Investment guru Warren Buffett invested in Apple and Coca-Cola, but he still sees the California See Candies chocolate factory as his dream business, which he barely acquired in 1972.
Reasons for admiration for the factory
The so-called “Oracle from Omaha” appreciates See for its considerable financial return, modest capital requirements, competitive advantages, high professionalism of the staff and chocolates themselves. (See the financial statements of Berkshire Hathaway).
Since the purchase of the factory in 1972, Buffett has often applauded her. He and his investment partner Charlie Munger “made fabulous profits and spent time usefully,” he wrote in a letter to shareholders in 1991. "They wanted to consolidate the economic benefits in See Candies, but did not find a way to increase the holding by 100%," the investor said in a 1994 letter.
Consider below each individual aspect of the enterprise.
Profitability of 8000%
It seems that the main reason for Buffett's love for See candies is the huge profit he received from investments: since 1972, the return was 8,000% or more than 160% per year.
According to the San Francisco Business Times office, Buffett summarized at the annual meeting of shareholders: "$ 25 million was invested in the factory, and this made it possible to get about 2 billion gross profit."
According to recent data, since the purchase of See Candies by an investor, the company's annual revenue has grown from $ 30 million per year and about $ 5 million in gross profit to more than $ 380 million in sales revenue and $ 80 million in gross income.
Buffett remains particularly grateful to the candy factory for its billions, given the fact that he almost refused to acquire the business because of a negligible $ 5 million.
In a letter from 2007, the investor recalls that "I nearly terminated the purchase and sale transaction, because the seller requested $ 30 million, and he was adamant about not exceeding the amount of $ 25 million. Fortunately, the factory owner "Surrendered. Otherwise, Buffett would have fidgeted, and the $ 2 billion would go to someone else."
Chocolate "cash cow"
Buffett has repeatedly been praised by See Candies for his modest capital needs.
Cash sale of chocolates implies that the business immediately earns income, and a short production and distribution cycle minimizes the amount of funds invested in revolving funds, he wrote in a letter from 2007.
The company took just $ 40 million in investment from Berkshire Hathaway to earn more than $ 2 billion in profit for the multidisciplinary corporation. This became a "cash cow," providing funds for other Buffett endeavors.
“Just as Adam and Eve started an activity that led to six billion people, the candy factory generated numerous new cash flows for the conglomerate. (The biblical commandment“ be fruitful and multiply ”is something that Berkshire takes quite seriously),” wrote he is in 2007.
Thus, See Candies was able to account for and distribute the huge sums that helped Berkshire acquire new companies, which in turn received new income to be distributed. (Imagine rabbit breeding), "wrote the investor in 2014.
"Moat of loyalty" to the brand
Two of See’s main competitive advantages are a well-known brand and loyal clientele, which make it possible to easily set an ever higher price in order to quietly push competitors out of the market.
"Every California resident knows something, mostly positive, about See Factory sweets," Buffett told a group of students at the University of Florida Business School in 1998.
"Someone bought a box of chocolates for one girl on Valentine's Day, and she kissed the giver, which means that See candies are a way to get a kiss," the investor added. "If this can be put into people's minds, then prices should be raised."
See Candies also enjoys an "ubiquitous positive reputation among shoppers based on the many favorable experiences gained from interacting with both staff and chocolate products," Buffett mentioned in his 1983 letter.
An attractive brand image allows the company to base its selling prices on the value of the product for the client, rather than on the cost of its production, he added. Not surprisingly, the factory raised prices from less than $ 2 a pound in 1972 to more than $ 20.
Last year, Tesla CEO Ilon Musk criticized the manufacturer’s competitive advantages, such as brand loyalty, for an unconvincing opportunity to make money. Buffett retorted: "Ilon is able in some areas to turn facts upside down." At the same time, the investor said that he doubts his intentions to get around his team in terms of key indicators in the confectionery industry.
The value of management and staff
Buffett regularly praised See management and store staff.
In his 1988 letter of account, he claimed that "with Charlie Munger, 5 minutes after the company’s purchase, he placed Chuck Huggins at the head of the See Candies, who led the confectionery business for a long time."
In 2005, an investor wrote that Huggins, whose "love for customers and the brand has spread throughout the organization," observed a tenfold increase in profits over 34 years of work in the company.
According to Buffett, voiced to investors in 1987: "Confectionery shops are interesting to visit, but most of them were of little interest to business owners. As you can see, in fact, in recent years no one except See Candies has achieved significant profits from the activities of confectionery shops. Obviously, the achievements Chuck at See isn’t associated with an increase in the food industry. Most likely, this is one of a kind. "
While Huggins probably contributed to the success of the factory, his resignation in 2006 did not affect the company. The successor to the leader, Brad Kinstler, "is now taking the company to new heights," Buffett wrote in 2011.
Warren also often admired the customer service at See. “The cheerful, helpful staff is the same See brand name as the logo on the box,” he explained in a letter from 1983.
Chocolate
Buffett's addiction to chocolate can also be a reason for his attachment to the company.
For many years, See products have been sold at Berkshire Hathaway annual business meetings. In fact, by 2013, participants had consumed more than 13,400 pounds of chocolate products.
Referring to the upcoming annual meeting, in a letter from 2015, Buffett promised that “he and Charlie will consume enough Coca-Cola, See Candies fudge and peanut crumbs to satisfy the weekly calorie needs of the NFL striker (National Football League) ) ".