Monday, March 1, 2010

Warren Buffett, 'The Oracle of Omaha,' Wants you to shop at Tesco...But He Doesn't Mind if You Shop at Walmart

Billionare investor and founder, chairman and CEO of the Berkshire Hathaway Inc. corporate holding company, Warren Buffett, wants you to shop at Tesco stores in the United Kingdom and throughout the world, and at Tesco's Fresh & Easy Neighborhood Market stores in California, Nevada and Arizona.

But ever the equal opportunity - and financially cautious - investor, Warren Buffett doesn't mind if you also shop at Walmart. In fact, he wants you to. You'll see why that is below.

On Saturday (February 27), Mr. Buffett - nicknamed 'The Oracle of Omaha' because of his legendary investment talents and near-lifelong residence in Omaha, Nebraska, where he was born and raised and lives today - disclosed in his annual letter to shareholders that Berkshire had increased its common stock share holdings in United Kingdom-headquartered Tesco plc during its 2009 fiscal year.

Buffett's Berkshire Hathaway now holds 234,247,373 shares of Tesco common stock, valued at $1, 367 billion, at the end of 2009.

Buffett's current stake in Tesco, parent company of Fresh & Easy Neighborhood Market USA, amounts to a 3% ownership stake in the global retailing company, up from a 2.8%-2.9% ownership stake in the same period in 2008. Berkshire held 227 million shares of Tesco plc common stock in its fiscal year 2008.

Based on our research, that makes Buffett's Berkshire the six-biggest investor in Tesco.

Going from a 2.8%-2.9% ownership stake to 3% might not sound like much. But keep in mind that at this level such fractions represent real money.

Tesco is currently ranked as the fourth-largest retailer - including of food and groceries - in the world. [January 10, 2010: Tesco Drops From Third to Fourth Place in Important Global Retailing Ranking Despite Having Higher Sales Growth Than Rival.]

Walmart Stores, Inc. is number one, followed by France-based Carrefour and Germany's Metro Group.

Warren Buffett doesn't mind if you shop at Walmart

Speaking of Walmart, Buffett also disclosed in his shareholder letter on Saturday that he continues to hold a major stake (one that has grown from last year) in the world's leading retailer, Walmart Stores, Inc. In fact, that dollar value is even greater that his Tesco holdings.

Buffett owns 39,037,142 shares of Walmart Stores, Inc. common stock, which was valued at $2, 087 billion at the end of Berkshire's 2009 fiscal year. The holdings represent a 1% ownership stake in Walmart for the "Oracle of Omaha' and his Berkshire Hathaway shareholders.

Warren Buffett's grocery shopping list for you

Berkshire-Hathaway also has major stakes in a number of companies that supply Tesco, Walmart and other retailers throughout the world with branded food, grocery, beverage and non-food packaged goods products.

For example, Buffett's Berkshire holds 200,000,000 shares of Coca-Cola Company stock. The holdings are valued (at the end of 2009) at a whopping $11, 400 billion, giving Buffett an 8.6% ownership stake in Coke. It just so happens his favorite beverage is a Diet Coke.

Berkshire-Hathaway also owns 130,272,500 shares of common stock in food giant Kraft Foods, Inc., which recently acquired the iconic British confections company Cadbury.

Buffett's holdings in Kraft Foods, which is the second-biggest global food company after number one Nestle, are valued (2009 end) at $3,541 billion, giving Berkshire an 8.8% ownership stake in Kraft.

Buffett fought Kraft's initial takeover bid of Cadbury last month, saying it was too high. Kraft worked with him and he eventually agreed on its final bid for the British confectionary giant.

Kraft Foods' huge brand portfolio includes: Kraft, Nabisco, Oscar Mayer, Maxwell House and many others.

Additionally, Buffett is a major investor in consumer products giant Proctor & Gamble, maker and marketer of such leading consumer packaged goods brands as Tide, Crest, Charmin, Gillette, Pringles and numerous others. Out of its about 90 brands, P&G has 22 that do over a billion dollars in annual sales.

Berkshire holds 83,128,411 shares of Proctor & Gamble common stock, valued at $5,040 billion. This represents a 2.9% ownership stake in P&G for Buffett.

Lastly, in the food/grocery/consumer packaged goods sector, Buffett's Berkshire holds 28,530,467 shares of consumer packaged goods, health care and pharmaceutical company Johnson & Johnson.

Among J&J's packaged goods brands are Johnson's (baby powder and other health and beauty care category items), Listerine, Tylenol, Band-Aid, Visine, Splenda and others.

The value of Berkshire's holdings in Johnson & Johnson is $1, 838 billion, which is a 1% ownership stake in the company.

Warren Buffett: Chairman of the Board(s)

Buffett's Berkshire Hathaway - which he runs with his "senior" partner Charlie Munger (Buffett is in his late 70's, Munger is in his mid-80's, hence "senior" partner) - is far more than an investment firm.

