The Wealth Weaver

What Does See’s Candy Have that You Don’t? | January 11, 2012

What does See’s Candy have that you don’t? A line of customers out the door and around the corner. My new office is located next door to a See’s Candy store www.seescandy.com. I moved to my new location in October, and everyday I wondered how they were still in business. Their parking lot was always empty. I rarely saw a customer leave, and then only with a small bag. This December I learned See’s Candy is still a vibrant and thriving business. A highly seasonal operation, some 50% of its revenue is generated in November and December. Read more: http://www.answers.com/topic/see-s-candies-inc#ixzz1hNJmu8NS.

Somewhere back in their history they created a tradition: See’s Candy the perfect gift for Christmas. I was not able to track down how this marketing plan was implemented, and I am still curious. Everyday of December their parking lot has been full and overflowing into neighboring lots. This is the scene from early morning to late evening. People are walking out with large white and black See’s Candy bags.

This particular store is just one block away from the See’s location in the mall, so I paid a visit to the mall store. Same story: a steady stream of customers, and everyone left with a large white and black bag. This tradition has obviously made it into the culture with great success.

I have included my research into this successful business below. Read their history and their stats. Tell me what you see. Why did Warren Buffett buy them? What factors could you adopt in your business to create the See’s Candy phenomena? Do you have a seasonal product that could become 50% of your revenue generator? Can you design one?

My independent postal and shipping provider Lynn of Beach N Boxes (www.beachnboxes.com) says the boxes are thick and easy to mail, which makes their product a big favorite for those who send presents through delivery services. See’s has thought through the purchasers concerns and addressed them beautifully. What concerns might your customers have that you can answer to improve your sales?

By the way, don’t buy me See’s for Christmas. I am a sugar free person and part of the growing new market of foodies who must have organic, healthy and fresh nutrition. Their response to a changing market is to now offer Sugar Free chocolates. They thought beyond their regular customer base and provided a product to reach out to more prospects. Who do you cater to? Who could you add a product or service for?

See’s Candy History
Throughout the history of See’s Candies, Mary See has symbolized the old-fashioned virtues of homemade quality and friendly service. The spectacled, silver haired woman still smiles with pride from candy boxes shipped throughout the world, and her original recipes are savored by millions to this day.

When Charles See arrived in Los Angeles from Canada in 1921 to try his hand at the confection business, he decided that no image would better reflect the personality of his fledgling venture than that of his mother. Apart from using her recipes as a foundation, See knew that keeping things in the family was the only way to bring about the kind of lovingly crafted product he desired.

See along with his mother and his wife, Florence, opened the first See’s Candies shop and kitchen on Western Avenue in Los Angeles in November of 1921. The sparkling clean, black and white shop was designed to resemble Mary See’s home kitchen.

Benefiting from the wide acceptance of an unusually high quality candy, See’s was able to grow steadily from that first shop in Los Angeles to twelve shops by the mid-1920′s and thirty shops during the depression. By 1936, See’s was able to expand to San Francisco.

Mary See died in 1939 at the age of 85, but the company’s ability to adjust to changing times – without abandoning the passion for quality and service that Mary See represented – kept it going strong throughout the decades to come.

Following World War II, See’s Candy Shops grew as California grew, and the See’s family continued the tradition, opening up shops throughout the state. In the 50′s, See’s established itself with the new and growing phenomenon of shopping malls. See’s customers continued to recognize the See’s Candies product for its quality and taste, and continued to visit See’s old-fashioned black and white shops, enjoying a visit to a time past where service was paramount.

In 1972, the See’s family sold the company to Berkshire Hathaway Inc., presided over by Chairman Warren Buffett and Vice Chairman Charles Munger. Utilizing his philosophy of acquiring solid companies where he could follow his “hands off” policy, Warren Buffett installed Charles N. Huggins as President and CEO. Charles Huggins dedicated himself to the continuance of the company he joined in 1951, guiding it with the old-fashioned values set by Charles See until his retirement at the end of 2005.

He is succeeded by current See’s President and CEO, Brad Kinstler, a longtime Berkshire Hathaway team member.
Today, “California’s Famous Old Time Candies®” are sold in over two hundred shops throughout the West, a true sign of their enduring popularity. And, to this day, Charles See’s living motto, “Quality Without Compromise®” continues to guide the company.

Analysis of See’s Candies
If I understand correctly, we’re looking to analyse great businesses in this forum. I believe Warren Buffett has called See’s Candies a great business many times so it seems a good place to start. Below is my analysis of See’s plus some unanswered questions. Please add, amend, correct etc!

Quantitative
————
**1972**
Purchase Price – $25m (16% off the asking price of $30m)
Sales – $30m on 16 million 1bs of candy = to $1.88 / lb of candy
Pre-tax Profits – $4.5m (56% on invested capital)
Post-tax Profits – $2.25m? (estimate) growing 12% a year
Invested Capital – $8m
**2006**
Sales – $383m on 33 million 1bs of candy = to $11.61 / lb of candy
Pre-tax Profits – $82m
Post-tax Profits – £60m? (estimate)
Invested Capital – $40m
**2006 at 1972 prices**
Sales – $80m on 33 million 1bs of candy = to $2.42 / lb of candy
Pre-tax Profits – $17m
Post-tax Profits – £8.4m? (estimate)
So Berkshire invested $32m since 1972 (approx $1m / year) whilst pre-tax earnings over the period total $1.35bn. Total investment $57m. ROI = >2300% over 34 years
Please see a public google spreadsheet posted as a web page for the above here:

http://spreadsheets.google.com/pub?key=t248xiVFFLXMMjEj3fwS91Q&output=html

Qualitative
———–
> The product tasted great – used the highest quality ingredients
> The personality of the product -> nostalgia, share of mind, reputation for innovation, history (the inspiration for Charlie & the Chocolate Factory?)
> Reasonable price (too reasonable) – untapped pricing power. WEB believed another $0.15 was possible. This would increase profits by $2.4m.
> Total control of distribution
> Exceptional service
> Market leader
> Minimal funds needed to operate – cash eliminated accounts receivable & production & distribution cycles are short minimising inventories
> Virtually all of the post-tax profits are free cash
> Tough to grow volume

All these factors lead to an extremely wide moat. The loyalty of the customers can be seen by the 2 years they spent defending See’s when it was purchased by Blue Chip Stamps.

---