PriceSmart: Central America’s Costco - [Business Breakdowns, EP.244]

23:27And then once they get to about four or five stores, they actually go and set up their own DC, very much controlling the logistics here. And I think we talked about this in the Casey call, but also if you look at Sam Walton's history, the one thing he realized is control your logistics and you control your future. Because inflation comes and goes, or prices go up and down, supply chains, truckers go on, strike. You control your logistics. And some have argued, and actually look at another great company like Coca-Cola. These are effectively logistic platforms that have something on top of it. In the case of Walmart, it's Walmart.

23:59Coke is a beverage company. I can't remember if it was these guys or someone else. It may be the guys at Casey's, but for the history buffs, General Pershing, he led the US Expedition Force during World War I, but learned his lesson in the Mexican incursion in the 1960s. But he has a famous quote, which is soldiers win battles, but logistics wins wars. Controlling your supply chain, particularly when you're stressed out, is the single most key important factor to determining your margins and your costs. There was a buddy of mine, actually a private equity told me that story. It's very important because this is the nature of why it's maybe at a slower rate than some people would like.

24:34Lord knows they've had consultants come in and told them, you can grow so much faster, but a very controlled manner. And one area where this comes back and is very important is in the area like the Caribbean, which is subject to some pretty heavy weather conditions sometimes. In Jamaica, they have two stores right now. When the hurricane hit Jamaica, they were very bad this last season, pretty much wiped out everything else. Their level of construction is to such a level of important sustainability that their store survived and remained open. They're opening another two. So again, I mentioned this in the sense that they're very focused on the longevity of the products, the store, and the ability to service their customers through any ups and downs.

25:10And when you're a customer, you're paying to be that member, you suddenly understand how important that is going forward. So these are the less tangible benefits of this offer, but also explains to you why the credibility of the brand and the products in the store to the local customer is very important. It certainly makes sense in terms of also being very thoughtful and calculated about how they approach the growth. On the logistics point, in terms of having this international presence, it requires the import logistics as well. How much do they control in terms of that and import logistics. I'm thinking$5 billion in terms of size.

25:49I'm not sure how much they can do in that regard. So how far does it extend? When they started out with this, basically they had one big distribution cargo base out of Miami. And they've since moved in recent times. They're opening actually, so San Diego has as well, but Miami was the main center primarily for their Caribbean expansion at the time. And then locally they'll have distribution for bringing stuff in. So they ship it using someone else's shipping. They're a major customer for that shipping. So they tend to get good pricing. and then they send it down. It's interesting, actually, they were asked recently about tariffs.

26:18They actually are effectively an exporter from the US. So they don't bring anything into the US that don't sell. So no real impact there. And generally in a lot of the markets they're operating, there are some locals. It's funny, when the tariff tantrum happened, it's interesting when you speak to international companies in a lot of parts of the world, there are tariffs. They've been around for a while. It was just, it was new to the US coming in. So a lot of these companies have a playbook of how they manage tariffs and pass it through. But for these guys, it's really setting up and they're now setting up on the Western seaboard of Central America down as they expand their ability.

26:47And what's interesting in terms of the product they sell, on average in most of the stores, close to half of the fresh will be sourced local. So let's say fresh is about 25 % overall. And then the other stuff, which tends to be things like the staples, so they sell private label peanuts, so the mixed peanut big thing. They're things called members club, but it's very similar to the one you find at Kirkland. Those things are shipped from the US, non-perishable kind of foods. They do bring stuff in from Asia, particularly related to lower costs, but good quality clothing and toys and so forth. And then the seasonal products on the gardening side.

27:19But more often than not, particularly in a place like Colombia, for instance, the history of the larger economies they're going into, or Costa Rica, where there is a farming base, they're able to work with local partners to get scale and bring local product in. And you're seeing a mix of local combined with US stuff. The other thing they're learning is they're actually taking stuff that they're finding sales, say, in Costa Rica and Panama and bringing it to Colombia. We think of Latin America as one entity, but if you go to each economy, there's a different taste vibe, and they're finding stuff which is working well.

27:47Which again, not to go back to our previous one, but the example of Casey's they're discovering is the interest in spicy foods they're learning from their Texas and southern states and bringing it further up north, closer to the colder borders where people are discovering. And so really smart retailers are very good at finding the SKUs that can differentiate and keep that cost within their system. And every little bit they're doing on that side is margin accretive. Yeah, tell an Argentinian and a Chilean that they're similar and they'll argue with you for a long time. But yes, I think it makes sense in terms of what does translate across geographical lines.

