Mars Inc. (the chocolate story)

0:00 Okay, David, how many current varieties of Ms can you name? Oh, wow. Okay. Well Peanut butter. Uhhuh. Actually plain is technically now called milk chocolate. Oh, interesting.

0:13 There's dark, right? Yep. Which I've got right here. Uh, they had mint for a while. Did they discontinue mint? Mint is a holiday only theme. So that's a seasonal one.

0:25 Oh What else? I mean, at the end of the day, it's kinda only plain and peanut that matter, right? I think in sales numbers. Are there pretzel ones?

0:35 There are pretzel ones. There are also Almond. Oh almonds. See I yeah, I'm allergic to almonds, so I never think about almonds. There's also some weird ones. Carmel?

0:46 Yeah. I don't want that at all, but they make it. Crunchy cookie? Which replaced Crispy of our youth. Do you remember the blue packaging Crispy M and Ms? Oh yeah, I remember the Crispies. Yeah.

0:59 And then there's some specialty ones, dark chocolate peanut, which I really want. Fudge brownie. Campfire s'mores and carmel cold brew. Ooh, I don't know about any of these. And then there's these really wild limited edition ones in addition to holiday mint. Birthday cake, chili nut.

1:15 And pumpkin spice latte. Oh that sounds disgusting. I know. But yeah, I think you are right. The milk chocolate and the peanut are the sales drivers. Yep. Alright, shall we do it? Let's do it. Who got the truth?

1:30 Is it you, is it you, is it you Who got the truth now? Is it you, is it you, is it you Me down, say it straight Another story Welcome to the fall twenty twenty four season finale of Acquired, the podcast about great companies and the stories and playbooks behind them.

1:51 I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Listeners, we were thinking. What episode would be fun to do before the holidays? We picked M's, thinking this'll be just some nice lighthearted fair about the candies and the characters on commercials that remind us all of our childhood.

2:10 But as we dug into Mars Incorporated, the parent company We realize that the story is Totally thrilling. It's got world war one, world war two, new technologies and inventions, and serious, serious family drama. And their corporate strategy over the years is just as clever as companies like

2:28 LVMH, Walmart, and Costco. I mean, you don't get to be the second wealthiest family in America without it. Yeah. Seriously. Maybe it's because we just did it.

2:38 But I feel like there are a lot of echoes of IKE in this one too. Absolutely. And The Mars family is Way more Quiet and reclusive.

2:46 than the Comproad family, too. They're way more quiet and reclusive than Anybody. Yeah. Mars also owns way more than you think.

2:56 You may know that they own the world's most popular candy Snickers, in addition to Ms. Or perhaps you know they're in the pet food business. But they also own everything from Ben's original rice to now Kind Bars, and they have one massive deal in the works that we will talk about later on this episode. David, here's one crazy stat to illustrate their sheer size. Do you know

3:16 Mars now does more revenue than the Coca-Cola company. I know. Wild. Mars crossed fifty billion dollars in sales last year, and they're still completely privately owned by the Mars family. Making it one of the top five largest private companies.

3:31 In America. This really is an incredible American and global story. Well, listeners, after this episode, come listen to ACQ two. We just had One of my favorite conversations ever on the show, in part because I just love talking computer architecture. with Renee Haas, who is the CEO of Arm Holdings.

3:51 the chip design company that makes the designs and the instruction set architecture of everything inside your smartphone. Your car, your laptop, and now even massively in the data centers. Gash between synopsis and now ARM, we're gonna have to rename ACQ two into like acquired semiconductors. Totally. It was a great computer science lesson and history lesson sort of all rolled into one. So go subscribe to the ACQ2 feed and the podcast player of your choice to check it out.

4:17 So with that, this show is not investment advice. David and I may have investments in the companies we discuss. Although not Mars, obviously. And this show is for informational and entertainment purposes only. David. Where do we start our story?

4:31 Oh well, we start in September eighteen eighty three. There's some debate about whether it's in Pennsylvania or Minnesota, but you know, there's a lot of um legend, shall we say, about the Mars family, which we will But before really we start

4:50 have to say a thank you to Joelle Glenn Brenner, who wrote the amazing book, Emperors of Chocolate. Mars As we'll talk about. is an incredibly private company and private family. She's the only journalist that

5:04 ever got real access to the company. Like Ever. And it was in nineteen ninety one almost a century after founding that she actually got access for a Washington Post article and then that turned into the book, is that right? Yep. She was a young reporter at the Post and uh called the company like every day for a year and

5:23 Finally got access and that's became a piece in the Washington Post magazine and then she turned it into The book Emperors of Chocolate. Yep. Okay.

5:31 So Back to eighteen eighty three and uh let's just call it Minnesota. One Frank Clarence Mars is born. Now Frank's father is a flour grist mill operator.

