Chocolate Wars: The 150-Year Rivalry Between the World's Greatest Chocolate Makers (45 page)

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 Yorkie 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.

That same year, Dominic was promoted to chief executive of Cadbury Schweppes, working alongside Adrian, who was now the chairman. They were the fourth generation of Cadbury brothers at the helm of the company. “It really worked because I understood Adrian and he really understood me, and we probably got the best out of each other as a result,” says Dominic. But the brothers soon faced a predicament unlike anything their predecessors had encountered.

In a hostile move, the American company General Cinema, which owned a nationwide chain of movie theaters, acquired 18 percent of the shares of Cadbury Schweppes. The American leisure firm was hoping to engineer a hostile takeover. “They were trying to put us into play,” says Dominic. “We went through uncertain times.” For the first time, the independence of the company was at stake.

General Cinema was able to take advantage of the fact that Cadbury’s American campaign was not going smoothly, which depressed the share price of Cadbury Schweppes. Cadbury managers discovered that their chocolates—including the beloved Dairy Milk and Wispa—were simply not in stores. With literally hundreds of lines
to sell, wholesalers had failed to give Cadbury’s products an extra push to secure orders from retailers. As long as Cadbury chocolates languished in stockrooms and warehouses, there was no way to see if Americans liked the taste. Profits from the U.S. market plummeted.

“Did I lose sleep? Yes very much,” says Adrian, “over the factory and over Peter Paul. They were nice people and I felt we had taken them over in the hopes of building their business and it hadn’t worked out. I felt responsible.”

On July 22, 1988, Cadbury U.S. was sold to its rival Hershey for $300 million. The press spelled out the end of Cadbury’s American dream. The press was also critical of Mars: “The Mars Universe,” observed
Fortune
in September 1988, for so long “the black hole” of the industry, “so powerful that it influences all the other objects in its system,” was now “locked in a time warp.” Forrest Jr. and John were described by
Fortune
as struggling “to escape the influence of their innovative father” as they failed to act while Hershey collected the benefits that stemmed from Cadbury’s difficulties. The Hershey giant reclaimed its position as the number one confectionery company in America.

General Cinema retained its 18 percent stake in Cadbury Schweppes. If General Cinema could find a bidder, over 160 years of independence could come to an end. Noting the presence of American “tanks on the lawn,” the
Guardian
pointed out on October 10, 1990, that General Cinema “did not intend to be passive shareholders.” There were repeated rumors that a bid was imminent. General Cinema failed to deny them.

It was an anxious time for Adrian and Dominic. But the brothers and the Cadbury Schweppes management team had a strategy to raise the share price to protect them from the American predator.

T
he year 1988 was a critical one for the British chocolate industry.

The saga began to unfold on April 13, 1988. The Swiss-German firm of Jacob Suchard made a “dawn raid” on Rowntree, acquiring 15 percent of the company’s shares. Jacob Suchard had already snapped up smaller European confectioners such as Belgium’s Cote d’Or and the Dutch Van Houten. Now it had set its sights on Rowntree. But Nestlé’s directors were watching closely. On April 26, they made a rival £2.1 billion ($3.82 billion) hostile bid for outright ownership of the great Quaker firm.

It was now possible to measure global market share, and Rowntree was the fourth largest chocolate maker in the world, after Cadbury and the American firms of Mars and Hershey. Like Cadbury, Rowntree was well established in the old Commonwealth and was exporting to over 130 countries. In addition to its merger with Mackintosh, it had also merged with the oldest French chocolate company, Chocolat Menier, as well as Laura Secord in Canada.

Not surprisingly Nestlé’s bid to buy Rowntree was greeted with outrage in Britain. People were appalled at the idea of a much-loved British chocolate icon falling to foreign hands. There was a real fear that Nestlé would move production to cheaper plants overseas. And what about the different values and culture of the two firms?

In stark contrast to the high Quaker standards that Joseph Rowntree had once set for his firm, Nestlé was being boycotted over allegations of unethical practices. In question was the very issue about which Joseph Rowntree felt so strongly: unprincipled advertising and promotion. This first came to light when the antipoverty charity War on Want published
The Baby Killer
in 1974—later published under a different title in German,
Nestlé tötet Babies
. The publications claimed that babies in the world’s poorest countries were dying because mothers were inappropriately encouraged to favor infant formula over breast-feeding when poor sanitation and lack of clean water could spell a death sentence. Nestlé sued for libel and won the case—but the issue did not go away. Eventually the World Health Organization developed international guidelines for marketing breast-milk substitutes, but allegations that Nestlé breeched the code prompted further boycotts.

With opposition to the takeover mounting from all quarters, Rowntree’s management rejected Nestlé’s offer. At Bournville, chief executive Dominic Cadbury could see a potential solution. Cadbury would keep Rowntree British—but only if local competition rules could be relaxed. “The idea that Rowntree and Cadbury together were going to hold the British public to ransom through chocolate prices was just absurd,” he said. “The supermarkets were already strong, Mars was strong.” Cadbury’s management approached the Department of Trade and Industry. “We said if you look at Cadbury and Rowntree’s market share on a global basis—which is how you should look at it—there is not a competition problem.” But he soon found that British government thinking was purely local. “Civil servants in 1988 did not think about global market share.” He was told that if he proceeded with the acquisition, he would be referred to the Monopolies Commission.

Cadbury’s proposal won no government support. On May 25, Margaret Thatcher’s Conservative government announced a foreign group could take over Rowntree. The next day Jacob-Suchard topped Nestlé’s bid with an offer of £2.3 billion ($4.19 billion). This was trumped in mid-June when Nestlé raised its bid to £2.5 billion ($4.55 billion). The Rowntree Trusts, which had once held a 51 percent stake in the
company, now possessed less than 9 percent. This was partly due to the Rowntree Trusts diversifying their share portfolio but also due to their holdings being diluted in size following successive share issues. The decision was down to Rowntree’s shareholders—a diverse group—and they voted to accept. Overnight, Nestlé became one of the world’s top four chocolate confectionery firms, and a famous Quaker company had a taste of unfettered shareholder capitalism.

For Dominic Cadbury, the decision was a disaster. The idea that Nestlé was allowed to buy Rowntree and not Cadbury was “ridiculous.” “That was a big fork in the road. We as a country have always shot ourselves in the foot here. Had we been more forward thinking about global market share, we would have pushed Cadbury and Rowntree together.”

In the aftermath of the takeover, some of the assurances Nestlé made to Rowntree’s management appear to have been quietly put aside. Staffing at Joseph Rowntree’s great factory at Haxby Road has declined to 1,600. The manufacture of famous brands like Smarties was moved overseas. Even the name Rowntree has been discreetly dropped from the packaging on many brands.