28:21And on the point about expansion, the impression that I'm getting is that, yes, there is an opportunity. There are markets that over time they can enter into, but it is very much about them being thoughtful and calculated and not overexpanding too quickly before they have the logistical thing figured out. One of the key things we're talking about is if they can own the land and the property, and we've seen this before going back to logistics, if you're in control of that operation, yes, it's slightly asset heavier. But once you can do that, the fact is your retail operation will evolve over time in terms of how that's set up.

28:56So the example right now is they are still doing more on the omni-channel side, which they have an e-commerce platform. Most of the time, we've seen the success outside the US. Here in the US, we're used to getting a lot of stuff delivered. Actually, if you go outside of the main city areas, we're seeing this interesting thing like we saw in Europe, which is the idea of ordering, then pick it up on your way home as you drive home, pick and collect. That's the same thing we're seeing in Central America. They're doing some of that, but they're using part of the store, which they now can remodel because they own it and they run it as a distribution where they set that up separately without impacting.

29:25If you're leasing that, you then have to speak to the owner. Can I do this? Can I do not? So that controlling of the logistic backdrop is actually a key moat going forward. And it gives them lots of optionality in store as to how they do layouts and control of that. Coupled with the fact that You as a customer, there are certain markets where there's parking, it's safe, there's a security perimeter around it. You're more than willing to bring your family then to go shopping. If you bring family, guess what? The kids are going to want to go buy this. So making it convenient, safe, tidy, clean, air-conditioned environment can be a big driver in markets where a lot of that is actually harder to come by.

29:59We take it from normal here. And then access, the locations are important. You tend to be near major roadways so people can go home, head off. but it also plays into your distribution that you can get that in from the port coming in. So a country like Columbia, if you ever travel there, is very mountainous. The geography is very much harder. So being particularly picky around that makes a lot of sense. They're also very much aware of things like property rights. So there would be certain economies that naturally right now they're stepping back from. Because once you invest money, particularly if you're going in ownership of hard assets, you want to make sure that if there is any legal issues, there is some sort of right to coming back again.

30:32But one interesting economy I mentioned is Venezuela. Venezuela, with all the political actions going on right now, is sparking a lot of interest. It's a large population country, which if you include the people who've left and would eventually maybe come back, used to be a very dynamic and rich economy right next to the border with Colombia. That would be the kind of economy with the right political backdrop that they maybe would look at. But they're not saying anything right now, but it makes a natural kind of feel with what they're doing. And there is no club store system there either. Chile, they were looking at for a while.

31:01They never give you the exact details, but I think they've been working on the Chile thing for the last five years. And really it's getting to know, they'll send people down, learn, they'll get to know the regulator. And what they're looking for is a regulatory environment where there's someone they can actually speak to and understand the rules, that it is a rules-based economy, the ability to find the right locations and then do work on, get me to the first 5, 10 stores, put a DC in. And once I'm there, hire and teach local management. This comes back to Sol's price original. One of the things he was a big fan of is this idea of retaining and training a lot of employees and bringing them up through management as well.

31:34And it's very strong of these club stalls in terms of the relationship between the employees and the ownership is extremely strong. Keep in mind, in these markets, these are good jobs, very stable and bring many benefits with them, including things like pensions, healthcare coverage, and so forth, and driving that to bring management up and through. And then there is a symbiotic effect, which is the families of all the employees become customers because there is this loyalty factor as well. So it works very well. In Central America, they've done very well. The only other thing, you go back to the difference as well, is dealing on the FX side.

32:06There are some economies they're in where they actually have some inability to get their cash. They're doing so well, they like to bring the cash back in dollars back to the headquarters. So a place like Trinidad has some FX gates in the sense that you can't find enough dollars to convert the local currency. So again, a bit of savviness here, which is keep what you need to there, run it from there, and then try not to put too many dollars in. but your business is very profitable and doing very well. So for the company of its size, it does seem a lot complex. The fact that they're being able to do this in this type of environment with that added volatility and be successful does give me even more confidence that this is going to be a good success story going over time as they get larger.

