Thursday, March 22, 2012

See's - Sweet Returns

See's is a chain of candy stores owned by Berkshire. I run a startup in the food business, and every time I see See's numbers, I find it incredible that a non-tech company could have these kind of returns.
See's in 1972,
Sales= $30mn/16mn pounds of candy at a PBT of $5 million
Capital Employed = $8 million

In 2007 :
Sales= $383mn/31mn pounds of candy at a PBT of $82 mn
Capital Employed = $40 mn
That's a pre-tax return on capital of over 200% in 2007 from selling bleddy candies! How is this happening? Are their auditors on a sugar high?

And to top it off, their growth figures look SO BORING. For 35 years, they annually have grown sales volume by 2% and sales value by 8%.

Turns out, extraordinary business results can be achieved from a combination of subtle pricing power and muted reinvestment in the business. All See's did was increase their price of candy by about 6% every year while having to spend very little on equipment, working capital and the like.

I just can't wrap my head around the fact that something that sounds so simple is so hard to achieve.


iwannabrich said...

nice blog
any thoughts on a levered bet like suzlon?

Unknown said...

i think ravalgaon sugar could have been a similar story but for the management,another great company which is similar to sees seems to be impal.