National Post (National Edition)
Buffett has history on his side when it comes to candy moats
NEW YORK • When it comes to sweets, it’s hard to argue with Warren Buffett.
The billionaire investor has argued that big candy brands have so-called moats that can maintain their advantage against new competitors. But fellow billionaire Elon Musk has called that premise into question, saying that moats are “lame.”
Who’s right? Well, the data seems to support Buffett more than Tesla Inc.’s chief Musk. Though some confectionary upstarts have infiltrated the industry, the top candy makers have remained largely consistent.
Take, for instance, Mars Inc. and Hershey Co., the two largest U.S. candy companies. They’ve maintained their share over the last three years, according to Euromonitor. Mondelez International Inc. is a distant third.
Buffett, in an interview with CNBC on Monday, cited Snickers and M&M’s as two candy lines that are protected by a moat. The chocolate treats are two of the top-selling brands in the U.S. Closely held Mars, which makes the products, is the largest candy company with US$8.4 billion in U.S. sales last year, according to Euromonitor.
To be sure, upstarts and private-label products are resonating with some customers, particularly younger ones, who’ve increasingly become less loyal to the ubiquitous brands that fill grocery stores across the U.S. But overall, candy is a tough market to crack because of difficult barriers to entry. The small profit margins in the industry also make it tricky to chase fast-moving fads, particularly when you’re trying to appeal to younger consumers, according to Asit Sharma, an analyst at the Motley Fool.
“Elon is out of his depth to believe he could compete with Buffett in candy,” he said. “It would be a time-consuming waste of resources.”
The US$25 million purchase of See’s in 1972 was key for Buffett and Berkshire Hathaway. In 2015, he told shareholders the business had generated US$1.9 billion in pre-tax earnings. And perhaps more importantly, he learned about brands. A few years later, he took a stake in Coca-Cola.