32:47Absolutely. In terms of the revenue earnings volatility, as you deal with countries that there's just more underlying macro volatility sometimes and different dynamics than just pure US exposure. How has that trended historically? Are there major swings in cycles and how much macro sensitivity exists? Obviously, taking into account, there's some diversification just in terms of regional exposure. Exactly, yeah. I think you're in the nail on the head there. Right now, the scale of the company, given that it's in these 12-odd markets, 5 billion of revenues, most of it, if you have one market go through a bit of volatility, it's more than managed by all the others.

33:27Colombia is interesting because it is the largest in terms of single footprint. Like I mentioned, this is a market where I think based on the analysis I've done of GDP, the addressable market in terms of middle class and upper spending, and the ability to broaden across a large economy could easily be by itself 25 stores. So that could more than double. Then within the group, it gets bigger. That one actually then could be a bit more volatile. But in a place like Chile, which actually is less volatile relative, could offset that, which I think is how they're thinking about it. So far, they've generally managed that there'll be maybe one or two quarters where you see a bit of a wobble.

34:01But over the course of the year, the actual compounding is pretty relatively stable. Part of that, I think, is that they are targeting a less volatile part of the consumer complex, who generally has a wealth that is going to go and shop anyway. Remember, we're talking about this isn't the only place they'll shop. For a lot of other things, they're going to go to other supermarkets. But this is going to be their core go-to. And then the beauty of this is the single biggest driver of operating earnings right now, about 40 % of their operating earnings, come from the upfront payment of the membership.

34:33So already at the beginning of the year, as you subscribe, you already have locked in about 40 % of your earnings. That's a great visibility to have as you're negotiating the rest of the year. The real driver, I think, Rao, of the earnings continues to be this idea of not just recruiting new members, which is growing quite nicely, but getting members to move up to the higher tier. Right now, to give you a mix, just under 20 % of their membership base is the higher paying$90, what they call the platinum card. And then the rest is the 45. But that has grown from 12 % just like five years ago. And what they're doing there is more and more explaining the benefits of this that itself pays for itself.

35:09With the cashback, there's about a 2 % or 3 % cashback you get on top of the added benefits you get. Where this is really resonating, though, is they're becoming a go-to supplier for small and medium enterprises. Think little restaurants, small hotel chains who are looking for that quality, really targeting American tourists or people who like a Western style standard. They're bringing something from Europe, but mostly American type snacks or food products as part of that offer they're getting. And that's driving another area where they're leaning into more as well. So right now, five billion revenues, I think it's very manageable across the diverse space.

35:44Hopefully we're having this conversation five years from now, there'll be 10, 15 billion plus. Then I think once we get to that scale, it could be. But right now it is manageable. They've done very well in this. The only thing has been this track cash issue. It's a high class problem to have. You're producing way too much cash in the market you want to get out, but they're managing it in a good fashion. Is it a similar story in terms of the gross margin stability and general approach or sensitivity on margins? You mentioned some of the FX dynamics and how they approach these things, but how would you compare it to just the US price clubs?

36:16So they're trying to put in as best they can. So the idea of owning the logistics in terms of distribution center all the way down to delivering to your local actual store, the more they control of that, the more they can, A, as a bulk buyer, get the benefits of that, coupled with the fact that they start to become a sizable local customer for a lot of their suppliers who generally are dealing with a lot of SMEs, which probably gives them some price. I mean, they do emphasize they're not out there to get the lowest price possible. They really want to work with the local farmers. They want to work with the local fishermen, get you to scale.

36:50And so this is a company which I think actually, if you were to be a full-on capitalist, probably under-earns specifically to ensure that its supply chain is a sustainable long-term that can grow with them over time, to bring a good quality product where they're not looking to get the best margin possible, just to deliver a product for good value for money for their customer. relative to what they see, obviously, in terms of the market out there. But understanding that is a more long-term sustainable as a just going for a hit and run, let's make as much money as we can. And that, again, comes back to this DNA.

37:23If you get the chance to read the book or the reviews of the book, Sol Price is also very much driven by being a good member of the community. And that ties in with the philanthropy they do outside of this. But not just in dealing with charities, but developing local areas. So those people who live in San Diego probably know him better because he actually has been instrumental in redeveloping the downtown area of San Diego, which had been up and down through industrial and the spending or not the Department of Defense, to make that a nicer place to live, but also open to the community and the social side.

