- Investing guru Warren Buffett may have invested in Apple and Coca-Cola, but his "dream business" is See’s Candies, a California seller of boxed chocolates he bought in 1972.
- The so-called Sage of Omaha has praised See’s outsized financial returns, modest capital needs, economic moat, quality personnel, and the chocolates themselves.
- Watch Berkshire Hathaway trade live.
Warren Buffett has invested in Apple, Coca-Cola, Amazon, Bank of America, and other household names. Yet See’s Candies, a California seller of boxed chocolates, is the investment guru’s "dream business."
Buffett has frequently applauded See’s since buying it in 1972. He and his investment partner Charlie Munger have "earned exceptional returns and had a good time," he wrote in his 1991 letter to shareholders. "We would love to increase our economic interest in See’s, but we haven’t found a way to add to a 100% holding," he wrote in his 1994 letter.
The so-called Sage of Omaha’s has praised See’s outsized financial returns, modest capital needs, economic moat, quality personnel, and the chocolates themselves. We look at each aspect of the company below.
A return of 8000%
Probably the biggest reason for Buffett’s love affair with See’s Candies is the enormous return he’s made on his investment: north of 8000% since 1972, or more than 160% a year.
"We put $25 million into it and it’s given us over $2 billion of pretax income, well over $2 billion," Buffett said at this year’s annual shareholder meeting, according to the San Francisco Business Times.
See’s has grown from earning $30 million in annual revenue and less than $5 million in pre-tax income when Buffett bought it, to more than $380 million in sales and $80 million in profits, according to the latest figures available.
Buffett may be especially grateful for his billions from See’s, given he nearly backed out of buying the business over a paltry $5 million.
"I almost blew the See’s purchase," he wrote in his 2007 letter. "The seller was asking $30 million, and I was adamant about not going above $25 million. Fortunately, he caved. Otherwise I would have balked, and that [$2] billion would have gone to somebody else."
A chocolate cash cow
Buffett has frequently praised See’s for its modest capital needs.
Selling chocolates f0r cash means the business takes in revenue immediately, and a short production and distribution cycle minimizes the volume of funds tied up in inventory, he wrote in his 2007 letter.
See’s has only required $40 million in investment from Berkshire Hathaway to generate upwards of $2 billion in profits for the conglomerate. It’s become a cash cow that provides funding for Buffett’s other ventures.
"Just as Adam and Eve kickstarted an activity that led to six billion humans, See’s has given birth to multiple new streams of cash for us. (The biblical command to "be fruitful and multiply" is one we take seriously at Berkshire.)," he wrote in 2007.
"See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits. (Envision rabbits breeding.)," he wrote in 2014.
A brand-loyalty moat
Alex Wong/Getty, REUTERS/Rebecca Cook
Two of the key competitive advantages of See’s are its famous brand and loyal customer base, which make it easy to charge more and tough for rivals to steal business.
"Every person in California has something in mind about See’s Candies and overwhelmingly it was favorable," Buffett told a group of business-school students at the University of Florida in 1998.
"They had taken a box on Valentine’s Day to some girl and she had kissed him … See’s Candies means getting kissed," he added. "If we can get that in the minds of people, we can raise prices."
See’s also enjoyed a "pervasive favorable reputation with consumers based upon countless pleasant experiences they have had with both product and personnel," Buffett wrote in his 1983 letter.
The attractive brand image allows the company to base its selling prices on the value of the product to the customer, not the cost of producing it, he added. Unsurprisingly, See’s has raised its prices from less than $2 a pound in 1972 to more than $20.
When Tesla CEO Elon Musk criticized economic moats like brand loyalty as "lame" on an earnings call last year, Buffett fired back. "Elon may turn things upside down in some areas," he said at the next annual shareholder meeting, according to Fortune. "I don’t think he’d want to take us on in candy."
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