy's of force of nature. Why we like to

business so much is there's four basic things we look at. We're very, we're long-term focused investors, Charlie Munger style we could call it. So we like something that a business that's going to grow for the next 20, 30 years and be strong in 2030 years. And that's hard to tell, but instead of asking, there's so many changes that could happen that are really hard to forecast. But what we can ask ourselves is in Charlie Munger, fast, listen, hey, invert. Hey, what's not going to change? So everyone needs to eat. Everyone wants convenient groceries. And three, they want the most affordable groceries. No one's ever said like, oh, I love the chicken nuggets you sold me, but I wish they were double the price.

I'm just laughing because you say everyone wants to eat. And I do agree with you. But you know, the rise of gLP ones, who knows how long everybody's going to want to eat at this point? I'd say jokingly, but it popped in my head and I just wanted to interrupt so people knew I was here. I thought about that and I was like, how many GLP ones are there in Mexico? I don't think it's neat as much. It's a great point. But please, I'm sorry. I interrupted.

No, no, no, it's great. Yeah. But people still need to eat even with the Opie ones. And then what else? So another thing we, so that's number one. Number two, we just, if you're long term, you don't like a lot of debt because that's going to drown you in the worst time. And they paid off their long term debt when they IPOed. They have a little bit of cash reserves.

Number three, great management. I mean, and we judge management based on what they do, not what they say. The guy's track record speaks for a seller. He's a rock star. And third, sorry, and fourth, valuation-wise, you know, we like a margin of safety, but if you looked at this from a static perspective, it's not a deal. It's not a screaming hot deal. but what it is, it's a compounding machine.

And we think 38% last year, we think it's going to continue to compound. And let's just, the 38% let's divide by two. We think it's going to compound for the next two or three decades, and that's a potential 100-bagger. And, you know, it's just a phenomenal business that puts its customer first and passes their savings along to them. And I think they're building that goodwill. That's basically a summary of our season.

That's a great summary. And look, I will say, I've had this. I have notes on this from a year ago. And I don't know. And look, sometimes the podcast prompts me. But when I was prepping for the podcast, I was like, Andrew, how dumb were you for passing a year ago? Because as you said, like, there is a long history of discounts or retailers working. I mean, Aldi and Europe is the most famous example, right? But there's Trader Joe's in the U.S. Everyone wishes Traders shows was publicly traded, right? Like, but these things where they come in, they're super low cost, they're largely private label. Like, they just eat market share and the one that gets big kind of dominates and they just kill it. And that's kind of what's happening with TBB. So I think a lot of the things, hopefully, I think you gave a great overview. Hopefully listeners understand this is discount Aldi in Mexico. So that's a great overview.

I think the main place, well, let's start here. what are you seeing that the market is missing? Because as you mentioned, the market has caught up to the story. And I think a lot of my questions will be on that. The stock is up a ton over the past year. It trades pretty richly. People have come around to, hey, maybe a year too late, what I've said, hey, this is great business.

What are you seeing that the market's missing that says, hey, the market's kind of caught up here? I still think I can make a lot of alpha in this as a risk-adjusted opportunity. Look, if you're looking for the way we see it, if you're looking for the next year, I have no idea what's going to happen the next year. There's a lot of volatility, but when you add the compounding aspect of this business, then, you know, over time the cash flows will reflect.

And we just think we can't deny it and we don't see it. We don't see it stopping. And I can give reasons. Let me, one side note, you know, we actually went to Mexico and without, you know, without the management. We met with management afterwards, and we toured the store. So what we could say is we toured stores in different cities.

