Key Points
With a Trader Joe 's-like model, BBB Foods is expanding rapidly across Mexico.
The company just reported 20% same-stores sales growth in the second quarter.
It plans to at least quadruple its existing store footprint over the long term.
Trader Joe's is one of the most popular supermarket chains in the U.S., and the company has been growing steadily since it opened its first store in California in 1967.
The brand has developed a cult-like following thanks to its low prices, private-label strategy, focus on core products, and a central-kitchen model in which goods like meat, seafood, and bread are prepared off-site rather than in the store.
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Trader Joe's is widely believed to be the leader in sales per square foot among national supermarket chains, pulling in an estimated annual sales of $1,750-$2,400 per square foot, which is double that of Whole Foods and about four times that of the average supermarket chain.
Unfortunately, for investors, Trader Joe's isn't public. It's owned by Aldi Nord, one of the two privately held companies that emerged from the split between the brothers who founded Aldi.
While you can't invest in Aldi or Trader Joe's, there is a rapidly growing Mexican chain that resembles both of those leading discount banners: BBB Foods (NYSE: TBBB).
Image source: BBB Foods.
What is BBB Foods?
BBB Foods is the parent of the grocery retail chain, Tiendas 3B, which stands for "Bueno, Bonito y Barato," or "Good, Nice and Affordable."
BBB Foods has delivered strong results as both a business and a stock since it went public in 2024. As you can see from the chart below, the stock has nearly tripled since then.
Since going public, the company has delivered phenomenal growth both on a same-store basis and by rapidly expanding its footprint, which reached more than 3,600 stores in its second quarter.
Same-store sales have regularly been in the double digits every quarter since it went public, and it seems to be winning using the same business model that has made Trader Joe's and Aldi so successful.
The company's stores are small at just 3,000-4,500 square feet, compared to 10,000-15,000 square feet for a typical Trader Joe's, which is still much smaller than the average Whole Foods or Kroger store.
Like Trader Joe's, Tiendas 3B has a heavy focus on private-label products, which account for more than 58% of its merchandise sales. It also offers high-quality private-label alternatives of specialty products like granolas and spreads.
Similar to TJ's, Tiendas 3B strictly limits the number of stock-keeping units it carries, typically having one name brand per category and its own 3B brand. Finally, it also leans into the "treasure hunt" effect by stocking limited-time products that a typical discount chain wouldn't carry.
Overall, the brand may be more similar to Aldi because it's more of a no-frills neighborhood store targeting a working-class demographic, but it shares commonalities with both chains.
Is BBB Foods a buy?
Tiendas 3B just jumped 16% on Thursday after the company reported that same-store sales growth accelerated to 20% in the second quarter, which, along with its aggressive expansion, drove revenue to 26 billion pesos, or roughly $1.5 billion, up 38.7%.
The company's margins are still low, with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, which excludes share-based compensation, of 6.1%. Grocery chains typically operate on narrow margins, and 3B expects to grow over time as it opens new stores, improves operational efficiency, and focuses on its customer value proposition.
The company added 155 new stores in the quarter, to reach 3,624, showing it's expanding its base by roughly 16% a year, and it plans to quadruple its store base to at least 14,000 over the long term.
A lot of retail businesses would struggle with cannibalization when growing that fast, but 3B is going in the opposite direction with comparable sales soaring, and that's a strong testament to demand for the brand.
Additionally, its price-to-sales ratio of 1 looks like a fair price to pay for a fast-growing grocery chain. After the latest report, BBB Foods looks like a strong buy.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BBB Foods. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
