Chocolate Wars

by Deborah Cadbury

  Despite an estimated personal fortune of around $250 million, there was no letup for Forrest Mars. Now he had united the two arms of the Mars Empire into one kingdom in America, he wasted no time in putting his own stamp on it. Mars aimed for huge economies of scale by streamlining production to serve a few blockbuster brands: 3 Musketeers, Snickers, Milky Way, and Mars bars. For this to work, he had to shift volume. Executives’ success was judged by the returns they made on each brand. He was determined to take on the Hershey enterprise. The goal: to be the number one chocolate confectionery giant in America.

  Unlike Hershey, which was content to sell principally in America, Forrest Mars could see a bigger future for Snickers, M&Ms, and Milky Way. In continental Europe, he continued to clash against Nestlé’s unstoppable rise. While Mars typically looked to build new businesses tailored to local conditions, Nestlé strengthened its international presence through a policy of acquisition. After purchasing Maggi in 1947, it bought the British food group Crosse and Blackwell in 1960, which included chocolate in its portfolio as well as soups and tinned vegetables. Nestlé was fast becoming one of the world’s largest firms. “To protect these characteristics,” wrote Jean Heer in Nestlé’s company history, “the management proposed that the issuing of registered shares—whose registration would be subject to authorization by the board of directors—be limited to Swiss citizens .” This, they argued, ensured “stability and balance” in the way the company shares were distributed “both inside and outside Switzerland.” Meanwhile, Forrest Mars, sticking to his strategy of building businesses rather than buying and selling them, gave Nestlé a run for its money in Europe.

  The creator of Galaxy also had dreams that went beyond the borders of America and Europe. Forrest Mars wanted to find a way into the burgeoning markets in South America and Asia. He had a conversation with Dominic Cadbury around this time, which gives insight into his thinking.

  Mars asked, “What is the population of South Africa?” Dominic told him about 20 million.

  “It’s not large enough to be interesting,” Forrest replied.

  And sure enough, Mars did not try to find a way into South Africa.

  The Cadbury brothers were making modest headway. Shortly after becoming chairman, Adrian had taken a trip to South Africa during the time of apartheid. The two brothers wanted to go to Soweto, but their sales manager was uncertain. “He had never been and he was a local man,” recalls Adrian. “Apartheid was so strong that there was a feeling that maybe Africans lived a different life.”

  The Cadbury van set off as a great plume of dust rose from the wheels like a banner. They made their way into the township, “the sales manager’s eyes popping out on stalks.”

  “Our van was filled with chocolates,” says Dominic. “We went into little shops and tiny bars. Everyone loved chocolate.”

  They realized they had been neglecting a market in South Africa—and another thing was clear: Nestlé was there already. “Apart from chocolate, they had lots of different milk products. The man who ran Nestlé was an important businessman in South Africa.”

  At Bournville, Adrian wanted to launch Cadbury as a global brand reaching into markets well beyond the Old Commonwealth. Cadbury’s food division had already developed breakthroughs such as instant milk, Marvel, in 1964, followed by instant mashed potatoes, Smash. To build on this success, he was looking for a partner to expand the range and reach of their products. He talked to American companies about selling each other’s products in their respective territories. While nothing came of these discussions, Lord Watkinson, chairman of Schweppes, a soft drinks company, approached Adrian about a possible merger.

  Schweppes had come a long way from its origins in Geneva in 1783, when the watchmaker and amateur scientist Jean Jacob Schweppe refined a method to carbonate water. By the 1960s, the company had grown into an international concern specializing in fizzy drinks such as bitter lemon, ginger ale, and tonic. “Schweppes had a strong branded drinks business,” Adrian recalls, “and we had a strong branded chocolate business. In addition both companies had food divisions which could become more of a force in the grocery trade through amalgamation.” Combined they would have greater resources for research and development, and the geographical spread of each business complemented the other.

  The management of Schweppes was particularly keen on a merger as they feared a takeover. “Even then, size was the only real protection against being taken over,” says Adrian. In 1969, General Foods, the American food giant, was shopping for British firms. General Foods made a £37 million ($89 million) bid for Rowntree, which was rejected. Rowntree swiftly merged with Britain’s leading toffee manufacturer, Mackintosh of Halifax, which was also well known for such chocolate treats as Quality Street, Rolo, and Toffee Crisp. Adrian was less concerned about a takeover than his counterparts at Schweppes—in part because of the Cadbury benevolent trusts.

