2001: Will GEICO expand into Asia? Does Coca-Cola spend too little on advertising?
AUDIENCE MEMBER: My name is Kjell Hagan (PH). I’m a Norwegian working in Tokyo in Japan.
I’m very satisfied to have more than 95 percent of our family’s savings in Berkshire. I have two questions.
In my work, I’ve seen a lot of insurance companies in Europe and Japan. And I think that GEICO’s business model is quite superior to most primary insurance companies in Europe and Japan.
And I think that GEICO would be very successful in Europe and Asia. So I’d like to hear what are the views and plans for GEICO doing business in Europe and Asia.
Second, regarding Coca-Cola — living in Japan, I notice that Coke has a relatively low presence in advertising, although they are the largest player with 30 percent market share versus 15 for the number two. I think Coke is being too cheap on advertising, thus hurting the long-term position.
I wonder if advertising strategy internationally is a high enough priority of Coke’s management, and if aggressiveness is sufficient. I’d like to hear if you have any comments on this.
Also I’d just like to thank you very much for this experience and for the wonderful company you have created.
WARREN BUFFETT: Well, thank you very much.
Clearly when you’ve got a business model that works as well as GEICO has in this country and it continues to work well, and has that fundamental advantage of being a low-cost operator, we think about every possible way that we can take that idea and extend it.
It’s been remarkably hard to do it. I mean, the management has tried various things, ever since Leo Goodwin started the company in 1936, to take it into other areas, and those efforts have been modestly successful at certain things like life insurance, but then they got out of it, and various other things.
But it’s an idea still. We have — you know, we have 4 percent or so of the market in the United States. This market is so huge. And as we look at the drain on human resources involved in extending it into other countries, and we’ve looked at it a lot, and it may be something we’ll do at some time.
But we’ve never felt that the possible gain, considering the rigidities of these other — both in Europe and in Asia — of breaking in — it’s not easy to get into those markets. And the cost, the time, we just felt that it would be better to concentrate those same resources in this country.
It’s not a question of capital at all. I mean, we’d put the money in in a second. And we’re doing it in something like NetJets in Europe. I mean, we — there’s a human cost to it, there’s a financial cost to it.
Financial cost bothers us not at all. Human cost is a real question, because it gets back to Charlie’s opportunity cost.
We have talented managers, but we have a finite number of them. And I would rather have Tony Nicely and Bill Roberts and their crew focusing on how to gain additional market share in this country at the right rates than I would starting in a project in Europe or Asia now.
But that’s — it’s a very good question. It’s something I can guarantee you we think about all the time and will continue to think about.
We’ve tried to extend geography. Coke has been the most successful company in the world in extending geography.
We’ve tried to do it with See’s Candy, and it’s had limited — very limited — success. I mean, we’ve tried 50 different ways, because the trials are relatively cheap to do.
And we think it should work, we just haven’t been able to make it work. But that — it’s a very good question.
The question about Coke’s advertising in Japan. As you know, Coke has a terrific presence in Japan.
Japan’s an interesting market, because the percentage of soft drinks sold through vending machines is just far, far higher than any place in the world. And the United States is a very distant second. And then, the rest of the world, there’s very little done in the way of vending machines.
I don’t know the specifics of the advertising in Japan, but of course, Doug Daft who now is the CEO of Coke, comes with a huge background in Asia. I mean, that was his territory for much of his career.
And Doug — we have a new major — very major — advertising campaign coming up. And you probably read that Coke is going to spend 300 million-plus additional on marketing beyond the normal spend, which is huge.
And I can’t tell you the specific markets in which that will be, but I would be surprised if Japan isn’t a big part of it, because Japan is an enormous market for Coca-Cola.
Charlie?
CHARLIE MUNGER: I have nothing to add.