“We tried to move it [See’s Candies] geographically many many many many times. When it works, it works wonderfully. But it doesn’t travel that well. We’ve tried everything because the math is so good when it works.” - Warren Buffett (Trades, Portfolio)
“We failed in turning our little candy company into Mars or Hershey’s for the same reason you failed to get the Nobel Prize in physics and achieve immortality. It’s too tough for us.” - Charlie Munger (Trades, Portfolio)
As shown above, the two legendary investment gurus defended the performance of See’s Candies last year at the Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting. Warren Buffett (Trades, Portfolio) attributed the lack of expandability to the fact that See’s products do not travel well. While the candy business did not turn into Mars, another holding of Berkshire, Coca-Cola (KO, Financial), grew remarkably for decades through geographic expansion around the globe.
Indeed, with the existence of moat being out of the question, a “travelable” product can make it far easier for a business to become a long-standing, value-generative “equity” compounder. Despite the quality, the “travel” economics behind every product can vary significantly, depending on both internal and external factors like consumer behavior, culture, language, infrastructure, regulation, competition and so forth. Moreover, it is often difficult to categorize by industry. The contrast between See’s and Coke, which both belong to the fast-moving consumer goods space, is one example.
Another one is the install-base software niche. Take a look at Intuit (INTU). Its flagship product, TurboTax (nearly 40% of fiscal 2019 sales), finds it challenging to expand overseas, in light of the difference in tax systems from country to country. The outlook for the other products (e.g., Mint, QuickBook) does not appear much brighter in this regard. International revenue for the whole company represented less than 5% of the total for each of the last three fiscal years. Understandably, the management never mentioned a word of “international” or “overseas” as part of its growth strategy in the annual report. Instead, it emphasized customer obsession, advanced technology and product innovation.
Compared with Intuit, financial tech company FactSet Research Systems (FDS, Financial) is more fortunate in terms of worldwide acceptance of its product, which provides financial information and analytics, thanks to globalized financial standards and community. As of fiscal 2019, 62% of the total annual subscription value came from the Americas, 28% from Europe, the Middle East and Africa and the remaining 10% from the Asia Pacific.
In our experience, the group with the most travelable products is related to luxury lifestyle – things from Louis Vuitton’s (XPAR:MC, Financial) handbags to Johnnie Walker’s (LSE:DGE, Financial) Scotch whiskey. The rich around the globe appear just to have similar tastes.
Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Berkshire Hathaway and FactSet Research Systems.
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