Berkshire Beyond Buffett(79)

Coca-Cola has been a profitable investment for Berkshire—worth today twelve times what Berkshire paid for it. And Buffett’s son Howard has been on its board since 2010. The company appears to be prospering, and the Buffetts are bullish on it. Buffett and Munger continue to give the brand free advertising by sipping it on the podium at Berkshire’s annual meetings. But skeptics wonder about the durability of its economic characteristics in a health-conscious world turning away from carbonated beverages.24




In 2006 and again in 2009, Berkshire accumulated a substantial stake in Walmart, the massive retailer that sold McLane to Berkshire in 2003. Walmart is a young corporation for its size, begun in 1962, by brothers Samuel Moore and J. L. (“Bud”) Walton in Arkansas.25 Their first store grew to a chain of eighteen within a decade, and the brothers took the company public in 1970, listing on the New York Stock Exchange two years later. In a business sprint, Walmart’s revenues hit $1 billion by 1979.

Amplifying models established by such Berkshire mainstays as Nebraska Furniture Mart, Walmart perfected the budget approach to merchandising, cutting costs to give shoppers deep discounts on a wide inventory. Competitors that ran periodic sales had to advertise them, whereas Walmart’s “everyday low prices” required no such promotional expense, reducing Walmart’s ad budget. Another entrepreneurial innovation, reminiscent of how McLane grew: Walmart built its own warehouses to stock large volumes bought at discounts and then opened its stores within a few hundred miles. A third Walmart practice paralleled that of Jordan’s Furniture: Walmart built large stores (called Hypermarts or supercenters) and added entertainment for children. A further connection: from 1966, the Marmon Group’s L.A. Darling division supplied Walmart’s store display systems.26

Intense expansion through the 1980s made Walmart the largest retailer in the United States by 1990, when it began propagating its budget-minded and entrepreneurial model worldwide, including the acquisition of F. W. Woolworth stores in Canada in 1994. In 1997, Walmart joined the Dow Jones Industrial Average of thirty bellwether companies—replacing Woolworth, a former Berkshire investee. Geometric results followed, as Walmart’s 1997 revenues blew past $100 billion, and the company acquired peers worldwide to cement its global leadership among retailers, spanning Mexico (1997), Germany (1997), the United Kingdom (1999), and Japan (2002). Revenues climbed to $244 billion in 2003.

Sam Walton died in 1992, but the Walton family continues to own nearly half of Walmart’s stock. Walton’s son became chairman, and the chief spot went to David Glass until 2000, when he bought the Kansas City Royals baseball team and handed leadership to H. Lee Scott Jr., a senior Walmart executive for two decades. Many wondered how Walmart would survive without Sam Walton, but despite some sluggishness, Glass and Scott both proved it was possible.27 While frenetic growth subsided, the company has continued a steady pace of expansion under successive chiefs Mike Duke (2009–2014) and Doug McMillon (since). Revenues in 2013: $473 billion.

A company that gains so much wealth and power so quickly attracts critics. Vendors complained that Walmart abused its buying power, insisting on cut-throat pricing, dictating terms, bypassing sales representatives, and shunning independent manufacturers. Competitors objected that the massive suburban sprawls the company created disrupted small towns, emptied downtown shopping districts, and hurt local retailers, mom-and-pop shops, and other small businesses that had been the heart of America (including the distributors of Berkshire’s Benjamin Moore).

Workers fought low wages and high turnover. Social critics questioned Walmart’s share of the U.S. gross domestic product—nearly 3 percent, or as great as historical Goliaths like U.S. Steel Corporation in 1917 and General Motors in 1955. The most devastating critique shook the company in 1993. It was discovered that Walmart merchandise was being produced in factories with child laborers in Bangladesh. Items stamped “Made in the U.S.A.” as part of a Walmart promotion were in fact made overseas.

Walmart responded with improved monitoring along its supply chain and supervisor oversight of worker conditions, community giving programs, and other good corporate citizenship efforts. While remaining the budget-conscious retailer extraordinaire, Walmart regained consumer trust, positioning the company to defend its turf against onslaughts from newcomers like Amazon, whose online retailing prowess may threaten to do to Walmart what Walmart has done to others. All in all, Walmart is better suited to be a Berkshire investee than a subsidiary, although the presence of a large family ownership block would make a negotiated acquisition involving an exchange of values tempting.