37:52And they do a lot with kids. It's a very sad story. His grandson died young. It affected him in the sense that he felt that there was a part of society which didn't have access to the right kind of healthcare. But on top of that, just embracing, if you do well for your community, community will do well for you as well. And again, these are the stories which I think we often forget about. Got a guy down in Hershey, Pennsylvania. I think there's a movie coming out actually, who talks about that story. These are the do-good capitalists who realized in times of crises or when times are tough, invest with your local community and they'll stick with you through thick and thin.

38:24And again, this comes back to the kind of nature of what's going on in a more modern society. Yeah, become staples of that community and represent something inside of it. You've touched on some of the decision-making around real estate and CapEx and just high level, what would factor into capital allocation decisions. But what has been their historical track record of doing anything as it relates to dividends and buybacks, reinvesting in the business? Obviously, they have some cash that might be trapped in certain spots, but a good problem, as you mentioned. What's been the historical track record around capital allocation?

39:00When they go into scale in the market, initially the returns on capital tend to be at the lower of the range. Generally, the store paybacks are pretty quick. So the store can become profitable within two or three years. So to give you an idea of the size of the store, if you think of a traditional Costco you go into today, they're about one-fifth the size, the larger ones. So a lot smaller box, but big for where they are locally. Those stores, if they add in a distribution center around it, very often will take maybe an extra couple of years to bring back the returns. But once they get to five stores, there's a densification effect in a local market.

39:32You then start to see operating leverage improvement. And they designed the distribution center with the ability to expand it fairly quickly. Again, I've seen this playbook with whether it be Casey's or certainly Walmart or Costco as well. This is where the key ownership of the store land or the actual store box is important because they build in redundant flexibility, which can allow them. This is why they've confirmed they're working on Chile. But Chile will be interesting for your viewers if they want to follow this going in the next couple of years. Once they announce the location at the start of that, the discussion in the first two years will be how quickly they get the VC open and so forth.

40:07Generally, you're looking at a business, though, where the top-line growth through this controlled period of time, and on average, they're adding between three to four stores per annum across the network. If that store is in a more densified area, it probably kicks in a lot quicker. But on average, they're spreading these around. So there'll be one store in one market, one store in another. This is of a base of 61. So that gives you some underlying growth. But on top of that, they're growing the core same-store customer as a mid-single-digit growth rate coming in. That customer, one in five of them is converting right now to the increased platinum spending.

40:42So you've got these drivers in terms of the mix is improving while it's growing, and the actual store size is growing as well. And then the operating leverage once they get above a certain level in each market from the DC side. So this is a business right now which is doing 5.5 billion of revenues forecast, about 350 million of EBITDA and about 250 million of EBIT. Pretty consistent. Like I mentioned, close to 40 % of that on the EBIT side is money paid up front in terms of the membership. So good visibility, the ability to turn it. Cash flow generation is fairly decent. Cash conversion is running at close to 90 plus percent.

41:19Keep in mind, this is mostly food. Yes, there's general merchandise, but it's pretty quick turnover merchandise. So the cash conversion rate is very attractive, like any retailer would want to be. And again, their supplier terms tend to be very good as well as they get bigger. They don't lean into that. I like that. Like I said, these guys could print more money if they want to do. They deliberately decide not to because they see the long-term benefit of growing their business with their suppliers. To get bigger, you need a supplier that you can rely on, and they grow together. The alignment here is very...

41:47And if we've done some work speaking to some suppliers, speak extremely highly of this. It's very powerful. And this is why the runway, if we look at both the population, so the population areas, so right now I mentioned about two and a half million core paying subscribers. This is our core population area, which is about 70 million. So if you think about the tangible size of the middle and upper class in those markets, particularly if we get a place like Chile coming on board, the number of customers they could get to is a multiple of that over time. coupled with the fact that's more likely a higher paying one as well.

42:18So that mix of that customer, if we go from two and a half to five, six million, half of those could be the higher end paying within a decade or so. And that's going to give you a very nice earnings growth over time. We're looking at double digit here right now, about 11, 12%. Dividend is a bit smaller right now. The yield is not big, it's about one, one something percent. The balance sheet is pretty much undelivered. They virtually carry little, if any, debt. And it's really more about investing in the business going forward. And this is why I think this is a company, again, you have a very nice path to sustainable growth, assuming none of the bigger countries hit any sort of large macro dislocation, which is why I think they're being very careful in terms of the larger markets they're going to.

