The concept of BBB Foods has rapidly expanded to 2,772 locations across North America, with plans for further growth. Although many investors in the United States may not be familiar with BBB Foods, it is a fast-expanding chain offering deeply discounted groceries and household essentials in Mexico. As the parent company of Tiendas 3B, BBB Foods operates a supermarket concept with aspirations of substantial growth. Tiendas 3B, which translates to “good, pretty, and cheap” in Spanish, operates within a space similar to that of Aldi and Costco but in a smaller convenience store format.
The brand is not yet widely recognized, which provides an opportunity for growth rather than a challenge. With a business model unaffected by the usual obstacles faced by other retail concepts, BBB Foods presents an inviting prospect for investors before it captures more attention from growth investors. The chain’s unique approach makes it an attractive option for investors.
BBB Foods made a notable debut on the U.S. stock exchange 14 months ago, becoming the first Mexican company to do so in six years. Priced initially at $17.50, the stock has since increased by nearly 50%. This success is based on the company’s robust financial performance. Revenue grew by 30% last year, reaching close to $2.8 billion, with a 33% increase reported in the most recent quarter. Store expansion is a key element of this growth, with 484 new stores opened last year. Additionally, same-store sales increased by 13.3% last year, following a 17.6% rise in 2023.
After achieving profitability last year, BBB Foods continues to generate negative working capital due to rapid expansion efforts. However, this deficit decreased significantly last year.
Although supermarket chains generally operate with low net margins, BBB Foods shows potential for improvement due to scalability. While Tiendas 3B’s net margin stands at 0.6%, the company anticipates further profitability as it increases efficiencies. With private label products growing from 46.5% to 53.6% of sales, BBB Foods gains negotiation leverage with suppliers and aligns with consumer trust.
Compared to Costco, which has a gross margin of 12.9%, and Kroger, which reports 23.5%, BBB Foods’ stores achieve a 16.3% gross margin without bulk packaging or membership fees. By maintaining a lean operation, where store-level expenses consume less than 11% of sales, BBB Foods has reached newfound profitability.
Although BBB Foods’ stock trades at a premium with a high valuation, its market cap aligns with its sales. While this valuation is higher than that of traditional supermarket operators, it reflects investor confidence in BBB Foods’ potential. As a discounter, it has proven to deliver shareholder value, similar to how Costco has benefited customer-oriented investments. For investors unaware of BBB Foods, it may be time to consider adding it to their watchlist.
