2019: Is Berkshire’s partnership with 3G a weakness for Berkshire?

JAY GELB: This question is on Berkshire’s relationship with 3G Capital. Kraft Heinz’s recent challenges have raised questions about whether Berkshire’s partnership with 3G has become a weakness for Berkshire.

Warren, what are your thoughts on this? And would Berkshire be open to partnering again with 3G in a major acquisition?

WARREN BUFFETT: Yeah, they are our partners, and we joined them. We had a one-page agreement, which I haven’t even actually ever reread. I mean, Jorge Paulo, I mean, is a good friend of mine. I think he’s a marvelous human being. And I’m pleased that we are partners. It’s conceivable that something would come up.

They have more of a taste for leverage than we do, and they probably have more of a taste for paying up, but they also are, in certain types of situations, they’d be way better operators than we would.

I mean, they go into situations that need improvement, and they have improved them. But I think both they and we, I know we did underestimate, not what the consumer is doing so much, but what the retailer is.

And at See’s Candy, we sell directly to the consumer, but at Kraft Heinz, they’re intermediaries. And those intermediaries are trying to make money. We’re trying to make money.

And the brand is our protection against the intermediaries making all the money.

Costco tried to drop Coca-Cola back in, I think 2008, and you can’t drop Coca-Cola, you know, and not disappoint a lot of customers.

Snickers bars are the number one candy that Mars makes. And they’ve been number one for 30 or 40 years. And if you walk into a drugstore, and the guy says, “The Snickers are 75 cents or whatever it might be, and I’ve got this special little bar my wife and I make in the back of the store, and it’s only 50 cents, and it’s just as good,” you don’t buy it, you know. When you’re at some other place the next time, you buy the Snickers bar.

So, brands can be enormously valuable, but many of the brands are dependent, most of them — Geico is not, Geico goes directly to the consumer. If we save the consumer money on insurance, they’re going to buy it from us.

And our brand, you know — and we’ll spend well over a billion and a half on advertising this year, and you think, my God, we started this in 1936, and we were saying the same thing then about saving 15 percent in 15 minutes or something of the sort — not exactly the same — but that brand is huge, and we have to come through on the promise we give, which is to save people significant money on insurance — a great many people. That brand is huge, and we’re dealing directly with the consumer.

And when you’re selling Kool-Aid or ketchup or, you know, Heinz 57 sauce or something, you are going through a channel, and they would — the phrase was used earlier today. You know, our gross margin is their opportunity, and we think that the ultimate consumer is going to force them to have our product, and that we will get the gross margin.

And that fight, that tension, has increased in the last five years and I think is likely to increase the next five or ten years. And Charlie is a director of a company that has caused me to think a lot about that subject. Charlie?

CHARLIE MUNGER: Well. What I think is interesting about the 3G situation, it was a long series of transactions that worked very well, and finally there was one transaction at the end that didn’t work so well.

That is a very normal outcome of success in a big place with a lot of young men who want to get rich quick. And it just happens again and again. And you do want to be careful.

It’s so much easier to take the good ideas and push them to wretched excess.

WARREN BUFFETT: Yeah, that is — no idea is good at any price, and the price settlement is probably something that we worry more about generally than our partners, but we are their partners in Kraft Heinz. And it’s not at all inconceivable that we could be partners in some other transaction in the future.