Chocolate Wars

by Deborah Cadbury

  The thrill of pulling down the blackout curtains was quickly gone. Although the war was over, the state tightened its grip on the economy. The country was on its knees. Britain accepted Marshall Aid from America. There was nothing to buy. Everything was rationed from food to furniture. It was still austerity Britain.

  At Bournville, any expectation of relaunching much loved brands like Dairy Milk evaporated with a shortage of supplies. Total output was less than half prewar levels, while rationing of only three ounces per person of confectionery a week continued. In York, George Harris was impatient to reintroduce his popular prewar countlines. Rowntree’s milk Kit Kat made a brief appearance in 1945 only to be replaced with wartime plain Kit Kat the next year. Harris was obliged to work with Paul and Laurence Cadbury to negotiate with the Ministry of Food on joint supplies for years to come.

  Recovery was slow. Four years elapsed before the government lifted confectionery rationing on April 24, 1949. The result took everyone by surprise. There was such pent-up demand that sweetshops simply ran out of stock. Faced with a shortage of supplies, they had to close for weeks on end. Rationing was reintroduced in August. With ten years of no growth at home, the British confectionery companies struggled.

  Laurence looked to develop opportunities overseas. “It was quite a long haul to get Australia profitable,” recalls Adrian, who was then doing military service in the Coldstream Guards in Tripoli. He knew his father was facing stiff competition from the local firm, MacRobertson’s. “New Zealand—absolutely fine, but Canada,” he shakes his head. “We got there first. Our milk chocolate set the standard.” Yet with such a small market in such a large country, it was hard to build a profitable business. But there was one other obvious target. “The New World,” continues Adrian. “It was emerging as a superpower. It was clearly such an important market in terms of size and wealth. Given that we were up against entrenched competitors in Europe, America must have looked tantalising.”

  While leading European chocolate firms were crippled by rationing, in America, the Hershey Company was in a unique position to expand. During the war, American troops had introduced the delights of Hershey’s chocolate across the world. Yet Hershey executives remained focused on the home market and failed to exploit their advantage. In fact, the Hershey bar was so popular they did not even see any need to advertise.

  In 1948, Laurence Cadbury had a very good reason to feel confident. Research in six American cities showed that 60 percent of Americans tested preferred the taste of Cadbury’s Dairy Milk to the stronger taste of the Hershey bar. Everything augured well for Cadbury to do battle with the American icon with an icon of its own: a five-cent bar of Dairy Milk. They started on the West Coast and sales began to grow. But for Laurence, the excitement of the American initiative was disrupted by terrible news.

  On July 26, 1950, his oldest son, twenty-four-year-old Julian, died in a motorcycle accident in France. At the time, Adrian, like his older brother, was reading economics at Cambridge, and he found his student days were “overshadowed” by Julian’s death. “Not only had we always been close,” he said, “but I suddenly became the eldest member of the family with responsibilities I had never envisaged.” His older brother had been an intrepid athlete, and Adrian now threw himself into sport representing the university in the Oxbridge boat race and skiing championships. “I knew it would mean a great deal to my father,” he said. As responsibility slowly settled on his shoulders, he found himself eager to start at Bournville.

  His father’s plans for America were not going well. Building on their success on the West Coast, Laurence organized a major launch of Dairy Milk in 1951 supported by a large advertising campaign. But it was soon clear that something was wrong. They were reliant on distributors who failed to get the stock into the shops. Vast quantities of chocolate were left unsold in various depots. When Dairy Milk was available, the public preferred what they knew, the familiar taste of Hershey. The Cadbury name was unknown in America and the launch failed.

  Forrest Mars noted Cadbury’s difficulties with interest. He too had a plan to take on Hershey—and in a curious twist, he had a head start. Estranged from his father for much of his life, in death, the terms of his father’s will acknowledged his only son. When Frank Mars’s second wife, Ethel, died in 1945, Forrest inherited half her shares in the business. At last, he had a stake in his father’s Chicago firm—approximately one-third of the business. Forrest also bought out his own partner, Bruce Murrie, thereby gaining complete control of the M&Ms plant in New Jersey. His plan was to bring the two Mars enterprises together into one great empire that would be a fitting challenger to the Hershey giant.