  In the 1960s, the Cadbury trusts held such a large share of the chocolate firm that potential buyers were put off. And not without reason. The sons of those who set up the trusts worked in the business. “There was a seamless link between the people running the trusts and the business that kept Quaker values at the heart of the company,” Adrian explains. “This was wrongly perceived as a barrier to takeover.” Adrian knew full well the trustees’ legal duty was to the trust—not the company—and trustees could not have protected the company against takeover if a bid was to the advantage of the trust.

  For the traditionally Quaker firm of Cadbury, there was just one obstacle to a merger with Schweppes: Its soft drinks were used in alcoholic drinks. Schweppes even distributed an alcoholic brand, Dubonnet. It appeared something of a reversal of the passionate aspirations of the original founders.

  Several older members of the family voiced opposition. Adrian’s great-grandmother, Candia Cadbury, whose inheritance had been instrumental in launching the business in the first place, had in all probability given her life to the temperance cause. The tuberculosis that killed her was almost certainly a result of her trips around the poor houses and pubs of Birmingham, exhorting anyone who would listen to give up drink. She came from a tradition so steeped in Quaker idealism that one of her forebears was burned at the stake. Some family members were worried. Adrian “spent a lot of time talking to those who had concerns. I explained to them we needed to be bigger. This was absolutely about extending our reach in a fast moving world.”

  Adrian Cadbury pressed ahead with the merger and in 1969 became joint managing director and deputy chairman of the global enterprise, Cadbury Schweppes, under Lord Watkinson as Chairman. Cadbury Schweppes was a global giant, one-third the size of Nestlé and with turnover approaching £250 million.

  The implications of the merger soon rippled out to their overseas divisions. With its commonwealth links, Cadbury had businesses around the world in Ireland, New Zealand, Canada, Australia, South Africa, and India. “At that time, we were really a British company with a lot of businesses dotted around the place,” observes Dominic, “rather than a proper international company.” He describes his early years in Cadbury’s business in Port Elizabeth in South Africa as “wonderful . . . we were left entirely to our own devices.” There was an international conference each year when the overseas divisions came together to compare experiences. “But at this stage we weren’t yet thinking internationally—looking at all aspects of the business on an international basis.”

  After the merger with Schweppes, overseas operations stepped up a gear. “There was this pressure to show shareholders that there were real benefits of the merger,” says Dominic. Enforcing a unified international policy, however, was not straightforward. The idiosyncrasies of the Indian market highlight the difficulties. India had a potentially vast market, but Cadbury had to adapt to maintain a foothold. At first there was not even an Indian dairy industry. Cadbury set about creating their own dairy herd by inseminating cattle that were accustomed to the heat from Rajasthan in northern India with imported Ayrshire
semen from England. Adrian remembers visiting their dairy farm near Poona, south of Mumbai.

  “It was the first time I’d seen a cobra,” he recalls. “At the dairy farm, they insisted on having their own hens as well as cows. I said, ‘No, we don’t want to do that.’ They got them anyway,” he laughs. “They had masses of hens, then they got rats, then cobras came and kept the rats down. The Indians didn’t worry too much about them.” But they did worry about the cows when they stopped producing milk. It was not acceptable for them to go to slaughter. Cadbury Schweppes found themselves in possession of a growing herd of non-productive “sacred cows.” Small wonder that the corporate finance director could see no prospect of a viable Indian business.

  The suffocating heat in India was another obstacle: The chocolate melted. The production team there found it could improve the quality by making slight adjustments to the recipe: They reduced the milk fat and increased the cocoa butter, which is slightly harder. They eventually developed products that were less affected by heat, such as toffee-covered chocolates called Éclairs.