42:57They've been very good in terms of diversification. You never want to go through a tough time. The good news is if you navigate it well, it reinforces the model. Hurricanes impact a lot of the Caribbean. They've designed their stores to be hurricane-proofed. each time it gives them actually more share because people come to recognize that guy's still open 24-7. I can go there. They help out with the local emergencies, but they really garner a lot of goodwill. The same, I think, we'll see in places in South America where they will start to deliver this idea of a great everyday low price type offer through this idea of the club membership.

43:30And when you're going to an economy and saying to someone,$45, that's a lot of money. Look what you get for it, by the way. You get healthcare, basic healthcare, but healthcare checks for your kids and family in that price. You would pay that already. And by the way, you also get to come in and shop at a discount. That's pretty powerful. And getting the word out there is pretty good. One thing I would add, people have asked about what about the impact from e-commerce. There are some very smart e-commerce operators in the markets they are. Amazon is in a couple of these markets. Your listeners don't know.

43:56The Amazon of South America called Mercado Libre doing a very good job. Keep in mind that they're predominantly geared towards merchandise, very much around electronics and fast moving stuff. So they are a competitor, but again, very different in terms of if we look at the food side of things and then think about the heavier, bigger stuff that you're going to pick up, like garden furniture and stuff, that's still harder to do. But they're aware of this. They are looking at the idea of some sort of e-commerce down the road using their stores as the pickup side of things. But that still is an area where, and I'll come back to you mentioned.

44:26So there was a change in management in the last two years. It was interesting. The grandson who'd been working his way through took over officially as CEO. And they brought in a new CFO who comes with a strong track record of management in South America, which again, adds to this understanding that South America is where we may see them lean into places like Chile's new markets. And he has some experience on that side, particularly with a place like Chile, where e-commerce is a bit more developed. So I think two, three years from now, we'll hear a bit more of that CapEx going into that side of things.

44:56But right now, CapEx really is just as building more of these stores, bring the DC along, and just leaning into this operating leverage over time. Yeah, it's interesting when you have a proxy in the US, I'm going to beat it to death, but the Costco and their ability to thrive throughout the e-commerce revolution is an interesting case study too, relative to this. Everything you mentioned there has some added credibility when you look at how things have managed here. In terms of looking forward and the risks that do exist, you've referenced many risks that theoretically exist, but what would stand out, if anything, the most to you in terms of what's most important to get right to fulfill what's possible in the future?

45:39Yeah, really keep doing what they're doing, not rushing anything, changing anything dramatically. I think certainly private label continues to be an area if you look at best in class US, Costco, about 33%. Sam's Clubs, I think is just above 30 % from the disclosure I saw. They're right now at 19%. The ability to maybe do more of that going forward. That tends to be more, if we think on the fresh side, the ability. So one area right now they'll talk about on the call is developing private label chicken offer. And this is going out and finding some large farmers they can deal with locally. Love that source.

46:13So it's building goodwill with the local guys, but getting the type of quality, which is consistent rather than just being one little store where you can come in, getting this across 10 stores. So in the bigger markets, I think that's feasible. We'll see more of that. That's margin improving because generally you enter a private label transaction because it's margin improving for the same type of thing you're offering. It also builds your reputation. Once someone is buying something for you on the fresh side for the first time and is really good quality, you're more likely to go and try their other stuff.

46:39And as we know, Costco is renowned for its famous shrimps. Obviously, then you do the things like the chickens, the hot dogs and all this stuff. Most of the time when it goes to something fresh, we really wanted a brand at first. We're going to go try something which is local, but really good quality. So I think there's more they can do there. The other part, I think, is some of the other services they can do. So right now, it's pretty strange. You talked about how you were going to the auto to get your tires. They don't do that right now. That is an area where auto is an interesting one, given how they're located.

47:05They have the parking area. Might be something they might do in some of these larger economies as well. It's an added service. And most of the times, what they're looking at is areas where there is fragmented competition. But we're coming back to this idea of convenience. If you can go and get all this done and say, remember, we talked about cases. We sell you time. The most valuable commodity you just cannot get enough of. make sure they're even better. And that's very powerful. Also getting the benefit of then these are the kind of things where you can think about bulk supply, whether it's tires or autoparts.

