How come Sees Candy isn't sold wholesale?

[ratiman]

Buffett has said that it's hard to grow Sees sales but chocolatiers like Godiva and Lindt sell in supermarkets and also maintain independent shops. I've heard that Buffett wanted to maintain the Sees brand and didn't want Sees sold next to Hershey's or something but it works for Godiva and Lindt, it should work for Sees too.

[DooDiligence]

Probably an anomaly, but they've been in the Navy Exchange in Pensacola, FL for a very long time.

 

They've always had their own freestanding display placed very close to the checkout line.

 

I'm embarrassed to say I've never bought any, but I'll change that soon.
 

---

 

FWIW, here's some old NEXCOM candy sales publications:

(scroll down to see See's hitting top spots for Christmas sales)

 

2013 Seasonal Best Sellers

 

https://www.ebmpubs.com/ECN_pdfs/ecn0914_NEXCOMHolidayCandy.pdf

 

---

 

2016 Seasonal Best Sellers

 

https://www.ebmpubs.com/ECN_pdfs/ecn1217_NEXCOMTaylorCandyPlanogram.pdf

Edited May 14, 2022 by DooDiligence

[bookie71]

For several years one of the local nurseries (plants) has had See's for sale

[ratiman]

I didn't plan this but this is a good story about the growth of Sees.

 

https://thehustle.co/how-a-small-candy-company-became-warren-buffetts-dream-investment/

[LearningMachine]

1 hour ago, ratiman said:

I didn't plan this but this is a good story about the growth of Sees.

 

https://thehustle.co/how-a-small-candy-company-became-warren-buffetts-dream-investment/

 

I get wowed every time I see this table.   Buffet has said before he sees Apple as more like See's.  However, he was able to buy See's at about 10x, not at Apple's current 24x price.  Also, See's Profit margin compared to Revenue was extremely low 6.7% at time of purchase and had room to multiply to 9.8%.  Apple's already at gross margin/sales at 41.8%, operating income/sales at 29.8%, and net income/sales at 25.9%.

 

Just like See's was able to double price in 7 years, I think Buffett sees Apple having similar pricing power to be able to double the prices over the next 7-10 years if inflation continues.  But if P/E goes from 24 to 12 at some point that will negate that increase at least in public stock price at that time.   Maybe not permanently, but hoping there will be some buying opportunities close to P/E of 10 at some moment in the next 7-10 years. 

 

Edited May 15, 2022 by LearningMachine

[Parsad]

On 5/14/2022 at 7:58 AM, ratiman said:

Buffett has said that it's hard to grow Sees sales but chocolatiers like Godiva and Lindt sell in supermarkets and also maintain independent shops. I've heard that Buffett wanted to maintain the Sees brand and didn't want Sees sold next to Hershey's or something but it works for Godiva and Lindt, it should work for Sees too.

 

I spoke to Chuck Huggins about this many years ago...he was a very nice man!  Wondered why they didn't do that, as well as expand to Canada on the West Coast.

 

He said it was about quality and freshness control.  Apparently, the window of making chocolate to delivery at locations is 3 days maximum.  Huggins didn't want the distribution taking any longer than that.  Also said that competition was quite tough in Canada with some very well known local brands...Purdy's, Laura Secord, Roger's Chocolates, etc.

 

That's also the reason why they've grown organically for the most part out of regions where they were already known...other than a handful of licensed stores and kiosks outside of their core region.  The manufacturing sites are within three days delivery to the locations in their region.  This maintains quality control and margins are better on the retail side.  

 

Cheers!

[ratiman]

4 hours ago, Parsad said:

indow of making chocolate to delivery at locations is 3 days maximum.  Huggins didn't want the distribution taking any longer than that.  Also said that competition was quite tough in Canada with some very well known local brands...Purdy's, Laura Secord, Roger's Chocolates, etc.

 

That's also the reason why they've grown organically for the most part out of regions where they were already known...other than a handful of licensed stores and kiosks outside of their core region.  The manufacturing sites are within three days

Thanks, that's very helpful. But i'm not sure it totally answers the question. The same concerns about freshness would apply to Lindt or Godiva. I had no idea that chocolate could be fresh or not fresh.

