The “Niche” in Sales And Business Strategy: See’s Candies
The See’s Candies success is a case study of a quintessential “niche” business envisioned and founded by a salesman and his partners in 1921. Warren Buffett and Charlie Munger’s (1924-2023) Berkshire Hathaway purchased the 51 year-old company in 1972. Buffett described See’s Candies as “the prototype of a dream business.” It is illuminating to investigate how a sales-driven “niche” business can provide a template for success, and how the biological and ecological concept of a “niche” can facilitate and contribute to our understanding of a “dream business.”
See’s Candies was founded by entrepreneur Charles Alexander See II (1882-1949), his wife Florence and mother Mary and business partner James W. Reed in Pasadena, California in November 1921. Charles’s mother and father, Mary and Alexander, owned and operated the Tremont Hotel summer resort on Tremont Island, Ontario in One Thousand Islands Canada where Mary honed her candy-making recipes. Charles owned and managed 2 pharmacies, “Pills and Things” in Timmins, Ontario, where a local forest fire destroyed his business and home in July 1911.
Charles seeking a career change, moved to Toronto and took a position as a sales representative for the Merckens Chocolate Company. Charles called on bakers and confectionaries including Laura Second established in 1913 (and today the leading chocolatier in Canada with 69 stores). Charles, inspired by Laura Second’s success in Canada and drawing on his family’s entrepreneurial roots, determined to replicate this success with his own candy business in Los, Angeles, California. Los Angeles was growing at a breakneck speed in the 1920s from a population of approximately 600,000 in 1920 to 1.2 million in 1930. Charles moved with his wife and now widowed mother to sunny, bustling Los, Angeles, California in the spring of 1920 to start a new chapter in his life and career.
Charles combined his retail knowledge, candy selling expertise, and mother’s recipes conceptualizing his “niche” boxed candy business strategy. See’s Candies first store opened in downtown Los Angeles at 135 West Western Avenue and combined retail with a candy-making kitchen. The second high-visibility store opened in Grauman’s Theater Building on 6th and Hill Street. See’s Candies now has over 280 stores and 3 dedicated factories and celebrates over 100 years of business growth.
Charles See’s strategic formula to grow sales of boxed candies and establish a “differential niche” among a trove of competitors endures today:
1.) Uncompromised focus on product quality and ingredients with small batch production and company-controlled retail outlets. The company controls the product, packaging, pricing and promotion and customer service in all levels of distribution. This vertical integration of manufacturing and direct consumer selling provides guaranteed and consistent high quality and freshness.
2.) Artisanal family crafted recipes handed down by his grandmother. Charles placed an image of his mother on each package with the advertising copy “Famous Home Made” and “Famous Old Time,” with the slogan “Quality without Compromise.” See’s signature black and white checkerboard floor was inspired by Mary’s kitchen floor in her Pasadena bungalow home. Employees wear black and white uniforms mirroring this distinctive color scheme. This “personality” and valuable trade dress has built brand equity and customer loyalty.
3.) Superior point of sale customer service including free sampling and physical store interpersonal advertising connection. Part of See’s zeitgeist is an emotional connection over generations of gift giving with warm family and romantic holiday memories such as Valentines, Christmas, Easter, Mother’s Day and Father’s Day. As Buffet explains, “And if a salesperson smiles at that last customer, our moat has widened and if she snarls at ‘em, our moat has narrowed.”
4.) A business with low capital investment requirements and high cash flow. The company generates half its sales and 90% of its profits from November through December with Easter and Valentine’s important sales drivers. The company “treads water” the balance of the year. December is the most important selling season and Valentine’s the most important selling day. Most Christmas items are purchased by women and Valentine’s items by men. Purchases are primarily made for gifts and not by actual consumers. The company’s cash nature means it has low to non-existent accounts receivable. The seasonal hairpin inventory needs and just-in-time delivery keep inventory financing needs low to non-existent. Seasonal workers spike to meet holiday rushes and limit fixed overhead.
5.) Brand equity and exclusivity with family legacy inspiring American nostalgia and California culture with loyal consumer franchise with regional territorial presence and national following. Most of See’s Candies stores are in the state of California and today over 70%. See’s Candies gains sales and visibility by having a high-profile presence in airports, travel locations, select department stores, and a mail order and online business. Buffett and Munger have resisted the common formula to achieve sales growth by seeking national distribution either through more company-owned stores, franchising or selling national retail chains. Instead, management protects brand equity by focusing on premium pricing, distribution exclusivity and profit growth by restricting the brand’s availability and aligning identity with a geographical territory.