And it is the lowest cost producer. There's three, we could call, like, competitors, but they're all way, I can go, you know, farther down, but they're all behind, way behind. And they're all just copying this model. while and some of them aren't this isn't their main model so there is kind of a conflict of of interest we could call it the going back to the trader joes they actually bought a company called yet they don't publish it it's called yema and we toured they have when we toured a year ago

there was two of them today there's four and it's the trader joe's model they copied it a lot a lot more products and their base model, which is the NS3B. And, you know, but that's early on. I would consider a cherry on the Sunday. I wouldn't bet on this company just

because of YAMO. Their core business is such a phenomenal business you don't need to. But it is extra. So that's essentially what we see is a great business. Happy to talk a little bit more. This is

like one of our babies. Let me just rewind for a second. So I'm interested in the history here because as you said, you know, these businesses, there's a proven track record across the globe. And the CEO here, the founder didn't speak Spanish. She was just like, I saw how this worked in Turkey, I believe. I want to bring it somewhere. Right. So how did he, there's a chicken or the egg problem when it comes to these

business, right? Because all these businesses will tell you, hey, we have a thousand, two, thousand, three thousand stores. We use, I think this company has 3,500 at the end of Q2. We use our store base to go our scale, negotiate the best things. Private label, you know, they say, hey, we've got the DCs, so we're more efficient for the DCs. But how do you get started? You know, if you and I said Canada doesn't have a discount retailer for some reason, how would we get started? Because we don't have the D.C. when we start, we don't have the store base. You know, you're kind of starting from one. So how do you solve that chicken and egg problem? And I asked, but because I'm

curious and because when you think like they have a two-year payback on their stores when you say to your payback the first thing i think is competitors so if we explain how they overcame it it it might help people understand why no one else can overcome it or why it would be really difficult to overcome it if that makes sense yeah so i i think uh first of all the guy's you know been successful at everything he's done uh and this is you know this is you could see it from the record He started with one store, but he had the model. He had seen it be successful. And I think that was his edge.

Today they have a little over 900 products, I say 1,000 just to round up. But at that time, they had 300. They didn't have freezers. And he just, he sticks to, like, what you could call basics. And I'll give you a few examples. One is, so they didn't have freezers. Now they have freezers. So it was a grocery store, a convenient grocery store.

By the way, the model is instead of being 12,000 square feet like Aldi is 6,000, so it's a very, very, think double the size of a 7-11. So it's very convenient for people to go. You know, you get off the bus, you buy what you need. And then over time, he has created the Y label model. So, yes, he probably, I don't know what his pricing was early on, but he definitely knew that he was going to do this. His first white label was early on because he knew it was going to happen.

So it was a couple years in. I remember it was milk. And then you see now today, he has over 60% of his products are white label or private label. And that's just over time. And not only that, it takes them about three years to develop a white label. table. Like, because you're, so, and that's local, like it's the local milk producer. And the, the, the most amazing thing is, and not only that, what, what's happening is that people that went there 10 years ago, today it's a, it's a store that has a lot more. So that's part of the compounding aspect to it.

For just the same store sale. And the most impressive thing is they still don't have fruits and vegetable. So it's not even a complete grocery store. Like 20 years ago, Costco was pretty complete compared to what it is today. They're still not complete. And that's one of the reasons for the same source sale compounding.

And they also don't, one of the ways they send, they save money, it's word of mouth advertising. They don't spend money on marketing. So they're able to pass the savings along to the consumer. Let me give you one specific example.

They have, they created like kind of a medicine line. Just, you know, basic things you need, cough medicine, ibuprofen. They have an ibuprofen that sells for 22 basles. They have one that's even deeper, but this one's a good for comparison. 400 milligrams, 10. It was 22 pesos. I went to Walmart, which is the biggest growth from Mexico and owns Aureira, which is their competitor. Walmart had the same exact ibuprofen, same exact quant.

2058 business. That was a private label. Aville was 80. So what, I mean, I think Sam Walton would be rolling his grave if he heard that. Because what he's doing is he's passing along the savings for consumer. And that's just going to build you goodwill. We've seen it with Costco. We've seen it with all these.

And that it's just, it's just going to continue. No, I mean, look, once again, shame on me for missing it. but if you've studied this industry and I've seen, you know, I went through all my notes and I read some other things that other people, I mean, there is a history across the globe of this model working. And once you've had one that works, I mean, it really takes off. And these things really work. So let me, let's assume and hopefully listeners, I mean, look, this company, and I've never, I don't know if I've ever seen a retailer grow this fast. I mean, in Q2, their store account was up 20% year over year. and their same store sales were up 20% year over year.