5:45 And his mother, Elva, is a housewife. Both of those trades. are gonna become very important here. So Frank. Sadly, when he's very young and

5:55 Also very sadly commonplace at the time, he contract polio. And he has a mild case, luckily. He Survives. But it does affect his legs and he has to wear orthopedic braces all growing up.

6:09 Which means That Frank can't play outside, he can't play sports, he has to stay home after school with his Mother in the home. And so what does he do? After school with his mother. Well, his dad would bring home extra bags of flour and somebody had to put that to use. So Elva and Frank

6:27 Do lots and lots of baking. They're baking bread, they're baking pies, they're baking cakes. And Most enjoyably for Frank, they are baking candy. And what was candy at this point in time?

6:39 Well, I'm glad you asked. It's not Chocolate. Chocolate is Basically not a thing in America yet.

6:47 Candy though. And specifically we're talking about penny candy. Gum drops. Liquorish, all sorts of sugar based

6:57 Sweet. And they were typically. unbranded. Like there were no big national or really even like local brands of candy. At this point in time. And they're sold.

7:07 wholesale by Small regional bakers. to local retailers and drugstores who stock them. For kids like the main market here is selling sweets to kids. And that's what Frank is doing.

7:20 You can think about the candy industry at this point in time sort of like the baked goods industry today. You've got some local baker that's making them distributing to a bunch of coffee shops. And like you don't really know, except in really bougie ones, who the baker of that particular scone is, it's just, oh, I go to that coffee shop and they have scones there.

7:38 Exactly. So this is what Frank and his mom are making in their kitchen. Now, fast forward to high school and Frank has kind of become the local Candy chef extraordinaire. He's mastered all of his mom's recipes. He's experimented with some of his own people are liking them. And so after high school, he does the natural thing. He becomes one of these

7:58 Candy entrepreneurs when he's Nineteen years old in nineteen oh two. He establishes his own candy company there in Minneapolis and goes into business selling his creations and other people's creations wholesale to these local retailers, merchants, drugstores, et cetera, for kids to buy. In that same year.

8:17 In nineteen oh two, he would also Briefly marry a woman named Ethel Kisak. Now remember this ethyl. She will come up. Much, much, much later at the end of the story.

8:27 But For the moment, the two of them have a son Named. Forest. Forest Mars.

8:33 our real protagonist this story. Yes. But put a pen in forest. We will come back to him in a few minutes. So His dad, Frank.

8:43 Starts this candy business, you think you're like Yep. This is it. This is the company, you know. Mars, Snickers, Ms, Milky Way, it's all to come here.

8:52 Out of this one company named Mars. Yes. Not Twitter. Yeah. Nah. Yet. So we mentioned a minute ago that chocolate was not a thing. Yet in America.

9:06 Now at this point in time in nineteen oh two, that is not technically true. Milton Hershey has started selling. His Hershey's chocolate bars in Pennsylvania, which he started in nineteen hundred. The notorious five cent just chocolate. I don't even think they had made Hershey's with almonds yet. It was just the like single five cent slab of chocolate bar called the Hershey Bar.

9:26 Yep. There weren't even any kisses yet. Nothing it was just the very beginnings. Hershey had not yet figured out how to scale. production. So it was regional and it wasn't popular. Around the country and certainly not in Minneapolis. Hershey had just figured out by the skin of his pants.

9:42 production in the recipe at all. He almost built an entire factory. to produce milk chocolate without knowing how to produce milk chocolate. That was like a lucky diving save at the last minute, right before they needed to turn everything on. Totally.

9:55 So what Frank's selling this penny candy stuff. It's fine. And like I said, the target market is kids, which is A good market, but you know, kids turn into adults and Then they stop eating penny candy. And so the market is not that big. There's also another problem with the penny candy business, a bigger one.

10:13 Which is in those days It was Oh. Pretty highly perishable. And there's not air conditioning yet.

10:21 Exactly. Exactly. And so most candy producers end up having really, really horrible. inventory problems and a lot of them end up Going out of business, which after a couple of years is exactly what happens to Frank.

10:35 So in nineteen ten Frank's now bankrupt. His wife Ethel divorces him. And takes Their six year old son Forest. And sends Forest off to live with her parents.

10:46 In a remote mining town in Saskatchewan, Canada. And Ethel stays in Minneapolis. And takes a job as a department store clerk. And just Hits reset on her life. It's wild.

10:57 Do you know why? I think because nobody had any money to support him, right? And in particular, Frank actually owed her twenty dollars a month. For child support for Forrest when he was six years old. But was failing to make payments.

11:10 And so she just couldn't support him and needed to send him to the grandparents. I mean Gotta remember, like we're in the early nineteen hundreds here. This kind of stuff happened. All the time. Yep.