47:33That could be something down there. They haven't talked about that, but it's interesting. That's an area where from both the dollar point of view, the ability to offer discounts and the type of customer they're going for, that would make a lot of sense. These are still avenues of growth. So I think this is more once we get to a certain scale, but really it's bringing this great, consistent, good quality, solid reputation to these local markets. And it's working very well. And then it's really leaning into this. There is this long term structural growth of US citizens moving to these markets to live, sometimes for work and then staying there.

48:09But also, people from a lot of these countries who come to the US worked and gone back. And that experience immediately kicks in. And the more and more communication they're doing on that side is working very well. But the final part was really this ability to lift up the membership number. People at first thought that maybe that moved from the average. When they started, it was like 30 going to 60. It's now $45 to 90. It's a big number going locally. It's working very well because I think they're emphasizing, yes, there's a big number, but look at all the benefits you're getting when you do the math.

48:38It makes a lot of sense. And this is why we're seeing very low churn. You've almost got like a 90, 91 % renewal rate. It's higher at the higher end. It's almost close to 100, but granted, that's a smaller base. But that's telling you that those who are doing it really are seeing the benefits and it's working because this is just general spending anyway. People do maybe have another option, but this is really bringing them in. Fascinating. I'm curious, do you have a valuation framework for this business? What is the market? How do they approach this where there's a growth story? It's broad. But yeah, I would just love to hear you talk on that.

49:17Tougher in the sense of valuation is always a tough one, right? Absolutely. This used to be a lot cheaper. This used to trade in the teens. It's now trading. I'm looking at forward numbers like in the low 20s. The US peers, which are peers to a certain extent in terms of the business model, are trading at much higher multiples. One would argue maybe full of multiples. Now, to be fair, having followed the US retail market for a while, the market pays for sustained, consistent growth, maybe a bit too much. It tends to pan you very harsh when your growth hits a speed bump. So look at the differentiation between some of the department store companies versus the Walmarts and the Costcos of the world.

49:53There's a bit of tech in there as well. That's true. This shouldn't trade up there with the US peers because there are three fundamental differences. One is with the US player, you're looking at one homogenous market. There's benefits of scale. There's deep size. There are much larger things. This one does have some added volatile of the markets it operates in, where there will be some volatility. However, that hasn't shown up just yet, but they continue to execute. This is a mid-cap name as well. Let's be clear. Mid-caps tend to, in theory, trade more volatile. This one around earnings, you notice with mid-caps, can trade up or down 6%, 7%, and then goes back to its normal consistent growth.

50:31And then it tends to make news flow. I think this is still being discovered as a stock, though. And this is a weird one because it's a US company which sells all its business outside of the US. So this is one where we have an emerging market fund. but we're also able to as it gets bigger put in some of the other funds there's a liquidity i mentioned about 25 30 of the company pretty much is controlled so that five billion becomes less in terms of what you can trade so this is really much more of a longer term story not too different to casey's by the way when we first started talking about it but a great story once you get it and see it perform do well therefore from a valuation perspective this is not something you should be saying could get to a Costco type multiple in the midterm.

51:10However, the nature of the visibility of the sustainable top line growth combined through the ability to manage through volatile times and still execute on earnings is very strong for a company which has exposure to a more volatile region. So as an EM manager, this actually looks as one of the more interesting dynamic names I'd want to have in the portfolio on the retail side. And then finally, there's definitely worthiness for a premium here of the DNA of the management. It doesn't get better when you have these guys who've proven it, know it. It's a family business. Generally, you find some great long-run family businesses taking the long-term approach and view to where they're going to be.

51:51Because those tend to be the ones that also through the volatile times are less driven by the ups and downs of sentiment and really actually, more often than not, take advantage of the opportunities of volatility to improve the business and their exposure going forward. So that gives me a feel that this can trade up to the mid-20s and it's still fairly valued. Then we have to see, obviously, the execution keep coming through. But like I mentioned, if I'm looking at store count, revenue potential, earnings upside, all of these things are moving up and to the right. And in retail, retail generally is a tough business.