I mean, those are just mind-blowing numbers. Now, some of that is seasoning. Like, these things do have a ramp period, and they're opening so many stores. They've got a lot of seasoning, but it's still crazy. So let's assume, hopefully listeners can agree with this, this is a very good business, right? The thing I keep hearing when I'm researching it,

when I'm reading other people, like there's some trot of calls that I'll link in the show notes because, A, they're the sponsor, and B, they're really good. But there's some trot of calls with people from about March. And they are gushing about the company, right? They're saying, hey, they've got the, they know the model works, all this sort of stuff. This is growing. There are people who are saying, hey, both of them kind of say on the call, hey, I think in 2030, fair value here is about $80 per share.

The issue is, you know, we're in 26 and they're talking to March and they're saying, hey, the stock's in the mid-30s so that IRR is coming down a lot. And guess what? We're not in March anymore. We're in the beginning of September. This stock is approaching $50 per share, right? it's in the high 40s right now. The company just did a big equity offering. So I guess my first question to you would be, hey, I'm with you.

The market's with you. This is a great business. But I hate to say about something that's up into the right, have we missed it? Because that's really lazy thinking. But everything here is screaming to me. The market's caught up here. So I guess my question, haven't we missed it? That's a great question.

I think, again, if you're just looking for the next year, probably has. But, you know, true trolley mongers, if you really see the compounding, I mean, you'll be very happy owning your five, ten years. The other thing I'll say about, I think of it similar to buying, I remember Peter Lynch talking about Walmart, you could have ten years. you could have, 10 years later, you could have bought Walmart, and it went up 10 times, and it was still a hundred backer.

And that's, I feel like this is like buying Costco in the 90s or buying Walmart in the 80s. And the other thing I think that really tells you a lot about this type of business is you have all these, private. You have Lidl or Lido? I never know how to say it. Private. Both Aldi's private, by the way.

You have De Uno with Bim, in Turkey, private. You have De Uno, which is a Colombian version where they copied this model, also private. Why are they public? Well, I think this, so one of the ways to grow, Anthony was said, he had a private equity background and he got a lot of private equity investors. To keep control of the company, he went public and also pay off their debt. but I think this is me talking my opinion. So that's why you have this, you have the opportunity to buy it. And I would say as a risk perspective, there, as part of the IPO, there's, there's a pretty aggressive incentive plan that's going to.

So even then I would, worst case scenario, you're at 160 million shares. that's about a 25x on free cash flow. So again, if it's just for tomorrow or the next week or two years from now, I would say don't buy it. But if you're looking at a long-term business, that I think you'll be very happy if you buy it. No, look. And own it for five or 10 years.

I think it's a great point, right? Like all you really don't have a chance. You mentioned Aldi. I understand traders or slay the traders. Like all these businesses are private because the payback periods are unbelievable on them. The economics are great and they keep them like that. And you mentioned not missing it, right? I just, as you said, I pulled up a Costco chart.

Costco is a 20x over the past 20 years. Sorry, that's understanding. It's up 27 and a half times over the past 20 years versus the S&Ps up seven and a half times. Right. So you thought you missed it? No, the huge business. And guess what? Once it kind of hit 2020 and people really started recognizing it, a lot of multiple expansion came.

So I think you're right there. I guess I have two questions on that. The first would be, you know, whenever someone comes on and pitches an international stock, right? The first thought is Costco is a different model, right? But I went to, oh, Costco trades for 40 times price to earnings right now, right? So that's kind of what I'm thinking about. I think the thesis here would be, hey, what is this trade in 2030, 2031? It's an interesting thought, right?

