While I was going to college in the late 1960’s, Blue Chip Stamps became quite a presence in California. I was listening to a podcast with Jacob McDonough (TIP 573) on my morning walk this morning as he discussed the early years of Berkshire Hathaway – and that brought memories for me.
It was amazing to watch the arc of Blue Chip during the 60’s and 70’s. Our family moved to California from Ohio where S&H Green Stamps had a significant presence. But Blue Chip seemed much bigger in California.
Back in those days, gasoline service stations and supermarkets were the major distributors of these trading stamps – making a very nice business for Blue Chip and S&H. As gas stations competed for business, they started offering multiples – like 3X or 5X stamps on your purchases. Lots of stamps!
In 1970, Berkshire began investing in buy the stock of Blue Chip. One of the companies purchased by Berkshire back in those days was Blue Chip Stamps. Wikipedia quotes Warren Buffett in his 2006 letter to Berkshire shareholders, Blue Chip had 1970 sales of $126 million as about 60 billion “stamps were licked by savers, pasted into books, and taken to Blue Chip redemption stores. When I was told that even certain brothels and mortuaries gave stamps to their patrons, I felt I had finally found a sure thing.”
Similar to insurance companies, these trading stamp companies were getting cash in the door from selling stamps to retailers to pass along to their customers for their loyalty while not having any actual expenses to incur until those customers pasted the stamps in their little booklets and traded them in for actual merchandise. And, along the way, some of those stamps might just disappear – “breakage” helping enhance the financial returns.
Berkshire knew a lot about insurance businesses and clearly found the trading stamp business at Blue Chip had a lot of good similarities. As with many things, the trading stamp business was good while it lasted – but it didn’t last. No worries for Berkshire however as Buffett made a very nice return along the way on his investment in Blue Chip.
Memories of old times!