2008: Why is Kraft a good business?

AUDIENCE MEMBER: Hello. My name is Harold Yulean (PH). I’m from Chicago, Illinois.

I’d like you to describe the economic characteristics of the Kraft Corporation, why you feel this is a good business.

WARREN BUFFETT: Well, I would say most of the big food companies are good businesses in that they earn good returns on tangible assets.

And I don’t want to get into — particularly into specifics on Kraft — but if you own important, branded products in this country, whether it’s Wrigley’s or Mars or Coca-Cola, or a number of the Kraft brands, or See’s Candy, you have good assets.

It’s not easy to take on those products. Just imagine, you know, taking on — Coca-Cola will sell a billion and a half eight-ounce servings of its product around the world today.

There’s something in everybody person’s mind virtually in the globe about Coca-Cola. It’s a product of — since 1886 has been associated with happiness and good value in terms of refreshment and all that.

It’s just about impossible, you know, to, in my mind, anyway, to take on a product like that. It’s clearly satisfies people in a huge way, you know, everywhere on the globe.

And, you know, it may not be the same — Kraft, for example, has Kool-Aid in the powdered soft drink business. You know, I don’t think I’d want to take on Kool-Aid. I’d rather have Coca-Cola. But it’s a tough product.

And to get implanted — just think of — to get implanted in people’s mind RC Cola around the world. And RC Cola has been around a long, long time. You know, it isn’t going to go anyplace. I mean, that is very, very difficult.

And actually, Richard Branson came over to this country — you know, they say that a brand is a promise. I mean, there’s a promise involved in picking up a Milky Way, or picking up a Coca-Cola, as to what it’s going to deliver to you.

Richard Branson came over seven or eight years ago, 10 years ago, you know, a fellow with a famous airline and all of that, and he came out with something called Virgin Cola. And I thought that was kind of an unusual promise to have in a product. (Laughter)

Never could quite figure that one out, what the promise was. But whatever it was, it didn’t work.

And there have been — I don’t know how many — Don Keough would know — but there have been hundreds of colas over the years. But in the end, who is going to, you know, buy some substitute cola for a penny a can less, or two cents a can less, than Coca-Cola, or the same thing with See’s Candy, or the same thing with Kool-Aid, or whatever it may be.

So we feel pretty good about branded products when they’re runaway leaders in their field. And there’s nothing unusual about Kraft in their position versus Kellogg or some other people like that.

So there’s — the specifics of which one we buy may depend a little bit how we feel about the price. It certainly will make a difference how we feel about the price, the management, and some other factors.

But if you buy in with good branded products and you don’t pay too much, you’re probably going to do OK.

On the other hand, you’re not going to get super rich because the attributes that I’ve just laid out are pretty well recognized.

Charlie?

CHARLIE MUNGER: I’ve got nothing to add.

WARREN BUFFETT: OK.