11:21 So Frank, undeterred by Bankruptcy, divorce. Being a deadbeat parent, not paying child support. He Marries another woman, also named Ethel.

11:32 Unbelievable. Specifically, they moved to Seattle. Ayo. Where Frank does what else? He sets up Another candy business and starts hawking his candy again.

11:42 This Seattle Candy Venture goes about as well as the Minneapolis one. within one year Frank is bankrupt again, the creditors are coming after him. So he skips town again. This time just down the road to Tacoma. So this is two failed candy companies under his belt.

11:58 Yeah. We're now on number three. He sets up another candy business in Tacoma in nineteen fourteen. Out of his house. Yes. He's running the business out of his kitchen. That's right. And that business also fails after a couple of years.

12:11 So Three down, three strikes. We're now in nineteen twenty and Frank and Ethel number two. return once again to Minneapolis, figuring that

12:22 Ten years have gone by, they can now show their face around. Town again. So Frank sets up. Yet again. Another candy company.

12:30 Candy company number uh four now in total, if you're keeping track at home. And Against all odds. This candy company. Would go on.

12:40 to become the globally famous Fifty billion dollar annual revenue. Private family business, Mars Incorporated. Sort of. It's not.

12:51 Totally. Frank that is the reason for its success. Yes. Okay. So what's different now about this fourth candy company that Frank starts

13:00 It's chocolate. And chocolate is a completely different universe than these Penny candies, then caramels, The first thing you have to know is it uses Cocoa.

13:12 I mean this is a very At this point in history, scarce and not very common in America. Like very few people are importing it from South America where it originated. It's a totally different and difficult thing to try and process. And at this point in history Only Europeans really are doing it, except

13:30 for one American entrepreneur. Melton Hershey. Yeah. So we gotta rewind a little bit and tell the Hershey story because A it's also crazy.

13:40 And B, it is deeply Deeply intertwined with The Mars story. So Milton Hershey had been

13:48 Also a actually successful candy entrepreneur. He had his own shares of failures, but He started eventually a caramel company that became Quite big regionally in the Philadelphia area. Yeah, he sold it for a million dollars.

14:01 In nineteen hundred, which is thirty six, thirty seven million today with inflation. Yeah. He is Among the most successful of this kind of generation of pre chocolate Candy entrepreneurs.

14:13 Before he sold the business, though, In eighteen ninety three Hershey traveled to Chicago, where at the Colombian exposition, which I didn't know this was the precursor to the World's Fair, he Tries. Chocolate.

14:28 For the first time. And he's smitten. In the German pavilion there. There's a German company that is displaying Chocolate and chocolate making equipment.

14:38 And Hershey is so Taken by the Rich complexity, deliciousness of Chocolate that. She

14:46 Buys from this German company. All of the equipment on display there, just like on the spot. It says I want this shipped Back to my production facility in Lancaster, Pennsylvania out in the Philadelphia countryside.

14:58 And I am gonna set up. A chocolate making operation. Now this is not milk chocolate. This is just Plain chocolate.

15:06 And it's worth noting too. This concept of Solid chocolate. Is a pretty new thing, like a chocolate bar. Up until

15:15 I don't know, fifteen, twenty years before this, basically all chocolate was drinking chocolate. And so this notion of a machine that makes chocolate As bars. at the Columbia exposition. Is quite novel.

15:29 Yeah, I mean chocolate is a Very rich. Very complex food. Very difficult to make. And the history goes All the way back to Montezuma and the Aztecs.

15:40 And even before the Aztecs about fifty three hundred years ago. around Ecuador. Wow, I didn't even know that. So we're talking about a five thousand year old Tradition here.

15:51 Yes. But like you said, until call it the late eighteen hundreds, this is A drinking activity. Yes. And It's so different than the chocolate we think of today. There's no milk chocolate.

16:02 It's not sort of that nice breakable chocolate with a shine. It's a very Different and Only barely enjoyable flavor. It's better than everything else, but it's not Barrow chocolate, like you know today.

16:15 Yeah. So you said milk chocolate and I said Hershey at this point is not. making milk chocolate when he first introduced it to his Caramel Company. As he gets Deeper and deeper into the chocolate world.

16:28 He travels to Europe and learns about milk chocolate, which had just been invented not too long before in Switzerland by the Swiss company Nestle. Sort of, Nestle.

16:41 We're gonna talk about How to make chocolate. And then we're gonna use that as a basis of understanding for how to make milk chocolate and how the discovery of milk chocolate came about. So First of all,

16:53 How do you make chocolate? And we have a huge thank you to Todd Masonas at Dandelion Chocolate, which is an excellent, excellent bean to bar chocolate company in San Francisco. For walking us through this entire thing. not only giving us all the notes of how to describe it on air, but also taking us through their factory in San Francisco, which is unbelievably cool if anyone has a chance to do it. So

17:13 Where does chocolate come from? There's a Cocoa fruit. That grows on a tree. originally in South America, now very commonly in Africa where they've been transplanted.

