Summary

Alberto Vadia of Fruit Tree Capital pitches Tiendas 3B ($TBBB) as “the most affordable way to buy groceries in Mexico” — a copy of the Aldi/BİM hard-discount model with roughly 3,700 stores, about 1,000 SKUs versus a supermarket’s 30,000, over 60% private label, no marketing spend, and a two-year store payback highlighted by Andrew Walker. Founder Anthony Hatoum, an investor in Turkey’s BİM, moved to Mexico in 2004 without speaking Spanish and opened the first store in 2005; the chain remains concentrated in central Mexico.
The compounding math is the thesis: Vadia says the 38% figure from last year could continue to compound, and that halving it over the next two or three decades creates “a potential 100×.” His frame is “like buying Costco in the 1990s or Walmart in the 1980s”; Walker notes that Costco grew 27.5× over 20 years versus 7.5× for the S&P.
On Walker’s central challenge — the stock moved from roughly $30 in March toward $48, so “didn’t we miss this?” — Vadia gives a split answer: “If you’re just looking at next year, probably yes.” But for a long-term owner, he invokes Peter Lynch on Walmart: you could buy Walmart 10 years later, watch it grow 10×, and still be 100% cheaper. In a worst case of 160 million shares, he describes the result as “about a 25× increase in our free cash flow.”
Walker’s sharpest structural pushback: US retailers can post exceptional returns in dense home markets, then see returns deteriorate as they expand. Could 3B’s two-year payback become a four-year payback going from 5,000 to 15,000 stores? Vadia’s answer is the cell-division distribution model: each distribution center ideally serves about 150 stores, adds two or three per month, and splits near 200, with regional managers choosing sites; management explicitly refused to jump straight to Monterrey.
Mexico risk is real, but Vadia argues the business deserves a smaller discount: “If this were traded in the U.S., the price would be twice as high.” Currency moves can hurt in the short term, with prices taking about nine months to adjust, but inflation-related pressure can push consumers toward the cheapest grocer. Politically, “you’re probably not the smartest politician if you’re targeting the most affordable grocery store for people.”
The fruits-and-vegetables expansion is the live operational risk: Walker says it requires retooling distribution centers, sourcing directly from farmers, and planning suppliers for 7,000 stores rather than 3,700. Vadia has “no problem with it at all”: the goal is a one-stop grocery store, produce has been tested in Mexico City, and management will not roll it out until it can work economically rather than as a loss leader.
Governance quirks explain the setup: unlike Aldi, Lidl, BİM, D1 in Colombia, and Trader Joe’s, 3B is NYSE-listed because Hatoum raised mostly European outside capital through a British Virgin Islands entity and chose the U.S. market. Vadia interprets the Class C shares, locked up for 2.5 years and now unlocked, as allowing some holders to sell; Walker says the company increased funds by $500 million and refers to a roughly $90 million offering to investment bankers at a discount. Stores have negative working capital and can self-finance growth. A Trader Joe’s-style concept, Yema, with four stores is “the cherry on the sundae”; “I wouldn’t bet on this company just because of Yema.”

Deep dive

1. The pitch: Aldi’s model, transplanted by a founder who’d seen it work

Vadia’s setup: Tiendas 3B (“good, cheap, better” — alliterative in Spanish) sells roughly 1,000 SKUs instead of 30,000, buys in bulk, turns inventory faster than other grocery stores, and “can pass those savings on to the consumer.” Founder Anthony Hatoum invested in BİM, Turkey’s version, concluded “Mexico has all the characteristics necessary for success,” moved there in 2004 without speaking Spanish, and opened store one in 2005. Today: over 3,500 stores — Vadia later says over 3,700 — concentrated in central Mexico. He says its three competitors are far behind and largely copy the model.
The price proof from Vadia’s store visits: 3B’s private-label ibuprofen (400mg, 10 count) at 22 pesos versus 58 pesos for Walmart’s identical private label and 80 for Advil. Walmart owns Bodega Aurrera, another competitor. “Sam Walton would be turning in his grave.”
Fruit Tree’s four-part checklist, Munger-style (“what won’t change?”): everyone needs to eat, wants convenience, and prefers affordable products; long-term debt was paid off at IPO; management is judged “based on what they do, not what they say” — Hatoum is “a rock star”; and valuation is “not a flashy deal… but a compound-interest machine.” Vadia says the 38% figure from last year could continue to compound, and even halved over two-to-three decades, creates “a potential 100×.”
The evolution argument for a long runway: the chain started with 300 SKUs and no freezers, now runs 900-plus SKUs with over 60% private label — milk was the first — and each private label can take roughly three years to develop because suppliers are local. “They are still not complete,” including the absence of fruits and vegetables, which Vadia sees as another source of business compounding.

