See’s Candies, Inc.

views updated

See’s Candies, Inc.

210 El Camino Real
South San Francisco, California 94080
U.S.A.
(650) 583-7382
(800) 915-7337
Fax: (650) 875-6825
Web site: http://www.sees.com

Wholly Owned Subsidiary of Berkshire Hathaway, Inc.
Incorporated: 1922
Employees: 250
Sales: $288 million (1998 est.)
NAIC: 31320 Confectionary Chocolate Made from Cacao Beans; 445292 Confectionary Stores, Packaged, Retail Only

See’s Candies, Inc. is a leading U.S. candy company, with a particularly strong customer base in the West. It manufactures its candy at two plants in California, and sells its more than 120 varieties through some 200 retail See’s Candy shops. About two-thirds of See’s shops are located in California, with most of the others found west of the Rocky Mountains. See’s also sells its candies through Bloomingdale’s in New York City, and markets overseas, particularly in the Pacific Rim countries. See’s has changed little since its founding in 1921, retaining the black and white logo designed in the 1930s on its packaging and maintaining an old-fashioned decor in its numerous shops. See’s candies are made without preservatives, and freshness is one of See’s biggest selling points. Customer loyalty is intense. Owned by the See family until the early 1970s, the company since then has been operated by Berkshire Hathaway, the conglomerate controlled by one of the United States’ richest men, Warren Buffett. In 1999 See’s celebrated its 75th year in business.

Early History

See’s Candies was founded by Charles A. See, a Canadian immigrant to Los Angeles. See was raised near Gananoque, Ontario, where his parents ran a summer resort called Tremont Park. See went to college to learn pharmacy, and eventually ran two drugstores in the mining town of Timmins, Ontario. When See’s businesses were both destroyed in a summer forest fire, he left pharmacy and became a chocolate salesman. One of the most successful Canadian candy companies was a chain of shops called Laura Secord. See studied Secord, and determined that he could begin a similar chain. But he chose to leave Canada, and start over in California. In 1921, See took his wife and two children and his 65-year-old mother, Mary See, to Los Angeles, which was then a thriving town in the midst of great growth. See soon found a business partner, James W. Reed, and together they opened the first See’s Candy Shop. Mary See was evidently a great home confectioner, and her son used many of her recipes. More than that, Mary See became the symbol of the new company, and the image of the grandmotherly See was used in much advertising to embody the old-fashioned, homemade qualities of See’s candy. The company incorporated in 1922, with James Reed, Charles See, and other See family members as the officers and stockholders.

In the 1920s, before large-scale refrigerated distribution was available, there were dozens of small candy makers like See’s across Los Angeles. Despite local competition, See’s seemed to immediately distinguish itself, and only a few years after its founding, the company had more than ten shops in the city. The See’s production facility had a growing number of employees, who worked in the kitchen, packed candies, and made deliveries. The company began an innovative marketing program in the late 1920s, using distinctive Harley-Davidson motorcycles for deliveries. The motorcycles were fitted with a large sidecar embossed on all sides with the black and white See’s logo. The neat black and white motif was woven throughout the See’s company. Employees wore white uniforms piped in black, and the store fronts too were painted crisp white, with the See’s name in black on the awnings and in the windows.

By the end of the 1920s, the company was flourishing, and had begun building a $100,000 candymaking factory on Los Angeles’s West Washington Boulevard. But See’s was deeply affected by the stock market crash in 1929 and the ensuing Great Depression. To keep going, See’s had to reduce the prices of its candy sharply. The per pound price had been about 80 cents in the late 1920s, and Charles See dropped it to just 50 cents so that he could maintain sales. The company rented the buildings for its shops, and See also pleaded with his landlords to accept a reduced rent. Nevertheless, the company went ahead with its ambitious construction plans, and built the expensive new facility. Though the upfront cost of the new plant was high, the modern factory was more efficient than See’s old one, and so it eventually saved the company money. Another way the company weathered the Depression was to initiate a bulk ordering plan. See’s brought in clubs and charities by offering them a reduced price on orders of 50 pounds or more. Then the groups could resell the candy at a profit, for fundraising.

