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CASE IN POINT
LARSON-JUHL, 2001Late in 2001, Warren Buffett made a handshake deal to buy
Larson-Juhl, wholesale supplier of custom picture-framing
materials, for $223 million in cash. It was Buffett’s favorite
scenario: a solid company, with good economics, strong man-
agement, and an excellent reputation in its industry, but expe-
riencing a short-term slump that created an attractive price.
The business was owned 100 percent by Craig Ponzio, a
talented designer with an equal talent for business. While in
college, he worked for one of the manufacturing facilities of
Larson Picture Frame, then ended up buying the company in- Seven years later, he bought competitor Juhl-Pacif ic, cre-
ating the company now known as Larson-Juhl. When Ponzio
bought Larson in 1981, its annual sales were $3 million; in
2001, Larson-Juhl’s sales were more than $300 million.
That is the kind of performance that Buffett admires.
He also admires the company’s operating structure. Larson-
Juhl manufactures and sells the materials that custom framing
shops use: fancy moldings for frames, matboard, glass, and as-
sorted hardware. The local shops display samples of all the
frame moldings available, but keep almost none of it in inven-
tory. When a customer picks out a frame style, the shop must
order the molding stock. And this is where Larson-Juhl shines.
Through its network of twenty-three manufacturing and dis-
tribution facilities scattered across the United States, it is able
to f ill orders in record time. In the great majority of cases—in-
dustry analysts say as much as 95 percent of the time—materi-
als are received the next day.
With that extraordinary level of service, very few shops are
going to change suppliers, even if the prices are higher. And
that gives Larson-Juhl what Buffett calls a moat—a clear and
sustainable edge over competitors.