Scale Economies Shared ?

[ValueMaven]

Nick Sleep of Nomad Partners wrote extensively on this concept of 'Scale Economies Shared' were select companies are able to use their size, value prop, and customer loyalty to drive additional cost savings to customers. These are businesses with specifically keep margins low to increase market share and value additive services to the customers benefit. Think companies like Costco, Amazon, Heico etc. Not many investors talk like this - and I still think the market doesnt fully understand this concept.

 

What other SES companies are out there?  o'reilly stands out as well.  

[Saluki]

MELI and CPNG. 

[bizaro86]

I think IBKR is a great example of this. That concept actually got me to increase my holding quite a bit before the big runup in the last year, so it was pretty helpful.

[ValueMaven]

@bizaro86 IBKR is a great example!

[tnathan]

10 minutes ago, bizaro86 said:

I think IBKR is a great example of this. That concept actually got me to increase my holding quite a bit before the big runup in the last year, so it was pretty helpful.

+1

[tnathan]

People might hate this but Carvana is also a good example

[Spooky]

Netflix

[hasilp89]

3i - action

tbbb

[charlieruane]

Tricky example for various reasons but: Vanguard

[brobro777]

Cost savings is nice and all but I prefer businesses that use size, value prop, and customer loyalty to keep raising prices

 

Anyway this sounds like stuff that requires a lot of reading and thinking and that's for value investors nerds, not for me 

 

 

 

[moatrep]

Greggs and Wyse. Greggs is an easy value investor buy at this price, wyse I use and may buy anytime (not following the 20 PE embargo that I impose on me.

Add croxcs that get the best quality to the wider audience in a new market that they created, with them being the king of the hill with their brand.

 

About Greggs they provide the "english breakfast" and lunch, ideal for people commuting and wanting something fast and hot. They achieve that with small shops with short tenant agreements that they can swich around easily if sales are not good. That way they can achieve maximum density and provide a quick snack and staple for the most amount of people in Britain. Basically if at rush hour there is a file you just have to look for the next greggs two street ahead, so the customer is not lost and remains loyal. All stores are easy to run, just reheating the product that comes from the factory (most stores are run directly by Greggs). Their snack is synonymous of british cuisine like fish and chips, the greegs sausagge roll. They also have plenty of unique options in pasticery, similar to dunking donuts.

The average coffè shop doesn't stand a chance against this bussiness model, only a few can survive doing fresh products, but competing in price is out of the cards. Not like for example subway that wanted to compete in fresh food and it is getting in trouble against the smaller and fresher owner run restaurants.

 

Wyse is a visa card that helps travellers exchange currency easily, has a balance sheet that I would say is simillar to Interactive brokers and similar economics. In my experience they treath the customer better than Revolut and are much better focus in their core mission, although revolut is much bigger they maintain the same currency convertion rates. From a customer stand point is good to travel with two cards for safety reasons, I use wyse and revolut together in my case.

Edited August 19, 2025 by moatrep

[bizaro86]

I think Wise is a good example - the fixed costs of setting up forex infrastructure/licenses are high but they keep fees for customers low.

 

The other one I think is interesting is the industrial gas companies. They tend to build an air separation facility attached to a big customer, and then sell other products to nearby clients. It's maybe more of a transportation moat than a SES one though, but having an industrial unit nearby does make cannister gases cheaper than they otherwise would be for customers. There is a recent VIC writeup on Linde. I think the market is on to these - they arent cheap...

Edited August 19, 2025 by bizaro86

[KCLarkin]

15 hours ago, bizaro86 said:

I think IBKR is a great example of this. That concept actually got me to increase my holding quite a bit before the big runup in the last year, so it was pretty helpful.

+1. I also went big into IBKR before the run-up. I’ve owned it forever but was really fortunate to size it up right before it took off. Reading the Nick Sleep letters played a big part in this.

 

It is now my largest holding.

[KCLarkin]

7 hours ago, brobro777 said:

Cost savings is nice and all but I prefer businesses that use size, value prop, and customer loyalty to keep raising prices

 

Anyway this sounds like stuff that requires a lot of reading and thinking and that's for value investors nerds, not for me 

 

 

 

Read the Nomad Letters. It is a simple and powerful concept that could change your life. Honestly, you could probably read a one page summary, it is so simple. But the Nomad writing is so good, you are doing yourself a disservice by not reading them.

 

And I’d say it is a growth strategy, not a value strategy. You find one of these and you can hold it for decades.

[Longnose]

Few more interesting ones to look at. 

Heico (HEI)

American Express (AXP)

D-Mart (Avenue Supermarts Limited) (India Stock Exchange)

Nubank (NU) (Brazil)

Wise (WPLCF)

[brobro777]

4 hours ago, KCLarkin said:

Read the Nomad Letters. It is a simple and powerful concept that could change your life. Honestly, you could probably read a one page summary, it is so simple. But the Nomad writing is so good, you are doing yourself a disservice by not reading them.