In the mid-1930s, the company began looking at expansion beyond Los Angeles. In spite of its belt-tightening, See’s was doing well. The small chain had grown to about 30 shops. Charles See went on an exploratory trip to San Francisco in 1935, and in 1936 the company opened its first store there, on Tenth Street. This first shop also comprised a production plant and business offices, to use as headquarters for planned expansion in the area. By the end of 1936, See’s had nine shops in San Francisco, and the company formed a subsidiary to run them.

World War II and After

World War II brought an end to the Depression, though it did not alleviate difficulties at See’s Candies. Because sugar, butter, and other ingredients were rationed, and many imported ingredients were scarce, the company could not get enough raw materials to produce all the candy it could sell. It would have been possible to substitute some lower-quality ingredients for the restricted items, but the company instead chose to make a limited amount of candy with its tightened supplies. Consequently, its stores were open only a few hours each day, and customers had to wait in line, hoping to get in before the shop was sold out.

Founder Charles A. See died in 1949, and the presidency of the company passed to his son Laurence. See’s was in good shape after the war, as California’s economy was growing rapidly. Released from wartime rationing, the company could make as much candy as it needed, and newly affluent customers continued to favor the black and white shops. Under Laurence See, the company embarked on a new marketing plan. It began opening See’s Candy shops in shopping malls. Malls were a new phenomenon, filling in for older downtown shopping districts as the population of California increasingly moved into suburbs. Over the first ten years of Laurence See’s leadership, the company expanded rapidly. By 1960, the company had 124 shops spread across California. See’s had two manufacturing plants, one in southern and one in northern California, and the company as a whole employed approximately 1,000 people.

Between 1960 and 1970, See’s began expanding into neighboring states. President Laurence See was choosy about new locations for See’s shops, carefully checking demographics to find growth areas or places similar to other See’s markets. See’s moved into Phoenix in 1960, just as that city was experiencing a great influx of population from northerly states. In addition, See’s opened other shops in Portland, Oregon, and Seattle, Washington. Both these cities were growing, and shared many characteristics with San Francisco, one of See’s most important markets. By 1971 the See’s chain had grown to over 150 shops across the western states and in Hawaii. The company had a product line of more than 60 varieties of candy.

Under New Owners in the 1970s

Laurence See, founder Charles See’s eldest son, died in 1969 at the age of 57. The presidency of the company then passed to Harry See, Laurence’s younger brother. Though Harry had been actively involved with the company for many years, he had other interests, such as a vineyard he owned. Not long after Harry took over, the See family announced that the company was for sale. The candy industry in the early 1970s was comprised of many small companies, with few of them making annual sales of more than $50 million. See’s sales for fiscal 1971 were just over $28 million. Candy consumption was rising annually, though only by a very small percentage, and lots of competition meant companies had to maintain their profitability by controlling costs. Though See’s was not particularly large, it was a leading company. Its competitors were other well-known national brands, including Hershey Foods Corporation, Tootsie Roll, Russell Stover Candies, and Fanny Farmer Candy.

Company Perspectives:

Since 1921, See’s Candies has been one of America’s favorite candy makers. With every delicious piece of See’s candy, customers are assured of “Quality Without Compromise.” See’s operates more than 200 retail candy shops throughout the western United States, and offers one of the largest and finest selections of chocolates and confections in the world.

