Buying See’s Candies was not only a good investment for us, it was a positive learning experience. We discovered that we had purchased a company that held itself to a high standard of business ethics – product quality, service integrity, and the right sort of relationships with employees and supplier. See’s Candies became our model for investment in other quality companies… [See’s was] a company that taught us early a vital lesson about the way to do business.
– Warren Buffett
I’ve seen many financially focused case studies on Berkshire Hathaway’s purchase of See’s Candies. Sure Buffett and Munger turned a $25 million investment into many billions with the purchase of See’s Candies since 1972. But what about the history of Charles A. See, Chuck Huggins and See’s corporate culture? I think those non-financial aspects are the most important ingredients in the success of See’s Candies since 1921. According to the quote above, it looks like Warren and Charlie agree with me.
See’s Candies can attribute all of their success to their founding values first instilled by Charles A. See and indirectly through his mother Mary See. When the two came to Los Angeles in the spring of 1920 there were hundreds of confectioners competing in the area. It’d be an understatement to say that the candy business in LA was fierce.
The people and the product are what set See’s Candies apart in its early history. That reputation has snowballed over the decades creating a brand equity that is rarely found in any industry. See’s might be a regional chocolatier, but they have an indestructible moat.
See’s Candies, along with Charles A. See’s values, is one of the best businesses in history for entrepreneurs to emulate and for investors to seek. Let me tell you the whole See’s Candies story.
Mary & Charles See
The story of See’s Candies doesn’t start in the United States, but in Canada. Mary See, born on September 15, 1854, grew up on Howe Island one of the 1,000 islands located in Canada’s St. Lawrence River. Both she and her husband ran a resort on Tremont Park Island, another tiny St. Lawrence River island. Mary was famous amongst her family and friends for her cooking and especially her candy recipes.
Her oldest son Charles A. See, above, was born in 1882 and he found his way to Northern Ontario in 1909. He was attracted to the Porcupine Gold Rush. Smartly, Charles didn’t participate in mining for gold but ran two pharmacies in the gold mining district supplying the gold rush.
The summer of 1911 was an unusually hot one reaching 107 degrees Fahrenheit on July 10th. Since there had been little precipitation that summer season brush fires started to blare. Not long after, Charles would barely escape the fire and watched as his two pharmacies were decimated.
In retrospect, that fire was the best thing to happen to Charles See, and one of the best things to happen to Warren Buffett and Charlie Munger. See would move to Toronto and get his first taste of the candy business. He got a job as the Canadian sales representative for one of the U.S.’s oldest chocolate manufacturers Merckens.
While working as a chocolate salesman, Charles would observe the success of the Canadian chain Laura Secord Chocolate (and its US counterpart Fanny Farmer). That company was started in 1913 by Senator and entrepreneur Frank P. O’Connor. Charles dreamt of having his own store and instead of borrowing female figures from either Canada, the U.S., or making fictional motherly figure like General Mills’s Betty Crocker, he could build his brand around his mother, her values and recipes. He also wanted a better climate.
After father Alexander See passed away in 1919, Charles, his 64 year old mother, wife and two children would move to southern California.
See’s Candies Early History
See’s Candies was established in 1921 on 135 Western Avenue North in LA.
There were hundreds of confectioners already in business in Los Angeles by the time See’s Candies was established. It looked to be an uphill battle for See’s Candies. Charles would set his company apart with his unrelenting focus on quality ingredients. Suppliers would soon have to up their standards from “Top Quality” to accommodate Charles See. They referred to this new standard as “See’s Quality.”
Charles also wasn’t afraid to experiment to stay ahead of competition. Soda shops were the fad of the day and early See’s stores sold soda, sandwiches and malts in addition to candies. The candy always was the best seller, so Charles wisely cut his losses and focused solely on chocolates.
See’s Candies quality was superior to competitors and it’s what drove growth throughout the boom times in the 1920s. By 1925, See’s Candies operated 12 stores in the Los Angeles area.
Great Depression & WWII Test
The Great Depression was the great equalizer and tested Charles See. While most confectioners were wiped out as unemployment skyrocketed to over 25% nationally, See was prepared to adapt to the extreme environment. The Great Depression was a great opportunity for See’s Candies to build trust.