[JGBRK]

I don't think See's uses preservatives.  Not sure about the others.  That might be the freshness factor.

[MikeL]

I remember from the past annual letters many years ago, WB mentioned they tried to expand See's to the east coast, but it was not successful, due to brand recognition.

 

I doubt the 3 days thing, if they sell >75% of volume in Dec, they are going to need a lot of capacity in Dec to produce See's, for the rest of year, the production lines don't have much to do.

[Parsad]

10 hours ago, ratiman said:

Thanks, that's very helpful. But i'm not sure it totally answers the question. The same concerns about freshness would apply to Lindt or Godiva. I had no idea that chocolate could be fresh or not fresh.

 

Godiva chocolate can sit for months in third-party retail stores.  They usually go on a half price sale after every Christmas...chocolate that has been sitting there since October!  Don't even get me started on Lindt!  So quality control isn't the same as See's. 

 

Now Godiva stores are different...the chocolate doesn't sit, just like See's stores.  Although, some of the boxed chocolates at Godiva's stores comes prepackaged.  Most of the chocolate at See's (not lollipops, toffee, etc) that you see in prepackaged boxes are prepared at the stores as chocolate arrives.  

 

Just because a burger may taste fine sitting for three hours under a heat lamp, doesn't mean it's fresh!  So when you buy See's at store locations, it's made recently.  Cheers!

[IceCreamMan]

On 5/14/2022 at 10:58 AM, ratiman said:

Buffett has said that it's hard to grow Sees sales but chocolatiers like Godiva and Lindt sell in supermarkets and also maintain independent shops. I've heard that Buffett wanted to maintain the Sees brand and didn't want Sees sold next to Hershey's or something but it works for Godiva and Lindt, it should work for Sees too.

 

You provided a good answer in your question: See's wants to protect its brand. Letters from Buffett to See's president to this effect are on the 'net.

[ratiman]

I've read that if you show up at a Godiva just before closing you can get the chocolate covered strawberries for free, right before they're thrown out. Just a heads up for the true value investors out there.

[DooDiligence]

3 hours ago, ratiman said:

I've read that if you show up at a Godiva just before closing you can get the chocolate covered strawberries for free, right before they're thrown out. Just a heads up for the true value investors out there.

 

[Ballinvarosig Investors]

Maybe it's like Herbalife, the distribution needs to be tightly controlled? 

 

Honestly, I never understood See's. I tried it at the Berkshire meeting and found it far too rich for my taste, I think the box I brought home ended up in the bin.

[longlake95]

Send the leftovers to me next time 

[Parsad]

51 minutes ago, Ballinvarosig Investors said:

Maybe it's like Herbalife, the distribution needs to be tightly controlled? 

 

Honestly, I never understood See's. I tried it at the Berkshire meeting and found it far too rich for my taste, I think the box I brought home ended up in the bin.

 

Are you crazy?!  Try the See's truffles...if they are too rich, then buy the chocolate covered nuts.  But don't throw them away!  Cheers!

[ratiman]

I stopped giving chocolate at Christmas because everybody on my list is either a) fat or b) desperately trying to keep off the weight. Nobody looks at a box of chocolates and says "Oh thank you for adding an inch to my waistline."

[ratiman]

If Sees Candy were publicly traded, would any Berkshire investors own it?

 

"That company has no moat. This is the Harley Davidson of chocolate, it appeals to boomers but to nobody else. You're buying into an overpriced, overhyped brand with no moat that can't grow outside of California. Those margins are indefensible and over time they will be competed away."

 

Maybe the real genius of buying Sees was that ultimately Buffett didn't know what the moat was but he bought the company anyway.

[Blugolds]

3 hours ago, ratiman said:

If Sees Candy were publicly traded, would any Berkshire investors own it?

 

"That company has no moat. This is the Harley Davidson of chocolate, it appeals to boomers but to nobody else. You're buying into an overpriced, overhyped brand with no moat that can't grow outside of California. Those margins are indefensible and over time they will be competed away."

 

Maybe the real genius of buying Sees was that ultimately Buffett didn't know what the moat was but he bought the company anyway.

