2015: Will packaged foods companies continue to consolidate?

GREGGORY WARREN: This is sort of a follow-on to the 3G question.

When we look at the body of work that the firm has put together in the consumer staples universe, Anheuser-Busch, InBev, Burger King, Tim Hortons, and now Kraft Heinz, one gets the sense that they view the average consumer staples firm as being undermanaged, with a potential for substantially greater levels of profitability.

Given the ongoing struggles of many packaged food firms, most of which compete in a mature category against private label and/or store brand offerings that undercut them in price and diminish the value of their brands, and many of them having to deal with large retailers, like Walmart, that provide meaningful sales volumes but are also quite demanding and continuously pushing for the lowest price available, do you see the potential for further consolidation in the industry with a firm like Kraft Heinz emerging as a big consolidator? Or do you feel that Nestle’s more recent squawking about the deal, and 3G Capital’s reputation as being a bit heavy-handed with cost cutting, being enough to keep further consolidation at bay?

WARREN BUFFETT: Well, there will be deals in the future. I mean, there are bound to be.

But the strong brands — you know, just look at the ones that General Foods added in the 1980s and the ones that Kraft has now that come from that same company.

And, I mean, Coca-Cola sold more cases of beverages last year than any year in their history and they’ll sell more this year. I mean, it’s — a strong brand is really potent stuff.

I mean, take Heinz Ketchup or something of the sort. It’s 60 percent brand share in the United States, but it’s much higher in many other countries.

So you’ll always have the fight between the retailer and the brand, and the retailer is going to use all the pressure they’ve got and, therefore, the brand has to stand for something in the consumer’s mind.

Because, in the end, the retailer may want to shift to a house brand, a private label, but — and they — private labels have been around forever in the soft drink field. I mean, I can remember when I was looking at Cott Beverage and all of those and thinking, what will it do to us?

I remember when Sam Walton sent me the first six-pack. He told me, it’s the first six-pack of Sam’s Cola, 20 years ago, and believe me, Walmart has plenty of power, but so does Coca-Cola.

And the brand — you’ve got to nourish them. You know, you’ve got to take very, very, very good care of them. They have to stand for the promise that’s in people’s mind about them.

But a lot of people have tried to — I don’t know how many dozens, or maybe hundreds, of cola beverages there have been over the years. RC Cola. You know, they came up with the first diet product back in the early ’60s, and that looked like a big maneuver.

Wilkinson came up with the blade back in the ’60s after Gillette, but Gillette ends up with 70 percent, by dollar value, worldwide of razor blades after 100 years.

So there’s all — you’ve got to protect a brand. You’ve got to enhance it in every way. You’ve got to get a promise in people’s minds that gets delivered that way.

But that’s the question Charlie and I faced in 1972 when we looked at See’s. See’s was selling for $1.95 a pound, Russell Stover was selling a little cheaper, and you had to decide how much damage could a Russell Stover do if they came after See’s, and they copied our shops, and all that sort of thing.

If you protect a brand — if you got a terrific brand and you protect it, it’s a fabulous asset.

But you’ll always have trouble dealing with Costco and Walmart and the rest of the guys — Kroger, you name it, you know, they’re tough, too.

But the great brands will survive and the great retailers will do well.

Charlie?

CHARLIE MUNGER: Well, we’ve almost exhausted this topic. The — there’s no question about the fact that waves of layoffs frighten people. A job is a very important part of a person’s life, and it’s no small thing to lose it.

So — but on the other hand, I don’t think you — what would our country be if we kept everybody on the farms? All this prosperous group would be pitching hay and milking cows at 4:00 in the morning. No, we need — we need our businesses to be right sized.