To survive Charles See cut prices. In 1929, the conventional price for candies were 80 cents a pound. When the Depression hit, See immediately reduced his price to 60 cents a pound and then 50 cents a pound. No one cut their prices like that.
See’s values, a win-win only mentality for everyone, and culture allowed him to cut prices and survive. Quality in product did not fall either. First, much like Southwest and Nucor, Charles See got all stakeholders to take a hit to allow everyone to survive during the poor economic environment. Charles cut his salary and everyone else’s in the company to the “rock bottom.”
Charles visited every single landlord and told them, “Lower rent is better than no rent. Reduce the rent to See’s and we’ll survive together.” Everyone’s cooperation allowed See’s to continue to operate without a closing or firing. Competitors Fannie May and Martha Washington, See always had his eye on both, had slashed prices below cost and were closing several stores.
Second, Charles innovated in the pricing for bulk candy. In 1932, he’d offer further discounts on quantities over 50 pounds, paid up front. No one was doing that in those days, and was the early forerunner of today’s Quantity Discount Program. The low bulk price helped See’s Candies survive.
Third, Charles See’s astute reaction to the Depression allowed See’s Candies the opportunity to expand and acquire talent while everyone was failing. The Mary Fraser store down the street folded and left Edward Peck available for work. Peck would expand See’s Candies in San Francisco in 1936 and be instrumental in the leadership of See’s decades later after Charles’s passing.
World War II couldn’t stop See’s Candies either. The war forced rationing of food supplies including the treasured ingredients of confectioners: butter, sugar and cream. How could a candy store who prides themselves on quality operate in times of rationing? See’s could have changed their recipes or diluted their product; both solutions would not stand for Charles See.
The company decided on a clever idea to maintain their value of quality. Instead of compromising the quality of the candy, or changing the recipes, See’s rationed the candy allotted to the shops. Quality was maintained and the supply was lowered which created a scarcity effect. See’s was the only place to find high quality chocolates and led to long lines outside their stores, as seen above. The customers were delighted to wait just like we’d find today at an Apple store during an iPhone or other iProduct launch.
Companies have opportunities to demonstrate to their employees, customers and suppliers their values on a daily basis. Trying times, like a recession or war, challenge companies to live up to their values. Most won’t live up to their claims but the truly high quality companies will. Strong leadership is necessary. The trust created in all stakeholder’s minds pays off very well over the long-term.
This quote from a See’s Candies customer (here) describes how See’s Candies mind share is passed down from generations to generations:
“I equate these chocolates to my childhood. We did not dare purchase a Whitman’s sampler box, as my Grandma always reminded me that they did not have the same quality as See’s. I don’t know if that is truth, but I always listened to Grandma and if she said Mary See was the best, then I believed her.”
Had See’s Candies not lived up to its motto “Quality Without Compromise” during WWII, females who grew up in the 1940s wouldn’t have trusted See’s Candies. Then when those same females became mothers and grandmothers, they would have remembered their experience of poor quality. That wouldn’t have led to great word of mouth marketing, trust in the brand, and created a tradition that so many living in the western United States have enjoyed.
Charles See would grow See’s Candies from one shop to 78 in California with 2,000 employees. But the stories of See’s Candy doesn’t stop there.
Quality Culture & Relationships
See’s Candies could have easily been a footnote in history had it not been for the talent in the organization and the strong intelligent fanatic culture.
Quality is paramount at See’s Candies but how has See’s maintained this? First, the company only partners with the best suppliers and treats them like true win-win partnerships. This can be traced back to Haig Berberian, See’s first walnut supplier, dubbed the “Walnut King” of San Joaquin Valley. As teenagers Haig and his brother escaped war-torn Armenia and immigrated to Southern California. Haig personified the integrity and relentless eye for quality that See sought to work with.
Chuck Huggins, the CEO appointed by Warren Buffett and Charlie Munger to run See’s after Berkshire Hathaway’s purchase, recalled his first meeting with Haig. He said, “I would soon find out that Haig did all of his business on a handshake, that he knew everything there was to know about walnuts, and that I could trust him 100% to deliver the best-tasting and best-looking nuts to See’s – at the best price.” Notice Haig is the personification of the business operator Berkshire Hathaway prefers, too.