  Just as they were making headway, the Indian government introduced restrictions against foreign companies. “We had a period where we could not take dividends,” recalls Adrian, “and a period where we had to sell 51 percent of the company to Indian shareholders. We changed our name to Hindustan Cocoa Products.” Under this name they found themselves in the surprising position of being protected by the Indian government, which decided that no more foreign brands would be allowed into the country. Coke and Pepsi-Cola could not get in. Nor could chocolate rivals: Suchard tried, and Mars tried, but they both failed to get in. Hindustan Cocoa Products was protected “because we were effectively Indian.”

  Eventually Cadbury regained control of the company, which was renamed Cadbury India, and developed a new manufacturing plant in Thane near Mumbai. “We still had Indian shareholders,” says Adrian, “which was great except for the Annual General Meetings. They would turn up in force and all ask questions so that their names could appear in the minutes. At least one AGM went on for two days!”

  Taking the long view eventually paid off. In time more shops were air-conditioned and the sale of block chocolate began to rise. Working closely with the local community, they developed a series of temperature-tolerant countlines especially adapted for the Indian market, such as multicolored chocolate sweets known as Cadbury’s Gems and a satisfying nougat and chocolate bar called 5 Star. These successes were established before rivals like Mars arrived, and Cadbury India was soon exporting to other hot climates in the Middle East, Singapore, Sri Lanka, and Hong Kong. “When I went round I found a number of Indians believe Cadbury India is Indian,” says Adrian. “For me that’s wonderful.” The business is efficient but has adapted to the values and customs of the local people.

  The Cadbury brothers grew their businesses overseas in steady, incremental steps, working their way across the globe and tailoring products to local markets. Sometimes they were first and were able to establish the taste. Mars’s attempt to venture into New Zealand in the early 1960s was quickly countered with a series of successful Cadbury countlines culminating in Moro, which became so popular it was hard for Mars and Nestlé to gain ground. In Australia there was a clash with Mars when both wanted to buy the leading Australian firm of MacRobertson in 1967. Cadbury succeeded, and it wasn’t long before Cadbury-MacRobertson secured 60 percent of the Australian market.

  Of all the commonwealth countries, Canada was the hardest market to crack. “You’ve got this three-thousand mile breadth of country, quite a small market and a lot of competition,” says Dominic. Cadbury could not afford a dedicated Canadian sales force and were much more dependent on wholesalers to distribute their products. “And we were competing with just about everyone except Hershey who hardly existed in Canada.” Local companies such as Neilson were strong; Rowntree and Nestlé were also involved. “Everyone had about 20 percent of the market. Nobody ever made any money. Canada was always a graveyard for confectionery manufacturers.”

  The overseas businesses remained human scale. “I appointed all the people who ran our businesses outside this country,” says Adrian. “I knew them all, I visited, there was a link—if you like, we belonged to a family.”

  Of all the markets in the world in the 1960s, the real prize was America, still dominated by Hershey. Around the time of the merger with Schweppes, Adrian Cadbury sent executives to speak to the management of Hershey Foods. For Cadbury, Hershey’s chocolate company was potentially an ideal partner. A merger would give Hershey an entrée into global markets and Cadbury a way into America. More important still for Adrian, there was a cultural and an ethical fit between the two companies. For both, the business was about more than making money; they had close links with a loyal workforce and their local communities.

  But Milton Hershey’s chocolate company was protected by the Hershey Trust. The Hershey Trust managed his cherished Hershey School and held approximately 80 percent of the chocolate company’s voting power. Nothing could happen without the support of the Hershey Trust, and for years this arrangement had protected his chocolate company from a takeover or merger and safeguarded the community and the school—which had more than 1,100 residential pupils. The Hershey Trust, notoriously conservative and cautious, rejected any merger.

  The conservatism of the Hershey establishment would soon play right into the hands of Forrest Mars. After a rapid rise in cocoa prices in the early 1970s, Hershey executives were looking for savings. Their first move was to slash the advertising budget. The Mars sales team, inspired with near religious fervor, went on a crusade to promote Mars products in every possible store at Hershey’s expense. Mars was fast overtaking its long-standing rival.

  In a surprising twist, sixty-nine-year-old Forrest Mars chose this very moment to walk away from the firm he had put so much into. In 1973, at the peak of his achievement, he handed the reins to his sons, John and Forrest Jr., and left them to run the company. His sons continued the sales battle that he had begun. The following year, in a blaze of triumphant headlines, Mars dethroned Hershey as the leading confectioner in America.

