Dollarama's Strategic Expansion via Dollarcity: A High-Conviction Play in Latin America

Dollarama's acquisition of a 60.1% stake in Dollarcity in 2019 marked a pivotal moment in the Canadian retailer's global ambitions. Over the past six years, the subsidiary has transformed from a regional experiment into a compounding engine of value, leveraging disciplined market entry, operational rigor, and a scalable business model to reinforce its competitive moat. For investors, the story of Dollarcity is not just about store counts or earnings—it is a masterclass in cross-border execution excellence, where strategic patience and localized adaptability have unlocked a high-margin, high-growth opportunity in Latin America.

The Power of Compounding: From 180 Stores to 632 in Four Years

Dollarcity's expansion in Latin America has been nothing short of meteoric. By 2025, the company operated 632 stores across Colombia, Guatemala, El Salvador, and Peru, up from 180 stores at the time of the 2019 acquisition. This 245% growth in store count has translated into exponential revenue and earnings growth. For instance, Dollarama's share of Dollarcity's net earnings surged from $45.4 million in 2022 to $58.0 million in Q4 2024 alone—a 28% year-over-year increase. The compounding effect is further amplified by Dollarcity's ability to maintain gross margins above 35%, driven by centralized sourcing, logistics optimization, and a fixed-price model that minimizes markdowns.

The key to this compounding lies in Dollarcity's disciplined approach to market entry. Unlike speculative retail expansions, the company has prioritized markets with structural tailwinds: a growing middle class, underpenetrated value retail sectors, and favorable macroeconomic conditions. Colombia, for example, has become a cornerstone of the strategy, with 368 stores as of Q1 2026—accounting for 58% of the total. The country's GDP growth of 3.5% in 2024 and declining inflation (from 12% in 2022 to 5.8% in 2024) have created a fertile environment for a retailer focused on affordability.

Reinforcing the Moat: Operational Excellence and Localized Adaptation

Dollarcity's competitive advantage is rooted in its ability to replicate a proven model while adapting to local nuances. The company's supply chain, centralized under Dollarama's global network, ensures low-cost, high-volume product sourcing—often from China—while localized product offerings (e.g., regional snacks, household goods, and seasonal items) cater to specific consumer preferences. This dual strategy creates a durable moat: the cost structure is too efficient for local competitors to match, while the product mix is too relevant for international rivals to replicate quickly.

Logistics optimization has further strengthened this moat. By 2025, Dollarcity had reduced inbound shipping costs by 18% through route diversification, digital tracking systems, and partnerships with regional logistics providers. These savings directly boost margins, allowing the company to reinvest in expansion or pass savings to consumers—both of which drive long-term value.

The company's governance structure also plays a role in moat reinforcement. A 2024 governance update streamlined decision-making, enabling faster responses to market dynamics. This agility was evident in the accelerated entry into Mexico, where the first stores opened in summer 2025—six months ahead of initial plans. While analysts caution that Mexico's competitive retail landscape may lead to operating losses in the short term, the long-term potential is clear: Mexico's 130 million consumers represent a $1.5 trillion retail market, with value retail penetration still in its infancy.

The Mexico Play: A Test of Scalability and Discipline

Dollarcity's foray into Mexico is a critical test of its ability to scale without sacrificing profitability. The company's cautious approach—opening only a handful of stores in 2025 before ramping up—reflects a disciplined mindset. This phase-in allows for market testing, supply chain adjustments, and brand awareness campaigns tailored to Mexican consumers.

The risks are real. Mexico's retail sector is dominated by established players like Walmart, Chedraui, and Soriana, which have deep distribution networks and brand loyalty. However, Dollarcity's value proposition—prices up to $4.00 for everyday goods—targets a segment underserved by these competitors. If the model gains traction, the compounding effect could be significant: Mexico is projected to account for 30% of Dollarcity's total store count by 2031, with 300+ stores planned.

Investment Thesis: A High-Conviction Play with Long-Term Horizon

For investors, Dollarcity represents a rare combination of compounding value and moat reinforcement. The company's ability to execute disciplined market entry, optimize logistics, and adapt its product mix creates a self-reinforcing cycle of growth. While short-term volatility—such as initial losses in Mexico—is possible, the long-term trajectory is compelling.

Key metrics to monitor include:
- Store-level economics: Dollarcity's average store sales and EBITDA margins in new markets.
- Logistics cost trends: Sustained reductions in shipping and operational expenses.
- Balance sheet strength: The company's ability to fund expansion while maintaining a strong dividend yield (currently 2.5%).

The investment case is further bolstered by Dollarama's broader strategy, which includes a proposed acquisition of The Reject Shop in Australia—a move that signals confidence in its global expansion playbook. For those with a 5–7 year horizon, Dollarcity's Latin American expansion offers a high-conviction opportunity to capitalize on a durable business model and a growing consumer base.

Conclusion: A Model for Global Retail Expansion

Dollarcity's success in Latin America is a testament to the power of disciplined execution and strategic patience. By focusing on markets with structural growth drivers, optimizing its supply chain, and adapting its offerings to local needs, the company has built a moat that is both wide and deep. For investors, the lesson is clear: compounding value is not just about scale—it's about the ability to execute across borders while maintaining operational excellence. As Dollarcity turns its sights on Mexico and beyond, the rewards for early believers could be substantial.