When Warren Buffett and Charlie Munger’s Berkshire Hathaway purchased See’s Candies in 1972 it was their first outright purchase of a multi-generational business for a multiple of earnings and largest acquisition. Buffet’s previous purchases were referred to as “cigarette butt” acquisitions “with one puff left in them.” These acquisitions follow the value precepts of his Columbia University mentor Benjamin Graham (1894-1976) representing either the company’s liquidation value or discount of book value. Book value is defined as the asset value of the company upon liquidation. See’s Candies was purchased at approximately 3 times multiple of its book value of $8 million or for $25 million by Buffett and Munger. The company possessed 120 stores generating $31.3 million in revenues. The capital requirements were $8 million. Earnings before income and interest and depreciation (EBITDA) was $4 million and earnings after tax $2.1 million.
Buffett and Munger’s investment philosophy is to sustain management continuity. As an integral part of their acquisition, they installed existing executive Charles Huggins as president. Huggins would go on to hold this position for 54 years from 1972 to 2005. Brad Kinstler succeeded Huggins in the same leadership role for 13 years from 2006 to 2019.
Buffett’s letter to See’s Candies welcoming the business to Berkshire Hathaway stated:
“We have observed an attitude in all areas – purchasing, manufacturing, packaging, and sales – that forever focuses on delivering an unbeatable product to a happy customer. And a happy customer is what our business is all about. Good leases, the latest in production equipment, the catchiest of advertising, etc. area all meaningless unless our customer leaves the ship feeling delighted with his experience of the previous few minutes. Only two things will guarantee this: truly superior candy and the friendliest of service.”
Today See’s Candies generates sales of $600 million, has over 240 stores, and EBITDA profits of $100 million. While the sales have grown at a compound annual rate of approximately 2%, profits have grown at a compound annual rate of approximately 8%. The growth in revenues since 1972 have only required an additional investment of approximately $32 million due to the profit profile, cash nature of the business, efficient inventory utilization and low fixed asset requirements. Remarkably, See’s Candies during Berkshire’s ownership generated an estimated free cash flow of $1.2 billion for Buffett and Munger to invest in other companies.
Buffett and Munger calculated at the outset See’s Candies customer franchise would pay a premium for quality products and the brand possessed “pricing power.” This relates to the emotional brand loyalty and positive memories and habits relating to gift giving and holiday occasions. These intangible brand goodwill assets provide the company the ability to raise pricing above the rate of inflation without losing customers. As Buffett explained:
“We bought See’s Candies for $25 million and probably made a billion dollars or more from it. The best thing a business can have is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a really good business.”
Because of the “competitive moat” See’s Candies possesses in the market, the company successfully raised pricing over the years, leading to a windfall in profits. The premium pricing is associated with the exclusive nature of its products, controlled distribution, and unstinting quality. All price increases above inflation and costs drop directly to the bottom line, making this “niche” company a profit machine for Berkshire Hathaway.
Charlie Munger believed the greatest return from the See’s Candies “niche” investment is the lesson learned paying a premium to book value investing in a quality consumer franchise with tremendous growth prospects. This lesson has been employed by Buffett and Munger in their most profitable subsequent Berkshire Hathaway investments including:
1. Coca Cola (another sugar related “niche” business dominating its market or “ecosystem”);
2.) Gillette (a “niche” health and beauty aid “razor and razor blade system” dominating the men’s grooming “ecosystem”); and
3. Apple (a once “niche” technology company that evolved to be a dominant integrated “ecosystem” of mobile phones, computers, tablets, watches, etc.).
The “Niche” In the Context of Ecology, Sales And Business
Theophrastus (circa 371-287 BC) of ancient Greece was a student of Aristotle at his Lyceum Academy and considered “the father of botany” and a pre-cursor to ecology. Theophrastus was interested in, among other important aspects of nature, what we would now describe as a biological “niche.” In particular, Theophrastus was interested in plants and their relationship to competitors struggling for life in their environment seeking access to resources such as the sun, soil, nutrients, etc. The tree of life is an important ecological metaphor conveying the vital role of trees absorbing carbon dioxide from humans and circulating oxygen into the atmosphere that humans need to survive in a seamless web of life. This rich metaphor is similar to the web of economic life and the requisite healthy circulation of sellers and buyers in the market.
“Finding your niche” is an important turn of phrase used in sales, business and indeed life. The word “niche” has a revealing word history and derives from the Middle French (1350-1600) word “nicher” and means “to make a nest,” originally from the Latin word “nidus” meaning “nest.” The word “niche” is defined fourfold:
1.) “A comfortable or suitable position in life or employment”;
2.) “A specialized segment of the market for a particular kind of product or service”;
3.) “Denoting products, services, or interests that appeal to small, specialized section of the population”;
4.) “Place (something) in a niche or recess.”
The term “niche” has been used in architecture since 1610 to refer to a recessed area or cavity in a wall used to display decorative elements such as a statue and used since antiquity. We may say the architectural niche is where a decorative element lives in symbiosis with its environment and physical habitat.