The investor who decided See’s Candies was a golden opportunity was Warren Buffett. Buffett was a graduate of Columbia’s business school who began investing in little-known stocks just out of college. By the time he was 35, he was a multimillionaire. His specialty was picking undervalued stocks. Later he began buying up whole companies, and See’s was one of his first purchases. The actual buyer of See’s in 1972 was Blue Chip Stamps, a trading stamp company that was controlled by Buffett through Berkshire Hathaway. Blue Chip offered $35 a share for the See family’s portion of the company, which amounted to approximately 67 percent. Blue Chip soon acquired the rest of the outstanding stock, and See’s was no longer a family-owned company. Yet it was See’s unpretentiousness that made up much of its appeal, and the new owners had no intention of altering the company. The new president was Chuck Huggins, who maintained that job through the 1990s. Huggins worked hard to assure both customers and employees that the new See’s would not be different from the old See’s. The company did update by adding new quality control and research and development departments. But the candy remained the same, and marketing continued to focus on the image of Mary See and her old-fashioned charm. Also, Buffett’s Berkshire Hathaway had deep pockets, and it was able to provide stable financial backing for See’s expansion. Blue Chip Stamps folded into parent Berkshire Hathaway in 1978, and at that time Berkshire Hathaway had immense holdings in the insurance industry, and Warren Buffett was one of the wealthiest men in the United States. Under Berkshire Hathaway in the 1970s, See’s established more stores in its key Western markets, and also moved into new territory in Texas.

Changing Conditions in the 1980s and 1990s

In many ways See’s was the same company it had always been. Its image had not changed despite its becoming part of a large, modern conglomerate. For example when the company discontinued a low-selling flavor, maple walnut creams, in the 1980s, hundreds of customers wrote in to express their dismay. See’s president Huggins not only reinstated the flavor, but he replied to each customer’s letter and enclosed a gift certificate. Yet the company had modernized behind the scenes. The company had always prided itself on the freshness of its product, which was all preservative-free and had a shelf-life of only several weeks. By the late 1980s See’s manufacturing facilities were using highly automated, state-of-the-art packaging machinery to print out on each box the date and location where it was filled. The large, visible imprint made it easy for customers to see that they were getting a fresh product, and helped the company maintain a high level of quality control. Sales and profits moved predictably in the 1980s. Though new competition cropped up, especially in premium chocolates such as Godiva and designer lines such as Bill Blass, See’s had a loyal customer pool. In 1984 See’s sold over 27 million pounds of chocolate, and donated approximately 80,000 pounds to charities.

The company continued a slow geographic expansion, picking just a few areas east of its core market. In the early 1980s, See’s operated more than ten stores across Texas and had a small string of shops in the St. Louis area. It opened a shop in Knoxville, Tennessee, and several more in Colorado. By the late 1980s, though, See’s decided to pull out of these markets. Its products could not compete on price with candies that were made in the Midwest, and the Texas and Colorado economies softened with a downturn in the energy industry.

By the early 1990s, See’s instead was moving ahead with plans to sell its candies abroad. See’s had had stores in Hong Kong since the 1960s, but international distribution was tricky for the company, since the chocolates had to be kept refrigerated and then needed to be sold within a few weeks. See’s moved its products to Hong Kong by air. It had its own refrigerated storage unit at the San Francisco airport, and the flight was met in Hong Kong by a refrigerated truck. The company received constant inquiries about operations in Asia, and in the early 1990s it opened a shop in Tokyo and made plans to bring See’s to Singapore, Taiwan, South Korea, the Philippines, and China. See’s also announced in 1993 that it planned to open stores in Canada and Mexico.

By the mid-1990s, See’s had grown to a $235 million company. In the boxed chocolate category, See’s was second only to Russell Stover, and led two other venerable brands, the Midwest-based Fannie May, and Fannie Farmer. The product line had grown to approximately 130 items by 1996. One change was that some of the new products were non-chocolates, such as licorice, lollipops, peppermints, and sourballs. Yet 15 percent of See’s sales were its truffles, a particularly rich chocolate candy. By 1998, sales had grown to $288 million. The company seemed firmly entrenched in its core West Coast market. Sales had continued to go up without a significant stretch into new markets. Two-thirds of See’s stores remained in California, where its manufacturing plants were also located.