Warren Buffett Knew Nothing About This Business. It Made Him Billions.

In the annals of investment history, few deals have proven as insightful and profitable as Warren Buffett's acquisition of See's Candies. This transaction not only yielded substantial financial returns but also shaped Buffett's investment philosophy, influencing decades of future decisions. To understand the full impact of this deal, we must delve into the rich history of See's Candies, examine Buffett's initial encounter with the company, and analyze the long-term outcomes of this shrewd investment.

A Taste of History: See's Candies' Sweet Beginnings
See's Candies' story begins in 1921 when Charles See, armed with his mother Mary's cherished candy recipes, opened a small chocolate shop in Los Angeles. The company's commitment to quality and customer service quickly won the hearts (and taste buds) of Californians. Mary See's image, featuring her kind, grandmotherly face, became an iconic symbol of the brand's dedication to homemade quality.

As the Great Depression gripped America, See's Candies defied the economic downturn, expanding its presence across California. The company's black-and-white checkered shops became a familiar sight, and their free sample policy – a tradition that continues to this day – helped build a loyal customer base. By the 1960s, See's had established itself as a beloved West Coast institution, known for its premium chocolates and distinctive packaging.

Buffett's First Bite: The Oracle of Omaha Discovers See's
Warren Buffett's first encounter with See's Candies came in 1971, thanks to his longtime friend and business partner, Charlie Munger. Munger, a California native, was well acquainted with the brand and recognized its potential. Initially, Buffett was hesitant. The seasonal nature of the candy business and his lack of familiarity with the product gave him pause. However, upon closer inspection, Buffett began to see what Munger had recognized. See's boasted remarkably strong brand loyalty, consistent profitability, and an economic moat that protected it from competition. Customers weren't just buying chocolates; they were buying into a tradition, a quality experience that they associated with happy memories and special occasions.

The Sweet Deal: Negotiation and Acquisition
In 1972, Buffett's Berkshire Hathaway made its move to acquire See's Candies. At the time, See's annual sales were approximately $30 million, with pre-tax earnings of $4 million. The See family, who still owned the business, initially asked for $30 million. Buffett, known for his value investing principles, offered $25 million.

The negotiation reached an impasse, and the deal nearly fell through. Buffett, despite recognizing the company's value, was unwilling to budge on the price. This steadfastness, a hallmark of his investment strategy, eventually paid off. The See family, perhaps recognizing the potential of partnering with Buffett, agreed to the $25 million offer.

This purchase price represented a multiple of about 6 times pre-tax earnings, higher than Buffett's typical acquisitions at the time. For a value investor known for seeking bargains, this was a departure from the norm. However, it would prove to be a pivotal moment in Buffett's evolution as an investor.

Moments after acquiring See's Candies, Warren Buffett named Charles Huggins, an experienced employee and former paratrooper, as the new CEO. In a letter to Huggins, Buffett stressed the necessity of preserving the company's high standards rather than focusing on maximizing profits. He warned against rapid expansion and recommended that the chocolates continue to be produced locally and in small batches to maintain quality.

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