Why Buffett and Munger bought See’s Candies & the lesson they learned

Understanding the Business

See’s Candies was founded by Charles A. See in 1921, selling chocolates with his mother Mary See’s original recipes. Four years later, there were already 12 stores around California.

When Buffett and Munger purchased See’s, it was earning a pre-tax income of slightly less than $5m on $8m of tangible equity. This means they were able to deploy capital at roughly a 60% return, which is extraordinary. Warren Buffett explained this feature below.

We bought See’s for $25 million when its sales were $30 million and pre-tax earnings were less than $5 million. The capital then required to conduct the business was $8 million. (Modest seasonal debt was also needed for a few months each year.) Consequently, the company was earning 60% pre-tax on invested capital. Two factors helped to minimize the funds required for operations. First, the product was sold for cash, and that eliminated accounts receivable. Second, the production and distribution cycle was short, which minimized inventories. Last year See’s sales were $383 million, and pre-tax profits were $82 million. The capital now required to run the business is $40 million. This means we have had to reinvest only $32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business. In the meantime pre-tax earnings have totaled $1.35 billion. All of that, except for the $32 million, has been sent to Berkshire (or, in the early years, to Blue Chip). After paying corporate taxes on the profits, we have used the rest to buy other attractive businesses. Just as Adam and Eve kick-started 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.) There aren’t many See’s in Corporate America. Typically, companies that increase their earnings from $5 million to $82 million require, say, $400 million or so of capital investment to finance their growth. That’s because growing businesses have both working capital needs that increase in proportion to sales growth and significant requirements for fixed asset investments. A company that needs large increases in capital to engender its growth may well prove to be a satisfactory investment. There is, to follow through on our example, nothing shabby about earning $82 million pre-tax on $400 million of net tangible assets. But that equation for the owner is vastly different from the See’s situation. It’s far better to have an ever-increasing stream of earnings with virtually no major capital requirements. Ask Microsoft or Google.
Warren Buffett, 2007 BRK annual report

In addition to being capital-light, See’s was also highly seasonal, as explained below.

See’s business tends to get a bit more seasonal each year. In the four weeks prior to Christmas, we do 40% of the year’s volume and earn about 75% of the year’s profits. We also earn significant sums in the Easter and Valentine’s Day periods, but pretty much tread water the rest of the year. In recent years, shop volume at Christmas has grown in relative importance, and so have quantity orders and mail orders. The increased concentration of business in the Christmas period produces a multitude of managerial problems, all of which have been handled by Chuck and his associates with exceptional skill and grace.
Warren Buffett, 1984 BRK annual report

They also successfully survived both The Great Depression and World War II. According to the See’s Candies website, during The Great Depression, “Charles See managed to reduce his prices without depleting the bottom line, charging only 42¢ a pound for pre-paid orders over 50 lbs.” Furthermore, they successfully navigated WWII’s rationing regiment, not by cost-cutting on ingredients, but rather by keeping quality high and closing stores once the candy ran out. According to their website, “customers were willing to wait in long lines to buy their candy from See’s, knowing that the company had kept their promise of quality.” These were some of the actions See’s took in their early days which helped build the brand over time.

Being capital-light means that inflation wouldn’t have forced them to outlay excess cash just to keep their plants running. Furthermore, Buffett likely knew that See’s could pass the costs of inflation onto their consumers, making this investment a fantastic defence against inflation.

Durable Competitive Advantage

The competitive advantage See’s possesses is a brand. As seen above through the WWII story, See’s spent decades developing a promise to consumers that they will offer high-quality chocolate with fantastic service whenever the consumer needs it. Warren Buffett described it as follows in the 1997 Berkshire Hathaway shareholders meeting.

Does their (the recipient of chocolates) face light up on Valentine’s Day when you hand them a non-descript box of candy and say, “here honey I took the low bid”. No! You’ve got millions of people that remember that the first time they handed that box of candy it wasn’t that much thereafter that they got kissed for the first time. The memories are good. The associations are good.

This shows that See’s had established its name as a high-quality box of chocolate that would bring smiles to people’s faces when they consume it or receive it as a present. This position guards See’s from competing, less established chocolate makers, and allows them to benefit from a price-inelastic customer base.

One of the indicators of a strong brand is whether the business can increase its prices over time, without losing customers.

As we can see, See’s Candies increased their price per pound by 6% per year over 34 years. Although Buffett couldn’t see the future, he undoubtedly understood that a business with such a strong brand had the potential to increase prices without losing market share. Furthermore, Charlie Munger lived in California since 1949, so he would’ve seen first-hand how desirable the See’s product is and how much of a premium in price they garner over other boxed chocolates.

Their profit after taxes increased by more than sales, which is a result of their expenses growing much slower compared to the increased revenues.


When Buffett and Munger bought See’s, they appointed Chuck Huggins as the CEO. Buffett thought highly of Huggins as we can see in the quotes below:

We put Chuck in charge the day we took over, and his record has been simply extraordinary
Warren Buffett, 1983 annual report

Few major retailing companies have been able to sustain such a customer-oriented spirit, and we owe Chuck a great deal for keeping it alive and well at See’s.
Warren Buffett, 1986 annual report

Here is another quote from Buffett from the 1983 Berkshire Hathaway annual letter on Huggins and the moat:

In our primary marketing area, the West, our candy is preferred by an enormous margin to that of any competitor. In fact, we believe most lovers of chocolate prefer it to candy costing two or three times as much. The quality of customer service in our shops – operated throughout the country by us and not by franchisees is every bit as good as the product. Cheerful, helpful personnel are as much a trademark of See’s as is the logo on the box. That’s no small achievement in a business that requires us to hire about 2000 seasonal workers. We know of no comparably-sized organization that betters the quality of customer service delivered by Chuck Huggins and his associates.
Warren Buffett, 1983 annual report

Although See’s had a brand moat when Berkshire purchased it, the brand needed to be carefully fostered and developed over time. An example of how See’s maintained its moat is seen below, where Buffett compares how See’s dealt with the seasonal nature of the industry with competitors’ approaches.

