See's Candy Changed Buffett

A story about how See's Candy taught Warren Buffett and Charlie Munger crucial lessons about the power of brands and pricing, transforming their investment philosophy.

"See's is a wonderful business - it taught them more than they ever thought they'd learn from a stupid candy business. When Warren first bought See's, he told the CEO, 'Listen, you got free rein to run the business like you've been running it, but on December 26th I'm going to set the prices for the next year.'

He would sit down with the entire See's price list and bump all the prices by 10-15%, when inflation might have been 3%. He would raise prices significantly above inflation and observe that volumes went up. Then the year after that, he'd bump it by another 10-12%, and volume still went up.

Both him and Charlie were amazed that you could have a business where you're continuously raising prices significantly above inflation with no resistance from the customer base. That's what gave them a huge lesson in brands.

They were dyed-in-the-wool hardcore deep value investors - it was really hard for them to pay 3 times book value for See's. They paid about $25 million, and looking back they could have paid $200 million and it still would have been a good deal. See's has sent dividends to Berkshire in the billions over 50 years.

If they had not bought See's, they would have never bought Coca-Cola. The lessons they learned about branding and the power of brands is what led to the Coke investment, which was a much bigger home run. They've made many more brand investments since then."