F-1: BBB Foods Inc. Files for IPO on NYSE Under Symbol 'TBBB'

Mexican hard discount grocery retailer BBB Foods Inc. (Tiendas 3B) has filed for an initial public offering (IPO) to list its Class A common shares on the New York Stock Exchange under the symbol 'TBBB'.

Summary

• BBB Foods Inc., a Mexican hard discount grocery retailer, has filed for an IPO.
• The company intends to list its Class A common shares on the New York Stock Exchange under the symbol 'TBBB'.
• The offering includes Class A common shares offered by the company and additional shares offered by selling shareholders.
• The company will not receive any proceeds from the sale of shares by the selling shareholders.
• The estimated initial public offering price is expected to be between US$ and US$ per Class A common share.
• Upon completion of the offering, the company will have three classes of common shares: Class A, Class B, and Class C.
• Bolton Partners Ltd., affiliated with the founder, will own a significant portion of the voting power.
• The company is a foreign private issuer and will comply with certain reduced disclosure requirements.
• The company intends to use the net proceeds from this offering for the repayment of indebtedness and for general corporate purposes.
• The Mexican formal grocery market had approximately US$124 billion annual sales for 2022 and is projected to grow at a 7.6% compounded annual rate from 2022 to 2027, according to Euromonitor.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While the company demonstrates strong growth metrics and a clear strategy, the presence of net losses, negative working capital, and various risk factors temper the overall outlook. The IPO itself is a positive step, but the reliance on it to repay debt and the potential for dilution warrant caution.

Positives

• The company has experienced rapid growth in revenue and store count.
• The company operates with a low-cost business model and efficient operations.
• The company has a strong private label offering.
• The company has a decentralized and nimble organization.
• The company has a founder-led management team with industry expertise.
• The company has a large whitespace opportunity for expansion in Mexico.
• The company has a no-questions-asked no-receipt-needed money-back return policy.

Negatives

• The company has a negative working capital.
• The company has a history of net losses.
• The company is subject to risks relating to competition and narrow profit margins in the food retail industry.
• The company is dependent on the economic conditions prevailing in Mexico.
• The company is a foreign private issuer and will have different disclosure and other requirements than U.S. domestic registrants.

Risks

• Economic factors may reduce customer spending.
• Failure to achieve or sustain strategies and initiatives could affect results of operations.
• The company may face risks associated with private label products.
• The company's growth depends on its ability to lease and obtain permits for real estate spaces.
• The company may face competitive pressures and changes in the business environment.
• The company may fail to attract, train, and retain qualified employees.
• The company may experience a loss of key personnel.
• The company's negative levels of working capital may not be sustainable.
• The company may face product liability claims and adverse publicity.
• The company may experience inventory shrinkage.
• The company's return policy may negatively affect profitability.
• The company may experience a disruption to its distribution network.
• The company's information systems may be damaged or interrupted.
• The company may fail to maintain the security of its information.
• The company may face natural disasters, unusual weather conditions, or health crises.
• The company may be affected by changes to free trade agreements.
• The company may face difficulties in obtaining or enforcing judgments against it or its personnel in the United States.
• The company's principal shareholder will exercise significant influence over all matters requiring shareholder approval.
• The company's Class A common shares may not be a suitable investment for all investors.
• The company may elect to raise additional capital in the future, which may dilute your interest in our shares and affect the trading price of our Class A common shares.
• The company does not anticipate paying any cash dividends in the foreseeable future.
• Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.
• The company's multiple class capital structure means our Class A common shares will not be included in certain indices.
• The company's holding company structure makes us dependent on the operations of our subsidiaries.
• If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common shares and their trading volume could decline.
• The company has identified material weaknesses in its internal control over financial reporting and, if we fail to remediate such deficiencies (or identify and remediate any other material weaknesses) or otherwise fail to maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
• The company is a British Virgin Islands company and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.
• You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because the Issuer is incorporated in the British Virgin Islands.
• You may not be able to participate in future equity offerings, and you may not receive any value for rights that we may grant.
• We are required to comply with economic substance requirements in the British Virgin Islands.

Future Outlook

The company aims to continue improving operating margins through scalability, rapidly expanding the number of stores, developing new private label product lines, increasing sales of spot products, and introducing new categories of products and services.

Management Comments

• Our customers are what make our business possible.
• Preserving our can-do and scrappy startup culture has been and will continue to be top of my mind.
• Our team and culture at 3B are the main driver of our success today and for the future.
• This public offering is a significant milestone for our team and for those who believed in us early on.
• We want to help the Mexican consumer live better and be a catalyst for improvement in the neighborhoods in which our stores are located.

Industry Context

The hard discount business model is still nascent in Mexico, representing only 2.3% of sales in the Mexican grocery market for 2022. The Mexican formal grocery market had approximately US$124 billion annual sales for 2022 and is projected to grow at a 7.6% compounded annual rate from 2022 to 2027, according to Euromonitor.

Comparison to Industry Standards

• The company's gross profit margin for 2022 was 15.1%, compared to gross profit margins of 28.1% of La Comer, 23.4% of Walmart de Mxico (Walmex), 22.9% of Chedraui and 22.1% of Soriana.
• Walmex is the dominant player in the Modern channel, representing 34.2% of that channels total sales for 2022 based on data from Euromonitor.
• Walmexs most successful format is Bodega Aurrera, a discounter which represented 16.7% of sales in the Modern channel.
• According to Nielsen, in 2022, the hard discount market in Mexico represented only 2.3% of Nielsens measurement of the Mexican grocery market.
• In contrast, grocery retailers which we consider hard discounters in Germany (i.e., Aldi and Lidl), in Poland (i.e., Biedronka, Aldi and Lidl), and in Turkey (i.e., BIM and A101), which are countries with succesful and mature hard-discount markets, represented 23.6%, 33.6% and 24.1%, respectively, of their corresponding grocery markets annual sales in 2022 based on data from Euromonitor.

Related Party Transactions

• The company has incurred indebtedness pursuant to certain senior and junior, U.S. dollar-denominated pay-in-kind promissory notes and pay-in-kind convertible notes, most of which are held by related parties, including some of our shareholders.
• In connection with certain amendments to our shareholders agreement as in effect prior to this offering and the Senior Promissory Notes, we agreed to pay a onetime US$400,000 service fee to affiliates of Quilvest Capital Partners.

Stakeholder Impact

• The IPO will provide the company with greater financial flexibility.
• The IPO will create a public market for the company's Class A common shares.
• The IPO will facilitate the company's future access to the capital markets.

Next Steps

• The company intends to apply to list its Class A common shares on the New York Stock Exchange under the symbol 'TBBB'.
• The company intends to use the net proceeds from this offering for the repayment of indebtedness and for general corporate purposes.

Key Dates

Keywords

IPO, Tiendas 3B, hard discount, grocery retail, Mexico, retail, Class A common shares