Because on one hand, you get the unit economic protected killer discount business that we talked about, right? On the other hand, this is a Mexican retailer. There's a lot of crime. So how do you think about kind of that long-term compounding or maybe a long-term valuation target when Costco at 40X is the top top end, right? How much do you discount that back to, hey, Mexican peso, crime risk, all this other risk? How do you kind of think about that in the long run? I'll address the Costco one first and then I'll talk about the other one. The Costco one, I see this.

Costco's a phenomenal business. Like Charlie Maher, I would never sell it, but I wouldn't buy it. It's a mature tree, I would call it. It's still growing, but it's pretty mature is what I feel. this is a this is a tree that's strong but still growing at a pretty fast pace. As far as country risk, this is, Mexico is definitely, there's definitely country risk. I would say if this were trading in the U.S. would be double the price. So you're, I, you know, based on their growth and all that, this were a U.S. grocer.

So you're getting a discount for that. they've proven themselves to operate successfully in Mexico for 21 years. And politically, this is my opinion. You know, you're probably not the savviest politician if you're growing after people's most affordable groceries. You know, as far as another aspect to Mexico risk is currency risk or currency exchange risk. So short term, it might affect you. As a business, it's able to, about nine months, it takes them to adjust pricing because it's not, you know, it's not like an office building that has pricing locked in for 10 years. However, it's proven in the U.S., in other countries, for example, in the U.S., Aldi in 2009 time frame, had a lot of customers come in because people didn't have a

much money. So generally when you have a currency risk, it's associated with an inflationary event. That inflationary event, people have less money in their pocket. They're going to go to the most affordable grocer. I'll give you a story. So the way

when we went to Mexico and toured the stores in different cities and the competitors, we hired a driver and our driver had, you know, he was telling us about a tough time they had in the family and all his kids that are grown

would shop at another grocery store and they start shopping at Tienda 3B and after, you know, they, they cloud the, you know, thankfully things got better, but they still stopped at the end of Sres B. So it takes the people a while to move, but once they move, it's hard for them to get out. No, look, I mean, I'm not comparing myself to the Mexico driver,

but for me, like, you know, I was always, Trader Joe's, I was like, oh, the line wraps around the building. Again, I understand Trader Joe is a little different. The line wraps around the building. They don't have any of the brands that I like because almost everything at a Trader shows is a private label, right? And I was always kind of resistant, you know, it's a different experience. But once you do it once or twice, and then once you like, you see the prices, and by the

way, the Trader Joe's quality is unbelievable. And I'm sure the quality here is very good, too. Once you kind of like see the difference, like I always want to shop at Trader Joe's now, you know? So it's just funny how it obviously very different. But once you kind of have to go do it. And then once you're like, oh, this is what I want. Like better quality, cheaper prices. Like that's what I went.

So right now the company has, I care, it's 3.7K stores. I can't remember off the top of my head. Yeah. Well, it, they reported in 3,600 plus. I don't remember the exact number. I'd say 3,700 plus because that's Q2. So there's no doubt they're about at, they're at plus 150 stores a quarter. So by now they're past 3,000.

Growing rapidly, as you said, I mean, they're growing 500 stores per year. You know, my, the other word here is because you're, we're talking about this as a compounder, right? And if this stock is going to work, it has to grow into this valuation and then some, right? And it can do that if it's opening 500 stores plus per year at two year paybacks, right? But the other worry you have is you mentioned they're not in north or south Mexico. You know, I've seen this happen. Now, again, I might be a little too domestic base, but I've seen it happen with U.S. retailers before where they opened their first 200 stores, right?

And it's all on the East Coast and dense cities. Let's just be New York centric biased. It's all Boston, New York City, Washington, D.C., Philly. So, you know, they've got transplants going around. They've got, it's very dense. And people model out and say, oh, this is going to be a killer, right? They're going to go to the West Coast. If they've got 300 stores in the Northeast, this is going to be a 5,000 box unit and people mod out.