  There was one obstacle: his half sister, Pattie. She held another third of the Chicago stock and influenced by her uncle, Ethel’s brother, William Kruppenbacher, she had no interest in selling her shares to Forrest. In the bitter family battle that ensued, Forrest at one stage was banned from the Chicago offices by his step-uncle. But Forrest was not one to give up easily. The feud became so acrimonious that Kruppenbacher ultimately gave way and permitted Mars control of a third of the board.

  With his hard-won influence, Forrest argued for a complete overhaul of the Chicago factory. Just as Cadbury had mechanized the production of block chocolate, he wanted to mass-produce countlines. It took five years to carry out his plan, but by 1959, Snickers, Milky Way, Mars bars, and 3 Musketeers could be made at breakneck speed as strips of toffee and nougat were hurtled through sprays of chocolate and guillotines to the automatic wrapping room. Manufacturing time per bar was reduced from one day to less than one hour. Meanwhile his own brand of M&Ms finally caught on, becoming the best-selling confectionery in America. But it wasn’t enough. Forrest wanted complete control of his father’s factory. Nothing less would satisfy him.

  In Britain, the sense of living in a twilight world made grey by stultifying shortages at last came to an end. Rationing was stopped in 1953. Hard on the heels of the wave of consumerism that followed came a new medium to promote it: television. Commercial television was launched in September 1955, and Cadbury was on air the very first evening with an advertisement for drinking chocolate.

  The Rowntrees were equally quick off the mark. They ran a succession of memorable campaigns as countlines finally made a big comeback: “Have a break—Have a Kit Kat,” “Don’t forget the Fruit Gums, Mum,” “Polo: The mint with the hole,” “Wotalotigot,” and many others. The slick one-liners of TV advertisements favored individual brands with a simple playful message—perfect for Mars’s and Rowntree’s large portfolio of countlines. Within three years, commercials accounted for more than 60 percent of all chocolate advertising. As countlines began to take a share of the market for block chocolate, Paul Cadbury and the marketing team fought back with an innovative series of advertisements. While supermodels promoted the superlight Flake, a romantic James Bond-style action hero delivered a box of Milk Tray against the odds with the slogan: “All because the lady loves Milk Tray.

  Not content with just growing the countlines sector, Forrest Mars planned another attack on Cadbury. It was 1959, the year that Laurence stepped down as chairman and handed the reins to his cousin Paul, who had led some of Cadbury’s most famous sales campaigns, including “2oz for 2p” and the “Glass-and-a-half ” slogan. But Forrest Mars’s next move took Paul by surprise. Mars had excelled at creating countlines where the chocolate was mixed with other confectionary ingredients, but now he used television for a direct assault on Cadbury’s block chocolate lead by launching a block chocolate bar of his own: Galaxy. It was the largest British television ad campaign for chocolate yet. Cadbury hurried to reposition Dairy Milk, but it was clear that television was changing the rules. One effective TV campaign could shift decades of customer loyalty in a matter of weeks. In a reversal of the views of nineteenth-century Quaker founders such as Joseph Fry and Joseph Rowntree, by 1960 the chocolate and confectionery firms were among Britain’s largest advertising spenders: Cadbury at £3.2 million w
as fifth, Mars at £2.9 million was sixth, Rowntree at £2.8 million was seventh, and Nestlé at £2.3 million was eighth.

  In 1961 Paul faced another critical issue much closer to home. There was growing pressure from the wider Fry and Cadbury family members to take the company public. The Cadbury firm had been a private Quaker concern for 140 years. Such a move would be one of the most significant transitions in the firm’s history. Adrian and his younger brother Dominic soon learned of the predicament. Adrian had recently joined the board as a director, and Dominic, having completed his degree at Cambridge, was working toward an MBA at Stanford Business School in America.

