Berkshire Beyond Buffett(3)

Returns on investments in Blue Chip were reasonable in the early years, once it settled lawsuits, and the company continued to produce modest float.8 But the business model faded as consumer tastes and the economic environment changed. People lost interest in stamp collecting and redemption,9 while spiraling inflation and gasoline prices stimulated retailers to focus on lower prices rather than costly perks.10 Eventually, Blue Chip’s business wound down as retailers ceased buying stamps, though it remained open for decades to allow customers to redeem those outstanding. Berkshire folded Blue Chip into its corporate family by merger, and it became an artifact of American and Berkshire history. But while it lived, Blue Chip played a role in a trio of acquisitions that would lay the foundation of Berkshire culture: See’s Candies, Wesco Financial, and the Buffalo News.




In 1971, an executive at Blue Chip Stamps, William Ramsey, called Buffett with a potential acquisition candidate: See’s Candies.11 Buffett told Ramsey to call Munger, who liked the prospect of acquiring a branded chocolate company with loyal customers up and down the state of California.

The third-generation family business dated to 1921, when Charles A. See moved from northern Canada to southern California seeking a better life.12 Fire had destroyed his pharmacy business, and a stint as a chocolate salesman convinced him to make a go of it in the candy business. With his mother, Mary; his wife, Florence; and his two young children he resettled in Los Angeles and befriended a local businessman, James W. Reed. Together the group launched See’s Candies, Inc. in 1922.

The shop, designed to resemble Mary See’s home kitchen, made and sold boxed chocolates, many using Mary’s secret recipes, with only fine and fresh ingredients. Mary’s bespectacled, silver-haired, grandmotherly face became the face of the firm. The company’s logo features Mary See’s matronly smile at the center of a simple black-and-white design, conveying the sense of old-fashioned, homemade quality that Charles favored. Deliveries arrived in logo-emblazoned Harley-Davidson motorcycles with sidecars. Another marketing innovation offered bulk chocolate at great discounts to churches, clubs, and other groups, which resold the candy at a profit for fundraisers. Mary See died in 1939 at the age of eighty-five, but her spirit, the spirit of the company, endured.

By then the company had a dozen stores, held a production facility in Los Angeles, and had expanded to San Francisco, where it soon opened nine more shops and another plant. Charles’s son Laurance joined the business during this period, and when Charles passed away in 1949, became president.

The 1950s were the era of suburbanization in the United States, and Laurance led the way as he opened See’s Candies in the new shopping malls that were springing up across California. By 1960 the chain consisted of 124 stores. During the 1960s, See’s moved into Arizona, Oregon, and Washington and grew to 150 shops. With solid profits, See’s outperformed local competitors and rivaled Hershey, Russell Stover, and other national brands.

In 1969, Laurance died. His younger brother, Harry, a stockholder and director, was to succeed him, but Harry was torn over succession, as he also ran a vineyard elsewhere in the state. Reluctantly, the See family, which owned 67 percent of the stock, decided to sell. In a move that would later be considered quaint for Berkshire Hathaway acquisitions, Buffett and Munger toured the Los Angeles plant in 1969.13

The See family asked $30 million for their business (technically $40 million, but the company had cash on hand in excess of $10 million). However, Buffett noticed that pretax income was only $4 million and that the balance sheet showed net assets of only $7 million. He was not yet in the habit of paying a premium for intangible values.14 But Munger convinced Buffett of the qualitative aspects of the business, and together they decided their best and highest offer would be $25 million. The See family accepted. Years later, Buffett acknowledged that this bid was very low, which he attributed to his ignorance of the value of franchises.15

But why did the See family, with three generations of experience living their franchise, accept this low bid? Autonomy is not a likely reason, as the See family would no longer be in management. But Buffett and Munger hand-picked the company’s new president, Charles N. Huggins, and everyone understood that Huggins, who had been with See’s since 1951 (and who would continue until 2005), was to preserve See’s traditions, not transform the company. And few changes ensued, as the company continued to operate the way it had for the previous fifty years: homemade chocolate produced and sold in an old-fashioned way. Permanence—it appears at least in hindsight—was part of the exchange. By the mid-1990s, See’s sold more boxed chocolate in the world than any company except Russell Stover,16 and today it earns $80 million annually.17