  The Cadbury team still had their eye on America. “The challenge was that the American market was 70 percent owned by Mars and Hershey,” says Adrian Cadbury, who succeeded Lord Watkinson as chairman of Cadbury Schweppes in 1974. The British firm began by building a factory in Hazleton, Pennsylvania, just sixty miles from Hershey town, from which Cadbury’s chocolates began to enjoy modest sales. They needed to increase volume to make the new factory economical, a problem that was solved with the purchase of the Peter Paul Candy Company for $58 million. Peter Paul had a tenth of the American confectionery market with such established countlines as Mounds, Almond Joy, and York Peppermint Patties. Building on Peter Paul’s sales, Cadbury hoped to bring in its own brands and effect a massive reorganization with much of Peter Paul’s production moving to Hazleton.

  Meanwhile, Cadbury’s global strategy was stepping up. As international marketing director from 1976, Dominic Cadbury toured the world and found huge variations in the presentation of the different brands. Even the name Cadbury was written in different ways. He replaced the numerous typefaces used on Cadbury’s packaging with William Cadbury’s signature logo to create a worldwide house style. “We also produced international brand logos that set down the colour and the script,” says Dominic, “and unified the whole presentation of the Cadbury business across the globe.”

  Back at Bournville, the results of the merger were evident as a succession of new products rolled off the production lines in the 1970s. The unique Curly Wurly was swiftly followed by new chocolate bars—Grand Seville, Golden Crisp, Ice Breaker—and innovative countlines such as Double Decker and Caramel. Cadbury countered successful Mars and Rowntree advertising campaigns, and sales for Flake quadrupled. But however inventive they were, continued pressure from Mars and Rowntree made it hard to make progress in their home market. Rowntree’s launch of the Yor
kie bar in 1976 was a major setback for Cadbury. With its satisfyingly thick and chocolatey bite, Yorkie dented sales of Dairy Milk, their flagship brand, and Cadbury’s share of the UK market declined to 20 percent.

  Dominic was concerned about falling off a “marketing precipice.” Below a certain market share, Cadbury could lose its position on the counter. He knew they needed a massive modernization program to compete effectively with their rivals. Dominic organized the greatest transformation of Cadbury’s factories since his father and uncles oversaw a renovation between the wars. “We had to introduce a new plant and went through a period at Bournville in the early 1980s of slimming down operations and not trying to do everything for ourselves.” There were still many ancillary crafts at Bournville from box making to printing, labelling, carpentry, and sheet-metalworking. While Mars had no unions, Bournville had representatives from forty-one unions. “We took out Trade Street, as we called it, and put up Cadbury World. We had to do some very tough things,” says Dominic. The number of brands was reduced from seventy-eight to thirty-three, and state-of-the-art technology was installed.

  By 1980, Cadbury’s research team had created something new with which they hoped to reclaim their market share. Small-scale consumer trials of their idea showed they were on to a winner: a light-textured chocolate bar in a chunky shape. They immediately withdrew the new bar from store shelves while they made plans for a massive British launch. Secrecy was everything. Existing machinery was adapted to make the new bar, the parts wrapped under black covers until ready for assembly. A huge TV campaign was prepared. In 1983, a nationwide sales conference took place. The sales staff was briefed to speak immediately to retailers to ensure the new deliveries would be in the shops. Within days, the new product—Wispa—was everywhere, and it was an overnight sensation.

  “The Wispa launch went incredibly well in Britain,” says Adrian, “and we were concerned Mars could copy it in the States.” So Cadbury invested in a major new plant that would make Wispa in the Hazleton factory. They planned a major U.S. launch of Cadbury’s chocolates, including Wispa. Unlike Mars and Hershey, Cadbury could not afford a direct sales force to blanket the country and relied on wholesalers instead. They arranged generous incentives to persuade wholesalers to stock large quantities of their goods. To seal their success, they improved their most popular brands to suit American tastes: thicker bars, extra almonds, and raisins. By 1984, the plans for the major relaunch were in place. They awaited the verdict from the American consumer.