Back in February billionaire investor Warren Buffett surprised many followers when his company Berkshire Hathaway (NYSE: BRK.A) teamed up with leveraged buyout firm 3G Capital to acquire the world renowned H. J. Heinz (NYSE: HNZ), the maker of food products, including Heinz ketchup, for US$23.2 billion.
This week the European Commission cleared the way for Berkshire and 3G to close the deal with all regulatory requirements now having been met. Buffett is known for preferring to buy companies for life. He isn't interested in flipping them for a quick profit. He is also known for being a great admirer of the products he owns. He loves snacking on See's Candies and often carries a can of Coke with him. No doubt there will be a bottle of Heinz ketchup on his kitchen bench too.
Buffett's penchant for purchasing branded consumer goods companies should highlight to investors that there is something about the economics of these business models to like. Of course not all branded consumer goods are created equally but interested investors may wish to take a closer look at Goodman Fielder (ASX: GFF), Freedom Foods (ASX: FNP) and Patties Foods (ASX: PFL) which each own a stable of either niche or household brand-name food products.
Foolish takeaway
Sticking to business models that have favourable economics such as high profit margins and pricing power can be a lower risk investment strategy for investors than trying to pick winners within a competitive, low profit margin sector.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
