Showing posts with label economic moat. Show all posts
Showing posts with label economic moat. Show all posts

Tuesday, April 29, 2008

Wrigley/Mars passes Warren Buffett's taste test

The merger of Mars Inc with Wrigley Jr Company and Warren Buffett's interest in helping fund the purchase, and having a subsequent minority stake in the merged company, to be held by his Berkshire Hathaway investment vehicle, is Warren Buffett in his element.

Wrigley and Mars as one, will make the largest confectionery business in the world and its combined brands, like Mars chocolate bars, Snickers, Doublemint and Juicyfruit will make Buffett a very happy man indeed.

Warren Buffett already owns outright or portions of some of the worlds biggest food, consumer and beverage brands: Coca Cola, Gillette, MacDonald's and America's Sees Candies among them.

He sees in Mars/Wrigley what he sees in his other holdings, companies and brands with strong histories and dominant positions in the marketplace that will survive through the turbulent times and good times alike.

He calls companies like these "Economic Moats", companies that have products to sell that have a point of difference, cannot easily be copied and are hugely dominant, and therefore see off competitors year after year. Mars/Wrigley strong brands easily fulfill this investment requirement.

Another requirement that fits Warren Buffett's investing criteria is the fact that Wrigley/Mars is a very easy business to understand. There is nothing complex about making chewing gum and chocolate bars and therefore huge continuing capital expense involved in such in industries as computing, in coming up with new technology to stay ahead of competitors isn't going to hurt the food-makers bottom line.

One thing I am not sure of, is if Buffett's main criteria for investing is being fulfilled in the Wrigley/Mars tie-up. That is, the value investing part of his investing principles. Whether he is paying too much for his stake in the merged company will only be known by the man himself and by the rest of us in time, as the merits and performance of the merged giant reveal themselves.

He is famous for making good investment decisions and I personally doubt he has made a mistake to get involved in this monumental marriage of these two sugar pushers.

In New Zealand the closest thing we have to a Wrigley/Mars is Goodman Fielder Ltd[GFF] , an Australasian food conglomerate with very strong dominant food brands and a long history of loyalty among consumers. Its brands are staples, its business easy to understand and its products consumed for breakfast lunch and dinner.

It definitely fits my investment criteria and I have a holding.

Further reading on the Mars/Wrigley merger

c Share Investor 2008

Monday, April 14, 2008

Why did you buy that stock ? [Goodman Fielder]


To be honest I bought Goodman Fielder[GFF] because I noticed just about everything I shoved in my fat mouth was made by the company.

Everything from Vogel's bread, Olivani olive spread Tararua milk and cheese products and a whole range of food for breakfast lunch and dinner.

I thought before buying, that this company has a huge clutch of branded, staple, food products that New Zealanders and Australians have grown up with and people simply keep buying them!

What more could you want from a business?

That is pretty much the the main reason why I bought the company. Goodman's dominant brands give it the "economic moat" advantage that Warren Buffett talks incessantly about and the fact that the company, what it sells and how it functions, is very easy to understand, puts it above other more complicated industries, whose balance sheets are only decipherable by specialist forensic accountants with xray vision.


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Discuss Goodman Fielder at Share Investor Forum


Goodman's competitive advantage over its competition lies in its ability to leverage off those strong brands, excel during good economic times and plod boringly through the tough years, as we are having now-we all have to eat and that will never change.

Going back to Buffett again, he has a massive holding in Kraft Foods[KFT], a company similar in its branded food focus to Goodman Fielder, but alot bigger of course and he has been adding to his holding over the last year as the stock price tumbles.

Would I buy the stock again today? of course, I still hold it and have done for around 4 years and have been adding to my portfolio over the last few months.

The only crimp for the short to medium term are commodity prices like wheat and raw dairy ingredients, which add to retail product cost but are not always able to be passed on to the consumer.


Related Share Investor reading


Goodman Fielder hit by high commodity prices
Goodman Fielder a Hedge against an economic slump
Goodman Fielder pie gets bigger


Related reading

Kraft good in a recession -Everything Warren Buffett
Goodman Fielder - Corporate Website


c Share Investor 2008