2. “Didn’t we miss this?” — the valuation fight

Walker’s honest framing of the bull fatigue he is hearing: he referenced TIKR call transcripts from around March that put 2030 fair value near $80 with the stock around $30; now the stock is approaching $48 after a major equity offering. “The IRR drops significantly… didn’t we miss this?”
Vadia doesn’t dodge: “If you’re just looking at next year, probably yes.” But “if you’re a real Charlie Munger” and see the power of compound interest, he says you can be happy owning it for 5–10 years. He cites Peter Lynch on Walmart: you could buy Walmart in 10 years, see it grow 10×, and still be 100% cheaper. He calls this “like buying Costco in the 1990s or Walmart in the 1980s.” Walker’s own back-check: Costco grew 27.5× in 20 years versus 7.5× for the S&P.
The downside anchor: Vadia says that even in the worst case, if the aggressive post-IPO incentive plan brings the share count to 160 million, “that’s about a 25× increase in our free cash flow.” He does not present the business as cheap on a static basis; the point is the compounding machine.

3. Can the two-year payback survive 15,000 stores?

Walker frames the core underwriting question as whether the current economics can carry the business from roughly 3,500 stores to potentially 15,000. His broader concern: US retailers with 200 dense home-market stores can be modeled toward thousands of locations, then see returns deteriorate in less dense markets where the brand is weaker. Could 3B’s two-year payback become a four-year payback from stores 5,000 to 15,000? He concedes counterexamples exist: Aldi has not crushed it in the US, and some very cheap, sub-$5 discounters had problems.
Vadia’s rebuttal is the growth mechanism itself: self-distribution DCs each ideally serve about 150 stores, add two-to-three stores per month, and split near 200 — organic cell division, not random leaps. Hatoum does not micromanage; the DC head in northwest Veracruz “will know better than someone in Mexico City where to find places to rent.”
The telling anecdote: Vadia asked management why it would not go straight to Monterrey, the obvious next city. The answer: “No, we’re just going to go organically… we’re going to split here, and then we’re going to grow.” They have already expanded from Mexico City through different cities and jurisdictions, from Acapulco to Veracruz.
Elevated stock-based compensation after the IPO is framed by Vadia as investment in talent and a meritocracy that he believes is more abundant in the US than in Mexico.

4. Mexico risk: discount deserved, inflation can support trade-down

Vadia’s country-risk math: “If this were traded in the U.S., the price would be twice as high” — the discount is real, but the business has proven itself in Mexico for 21 years. Politically: “you’re probably not the smartest politician if you’re targeting the most affordable grocery store for people.”
Currency risk cuts both ways: repricing takes roughly nine months, so devaluation or other currency moves can hurt in the short term. But Vadia connects currency risk to inflation, which can squeeze household budgets and push shoppers toward the most affordable grocery store — the pattern he says was visible in the US in 2009.
The anecdote from Vadia’s unguided Mexico store tour: the driver described his family switching to the store during hard times; when conditions improved, they continued shopping there. “It takes people a while to move in, but once they move in, it’s hard for them to get out.” Walker’s Trader Joe’s parallel is similar: once he saw the price and quality gap, “I always want to shop at Trader Joe’s.”

5. The produce gambit: completing the grocery store, or breaking the model?

Walker’s risk case: fruits and vegetables mean direct-from-farmer sourcing, retooled DCs, changed store layouts, and regional supplier networks. He cites rough figures from the discussion of roughly 4°C for regular refrigerated products and 18°C for fruits and vegetables. “You have a model that works, and you add something very complex” in a category where “there are lots of places where you can buy an apple.”
Vadia embraces it: “I want to make a cheeseburger” — bread, meat, ketchup, cheese, tomato, and lettuce in one stop, with produce trips pulling through the rest of the basket. The track record of adding freezers shows they can adapt; produce was being tested in Mexico City about a year earlier, and Vadia says they will not implement it until it can succeed economically rather than function as a loss leader.
Vadia also invokes Costco’s no-loss-leader discipline: subsidizing some products can force higher prices elsewhere. The forward-planning tell he likes is that management is already thinking about suppliers for 7,000 stores, not 3,700 — “it’s not about what they will offer in 2–3 years, but about what they are working on today.”

6. Why NYSE-listed, why selling stock — and the culture check

Every cited peer is private — Aldi, Lidl, BİM, D1 in Colombia, and Trader Joe’s. Vadia’s explanation is that Hatoum raised mostly European outside capital through a British Virgin Islands entity and chose the New York Stock Exchange as the better market. Walker also mentions ChatGPT’s view that Mexico’s IPO market is “practically dead,” and raises Arcos Dorados as a cautionary US-listed Latin American category-killer that disappointed.
On the equity offerings despite stores’ negative working capital and ability to self-finance growth: Vadia says there have been two offerings and interprets the Class C shares, locked up for 2.5 years and now unlocked, as allowing some holders to sell. Walker says the company increased funds by $500 million and refers to a roughly $90 million offering to investment bankers at a discount. Vadia says that if the company does not raise more money, he sees no problem.
The soft signal both liked: an investor deck a college student would grade “A-plus” — no gloss, just numbers — and a headquarters visit that left Vadia calling it one of only two offices that ever impressed him. Walker’s closing observation on the debate’s shape: some bulls say they would buy at a 20% discount, while others value it at $35 against a stock price around $48. “Everyone understands how good it is. The thing is, how good is it?”

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