  “The problem was that we had family shareholders, particularly the Fry family, whose capital had been tied up in the business since 1919,” Adrian explains, “and they did not have an open market for their shares.” By the 1960s this was becoming a significant concern. Although there were about ten Cadbury family members in the business, there were no Frys involved, and in the wider Fry and Cadbury family, several hundred held shares in the firm. There was a desire to “do the right thing by the Frys,” says Adrian, and by the growing number of Cadbury family members who could not access their capital.

  “‘There is no way the handful of family members who were in the business could have bought out those who were not,” adds Dominic. More than 50 percent of Cadbury shares were owned by benevolent trusts, he explains, such as the Barrow Cadbury Trust and the William Cadbury Trust. Because Barrow and William had given away most of their wealth, their sons, Paul and Charles Cadbury, “were never what you would call very rich people and could not possibly have bought out the hundreds of Cadbury and Fry members who did own shares.”

  The family members who wanted to sell were keen to have an objective cash valuation of their shares. With a private company, an independent firm of accountants typically sets the price per share. “But this was clearly different from having an open market in which they knew that the price they got for their shares was the way the market valued it,” says Adrian.

  To solve this problem and to allow Fry and Cadbury family members access to their capital, Paul and the Cadbury board agreed to go public. The British Cocoa and Chocolate Company was floated in 1962. For the first time since its founding in 1824, the chocolate enterprise was no longer under direct Quaker family control. The management had to report to independent shareholders, who demanded a broad-based and profitable business.

  It was immediately clear to Adrian that the firm had to change. “There were teething problems,” he says. “For a time the Cadbury board continued running as if we weren’t a public company. Paul found the transition extremely difficult.” For years, Paul had managed to sidestep the top management in the British Cocoa and Chocolate Company board and instead ran the business through the subsidiary Cadbury board. “But once we floated the British Cocoa and Chocolate Company, we couldn’t go on with what was in effect the subsidiary running the business.” Adrian knew they needed to have a proper annual general meeting and formal procedures for reporting to the board. “I was concerned,” he adds. Shareholders had become the new owners. “Things had to change.”

  Just how much they had to change is shown by what was happening in a rival’s boardroom two thousand miles away on another continent. Forrest Mars continued to battle for complete control of his father’s factory. Tragically for the family, a key turning point came when his half sister, Pattie, was diagnosed with terminal cancer. At last she agreed to sell him her shares. He now had two-thirds of the business but he wanted it all. This was his father’s life’s work, and strangers had a voice on the board. Forrest Mars worked unceasingly to persuade other share owners to sell to him until he finally achieved full control in 1964.

  What happened next was reported by Harold Meyers in Fortune in 1967. Forrest, whose obsession with the family business was now “bordering on religious zealotry,” called a meeting of leading executives shortly after he gained control of his father’s Chicago factory. Sixty-year-old Forrest Mars did not walk into the boardroom, “He charged in.” He had a youthful appearance despite his age and thinning grey hair. The senior staff members in the room were a little unsure what to make of him. His appearance made no concession to current fashions: “His English suit had wide lapels and his tie was unstylishly wider still.” Yet he communicated his intensity with a power that was unsettling. After a brief and wary exchange, he presented his vision for Mars confectionery. “I’m a religious man,” he declared. He dropped from his chair to his knees as though the conference table were a church pew. The others watched mesmerized as he began his sermon.

  “I pray for Milky Way,” he said.

  Long pause.

  “I pray for Snickers . . . ”

  No one said a word.

  His message was clear. His prayers were for profit. He expected nothing less than the same religious fervor from his staff. It was a very different scene from the one, almost a hundred years earlier, when George Cadbury asked his Bournville staff to join him in prayer to seek guidance on a difficult business issue. But Forrest Mars confirmed what everyone knew.

  Money was the new religion.