See’s would continue to work with and seek out like minded, honest, knowledgeable suppliers who shared the same fanatical belief in quality. Each partnership would make each partner better; Charles’s son Laurence would eventually take over See’s after his father’s passing, and he’d choose Guittard Chocolate as the company’s chocolate supplier. Laurence had graduated in the same class with Etienne Guittard’s grandson. The relationship has been paramount in See’s success. As Gary Guittard, president of Guittard Chocolate said:
Our relationship of more than 50 years with See’s has made us a better company. They ask us to do things that no other customer asks us – like requiring a lot more tasting and aging of chocolate – and we are happy to do it. See’s keeps us on our toes.
See’s Candies is fanatical about their chocolate’s quality. Each time a Guittard tanker truck full of chocolate pulls up to the factory, See’s Quality Assurance team (a 1959 innovation) runs a slew of lab tests. Samples are drawn from the top and the bottom of the tanker. The team tests the chocolate like the most astute wine critic for specific scent notes, taste, temperature and viscosity. Anything below “See’s Quality” is returned.
Talent Retention & Tech Leadership
As we’ve mentioned in the Intelligent Fanatics Project book, the key to sustained success is to attract and retain quality talent. Heavy investment in human capital that stays at a company for decades creates a strong unified culture and provides an unparalleled deposit of experience. The challenge is for a company to maintain the experienced elders, be a leader in technology and hire new talent. See’s Candy has handled this challenge phenomenally for decades.
See’s still makes candies in small “hand batches” using the same original recipes and method used for decades. Yet, since the 1970s the company has been a technology leader in the confectionery industry. Improved candy-making equipment by the Europeans has made it possible to efficiently make better candy in a safer atmosphere for See’s candy makers. The technology doesn’t replace the experienced talent, like “Mr. Peanut Brittle” Pedro Ramos who’d worked at See’s for close to five decades. The technology, in “Mr. Peanut Brittle’s” case the “Tweety Bird” a yellow robotic arm, reduces back breaking work in the making of peanut brittle. Nothing can replace See’s experienced talent. Many employees have worked there for 30, 40 and 50 years.
One 30-plus veteran of See’s Candies, Director of Real Estate Mary Diamond, remarked, “I feel like People at See’s are my family. I can’t imagine being anywhere else.”
Leadership Mentoring & Chuck Huggins
See’s Candies didn’t end after Charles See or his son’s departure. Ed Peck, who I wrote joined the company during the depression, was instrumental in running See’s operations for nearly fifty years. Ed would mentor See’s future leader Chuck Huggins. The company would be strengthened under Chuck’s leadership from 1972 to 2006. It was Chuck Huggins, and Brad Kinstler See’s current CEO, who led See’s $1.35 billion in value generation for Berkshire Hathaway until 2006.
Let’s start with Edward G. Peck. In 1936 Charles See sent Ed to San Francisco to open a See’s. He was given a pat on the back and told to be “successful.” Boy was he successful. Four years later he had 18 See’s shops throughout the Bay Area. In 1940, Ed would open a 15,000 sq. ft. See’s Candies store and with the right amount of radio and newspaper publicity brought 8,000 people on the store’s opening night.
Ed Peck often showed Sam Walton like behaviors when it came to checking out competition. Chuck Huggins recalled:
“Ed Peck scouted all the local confectioners. He was a great talker, and as he chatted with the managers, he’d investigate what kind of candy everyone was making-what was popular, and what was not. He’d take the managers and their wives out to dinner at the finest restaurants. All the while, Peck would be sitting there scribbling away with a notebook on his knee as everyone else was eating and drinking. Pretty soon, he’d be hiring candy makers away from the competition. Then they’d go to New York and do the same thing there, and then on to Chicago. He’d come back here and call Milt Rigby, then our head candymaker. ‘Hey, Milt, go down and cook up a batch of this and see if we’ve got it right.’”