And then once they start going other places, you know, first they don't have the brand when they go to, let's just choose something dense. You know, they try to transplant it to Los Angeles. Well, it doesn't have the brand it does in New York. And then they tried to transplant it. Forget New York City. They tried to go to Syracuse or they try to go to, you know, wherever else in New York City, in New York or in New York or in the Northeast, and it's not as dense. So box 1 through 200 have unbelievable units, but boxes 200 to 2,000, the returns start deteriorating. Here they've got approaching 4,000 boxes open as we

speak, but it's all kind of where in their sweet spot, where they've got the DCs, where they've got the brand, where it's really dense, because I know a lot of people walk to these. My other worry would be, hey, stores 1 through 5,000 were unbelievable returns. But when we go stores 5,000 through 10,000 and stores 10,000 through 15,000, does that two-year payback become a four-year payback? And all of a sudden, the returns look a lot worse, and it can't grow into that valuation. So I threw a lot out there.

I'd love to hear how you think about that risk. Well, I think it's best to just understand how they grow. That's not a big concern as far as within Mexico, greater Mexico. And the reason, first of all, is they can grow, they've already grown from Mexico City to other. cities to the east. You know, they're all the way to Acapulco, which is, I'm sorry,

Acapulco is on the west coast to Veracruz on the east coast. So those are different cities, different jurisdictions. They've already proven that. They just have to go north and south. So how they grow is really interesting. It's basically like a cell splitting model. They have a distribution center. The distribution center, ideally they service 150,000.

stores. And one of the other ways they grow is that Hatoon's very intelligent. He doesn't, he's not micro-managing. Whoever runs the distribution center runs everything about that zone, meaning leasing. You know, the person in northwest Veracruz is going to know better than somebody in Mexico city where to find leases. And the growth is really simple. So it's two to three, so every distribution center has to grow two to three stores a month. And then once they get to close to 200, they split it into. Now, if you look at its stock, one of the things you could probably look at stock-based compensation, even past the post-IPO is a little high, but that's because they invest in talent.

And they have a meritocracy, which in the U.S., there's a lot of meritocracies. There's less in Mexico. That's, again, my opinion. So they grow with this self-splitting model. So it's not like they're growing. I've said, hey, I actually ask them, why don't you just go straight to Monterey, which is after Mexico City, the city you want to be in.

And they're like, no, we're just going to go organically. Like, hey, we split here and then we grow, and then we grow. So it's really a methodical way that they're doing it. And it's been successful, so I just asked once and hey I'm going to get out of the way. I could, any other follow up to that? No,

I could be wrong, but that reminds me of my memory of how Walmart grew in the 70s, right? Like they started and they said, hey, you know, we started in Arkansas and we, we grow and then like our distribution center kind of fulfills here. And then we open the distribution center like right next door,

the state over or whatever, and then it grows from there. Now, it's slightly different, but it's reminiscent of that. Let me come back to about, You know, on to your point, that's actually a good point you make is I think if you, if you look at the Aldi's, the Walmart, the more affordable grocers and even Costco, like those haven't had an issue growing within the U.S. Maybe the higher end.

But that's just a quick observation without any data to really back me up. Yeah, you know, I do hear you though. I worry, it's easy to say, hey, the successful retailers that we can. think of have had a good job done a good job of growing, you know, but there's always the counter examples that I'm having true. I mean, all the, I don't think they've crushed it in the US. I haven't really paid too much attention, but I can think of a few lower end US things, especially ones that have run slightly differentiated models like, you know, I think the grocery outlet, people used to be really excited about the growth. The growth really stalled there.