 

And I’d say it is a growth strategy, not a value strategy. You find one of these and you can hold it for decades.

 

No way bro I wanna make shoot from the hip VIX 60 bets like in April this year and make $$$ fast without thinking

 

haha

 

 

[schin]

On 8/18/2025 at 5:36 PM, ValueMaven said:

Nick Sleep of Nomad Partners wrote extensively on this concept of 'Scale Economies Shared' were select companies are able to use their size, value prop, and customer loyalty to drive additional cost savings to customers. These are businesses with specifically keep margins low to increase market share and value additive services to the customers benefit. Think companies like Costco, Amazon, Heico etc. Not many investors talk like this - and I still think the market doesnt fully understand this concept.

 

What other SES companies are out there?  o'reilly stands out as well.  

 

@ValueMaven - There's a good list of companies that the community offered. In a conversation I had with Nick, I asked what companies started as SES but eventually declined.

 

He gave two examples of when SES that eventually degraded.  Ford and Home Depot.

 

Again, Home Depot hasn't been doing that bad... and there is a connection with Sol Price and what HD did.... but, just putting it out there.. 

[schin]

On 8/18/2025 at 8:01 PM, Spooky said:

Netflix

@Spooky - Considering the margins and price increases... is Netflix really?  The content is hit or miss. It doesn't drive prices lower and lower like others.

[schin]

10 hours ago, KCLarkin said:

Read the Nomad Letters. It is a simple and powerful concept that could change your life. Honestly, you could probably read a one page summary, it is so simple. But the Nomad writing is so good, you are doing yourself a disservice by not reading them.

 

And I’d say it is a growth strategy, not a value strategy. You find one of these and you can hold it for decades.

 

@KCLarkin - I concur. It's a new way of looking at moats that is looking at delayed gratification, customer marketshare, and longevity in earning power from that.

 

It's Phil Fisher 2.0, Coffee Can Investing, and Peter Lynch's investment love child.

[schin]

On 8/18/2025 at 5:53 PM, bizaro86 said:

I think IBKR is a great example of this. That concept actually got me to increase my holding quite a bit before the big runup in the last year, so it was pretty helpful.

@bizaro86 - I use IBKR and I love how their prices are super competitive and low... and they have a broad range of investment products... but, their customer service sucks.... and that's part of SES.. LOL... great from a price PoV.. but, customer service is not something I would associate with IBKR. LOL.

 

[schin]

22 hours ago, charlieruane said:

Tricky example for various reasons but: Vanguard

 

I like this answer.. In the same theme, Nick likes Amazon... but, you wouldn't say WalMart.... right? So, being the lowest cost provider is not necessarily a SES?

[Ver]

5 hours ago, schin said:

 

I like this answer.. In the same theme, Nick likes Amazon... but, you wouldn't say WalMart.... right? So, being the lowest cost provider is not necessarily a SES?

 

Yeah its more of a holistic business model question. There's all kinds of commodity companies who can be the low cost provider for a few years but without any structural advantage, its too easy to get undercut. If Costco used their other tactics but without the membership, their model would lack a lot of the compounding effects that the current one has.

 

Walmart certainly emulated scale economies shared when Sam Walton and David Glass were around. Walton was up against a lot of retailers who would try to sneak extra margin or prioritized too many competing concerns.

 

Amazon also is no longer the same Amazon that Nick Sleep wrote about. It has a 55% average take rate (20% of that being FBA) and relies on monopolistic practices to prevent being undercut (this is a neutral statement). They've completely switched away from scale economies shared to competing on delivery speed and merchant lock-in. 

 

PDD does do scale economies shared but the means are rather complex. 

[Whensthepaintdry?]

I used AI to search for companies with this model and stumbled upon Hilton food group. It looks interesting. I’ll have to dig deeper. I’m more curious to see how good the AI did at finding a stock with scaled economies shared with the little bit of input I put into it. 

[Spooky]

12 hours ago, schin said:

@Spooky - Considering the margins and price increases... is Netflix really?  The content is hit or miss. It doesn't drive prices lower and lower like others.

 

Indeed it is but with a different flavour. I'm not going to rehash all the arguments from a few years ago in the Netflix thread. They have the largest subscription base of any of the streaming platforms which allows them to develop more content than the competition which translates directly into lower content costs per subscriber for their original content. The advantages of scale are returned to the customers since they get access to the most content for the price, encouraging growth and extending scale advantages. There are a few other similarities especially around how Netflix divides the pie between shareholders, customers and employees in particular. 

 

[DooDiligence]

I may be mistaken but Google came to mind when I first saw this discussion. They've consistently given free products in the form of analytics, gmail and more. Does this count as scaled economics shared?

 

Here's an interesting take on AI and SES.

 

https://pratyushbuddiga.substack.com/p/compounding-competitive-advantage-229