The Sherwin-Williams Company is North America’s largest producer of paints and varnishes. It also makes application equipment and automotive coatings.
According to Revenues & Profits, the company operates in four segments: Paint Stores Group, Consumer Group, Global Finishes Group, and Latin America Coatings Group.
SHW offers architectural paint and coatings, protective and marine products, automotive finishes and refinish products and original equipment manufacturer product finishes among others.
The company also licenses technology and trade names.
The company sells its products through direct sales staff and outside sales representatives to retailers, dealers, jobbers, licensees, and other third party distributors.
Not Much of An Economic Moat
SHW boasts over 4,900 retail paint and wallcovering stores, as well as auto-coatings outlets. It also manufactures paint brands such as Dutch Boy, Pratt & Lambert, Minwax, Martin-Senour, Thompson’s WaterSeal and Krylon.
Despite being the largest producer, the paints industry in general is a highly commoditized one. Consumers who purchase from retailers carrying different brands of paint will not be hard-pressed to switch from one brand to another if it offers better quality finishes, smells, or even colors.
However, my opinion does not stop Buffett from holding Benjamin Moore, another top-tier paint brand with its own stores. Buffett could have liked Moore because of its high-quality, high-price brand positioning – it keeps its paints and other supplies out of big departmental stores and instead has independently-owned outlets. Moreover, having such a positioning allows for Benjamin Moore to raise its prices without lowering demand because its customers are highly price insensitive.
However, SHW doesn’t have this luxury despite owning some of the more popular brand names in the paints industry – including its recent acquisition of Valspar, a leading interior paint brand with its popular Signature Colors line. In my opinion, if Valspar decides to raise prices relative to other paint brands, demand will most likely take a hit because consumers can get the same color or finish from a different brand from the neighboring shelf.
Then again, I am neither in the paints business nor an expert in this industry. Maybe Buffett is. Each investor’s circle of competence is different and I may be wrong in my analysis. However, I stand by my opinion and will keep away from SHW for the meantime.