I've often discussed the importance of franchise value with you - how a company that has differentiating characteristics such as being the low-cost provider in its industry, or the ability to raise prices at a rate equal to or greater than inflation has an important advantage over its competitors and may, as a result, turn out to be a superior investment if the price is right and management allocates capital intelligently. Today, I ran into a perfect example of franchise value in the most unexpected of places and thought I'd share it with you.
I was in Kansas City visiting friends that were in the area for a professional conference. As we shopped throughout the stores in the Country Club Plaza, the area's premier pedestrian shopping district, we entered the Halls department store and somehow found our way to the fragrance counter. Here, we were introduced to a brand known as "Creed", the flagship of the world's only privately held fragrance dynasty. Founded in 1760, the company has been passed from father to son to this day. Despite grossly higher production costs (the fragrances are infused manually by artisans from herbs, spices, and oils originating throughout the world versus computerized automation that is the standard for virtually every other competitor), they are able to charge substantially more for their product. This disadvantage in cost structure actually became an advantage when marketed from a luxury point of view. Combined with the unrivaled pedigree of the enterprise - it has literally designed custom fragrances for King George III, Emperor Napoleon, a number of the European monarchs, United States Presidents and First Ladies, Hollywood stars, and other high profile individuals - and you have all of the makings of franchise value.
That is the sort of thing you want to be on the lookout for as an individual investor! The differentiation, the thing that makes one product "better" than another and can allow the owner to charge higher prices per unit ... it's the stuff of investment dreams!
Product image the property of House of Creed.