Why Walmart Mexico Looks Better Than Walmart

During their recent episode, Taylor, Carlisle, Julien Albertini and Christian Heck discussed Why Walmart Mexico Looks Better Than Walmart. Here’s an excerpt from the episode:

And I’m sure you all know Walmart, probably one of the most- The ticket for the Mexican? The ticket is Walmax. W-A-L-M-E-X, Walmart Mexico, Walmax.

Thank you. And so I’m sure everyone knows Walmart, one of the most like formidable American business. Sam Walton biography, Made in America is one of my favourite business book.

I’m sure you’ve all read it. And Walmart has been an amazing business in America, everyday low price. I think that resonates obviously with all the consumers.

They’ve done incredibly well building like density across the US, sharing that scale with their customers and offering obviously cheap item that resonates with customers. And it’s been an amazing investment over time. The issue today though is if you’re Walmart in the US, you pay 40 times earning.

It’s an incredibly expensive stock and it’s a business that’s much more mature. They’re not opening stores anymore. Interestingly, if you cross the border and you go to Mexico, you can basically buy Walmart Mexico, which is owned and controlled by Walmart, run by the Walmart people, exactly the same business model, the same expertise, the same know-how, but at a much like younger stage and probably like years, if not decades of like growth ahead of it.

The Mexican retail market, as you can imagine, is a lot less mature than the US. Today, less than half of the Mexican retail market is like modern retail. It’s still very much dominated by traditional bodega corner stores run by families.

And if you look at modern retail, Walmart actually owns or control 50% share of grocery in modern retail in Mexico. It’s even more dominant than in the US. And if you look at the different format they have, the super centres, Walmart has 3,500 super centres in the US.

It only has like 350 in Mexico. Walmart has 600 like Sam’s Club in the US. It only has less than a hundred in Mexico.

And Sam’s Club in Mexico is actually doing a lot better than Costco. They also have a format that doesn’t exist in the US like Bodega Herrera, which is a hard discount that’s also doing very well. And so you can imagine that over the next few years, over the next decade, Walmart’s going to keep opening stores in Mexico for like many years to come.

And those stores keep attracting more and more consumers. And so the same store sells a company, you know, like mid-high single digits and they should keep growing for many years to come. And so you have a business that’s basically Walmart, you know, like 20 or 25 years ago, yet you only pay 15 times earnings because it’s in Mexico.

And so if you have a choice to make, have you stayed rather on Walmart Mexico for the next, you know, 10, 15, 20 years than buying Walmart today in the US at 40 times earnings. Same business, same expertise, same people. We know that business model works, but you just buy it at a big discount because it happens to be in Mexico.

[Tobias] Let me ask you an unfair question. Why doesn’t Walmart US own it wholly? Why does it have a partial listing in Mexico, particularly if there’s a 40 times multiple in the US and a 15 times multiple in Mexico?

[Julien] Yeah, it’s a great question. So Walmart entered Mexico in the mid 1990s, bought that company. So they own 71 or 72% of Walmart Mexico.

They kept it listed in Mexico, I think for, you know, like local reason to have a local listing to make sure that the politician, the regulators like perceived you as a Mexican company. You have some Mexican pension fund, which I invested as well. And so I think that creates some local goodwill, but they obviously control it with, you know, 71, 72% of the shareholding and they’ve run it for almost like 30 years.

So it’s very much Walmart, but it just happened to be listed in Mexico. Yeah, that makes complete sense.

[Christian] They get you fully consolidated, obviously, given that 70% ownership. So you get that multiple on, you know, entire operation.