Now that is on a slightly different model, right? That's a lot of, uh, over. stock and miss prints. I think some of the really cheap, the $5 and underscores, I think they've had trouble. But yeah, let me come back to valuation. Again, I think, I don't think there's anyone who's going to look at this model, study it for longer than I did last year, and not come away with the conclusion, hey, this is a pretty damn good model, right? I think the questions are, can you expand? And I think you've addressed that. But then I would come back to valuation would be the second question. You know, the other thing as we're talking as I'm thinking about conversation that jumps out to me is all the competitors are private. You've talked about why this is

public. They took private equity money, probably needed a little bit of cash to open up a bunch of stores to get that chicken egg problem that we talked about earlier really growing. But all the competitors are private. They can self-fund stores. I mean, the stores here are actually super negative working capital. So when you open a store, you actually have an influx of cap-x, right? Or influx they did an equity offering earlier this year. I think when the stock was in the mid-30s, right? They an equity offering. So I would come back to you and I'd say, hey, you've got this brilliant founder CEO. He does not need capital because every store he opens, self-funds future growth. And they chose to, they chose to raise equity. And when I look at that, again, I come back to

valuation, I'm saying, hey, everyone I've seen who loves this model loves it. The pushback I'm hearing from a lot of people who loved it a few years ago is, hey, it's starting to look a little pricey to me. And I see the company issuing equity. And we've talked about why this business model, doesn't need it. So I just love to talk about that for a second. Yeah, absolutely. They've done more than one. They've done two, I believe, now equity offering. So, yeah, two, I won about, I think, February 2005 and one recently about about two or three months ago. So the first, if you look at one of the things they did when they IPOed, they didn't just want everyone just sell all their stock like a spec where 60 days later they sell it or you know 180

days later they sell everything off they had these class C shares that were locked up and this is my again my opinion just from reading the documents most of that was hey let's get whoever in the class C range they were locked up for two and a half years and now they're unlocked now they've all become a class A share but let's let's get some of these people paid that want to get out. That was my interpretation of it. I may be mistaken, but it's kind of like

if they don't, if you do look at the business and they don't raise any more money, I don't see an issue. No. I think it's IPO centered and you know, getting everybody paid and there's a little like

you know, you'll have I think that'll work itself out in the next year or two. You are spot on. You know, I did not see this. So I'm looking at the June offering. They sell, call it 500 million of stock. And 410 million goes to selling stockholders. So not to the company.

And only 90 million goes to the company. So, you know, you do look at that 90 million and wonder what I'm thinking about, wondering, hey, they could have self-funded. But I just saw 500 million and it was not a 500 million raise for the company. Go ahead. No. And the 90 million. is basically something they offer the investment bankers.

Hey, if you can sell it, buy it at X price, we'll take the cash, but you know, you're getting a discount. So it's kind of, I think part of part of the way of doing business. That makes total sense. What other, is there anything else you think we should be thinking about when it comes to this company or this business? Or do you think we've covered it pretty well? No, I think you're right.

Like, if you were just looking at it, like, hey, what's, What's it worth? What's the cash flow? And what's it worth today? Yeah. It's not a great investment. If you're a long-term focused person and you've seen this just reminds me, they have so many things that they do that remind me of Costco and Walmart. I'll give you an example.

You could argue with Costco. They say that the hot dogs are lost leaders and maybe the chicken. But back in the day, they had an idea. Costco had an idea, no loss leaders. Meaning, I'm not going to sell any products for less, cheaper to bring people into the store because then I'm going to have to up the price on other products. And that's what they're, and there are like crazy about that. And that's the reason, in my opinion, that they don't have the fruits and vegetables yet.

They're working on it. They have to retool all their distribution centers for it. That's why. and another edge they have so is if they so that retooling the distribution centers they got they need a different cold room for every single distribution center and then they have to establish and and and they're not thinking about they have to establish suppliers not for 3,700 but for 7,000 because that's you know where their growth is going to be so it it is it's not like, you know, what, what they're going to offer in two, three years they're doing,

they're working on today. That's another edge they have. Let me actually come back to that. So offering, uh, offering fruits and vegetables, right. I have seen, uh, I've seen companies that are discounters that are really focused on one niche, right? And they expand. And fruits and vegetables, as you mentioned, it is a much different system, right? Because you have to go and they, I believe they mentioned it on the Q2 call. They also on the Q2 call talked about some of the selling stockholders stuff, but they mentioned it. They're like, hey, we're going to go work directly with the farmers here, right? So we're going to cut out the middlemen. That's what we do. That's white label. We're going to cut out the middlemen. They're going to send everything straight to our DCs. They have to retool their DCs.

