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A very simple way to observe the correctness of Buffett and Munger’s prior belief in the power of See’s to raise prices is to look at the amount of candy sold in 1972 and 11 years later in 1982, while also looking at the sales and profit numbers.
The table shows the price of a pound of candy went up 176% during a time of 137% of general inflation. Sales revenue quadrupled, mostly due to the increased price of candy, but also because of a 21% rise in the number of stores and an 18% creep-up in the number of pounds of candy sold in the typical store.
| 1972 | 1982 | Percentage increase | |
| Number of pounds of candy sold (millions) | 17.0 | 24.2 | 42% |
| Sales revenue | $31.3m | $123.7m | 295% |
| Profit after taxes | $2.3m | $12.2m | 430% |
| Number of stores | 167 | 202 | 21% |
| Sales revenue per pound of candy sold | $1.85 | $5.11 | 176% |
| Inflation over 11 years | 137% | ||
| Number of pounds of candy per store | 101.8k | 119.8k | 18% |
| Sales revenue per store | $187k | $612k | 227% |
(Sources: Munger, C.T. and Koeppel, D.A. 1982 Annual Report of Blue Chip Stamps, p.34
Inflation data: http://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true)
From the table you can see that sales revenue per store roughly trebled, but profit rose over five-fold. This was, in part due to the raised selling prices but was also because of the incredible downward pressure on operating costs.
Apart from excellent management at every stage of the production, distribution and selling process, See’s benefits from local economies of scale, particularly in:
(a) advertising, e.g. one newspaper or TV advertisement reaches a large proportion of their customers in say San Francisco where there was clustering of shops, or around Los Angeles where their other big cluster is, and;
(b) distributing candy from its two factories – predominantly delivered within 100 miles or so of the factories in Los Angeles and San Francisco.
Munger (chairman) and Koeppel (president) wrote in the 1982 Annual Report for Blue Chip Stamps a glowing tribute:
“See’s is by far the finest business we have ever purchased, exceeding our expectations, which were quite conservative.
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