Something to Chew On

Posted by: Diane Brady on April 28, 2008

Everyone listens to Warren Buffett. The world’s richest man is often hailed as one of the greatest stock pickers in history. So why is Buffett buying a stake in Wrigley, the maker of Juicy Fruit and Doublemint gum (the latter of which I’m chewing to get in the mood as I write)? It’s not like the candy business is the place to be in this age of paranoia over obesity, sugar and long-term health.

But I’ll tell you what has impressed me about Wrigley in recent years. First is the level of innovation coming out of the company. Every time I turn around there’s yet another flavor or new form of packaging for its products. Even my kids (who, of course, only chew sugar-free stuff like Extra and Orbit) notice it.

Second is the international reach of the Wrigley brands. Whenever I travel, I’m struck by how often Wrigley products are on offer at even the smallest roadside stands. Like Coca-Cola, being the dominant player in its category gives Wrigley an advantage in expanding into new markets. Gum, like soft drinks, is a category where brand recognition is a huge factor in purchasing. As people in emerging economies become more affluent, they typically become more interested in buying little treats for themselves and their children. That’s a hedge against whatever forces may dampen consumption at home.

Wrigley has a daunting competitor in Cadbury (which has been nibbling away at market share with innovations of its own in products like Trident). But the product war has served to make the whole gum category more appealing, in my view.

Yes, Wrigley makes more than just gum (just as Mars, its new parent, makes more than chocolate bars). But Wrigley has wisely made a strong push in recent years to pay more attention to the product that made it famous. The result is a company with a stronger focus, better product line and invigorated sales — the kind of thing Buffett likes to see.

Reader Comments

James Bruni

April 28, 2008 1:04 PM

Gum is recession proof, and clearly the sage from Omaha knows this.

Great post. Congrats on your new position at BW. Well deserved.

Mark-Salinas-MN

April 29, 2008 10:52 AM

Warren Buffet has made much money because he has an eye for potential that many other's have not seen.

Mark Salinas, MN

Sumanth Bajaj

April 29, 2008 12:39 PM

Another great pick by the legandty investor. Please try and allow for some sale of chewing gum in Singapore!

Wally Bock

May 1, 2008 2:29 PM

Congratulations! This post was selected as one of the five best business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

http://blog.threestarleadership.com/2008/04/30/43008-a-midweek-look-at-the-business-blogs.aspx

Wally Bock

Mark-Salinas-MN

May 5, 2008 7:01 PM

I checked out the link Wally....nice site!

Mark Salinas, MN

Vaibhav Satpute

May 10, 2008 1:20 PM

Morningstar founder, a $44-million business, Joe Mansueto has taken his admiration for Warren Buffet a step beyond conventional respect. Mansueto has made Buffett his proxy mentor. He's met the man only once. For 15 minutes. Nonetheless, Mansueto says that Buffett has provided him with the information and inspiration for creating a successful business of his own.

bobbi

May 14, 2008 7:39 PM

You can add why did he buy Carmax. since that purchase his stock has been down now buying the gum company is also not a good decision the gum is always stale.

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