Hi. I'm Matt Brundage here at Bridgehouse, and I recently had a chance to speak with Louis Florentin-Lee, managing director and portfolio manager at Lazard. I asked him about Dollarama, a name that holds a top-ten position in the fund. I wanted to know why a quality manager operating of London, England with the best businesses in the world to choose from is choosing to invest in a Canadian dollar store. Here's what Louis had to say.
We own Dollarama, Matt, and I make absolutely no apology for that at all. Dollarama is a quintessential compounder. We love it. It's a brilliant business, and I'll see if I can lay out a couple of few reasons why. So as I'm sure, you know, Canada's leading discount store retailer, which actually is one of the best business models that we found out of all retailers globally and generate some of the highest levels of financial productivity of all retailers.
This is a business that has consistently generated around twenty percent CFROI. You can see that on the left-hand slide. We can go back even further if you like. And at the same time, so remember what makes a compounder in our view. Right? You need to make high returns on capital. That's what you see there on the left-hand side. But you also need to be able to reinvest back into your business in order to grow. And that is exactly what Dollarama has done.
It's been able to reinvest back into its asset base and grow that at between five and ten percent per annum. Those combinations of things, high returns on capital, growing capital base, it means growing shareholder value from our clients, and we love that. So why are they able to do that? What are our views on why they're able to do that? Well, there are a number of things. The first is scale. So they are by far the biggest discount retailer in Canada.
The next four players in Canada have about a third of the total number of stores that Dollarama has in total. So the next four added up, it gets to about a third of Dollarama.
That gives you an idea of the volume scale that Dollarama has, and it uses that as negotiating power in order to negotiate to get the best prices from its suppliers mainly out in Asia for the products that it sells, and they are unbelievably focused on making sure that they will only stock products and agree to source products where they can achieve a thirty percent EBITDA margin and still be at a lower price than all of their competitors plus the likes of Walmart.
And the other reason why they're able to do that is because of their focus. So scale's the number one competitive advantage, focus is the other one. So if you look at the SKUs that Dollarama has, it's about five thousand SKUs. Compare that to about a hundred thousand for a traditional full-service retailer like a Walmart. Within that, they are so focused. They don't do any fresh right, Dollarama. No fresh.
That means that their supply chain is much less complicated than a Walmart or a traditional free retailer because they just get everything delivered from out in the Far East in one container, that container comes packed to their stores with all of their products that they need. You don't need to have special refrigerated containers for your fresh. And they don't need to be able to somehow bring in massive new pieces of SKUs like barbecues or garden patios.
So very focused, very efficient from a supply chain perspective, and they don't need to fully stock or have a whole range of FMCG branded products like a traditional retailer does. Because and instead, they can focus on private label because remember, Dollarama in that discount store format is essentially a fill-in retailer. It's not in our view, the kind of store where you go to to do your full week's worth of shopping to buy absolutely everything. Right?
So they don't need to stock that full range that a Walmart does. It's more fill-in. And so those things mean that they have a big competitive advantage over traditional retailers because of the scale that I talked about against their other discount competitors, and they have the focus that they have versus a Walmart. So they have a big competitive advantage over the traditional retailers.
And they have a massive, and this is rare, competitive advantage over the e-commerce competitors, like Amazon, for example, because Dollarama is more of a fill-in destination rather than an entire shop for the week or the month or whatever. It means that the basket size of Dolllarama is very small. Right? And it's small enough to make the delivery model of e-commerce not work, not work in Canada because your country is so spread out and disparate.
The last-mile delivery is very, very expensive in Canada. It's about five to ten Canadian dollars per delivery. Which means that Amazon can't compete, right, with Dollarama for the product that they're selling given the basket size. So that's why we're very confident that Dollarama will continue to be able to produce returns on capital at this twenty percent. We have spoken to the management.
They are very confident that they still got room to grow in Canada, even if, they're very focused mainly on the urban areas. Well, they still think they can get to two thousand stores, opening around sixty five stores a year. The last time I spoke to them, I think they were about fifteen hundred. It might have gone up since then. So they can reinvest in Canada and still grow, and the payback on a new store is less than two years.
Right, the economics are, because of all those competitive advantages and the profitability of this business and the supply chain efficiency of it means that payback is less than two years.
And then lastly, the other area where they're able to grow and redeploy capital is they have a fifty percent stake in Dollar City in Latin America, and they can actually use their expertise and their knowledge of discount retailing to really push that and roll that across, I can't remember the exact countries that they're in, in Latin America, but there's a very it's a very good prospect for them there.
So for all of those reasons, Dollarama is a core holding for us, and we're a very happy holder.