Dec 062020

A cynic’s definition of a value investor: someone who seeks to buy at 40 cents a business that is worth a dollar and to invest in a business that is able to charge a dollar for what is worth 40 cents.

What does a value investor do when, walking around the aisles of a Tesco supermarket, he is faced with the choice of buying a 2-litre bottle of Coca Cola at £1.59 or, right next to it, a 2-litre bottle of Tesco Cola for £0.50?

I recently faced the same question when my friend Sherri and I were looking to buy the ingredients for a proper ‘full English’ breakfast for Sunday morning – sausages, bacon, eggs, mushrooms, hash browns and baked beans. When it came to the latter, we had to choose between buying a can of Heinz baked beans for £0.85 or an otherwise identical can of Tesco baked beans for £0.30.

As I value-investingly fetched the Tesco can and put it in the basket, Sherri looked at me with an air of amused disapproval: “Come on, I think we can afford a can of Heinz – it’s the weekend!” “What do you mean, it’s the same stuff, isn’t it?” – I replied, playing on and launching into a tale of my visits to La Doria – the Italian firm where the Tesco beans probably came from – which somehow failed to raise her interest. “I bet you can’t tell the difference”. “Of course I can – said Sherri – there is a reason why Heinz beans cost more: they are better quality and they taste better.” “Okay, we’ll see” – I said, as I put both cans in the basket and started to savour the opportunity to run my own version of the most famous experiment in the history of statistics.

Back home, I asked Sherri to bear with me and wait in the living room while I prepared the experiment in the kitchen. I opened both cans and distributed some of their content onto 8 small plates, 4 with Heinz beans and 4 with Tesco beans, and displayed them in two rows.

Then I took Sherri, blindfolded her to eliminate the chance that she would spot a visual difference – the beans looked the same to me but you never know – and asked her to sit in front of the plates.

“There are 4 pairs of plates in front of you. For each pair, one plate contains Heinz beans and the other has Tesco beans. Each plate has its own spoon to avoid contamination. I would like to ask you to taste some beans from each plate, and for each of the 4 pairs tell me which one is Heinz and which one is Tesco”. “Okay” – said Sherri, anticipating a quick dash to victory. She tasted the first pair, and after a few seconds, over which I could see her realise that the task was not as easy as she had thought, she indicated which was which. She was right. “Okay, onto the second pair” – I said, with the acquired taste of a proud scientist enjoying the chance of being proven wrong. After sipping some water to clear her palate, Sherri proceeded and, after a few more seconds of hesitation, made her choice. “Wrong” – I said, with as soft a tone as I could muster to avoid hurting her feelings. “Okay okay, that can happen” – she retorted. “Sure it can” – I said, as I placed the third pair in front of her, this time actually hoping to be proven wrong. Alas, she was wrong again. And so she was in the fourth and final choice.

“All right all right, mister, you’ve proven your point” – she said with a smile, taking the blind off her beautiful eyes. “Yep” – I said, myself surprised by the embarrassing abundance of confirmatory evidence in favour of my hypothesis of interest. 2-2 would have been a better result – still proving my point but leaving her with some sense of dignified achievement.

“Okay, all done? Off we go” – said Sherri, as I cleared the table and she started to prepare her succulent ‘full English’. I transferred the beans into two bowls, one for Heinz and one for Tesco, and added the rest of the cans to each. One can was enough for the breakfast. So I asked Sherri which bowl she wanted me to put in the microwave – the Heinz, which she had just chosen as the better tasting 1 out of 4 times, or the Tesco, which she had chosen 3 out of 4 times?

“Heinz please” – she answered with a wry smile, aware of the inconsistency of her choice but happy to go along with her habitual preferences. I obliged and sat down, in quiet contemplation of the sheer power of established franchises and the value of brand moats that make Kraft Heinz a $42 billion company.




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  8 Responses to “The lady tasting beans”

  1. Thank you for sharing! That reminded me the mantra “Focus in data, in fundamentals, and forget all the rest”, where for investments in general at least sentiments can play a very dangerous game in our judgment. Mr. Buffett once said “You have feelings about your stocks; your stocks has no feelings about you” – Becoming Warren Buffett film. In 2017 I did a similar test with some lads at the office comparing the flavour between Twix v Dairyfine’s Jive. There was no doubt everyone preferred Jive, for their surprise.

  2. Drawing conclusions from a wrong test … for example,taste%2C%20it%20certainly%20influences%20perception.&text=Pure%20taste%20sensations%20include%20sweet,the%20roof%20of%20the%20mouth

    Very simply. If one removes sight, the sensation of taste changes. It is known that professional sommeliers cannot distinguish red from white wines if blindfolded. Even if the beans look the same, and so being blindfolded should not make any difference, it remains that the sensation of taste changes. It would be as if one was tasting something different and the test was on that different thing rather than the beans. No conclusions on the beans can be drawn.

  3. Paolo,
    Thank you for your comment. I run the experiment again yesterday, with Sherri unblinded. Alas, she immediately noticed the difference in the two sauces’ colour and said: “Heinz is this, this, this and this” – what a downer. “All right all right, lady, you got your revenge – I said – but can you please try them anyway and tell me in your heart of hearts if you can taste a difference?”. She did, and with the same wry smile said: “It’s all the same shit”. I have to find a way to neutralise the colour, but I doubt Sherri will put up with me a third time. And even if she does, I doubt it will make any difference – it is the same shit, try it yourself.
    It is different with red and white wine. You don’t need to be a sommelier to spot the difference in taste. However, if a sommelier trusts the experimenter but then is deceptively told that a white wine is red he will take that prior for granted and adapt his taste to it.

  4. Didn’t you ask her: I bet you cannot tell the difference. At the end of your second experiment, not blindfolded, she told you exactly that. The test was not whether Heinz and other beans brand have different colour, probably they do but whether they taste differently, clearly not so much as to be statistically significantly different from the **it. CVD. This was to be expected because the whole point of the Heinz as brand value is exactly to have convinced their customers that they are different, when in fact they are not. Surprisignly, it is a business school case, Heinz manages to mantain a persistent brand value with little marketing investments, which also explain why Heinz beans brand value is so high.

  5. Paolo,
    To recap:
    1. Sherri claimed she would easily spot the difference in taste between Heinz and Tesco beans.
    2. I set up the experiment to test her claim. The test proved her claim false.
    3. I concluded that Sherri’s preference for Heinz beans was due to branding, not taste.
    4. You suggested instead that the reason she failed the test was that she was blindfolded.
    5. So I repeated the experiment with Sherri unblinded. She spotted the difference by sight but not by taste, actually conceding that the beans all tasted the same.
    6. Now you are saying this was to be expected, and concur with my conclusion in 3.
    7. One of us is confused.

  6. Txs for sharing Massimo. Many people will easily recognize Heinz brand in any supermarket shelve in any continent, and many will associate it to their grandma’s kitchen… It’s the easy choice because of tradition, emotional ties and, of course, when you want to impress or please someone else.
    Btw, take care of Sherri – I doubt I’d be allowed to run behavioral experiments in my kitchen!

  7. I’m not sure what is greater: the trust of the Heinz Brand, or the irky feeling putting something in your mouth with the thought that the ‘every little penny helps’ philosophy has been part of it preparation

  8. True. That’s what a brand does: it creates trust and a perception of ‘better’. My little experiment showed that taste was not better, but that is only one aspect of ‘quality’. Perhaps Heinz beans are better in other respects, and therefore more expensive. I doubt it – I think production costs are essentially the same – but I may be wrong.

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