$GNGR How Buffett Made a Killing in Chocolate
By Emil Lee
Although no one can claim to fully understand Berkshire Hathaway Chairman Warren Buffett's genius or how exactly he values a company, it doesn't hurt to try to understand his past purchases. In this case, See's Candy, an extremely simple but successful early acquisition, provides a peek into how the master made a killing in chocolate.
Like other Berkshire investments -- including GEICO, Moody's, American Express, and inside value recommendation Coca-Cola, -- See's Candy is a cash cow that earns stratospheric returns on capital. From its purchase in 1972 until 1998
See's Candy increased pre-taxed earnings from $4 million to $60 million, and as Buffett said, "it still doesn't take any additional capital."
While most of Buffett's investments are profitable, Buffett's most ingenuous picks were his purchases of See's Candy and Gillette. Both were so seemingly ordinary that they belied their market shares and their capacity to generate profits that most companies only dream about.
"According to PACKAGING FACTS, the United States market for chocolate is forcasted to reach an overwhelming $18 billion by the year 2011.
It is quite amazing how much chocolate the citizens of the United States actually eat. But can you blame them? Walking into a grocery store, one can not help to miss the candy aisle, and perhaps they fight the urge and walk by it. They are once again caught looking at all the chocolates at the checkout lanes waiting to be bought and eaten. And there is such a variety. Peanut Butter cups, Twix, Butter Fingers, Kit Kat's, Hershey's Chocolates, Godiva, Kinder, Take 5, and so many more. According to the U.S. Market for Chocolate, sales of chocolate soared to a record $16 billion in 2006 though sales will still increase much more as the demand will increase.
Based on statistics from Packaged Foods, the chocolate industry is making much more money and they are not even selling more candy then before. Why? This industry has begun selling healthier candies for more money since there is a greater demand for these products, Amazingly, these organic chocolates are even killing the sales of gift candies and diet/sugar-free chocolates."
Lifestyle, Associated Content, August 11, 2007