 

Buffett knew the moat and knew the business very well. I dont know where you got the above quote comping it to HD...but at one time remember HD bikes were selling for over MSRP before owners even took delivery, they were selling their spot in line for profit. So everything has its heyday.

 

Since the quote calls the company something that appeals to "boomers" did the author go on to recommend AMC, GME or BTC holdings to a solid reliable and predictable investment that has been around for 100 years. 

 

Regardless, See's has been a solid investment for BRK, the investment has already paid off and IMO anything now is icing on the cake. 

 

https://news.yahoo.com/sees-candies-record-quarter-170456133.html

 

 

 

He recognized that See’s had 3 distinct advantages:

1. It possessed a strong built-in customer loyalty moat
2. Its product was so good that customers would tolerate price hikes
3. It required very little operating capital

 

In 1982, Buffett was offered $125m for See’s — 5x the $25m he’d paid for it just 10 years earlier, or a 20% compound annual growth rate. He passed, opting to let the company slowly chug along.

 

 

Buffett’s rejection of the $125m offer would turn out to be a smart move.

 

 Since 1972, the company has given Berkshire Hathaway well over $2B in income. That’s a return of more than 8k%, or 160%+ per year.

Over the same time period, the small operation required only $32m in capital to run. “Modest physical growth,” wrote Buffett in 2007, had led to “immodest financial growth.”

See’s provided Berkshire Hathaway with a reliable stream of capital that it used to buy into other attractive businesses.

In the late 1980s, he used See’s profits to buy Coca-Cola shares, which are now collectively worth more than $25B.

 

Today, See’s Candies sell for $22.50 per pound — about double the 1972 price, after adjusting for inflation — but its customers have remained loyal."

 

 

 

As to if the company was publicly traded would anybody own it...that all depends on the price you give for the value you get...just like anything else and at .1% of BRK holdings there are better things to spend time contemplating with regard to BRK IMO. 

 

[aws]

Not selling See's in 1982 for $125 million when offered it turned out to be a $100 billion mistake. You see, Berkshire shares were trading at $500 in 1982, so he could have taken that 125 million and repurchased 250,000 shares, which today would be worth 105.5 billion dollars. 

 

That wasn't even his only 12 figure mistake. Buying Berkshire itself instead of operating out of the partnership was an even costlier mistake, which he pegged as a $200 billion. The two worst investment decisions in history!

 

I kid of course, but I do wonder based on how well he compounded with everything else he did in those years if he actually was better off keeping it. It's probably a somewhat difficult calculation with figuring out the compounded returns on the capital over the years vs. getting a lump sum right at the start. Although I'm certainly not losing any sleep over it regardless.

 

 

 

[Spekulatius]

On 5/20/2022 at 7:19 PM, Ballinvarosig Investors said:

Maybe it's like Herbalife, the distribution needs to be tightly controlled? 

 

Honestly, I never understood See's. I tried it at the Berkshire meeting and found it far too rich for my taste, I think the box I brought home ended up in the bin.

Quite frankly, Lindt or Ghirardelli beats Seas Candy. The company is worked  for in CA had a sale for a discount on Xmas and I bought a box once and wasn’t impressed. I never bought one again.  I don’t think this 3 day rule makes any sense, chocolate sits much longer I bet.

 

I think somewhere along the line, they underinvested in Seas Candy or they might be giant in the Candy business right now. May be the alternative was just better than organic or inorganic investments in this business.

[Poor Charlie]

9 hours ago, ratiman said:

If Sees Candy were publicly traded, would any Berkshire investors own it?

 

"That company has no moat. This is the Harley Davidson of chocolate, it appeals to boomers but to nobody else. You're buying into an overpriced, overhyped brand with no moat that can't grow outside of California. Those margins are indefensible and over time they will be competed away."

See's has grown in the HSDs without a year-over-year decline for more than 75 years. Cash conversion is like 99%. Think of it as an annuity that grows at 2x GDP. What's that worth in a DCF? 

 

9 hours ago, ratiman said:

Maybe the real genius of buying Sees was that ultimately Buffett didn't know what the moat was but he bought the company anyway.

