Wednesday, November 30, 2005

Warren Buffett's favorite deal

My favorite deal's going to be the next deal. It's tomorrow morning-it's going to be more fun than any day I've had a job as far as I'm concerned. And that's the way it is in what I do. We were talking about it at dinner, I mean the best kind of business to be in is something where you sell something that costs a penny and sells for a dollar and is habit forming. We haven't found that yet but we sell things a little like that. We sell candy in the West, See's Candy. Now unfortunately boxed chocolates are not big in this country, there's about 1 pound per capita. Everybody loves to eat them and get them as gifts but they don't buy them to eat themselves, it's a very interesting phenomenon. I mean there's nobody here that wouldn't like to get a box of chocolates for Christmas or when they are in the hospital or a birthday. But you don't go to a shop and buy it whereas in other parts of the world people do that, so it's a small business but it's still an important business. It's a great gift and very seasonal. I mean, we made 55 million dollars last year. We made 50 million in the three weeks before Christmas.

Our company saw what is apparently a come to Jesus moment. Can you imagine going home on Valentine's Day, you know and saying, there's my sweetheart and unwrap this box saying Happy Valentine's, Dear, I took the low bid. Price is not a determining factor. If you are selling something for five dollars a pound, you don't have to worry about somebody selling for $4.95 a pound and taking away the market like you do in a lot of things. It's what's in the mind that counts. And if you gave a box of chocolates on your first date to some girl and she kissed you, we all knew. As long as they are our chocolates. If she slapped your face, we're never going to get you back, that's not going to work. It's got to be very good chocolate obviously, but everybody in California has something in their mind about See's Chocolates. Just like everybody in the world virtually has something in their mind about Coca-Cola. They have something that I call "share of mind" and "share of market." They've got something in their mind. Now they aren't going to have 28 things in their mind. All we want with Coca-Cola are those that are associated with happiness. So we want it at Disney World, we want it at Disneyland, we want it at a baseball game. We want it everyplace people are happy. We want Coca-Cola because we want that association. Tastes terrific to drink too.

But it's going to be something in the mind about it that makes people feel good about the product. So someone else is selling something in a can for one penny less-they don't shift. And if you say RC Cola to people, it's been around for 75 years, but there's something in your mind about RC Cola. Other than that, it doesn't bring anything to mind and if you are selling a consumer product you want it to be in as many minds as possible with as favorable connotations as possible. And the truth is you can go in, this is one of the ways I look at business, I can give you a billion dollars and tell you to go to California and try and beat us in the boxed chocolate business and you'd say to yourself, how am I going to do it? Am I going to sell them for cheaper prices? Am I going to get new outputs? You can't displace it because you can't change what's in peoples' minds with a billion dollar advertising campaign or anything of the sort.

You could build a shoe factory in China that will put us out of business because in the end you may care a little bit. Remember Florhseim shoes or Big Men shoes 20 years ago, they're gone. You don't really care what shoe, you care what it looks like and if it's a name you recognize, fine. You don't pay something extra for it and you sure as hell don't look at the bottom of the sole and see if it says "Made in the USA" or not. You really need to be in something where cost is not the controlling factor. Hershey bars-you know, you go into a drug store and say, "I want a Hershey bar," and the guy says, "I've got this private label I make myself, same size as a Hershey bar and it's a nickel cheaper." You walk across the street and buy a Hershey bar some place else. That's when you have a business. It's when you walk across the street if the guy tries to sell you something, even if it is a little cheaper.

But if you sell wheat, my son lost a farm and it's a terrible business, and I told him the day someone walks into a place like this and says, "I'd like some of [name-brand] corn, please," you know you are in a good business. But when they just say "Bring me some corn," it's a lousy business. In fact, such a lousy business, they had a fella that I read about that he won the lottery and he was a farmer here in Nebraska that won 20 million dollars and the TV crew went out to him and asked him, "What are you going to do with the 20 million dollars?" He says, "I think I'll just keep farming 'til it's all gone." That's what happens when you are in the commodity business. You don't want to go near it.

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