They have to change the layout of their stores. If they want to do refrigerated items, they have to, like, all this sort of stuff. And I've seen this in other businesses. before. And it's a risky proposition, right? You're completely changing the model. And I guess my question to you is, hey, I get fruits and vegetables, probably driving a lot of repeat foot traffic. It really expands the box, really expands the ticket, all this sort of stuff. But to me, you've got a model that works. And you're adding something with a lot of complexity. And by the way, this is a, I probably would have said this about dry goods as well, but it's a pretty darn competitive environment. you know, plenty of places to buy an apple.

Do you think this makes sense or does this increase your risk? Because not that it's a full one-way street, but if you go when you're redoing your whole DC footprint, you're having to change the layout of these stores because the fruits and vegetables, either you have to build bigger stores or you have to take the 800 SKUs. You have to reduce them in some ways you're performing. So it seems like a pretty risky maneuver to me. Do you kind of like this idea of them going with the fruits and vegetables? I don't have an issue with it at all.

I do like the idea. I like the idea because, A, like at the end, you know, you want a complete grocery. Hey, I want to make a cheeseburger. You know, I want to be able to buy the bread, the meat, the ketchup, the cheese, and the tomato and lettuce, right? So it's a one-stop shop for a grocery, even though I don't know that makes sense. and and that will mean oh I need all I need is an onion but I buy an onion or some tomatoes I also buy the other stuff so it's more a complete grocery going back to and but if you look at their crack record they didn't have freezers before and they adapted to now having freezers right and they and when I I went we went about a year ago and we had fruits and vegetables in Mexico City so they were it was like a trial they test they test and they're not gonna do it till they you know till it makes sense and it's not a

loss league so in this case in this management's case there I don't have an issue with it because because I've seen that they're they're not gonna implement it until until it's you know they can be successful at it I will say yeah what One of the things that makes it more difficult. I don't know about the farm, but your suppliers have to be in different parts. Like if you're, if you have dry coffee, you can, you only need one private label supplier. In this case, you need a supplier in the West. Exactly.

You know, mid, north. So it is more complicated. As far as the distribution center, what happens is, I don't know the exact degree, but regular refrigerated stuff is negative four, sorry, negative is like four degrees Celsius and fruits and vegetables is like 18 degrees Celsius. I'm going off the numbers they gave me. I'm a Fahrenheit guy myself. No, I was about to make a joke. Hey, I think most of my audience is domestic.

You say four degrees and I instantly. Well, I'm a, no, I'm a Fahrenheit guy. So don't, but, you know. Let me ask one last question that that's kind of floating around my head. So you have, and this comes back to ownership structure. This is a, let's call it a mechanism. Mexican category killer, right? They are going to, hopefully, if you are correct, be the dominant Mexican discount grocer. When I think about category killers at large, generally they trade on

domestic exchanges, right? The history of companies in the U.S., foreign companies listing in the U.S., and I get why, they say, hey, these are the most liquid markets, but foreign category killer companies listening to the U.S. It's pretty mixed. Now, a lot of it is mixed because a lot of them came through the SPAC boom in 2021, and that turned out to be trash. But, you know, the one that really jumps to mind to me is Arcos Dorados. I don't know if you're familiar with that.

Neither here or there, but that's Ladd-Am McDonald's. And I remember tons of people love this stock 10 years ago as Ladd-M McDonald's, and it has not worked well for a lot of reasons. But I always just wonder, hey, you've got a company that's supposed to be Mexican category killer. Why aren't they listed in Mexico? Why are they listed here? Is there any signal there?