I think Buffett relies on pattern recognition more than people realize (how else can he make a yes/no decision in just a few minutes?). It could be chocolate, coatings, castings or cutting tools. He doesn't care as long as the financials look a certain way. And if you look at See's annual reports from the 1960s, you'll notice the financial results map to other deals he has done (or wanted to do).

[ratiman]

If a Sees Candy-like investment were to show up today, value investors would dismiss it as being an overpriced & faddish product with no sustainable moat, the same way that value investors dismissed Starbucks in the 90s as overpriced & faddish coffee, even though Starbucks was over 30 years old by then. When people say that Buffett understands the Sees moat, I don't think that's correct. He could read the financial statements, but buying the brand was still a leap of faith because the strength of the brand is mysterious. There is something inexplicable about genuinely successful premium brands. If Starbucks were named Il Giornale or Nike were Dimension 6, they would not be the same brands.

[redskin]

On 7/8/2022 at 7:11 PM, Blugolds11 said:

 

Buffett knew the moat and knew the business very well. I dont know where you got the above quote comping it to HD...but at one time remember HD bikes were selling for over MSRP before owners even took delivery, they were selling their spot in line for profit. So everything has its heyday.

 

Since the quote calls the company something that appeals to "boomers" did the author go on to recommend AMC, GME or BTC holdings to a solid reliable and predictable investment that has been around for 100 years. 

 

Regardless, See's has been a solid investment for BRK, the investment has already paid off and IMO anything now is icing on the cake. 

 

https://news.yahoo.com/sees-candies-record-quarter-170456133.html

 

 

 

He recognized that See’s had 3 distinct advantages:

1. It possessed a strong built-in customer loyalty moat
2. Its product was so good that customers would tolerate price hikes
3. It required very little operating capital

 

In 1982, Buffett was offered $125m for See’s — 5x the $25m he’d paid for it just 10 years earlier, or a 20% compound annual growth rate. He passed, opting to let the company slowly chug along.

 

 

Buffett’s rejection of the $125m offer would turn out to be a smart move.

 

 Since 1972, the company has given Berkshire Hathaway well over $2B in income. That’s a return of more than 8k%, or 160%+ per year.

Over the same time period, the small operation required only $32m in capital to run. “Modest physical growth,” wrote Buffett in 2007, had led to “immodest financial growth.”

See’s provided Berkshire Hathaway with a reliable stream of capital that it used to buy into other attractive businesses.

In the late 1980s, he used See’s profits to buy Coca-Cola shares, which are now collectively worth more than $25B.

 

Today, See’s Candies sell for $22.50 per pound — about double the 1972 price, after adjusting for inflation — but its customers have remained loyal."

 

 

 

As to if the company was publicly traded would anybody own it...that all depends on the price you give for the value you get...just like anything else and at .1% of BRK holdings there are better things to spend time contemplating with regard to BRK IMO. 

 

Well said...

[Parsad]

On 7/8/2022 at 7:41 PM, aws said:

Not selling See's in 1982 for $125 million when offered it turned out to be a $100 billion mistake. You see, Berkshire shares were trading at $500 in 1982, so he could have taken that 125 million and repurchased 250,000 shares, which today would be worth 105.5 billion dollars. 

 

That wasn't even his only 12 figure mistake. Buying Berkshire itself instead of operating out of the partnership was an even costlier mistake, which he pegged as a $200 billion. The two worst investment decisions in history!

 

I kid of course, but I do wonder based on how well he compounded with everything else he did in those years if he actually was better off keeping it. It's probably a somewhat difficult calculation with figuring out the compounded returns on the capital over the years vs. getting a lump sum right at the start. Although I'm certainly not losing any sleep over it regardless.

 

 

 

 

Berkshire's modus operandi is that it will buy your business and never sell it.  It's why it never sold Dexter shoes.  That gave Berkshire a bit of an advantage when hunting for private, family held businesses to acquire.  If Berkshire sold off See's, Dexters, etc it would reduce the opportunities available to it.  

 

So yes, theoretically he could have sold See's and compounded that money quicker, but then he might not have been offered or sold Nebraska Furniture Mart, National Indemnity, Borsheims, NetJets, Marmon and a host of other private businesses.

 

Cheers!