52:24I know we talk about the success stories, but speak to anyone. This is why I always come back to Sam Walton hit it on the head when he said, the more you can control within your margin, that logistics, coming back to General Pershing, logistics is what wins retail wars. It's very important. They get a lot of consultants coming in saying, go asset light. It comes back to buy you in the tough times. You've got to have that consistency. So I think they're right up there. Absolutely. And I like the very holistic breakdown of that valuation approach too. That was extremely helpful to hear. This has been very interesting.

52:59You're, I think, instructing a lot of us again on a business that probably many weren't familiar with. We close these out with the lessons that you can take away, potentially apply elsewhere. Seems like there's a lot that could be applicable elsewhere from this one. But what would you say stands out the most? First and foremost, I love history. I'm a bit of a history buff. My son who's 19 now, he's heading off to college, recommending some books to read. Firstly, the San Juan one's a great one. I just want to read about the ups and downs of retail, the business model, how he got there. So Price's book, if you can't get it, you can find some online reviews.

53:31It's definitely one worth reading because, and it speaks to anyone from an older generation and ask them about FedMart. And if you go online, you see the older club members who have the original card and they talk about and laugh about it. But it is very interesting, this idea of the dynamic of a club. If someone had told you starting out fresh, you didn't know anything, you have to pay to shop. You'd be like, I'll just go shop next door. But you don't understand if you pay what you're getting on the other side. The whole concept is an interesting one, but a very interesting dynamic. So again, it's a reminder there are people who are able to come in and change industries in the way they look at it and set something up for others going forward.

54:04Like I said, Sol Price arguably influenced the likes of Home Depot and these other giants we know. So his impact or the impact of their ideas are very prevalent across the board. It ties in also with this idea, I think, of the Europeans call it ESG, but very often some of the greatest companies have also thought about their customer base in terms of their image, but also what they're bringing and adding to the community. And that's in a good way in terms of jobs, local jobs in terms of supply chains coming in. I think more and more, if you look at the younger generation customer base, I know they love their stories and stuff, but these are fantastic stories to follow.

54:38And very often, capitalism gets a bad name. This is good capitalism. And I think that's important in an era where, I'm not being political here, but it gets thrown around, good or bad. America is a capitalist society at the end of the day, this is important to understand how these things can combine and work very well. The final part is, it's fun when you talk about these things. I have a bunch of friends who are from South America. And actually, anyone you mentioned for the Caribbean, you know anyone? And there's a lot of people in New York. I mentioned PriceSmart. Big smiles. Oh, my mother shops there.

55:07One thing I love about research is the anecdotal side. And with retail, it's great to do. I mentioned how when I first went to Casey's, I went out, checked it out, took my son along. actually, he's my test bed, he's out there playing hockey with his hockey buddies, try the pizza, tell me everything. Loved it. So feedback, yeah, good. Now they're doing chicken wings. He talks about it. You understand that particularly with something like retail, which is consumer touching, that core mouth of word, word of mouth marketing can be the most important thing above and beyond you actually the product.

55:36And that still is very important. This is an area which until we have robots going and doing the shopping for us, I know we have e-commerce. At the end of the day, most of us still like to go shopping to the supermarket. It's an event we do with families. This continues to be a key area where product, good quality of value. And yeah, look, supermarkets will still be around for a long time. Club stores are amazing. These are the kind of things I think you can tie in with just your daily life as well. So this is, who's the, I forget the name of the guy, Fidelity. Peter Lynch. Yes, Peter Lynch. It doesn't always work with everything, but this is one where you can experience the product, understand it, and start to see how it works.

56:09I think this falls in that remit. And like I said, this is an inch because I love learning about new countries, all the countries they're in. There's a lot, we know the names. I think a lot of people, for instance, after our conversation, will maybe go and check out Colombia. Colombia is a very dynamic economy, come a long way. Argentina used to be the big guy in Venezuela. These guys are really developing. It's pretty amazing. And so learning that, and if you go as a tourist, you'll see these things. It is interesting to see there is another part of the world. So we're big fans of global investing, international investing, looking for great opportunities that are similar to the great US peers.

56:40The US market is great, but there's other opportunities out there which mimic what we see in the US. And sometimes you can find them at valuations which are even more appealing. So adding that to your diversified portfolio is a great long-term compounder as well. I love it. This has been a pleasure again, Marcus. I appreciate it and enjoy these conversations quite a bit. So thank you very much for your time and coming on. Thank you for having me. And it's always great. Thank you, Matt. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna or to sign up for our weekly summary, check out joincolossus.com.

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