In April 1951 Charles Huggins started working at See’s Candies. Huggins was an ex-WWII paratrooper and bachelor-of-arts-degree-toting jazz aficionado. Buffett said Huggins “combines the discipline of a fine analytical mind with intuitive marketing savvy and a moral sensibility that is rare in the 21st century. I wish I could clone him.”
In the same fashion that Charles See sent Ed Peck to San Francisco, Ed Peck hired Huggins and said, “You are to learn See’s version of how to run a quality candy business.” Huggins recalled that Ed Peck let him loose with minimum instruction and was given freedom to learn and try. The key was to see how Huggins would handle problems. Huggins quickly grew his responsibilities and attained the respect of Laurence See and Ed Peck.
By the end of 1950s See’s had grown to 124 shops. The 1960’s brought the advent of shopping malls and led to the expansion outside of California: Phoenix, Arizona; Seattle, Washington; Portland, Oregon; Utah; and later Denver, Colorado. Throughout, See’s Candies maintained its focus on product and people. There were no compromises.
Once the See’s family was ready to sell their company during Thanksgiving 1971, Chuck Huggins caught Buffett’s eye as the perfect leader. He had the experience and the intelligent fanatic qualities to maintain See’s culture. Actually, Chuck’s wife Donna Huggins said, “Mr. Buffett has been quoted as saying that it took him about 15 seconds to realize Chuck was the person for the job. In later years, Mr. Buffett wondered why it took him so long.”
Chuck Huggins maintained See’s focus on listening to employees. When he found out that a few candy makers in the LA kitchen were making small batches of milk chocolate covered peanut brittle to give to fellow workers on the weekend, he sought them out. Huggins had heard they were an underground hit and requested a sample. When he received the box, with the word “Awesome” written on the side, he tasted it and agreed, they were awesome. That was the birth to the “Awesome Bar.” New ideas for candy always come from employees working at See’s.
Chuck also wasn’t satisfied with See’s truffles. In the early 1980s, Huggins received a call from Charlie Lubin, former CEO of Sara Lee Bakeries, who recommended that See’s contact Dutch engineer Hans Van Eikeren. Huggins would hire Eikeren and task him with a challenge. Huggins wanted “See’s to be able to mass-produce truffles that taste better than the ones Godiva makes – and I want to be able to sell them at a better price.”
Han Van Eikeren would steal the best ideas from others. He called all his truffle making friends in Europe to send samples. See’s received 250 truffles and tried them all. Employees picked a dozen and reverse engineered their recipes, much like Wang Chuanfu did at BYD only with cars. Eikeren spent months designing a new machine, and once one was built by a Dutch engineering firm, See’s employees worked very long hours to get the machine in operation. Three years from the initial concept, See’s was producing a truffle better than Godiva at a cheaper price. Nothing has changed.
Going The Extra Mile
Charles See gained from his mother Mary a sense of honesty, integrity, and the importance of having a reputation for personal trust that carried over into his business dealings. Charles instilled all of those principles into his candy business and thrived. See’s would rise out of the two worst challenges for a confectioner in the 20th century stronger than ever. Since those qualities have been so prominent in the culture of See’s Candies, the company has built up a reputation or brand equity that is not matched in the chocolate business.
It was “going the extra mile” for every stakeholder that has allowed See’s Candies to retain their fiercely loyal customers while Warren and Charlie have raised prices every year since 1972.
See’s values are simple in concept but very hard to execute, especially during a depression or war.
How strong is See’s Candies brand in Southern California? In 2004, shop 26, originally built in 1938, located in Oakland, California was performing poorly. The store had years of losses and the company decided that the store needed to be closed. Word had got around to customers that the store was going to close, and customers were not happy. See’s received 100s of letters from families who had fond memories of the store and a petition signed by 1,000s of people not to close the store. People were begging Chuck Huggins not to close the store down, and See’s Candies acquiesced.
The foundation of See’s Candies’s brand was the vision of Charles A. See. He built an environment where employees & suppliers could thrive. The culture is family-like. The people and the ingredients mixed together to create trust of a pleasurable experience that customers cannot and will not forget. Berkshire Hathaway’s shareholders have derived immense value from that trust and it will not likely diminsh anytime soon.