  CHAPTER 18

  American Tanks Were on the Lawn

  It would fall to a fourth generation of Cadbury brothers to manage a period of spectacular change. In 1965, three years after taking the company public, Paul stepped down and was succeeded by Adrian, who at thirty-six became the firm’s youngest chairman. His younger brother Dominic had just started working at Bournville. It wasn’t long before the two brothers had a firsthand experience of Forrest Mars.

  “I met Forrest Mars Sr. in London and he offered me a job right in front of Adrian,” says Dominic, smiling as he recollects the scene. Mars and his wife, Audrey, were holding a drinks party at the Dorchester, one of London’s smartest hotels. “They had the best suite of rooms, at the top. We were all invited because as families we were close.” Dominic and Adrian’s parents were friends with Forrest and Audrey.

  A slight hush followed Forrest’s job offer. Adrian, forever the diplomat, was quick to step in and diffuse the situation.

  “Whatever you offer Dominic, Forrest, we will pay him more,” he said mischievously.

  Of course, that wasn’t true, says Dominic, but he had no intention of working for his brother’s most dynamic rival. “Forrest Sr. was that sort of chap,” Dominic adds. “He was an interesting man. . . . He had a real wicked smile about him. . . . We knew his employees saw a different side of him. He could be a complete tyrant.”

  While Dominic started his training in South Africa, Adrian was grappling with turning a 140-year-old private Quaker business into a modern public company. A number of strategic issues had to be resolved—namely, improving the geographical spread of the business, expanding the foods division, and reducing their dependence on cocoa. As cocoa is susceptible to many different diseases and thrives only in one kind of climate, running a massive enterprise based on this one product carried inherent and substantial risks. Cocoa prices had been known to double in just a few months. And there were changes afoot that were transforming the business: notably the rise of the supermarket.

  For a century, the backbone of the Quaker business had been the corner shop. In the 1960s, Cadbury had more than 250,000 direct accounts across the country. While the corner shops thrived on a variety of lines, the new supermarkets wanted fewer brands backed up by TV advertising. For the first time, the distributor had begun to determine the manufacturer’s range. And while the corner shop would pay on time, the supermarkets had the power to extend their terms of payment. It was a major shift in the balance of power.

  Adrian Cadbury also had to find a way to improve the return on capital. Forrest Mars held no stock: He ordered cocoa and sugar to arrive at a certain time on a certain day to minimize the amount of capital tied up in the business. By contrast Cadbury had money tied up in its large inventories.

  The young chairman soon found he did not have the right organiz
ational structure to meet these new challenges. He had inherited a business rooted in traditional ways of operating but lacking clear lines of accountability. “We had a ponderous organisational system that was wonderful at involving everyone because we had a great number of committees, but it was slow in coming to a decision,” he recalls. “Everyone had a chance to put their pennyworth in, which was very good, but took time.” For example, there was a strong participatory system of Men’s and Women’s Works Councils. These dealt with everything from discipline to bonuses. The councils were a hive of industry that produced a lot of paper “but had little time for work.”

  The collaborative nature of the business reached all the way up to the Cadbury board. “There were twelve managing directors,” Adrian recalls, and they met every week and discussed every last detail. “Even the issue of donkey jackets was a board matter!” The entire organization had to change.

  In contrast to the collaborative style of Quaker management that had evolved over a century, Forrest Mars claimed to be “a practitioner of scientific management.” In Britain and America, he threw out conventional working practices. Staff members were taken out of their comfort zone. He pioneered the idea of the open plan office. Special privileges disappeared. Luxurious offices with fine art and soft carpets vanished. The objective “was to smash any barriers to communication and inhibit narrow functionalism,” reported Bill Saporito for Fortune in September 1988. Desks had to be spotless. Even Mars’s dog food factories, revealed one executive, “are cleaner than some hospitals I’ve been in.” Everyone had to clock in. Punctuality was so highly prized that employees received a 10 percent bonus just for being on time. Forrest Mars intended to achieve a culture of “egalitarianism and individualism.”