This covers PriceSmart, a membership warehouse club operating in Central America and South America, similar to Costco. Fund manager Markus Hansen is bullish, noting 40% of operating profit comes from membership fees paid upfront, with a 90%+ renewal rate. Key points: PriceSmart owns its real estate and logistics, giving it crisis resilience; Colombia alone could double its 11 stores; Chile is the likely next market. At 22x forward earnings, he sees rare visibility for an emerging-market retailer.
PriceSmart is a membership-based warehouse club operated by the third generation of the Sol Price family, covering 12 emerging markets across Central America, the Caribbean, and South America. Core thesis: PriceSmart inherits the Price Club model founded by Sol Price (which merged with Costco in 199
Markus Hansen (Portfolio Manager at Vontobel Asset Management) breaks down PriceSmart—a membership-based warehouse club continued by the third generation of the Sol Price family, operating across 12 emerging markets in Central America, the Caribbean, and South America. Core thesis: PriceSmart inherits the Price Club model founded by Sol Price (which merged with Costco in 1993). 40% of its operating profit comes from prepaid membership fees. The company insists on owning its properties and building its own logistics to control costs, demonstrating competitive advantages and counter-cyclical resilience in Latin America similar to Costco.
Markus Hansen argues that PriceSmart is not an ordinary mid-cap retailer, but the third-generation continuation of one of the most important concepts in modern American retail.
In the 1950s, Sol Price founded FedMart, pioneering the “hybrid sales” model—selling groceries and general merchandise under one roof, which was revolutionary at the time. FedMart initially targeted federal employees with an annual membership fee of just $2. In 1975, Sol Price and his son left FedMart to found Price Club, focusing on 2,000–3,000 SKUs (far fewer than Walmart’s 25,000), achieving low prices through bulk purchasing and limited categories.
Price Club went public in 1980 and merged with Costco in 1993 to form Price Costco. In his autobiography, Sam Walton acknowledged Sol Price as “the man who opened his eyes”; the founders of Home Depot and Target were also influenced by him. Hansen notes: “Sam Walton once wanted to buy Price Club, but Sol Price refused—‘This is my child.’”
After the merger, Costco’s few Latin American stores were spun off as Price Enterprises, privatized by the Price family, and officially established as PriceSmart in 1996. To this day, PriceSmart maintains a partnership with Costco, sourcing Kirkland brand products (Costco’s private label accounts for 33% of its sales).
Hansen emphasizes that the membership fee prepayment model is PriceSmart's most critical financial feature—approximately 40% of operating profit is locked in at the beginning of the year.
Hansen adds: "$45 is a significant expense locally, but members can receive basic medical check-ups—this benefit alone is worth the membership fee."
Hansen cites the motto of World War I General Pershing—"Soldiers win battles, but logistics win wars"—to illustrate PriceSmart's asset strategy.
Hansen comments: "This explains why the pace of expansion seems slow—they would rather take more time to build a solid foundation than sacrifice control for short-term growth."
Hansen believes PriceSmart's expansion strategy is "deliberate incrementalism," rather than aggressive rollout.
Hansen specifically notes: "Venezuela is a potential opportunity—large population, no club stores—but it requires the right political environment."
Hansen acknowledges that PriceSmart faces three specific risks, but believes its business model provides sufficient buffer.
1. Foreign Exchange Volatility: Approximately 50% of revenue comes from dollarized economies (Caribbean, Panama, etc.), while the remainder comes from volatile currencies such as the Colombian peso. The company does not hedge, but typically maintains pricing during significant currency depreciations, supported by extremely high customer loyalty.
2. Cash Repatriation: Some markets (e.g., Trinidad) have foreign exchange controls, making it difficult to fully repatriate profits. Hansen describes this as a "high-class problem"—the company chooses to reinvest locally.
3. Geopolitical Risks: The company avoids markets with weak property rights protection.
Valuation Framework: Currently trading at approximately 22x forward P/E, below Costco (30x+). Hansen believes a reasonable premium is justified for three reasons:
Hansen concludes: "This is not a stock that can reach Costco's valuation, but as an emerging market retail stock, it offers rare visibility and sustainability."
| Position | Analyst View | Key Data |
|---|---|---|
| PriceSmart | Bullish | 61 stores, $5B+ revenue, $350M EBITDA, 40% operating profit from prepaid membership fees, renewal rate 90-91% |
| Costco | Comparison reference | 33% of sales from Kirkland brand, PE 30x+ |
| Sam's Club | Comparison reference | Private label accounts for ~30% |
| Mercado Libre | Neutral (competition mention) | Leading e-commerce player in South America, limited category overlap with PriceSmart |
| Walmart | Comparison reference | 25,000 SKUs, Sam Walton influenced by Sol Price |
1. "PriceSmart is not an imitator of Costco, but the third-generation continuation of Sol Price's philosophy" (Markus Hansen) — After the merger with Costco in 1993, the Price family spun off and independently developed the Latin American stores, which still source the Kirkland brand today.
2. "40% of operating profit is locked in at the start of the year — prepaid membership fees are the most powerful financial engine in retail" (Markus Hansen) — Two membership tiers ($45/$90), renewal rate of 90-91%, with Platinum card share rising from 12% to 20%.
3. "Soldiers win battles, but logistics win wars — controlling logistics means controlling the future of retail" (Markus Hansen) — The company owns its properties and builds its own distribution centers; stores remained open during hurricanes in Jamaica, actually gaining market share.
4. "Colombia alone can accommodate 25 stores — currently 11, with clear room to double" (Markus Hansen) — Currently 61 stores, adding 3-4 per year, mid-single-digit same-store sales growth, with double-digit EPS growth achievable.
5. "A $45 membership fee is a significant expense locally, but a basic medical checkup alone is worth the price" (Markus Hansen) — Ancillary services (vision, dental, basic health exams) are a key component of the membership value proposition.
6. "Sol Price influenced the founders of Sam Walton, Home Depot, and Target — he is the forgotten godfather of modern retail" (Markus Hansen) — Sam Walton acknowledged in his autobiography that Price was "the person who opened his eyes."
7. "The falsification condition for emerging market retail: Do customers leave during a currency crisis? — PriceSmart's history shows they maintain pricing, and customer loyalty is extremely high" (Markus Hansen) — The company chose not to raise prices during significant volatility in the Colombian peso, and membership renewal rates remained above 90%.
8. "This is not a stock that can rise to Costco's valuation, but buying 40% prepaid profit plus double-digit growth at 22x P/E is extremely rare in emerging market retail" (Markus Hansen) — The valuation premium comes from family control, a long-term horizon, and anti-cyclical resilience.