In fact, Berkshire is primarily a corporate holding company, which owns 53 companies, ranging from A - Acme Brick Company and Applied Underwriters - to F - Fruit of the Loom and Forest River - and G - GEICO Insurance - and on to S - See's Candy - and W - Wesco Financial Corporation - along with 46 other companies in between. [You can view a complete list of the Berkshire-Hataway-owned companies here]

All of the 53 companies owned by Buffett's Berkshire have their own CEOs and senior management, and are run as independent companies by the respective managment teams.

Buffett is the original champion of decentralization. He coordinates with each of the 53 CEOs, acting as a chairman of the board for each of the holding companies.

And since Buffett likes investing in food and grocery retailers - Walmart and Tesco - and food, grocery and consumer packaged companies - Coke, Kraft, P&G and Johnson & Johnson, plus a few others in a smaller way - it should come as no surprise that his Berkshire Hathaway owns a number of companies in the food/grocery/consumer packaged goods sector.

These companies include: grocery, mass-merchandise and convenience store wholesale distributor McLane Company, which Buffett bought from Walmart a number of years ago; popular confections-maker, marketer and retailer See's Candies; the casual dining chain International Dairy Queen, Inc.; and gourmet products' retailer The Pampered Chef.

McLane Company is the largest of the Berkshire-owned companies in the sector, with annual sales of $31.2 billion in 2009.

McLane was also the top-performing company in Buffett's 53-company portfolio for 2009, a year in which many of Berkshire's companies were racked by the recession. McLane inked pre-tax record earnings of $344 million on sales of $31.2 billion (distribution is a penny per-dollar business) for the fiscal year.

McLane's CEO is Grady Rosier. Here's what Buffett says about Rosier in the annual shareholders letter that went out on Saturday: "McLane employs a vast array of physical assets – practically all of which it owns – including 3,242 trailers, 2,309 tractors and 55 distribution centers with 15.2 million square feet of space. McLane’s prime asset, however, is Grady."

That's vintage Buffett. Chairman of the board and motivator-in-chief, all done with a smiling and humble - yet stern - hand.

McLane's largest customer is Walmart Stores, Inc., although the company's major distribution focus is on convenience stores.

A little dot-connecting: Walmart sold McLane to Buffett a number of years ago. (Walmart bought it from founder Drayton McLane.) Buffett owns 1% of Walmart. Buffett's Berkshire owns McLane Company. Walmart is McLane's largest customer.

McLane Company doesn't distribute any product to Tesco's Fresh & Easy USA by the way, even though its a major distributor in the Western U.S. states where the 145 Fresh & Easy stores are located. But for you conspiracy theorists, its more about relationships that it is about interlocking directorates. And the Buffett-Walmart relationship goes back a long way - and remains a strong one.

Based on his increased stake in Tesco, Buffett obviously sees strong long-term prospects for the global retailer. Buffett is a long-term, value investor.

But what does 'The Oracle of Omaha' think about Tesco's U.S. food and grocery retailing venture, Fresh & Easy Neighborhood Market? We're working on that. Hopefully, we'll have some word on that question from Mr. Buffett in short course. Stay tuned.

Meanwhile, Warren Buffett wants you to shop at Tesco stortes throughout the world - and its Fresh & Easy Neighborhood Market stores in the U.S.

But he doesn't mind if you shop at Walmart and at Walmart's various chains and thousands of stores throughout the world, such as its Asda chain in the United Kingdom, which is Britain's number two food and grocery retailer after Tesco.

'The Oracle of Omaha' will also be happy if, in the U.S., you fill-in your Walmart and Tesco Fresh & Easy shopping by visiting any of the thousands of convenience stores supplied by Berkshire-owned wholesaler-distributor McLane Company.

And while shopping at a Tesco-owned or Walmart-owned store anywhere in the world, the Warren Buffett would also love it if you would buy a 12-pack or two of Diet Coke, or any of the hundreds of other beverages Coca-Cola sells under its 100 brands; a few boxes of Kraft Macaroni & Cheese and packages of Nabisco Oreo cookies (Kraft Foods); a big bottle of Tide Laundry Detergent and a 12 roll-pack of Charmin Bath Tissue (Proctor & Gamble); and then top off your shopping trip by buying a big bottle of Listerine (Johnson & Johnson).

If you do, we're pretty sure Warren Buffett thanks you.

[Illustration credit: The ink-on-paper illustration of Warren Buffett at the top, titled 'The Oracle of Omaha," is by artist Andrew Mitchell. You can learn more about his work at his site here.]

Reader Resources:

[If you've never read one of Warren Buffett's (and partner Charlie Munger's) annual Berkshire Hathaway shareholder letters, you're missing out. They're far different than the typical annual or year-end financial communications most corporations have with shareholders. You can read Berkshire's 2009 letter here.]

[Fresh & Easy Buzz Library: Click here for a selection of related, past stories about Warren Buffett]

1 comment:

Kevin W said...

Thanks for the post. I'm an investor in Berkshire Hathaway and Tesco, and learned more about what Warren's up to from your blog post than I do from most major financial publication articles. Keep up the good work.

Kevin Whitfield