Their solutions (See’s Candies’ solution to the seasonality of the industry) have in no way involved compromises in either quality of service or quality of product. Most of our larger competitors could not say the same. Though faced with somewhat less extreme peaks and valleys in demand than we, they add preservatives or freeze the finished product in order to smooth the production cycle and thereby lower unit costs. We reject such techniques, opting, in effect, for production headaches rather than product modification.
Warren Buffett, 1984 BRK annual report

Tom Russo, who has an incredible investment track record investing in brands provided this insight in his 2022 interview with The Investor’s Podcast Network.

There were lots of chocolate companies like See’s Chocolate back in those days, and they all fought for market share. And so they cut prices, which of course was exactly the opposite approach that Warren took which was to raise the quality of the chocolate, raise the price, and have that feedback loop keep their clients lawfully.
The other trick is he realized, and this became very important later in my life, he realized, so he said that in order to make a good return for a year investment with See’s you have to be willing to suffer and be willing to not earn a good return for eight months of the year because you really only make money during the four pillar holidays of Easter, Valentine’s Day and Christmas and Thanksgiving. And the rest of the time you’re lucky to break even.
But it’s only because you suffer through that that you end up being the chocolate of choice at the higher price when it called upon to serve. The typical buyer would command a team of analysts who’d come in and they’d come back and say, “Eureka, I see what’s going on here. You’re not doing anything eight months of the year. You should really put in ice cream during the summer and hearty soup during the cold of winter and really get the full leverage off of those assets, sweat those assets more.” And of course it’s exactly the wrong step.
And that was the beauty of Warren’s insight is that he didn’t have to deliver profits every month, every quarter, every four months, whatever public companies often have to suffer from the expectations placed upon them by Wall Street.
He figured out that he’s much better off by maintaining the structure, shutting down for the months when there’s no activity by just maintaining a skeletal crew, being always there for someone who needed the product and charging a lot for that.
Tom Russo in his interview with William Green on The Investor’s Podcast Network

This decision to avoid the temptation of offering many more product lines and discount the prices of the products allowed See’s to maintain its moat and perception in the eyes of the consumer.


Here is what Buffett said about his purchase.

To begin with, I almost blew the See’s purchase. The seller was asking $30 million, and I was adamant about not going above $25 million. Fortunately, he caved.
Warren Buffett, 2006 annual report

Buffett at the time was used to buying extremely cheap businesses, feeling discomfort at the idea of paying 10x earnings and 3x book value. His purchase was clearly a success because as of 2007, See’s had delivered over $1.35b in pre-tax earnings to Berkshire headquarters.

A simple way to calculate the return from Buffett’s purchase price is to take the dividend yield and add the growth in profits it was able to achieve. Buffett stated above that of the $1.35b in pre-tax earnings earned by See’s, only $34m of it was retained in the business. This essentially means that the net income of the business was paid out to Buffett, so the dividend yield when Buffett bought See’s was 8% ($2,083 in net income in 1972 divided by the $25m purchase price). See’s also grew earnings by roughly 10% p.a. up until 2007, so the total return would’ve been roughly 18% p.a.

The more accurate approach is calculating the present value of See’s Candies’ net earnings, which with the benefit of hindsight, we can complete and arrive at an implied discount rate (internal rate of return) of 25% p.a. You can download the Excel spreadsheet I used to calculate this below. Note that I stopped at 2006 because the value of the earnings past this point were not adding material amounts to the valuation.

The reason this is much higher than the approximation is that in the early years, See’s actually grew much faster than 10%. From 1972 to 1982, its net income grew by 19% p.a. which slowed down over time to average a 10% growth rate.

This hindsight approach was obviously not possible for Buffett in 1972. Going back to Buffett’s perspective when the investment was made, he saw a well-managed brand which had the ability to pay him a 10% dividend yield and grow this yield over time without barely investing any additional capital in the business. Clearly, both the price paid and especially the strong moat of See’s presented Berkshire shareholders with a margin of safety with this investment.


The lesson that Buffett and Munger learned from this investment was the importance of a brand. Owning a desirable brand offers capital-free growth opportunities through price increases and is incredible protection against inflation. Brands don’t require much maintenance capital expenditures, meaning their earnings are free to be deployed in other ways. The factor that allows these businesses to earn their money is intangible, unlike car manufacturers for example, which need capital to operate. This See’s Candies investment was the catalyst for Berkshire’s later purchase of Coca-Cola stock.

Another important lesson was that not all brands travel the same. When analysing businesses with brand moats, an important factor to consider is whether they have had success in different geographies. If they do, this adds significantly to their growth potential and value. With See’s, Buffett and Munger tried to open stores across America, but they did not have the same success as those in California. This was likely to do with the taste of the chocolate and also because the brand had much more value to Californians than other parts of America.

Last but not least, as Tom Russo showed above through his insight, brands might take decades to develop, but can diminish quickly if certain poor decisions are made. Therefore, when analysing a business which owns brands, it is important to track how their perception amongst consumers is changing over time. In the case of See’s, price increases were not resulting in lower unit demand. However, if other paths were taken which prioritised short-term profits over long-term value creation, there was a chance that the See’s brand might have lost its strength and pricing power.

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