Charles Darwin (1809-1882) did not use the term “niche,” however his study of bird finch fossils during his 5-week visit to the Galapagos Islands in September and October 1835 uncovered one of the most important “niche” studies in biology. Darwin observed the isolated Galapagos Islands, 600 miles west of Ecuador, contained 13 related finches with distinctive beaks designed for specific “niches” such as eating seeds, gathering fruits and accessing insects. Now known as “adaptive radiation” the finches derived from a single ancestor spreading to diverse “niche” environments to exploit available resources.
Ernest Haeckel (1834-1919), professor of zoology and comparative anatomy at the University of Jena in the German Empire (modern Germany) coined the term “ecology” which relates to the concept of the biological “niche.” Ecology, according to Haeckel, is defined as “the relations of the animal to its organic as well as its inorganic environment.” This derives from the Greek word “oikos,” or “household,” or “place to live,” emphasizing the environment and resource constraints.
The term “niche” in ecology was first used in a paper by Joseph Grinnell (1877-1939) a professor of zoology at the University of California at Berkley. Grinnell’s paper, “The niche-relationships of the California Thrashers” published in 1917, documented the relationship of physical space with habitats and resource constraints. Rosewell Hill Johnson (1877-1967), a eugenics professor at Hawaii University, first coined the term “niche” studying ladybugs in 1910 and discussing the “role” of species in ecology and its “recess” in the environment.
Charles Sutherland Elton (1900-1991), a zoologist at Oxford University in England, advanced the concept of the ecological “niche” in his book “Animal Ecology,” published in 1927. Elton defined “niche” as “its place in the biotic environment, its relations to food and enemies.” Elton emphasized the species’ interaction with the environment, its food and other species and position in the “food chain.” Elton interestingly defined a niche “in the sense that we speak of trades or jobs or professions in a human community.” Elton introduced the terms “food chain,” “trophic levels” and “pyramid of numbers” in his book “Animal Ecology.” “Trophic levels” describe an organism’s position in the “food chain.” Elton described a “pyramid of numbers” with large biomass and plant life supporting a smaller group of herbivores who in turn support an even smaller group of predators such as lions, tigers, eagles, etc.
The “niche” is a building block of the “ecosystem” concept. The concept of an “ecosystem” was developed by Sir Arthur Tansley (1871-1955), an English botanist at Oxford University. The name “ecosystem” was coined by Arthur Roy Clapham (1904-1990) a botanist at Sheffield University responding to a request by Tansley. Tansley defined an “ecosystem” as organisms and their environment and their interactions and energy transfers and nutrient cycles. The “ecosystem” encompasses the rich diversity and complexity of living or biotic and non-living living or abiotic matter and how they intersect and influence one another.
An interesting aspect of the “niche” in evolutionary biology, human history and sales is its historical contingency. In evolutionary biology, historical contingency relates to the random, unexpected or surprise elements that can impact nature. Contingency is probabilistic and unpredictable as opposed to deterministic or structural with binary or black and white predictability.
Stephen J. Gould (1941-2002), a paleontologist and evolutionary biologist from Harvard University, wrote a “A Wonderful Life” published in 1989 and finalist for the Pulitzer Prize, which posits if we could “wind back the tape of life” things would turn out quite differently, but of course this is not possible. Gould believed chance and random influence profoundly affect change as much as natural selection and adaptation.
Ferdinand Braudel (1902-1985), the French historian from Ecole Pratique des Hautes Etudes in Paris, wrote “The Mediterranean and The Mediterranean World in the age of Philip II” published in 1949, explaining the complex nature of historical indeterminacy. Braudel believed historical forces are the complex result of three related and intersecting time scales that are probabilistic and not deterministic:
1.) “Longue duree” or “Long Duration” - Long range structural factors that occur over hundreds or thousands of years such as geography, economics, technology, culture, etc.;
2.) “Conjoncture” or “Conjuncture” - Middle range factors determined by decades or generations typified by cycles in the economy, population, demography, climate, etc.;
3.) “Evenementiell” or “Events” - Short term events over days, weeks or years with personalities and political events and wars, etc.
While we recognize the importance of decision making and agency by actors in human history, contingency or chance has a profound impact on the course of continuity and change. In business and sales, a CEO of a candy company, for example, may correctly manage strategic business decisions, yet political turmoil with overseas cocoa suppliers can upend the supply chain, or changes in the mores of diets may pose challenges for sugar intake, or substitute gift products like fruit or flowers make inroads to consumer preferences. In other words, businesspeople need to be aware of not only their agency but the complex, dynamic and contingent historical circumstances that impact a company’s ecosystem and market niche.
Copyright 2026. All Rights Reserved. Thomas S. Shure, Shure & Company.