No, I think it's just, if you look at their, it's a, you know, it's based on how they started. So, so Anthony, I mean, yeah, he started with one store in 2005, but he knew what he was going to do. He knew he was going to grow this business like crazy. So he got a lot of outside capital, you know, from. from mostly European. And when you do that, you list,

so he did it through BVI, British Virgin Islands. So he could have listed in Mexico or the U.S. So he was already, the company's already officially a BVI company. So that, that I think is the reason. And he said, I mean, I'd probably get more capital in the U.S.,

so I'll go to the U.S. That's what I think happened. I don't know, but that sounds reasonable to me. No, that's completely reasonable to me. And I will tell you when I asked chat GPT this, it told me, hey, the market for Mexican IPOs is basically dead. So it would have been really hard to IPO. So I think you're right. But I was just asking because we had a little time. And in the back of my head, I just always, you know, I always hear from people, oh, this German automaker, right? Germany might not be a great example. This Spanish automaker. It trades in Spain. I think it trades at a big discount. We need to relist it to the U.S. And I'll be like, hey, man. And I don't, I get U.S. markets are really liquid, but if something, you know, if all the employees are in Spain, if all the revenues are in Spain and the stock trades in Spain, I don't understand why relisting it to the U.S. would create any value. This is different, but this is just something, again, because it's like, it could be the largest retailer or one of the largest retailers in Mexico and it trades in the U.S. And like, it seems weird, you know. Yeah, no, it is a little weird.

But yeah, you can also tell with people's nature, like if they have a. if half the business is investor relations, then, you know, it's kind of, that sounds like something whereby they're listing, you know, they're trying to uplist, you know, even from OTC to New York Stock Exchange, where just because they want more capital, I really think it was based on their history. And what you, and your point is, yeah, it was just a better market. And since they weren't being VI, they just decided New York Stock Exchange. It's funny you say that on an investment relations because I was laughing.

I'm looking at the deck right now and I was looking at it prep. And it's the type of deck I like, right? Where they have a deck. It has the numbers. But it is like if a college intern handed you this deck or a college student, you kind of be like, uh, B plus. Like there's almost no images. Some of the color formatting, you're like, hey, I think the colors might be different on this bullet versus this slide. Like it is very, very barebone.

So this is a company that they're focused on the business. They're not trying to, you know, hit you with a lot of razzle-dazzle. I really like that about them, actually. Let me, let me say, though, like, I agree with you 100%. And that's what I saw. And I'm like, and when I was, you know, I had, after we toured, I had a meeting with them at their headquarters. And I thought it was going to be, man,

I've been in two offices that really impressed me. And this is one of them. Just everyone, you could see a level professionalism. could tell when people are working and when they're not. And everyone is like, is working hard. It was a lot more impressive than

what I had in my mind. Perfect. Cool. This has been super fun, Albert. I think unless you've got anything else you want to talk about on TV, I think this has been a really

comprehensive overview for 45 minutes. So unless you've got anything else, we can probably wrap it up here. No, I would say at the core, you know, I like to say, like reiterate, this is a long-term investment.

If you and if you, you got to get to know it because there will be volatility. But we really like it for the long term. And at the core, they put the customer first. Well, it is funny because you say there will be volatility. Again, lazy thinking, but it's been up into the right for the past year. So that's the type of good volatility. But it is just funny. This is the first stock I've come across in a while where again, the debate I, I am seeing.

has kind of shifted from, I mean, yes, people are worried about the business, but it's funny where you see a bunch of bulls who say, I love this business, I think this is going to do great on the long term, it is pretty rich. And again, when I read that trotta call or when I read some fun letters, I'm hearing people like, hey, this is going to be really volatile. I think I'm going to be able to buy this on a 20% pullback. And they're saying that at 35 and the stock is 48 now. And I, you know, when I hear a guest say, if you're willing to hold it. this for 10 years is going to be great. I don't know about a year. I'm kind of like, well, yeah, nobody knows about a year. But it's just, it's an interesting push and pull dynamic of,

I think everybody gets how good it is. It's just how good is it. Yeah. Yeah. Cool. Alberto, Fruit Tree Capital. This has been awesome. We'll have to do this again sometime in the near future because I know you mentioned concentrated, but I know some of the other names. So we could have another discussion about something else. Anytime, man. It really's been a pleasure, man. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.