17:23 It's kind of a football looking thing. You pick it, you cut open the pod, and inside there are the seeds of the fruit. David, you and I sort of ate some of it or sucked on some of it. It's sweet. But it's not Chocolate. It has no reflection of a chocolate flavor. That all comes from the seeds or the beans.

17:38 Yep. Yeah, the fruit itself is actually Quite delicious, but it's like a pulpy sort of milky type thing. Yes. So That fruit is actually the thing that people ate for thousands of years, but the seed ends up being the thing that becomes chocolate.

17:52 You first ferment those beans in wooden boxes. The yeast eats the sugar, that creates alcohol. Then the acid eats the alcohol. There's fermentation that kills the beans. So after this fermentation, you then dry it. All this kind of happens at the site of production or of growth. Typically in South America.

18:10 Or in Africa. So Then after the fermentation you dry it out. So this could happen sort of in drying beds or in mechanical smoke dryers or on banana leaves, all the different ways that you dry it can affect the flavor, how aggressively you dry it, contributes to how much acid is in the beans. So there's a lot of fluctuation here in the flavor.

18:32 just based on the way that you are harvesting. The bean itself. The beans then go into sacks, they go on boats. They go at this point in history basically to Europe,'cause that was the only place that was making chocolate.

18:46 They then get sorted, sterilized, debacterialized. I suspect not a lot of this was happening in the old days, but it is what happens now. They get roasted, you remove the shell, which is a process called winnowing. So now you have nibs. So just like the core like meat of the being after it's been roasted. Yes. You can press those nibs into create two separate things, cocoa powder.

19:09 And cocoa butter. Both of those come from the nib, but there are many reasons why different chocolaters will first separate them out and recombine them in different ratios later. You grind the nibs down to the right particle size. It then goes through something called conching. It's basically like these Big cylinders, right, that like spin around and around and smooth out. All these particles. Yeah, and there's a great story back in eighteen seventy nine.

19:35 That Rudolph Lint, which is another name you may recognize the Swiss chocolateer. discovered it by accidentally leaving his cocoa in a roller grinder over the weekend instead of shutting the machine off. So it accidentally pressed the beans for a three full days, which created this silky, smooth, flowing texture.

19:53 And then you could do cool stuff like add more cocoa butter in to get that. Swiss chocolate. texture that we all know of today. If you've had it and you're like, how is this so unbelievably creamy? You know, you separate the nibs into cocoa powder, cocoa butter, and then you add a bunch more cocoa butter back in and it's that.

20:09 Delicious Swiss chocolate. So eighteen seventy nine is when conching is sort of first discovered. Now there's, David, to your point, specific conching machines. That will do this as a part of the chocolate production process. Still not done yet. You now have this great conched

20:25 Liquidious wonderful Chocolate sitting there. If you just let it dry It's actually not shelf stable. It will bloom.

20:34 For any of you who ever left a chocolate bar in a hot car and it's sort of melted and then re-solidified, it gets that sort of white gross stuff on top, and it doesn't have that. shine to it, it doesn't snap nicely the way that you're used to it, chocolate bar snapping. There's actually some pretty complicated chemistry that happens. Where you are taking This.

20:52 Conched chocolate. And you are tempering it. And what tempering it does Is you are aligning the crystals In the cocoa butter.

21:01 to make it so that it forms into that shiny breakable chocolate. that you know of today. And this is an incredible process, right? You take this liquid chocolate after conching. You heat it up. To like

21:14 Kind of super liquefy it. And then you cool it down to like just the right amount of temperature where the right sort of seed crystals form. That's exactly right. Right. And then you heat it back up again and then you let it cool. And if you don't do that second step, all the bloom will happen, but you g want to get like just the right seed crystals to set the right crystalline structure. F How it'll come together.

21:34 That's exactly right. When you're superheating it, you're eliminating all crystals. So then you can kinda start from scratch with this seed crystal and then you're trying to let the rest of the chocolate form around that seed crystal so they're all aligned in that nice shiny break. Believe me, I appreciated chocolate before doing this episode. But now like knowing how it's made, right, and we haven't even gotten to milk chocolate yet, which is even more complex. This is more complex than wine. This is more complex than coffee. Who shots fired on wine and coffee. You're gonna hear something. Well, at least in terms of like stages of production, right? Like let's take coffee.

22:08 Coffee looks pretty similar. Until you know, you get the beans there roasted, but then you grind the beans and you just put the beans in liquid. You're not getting any of these steps here. Chocolate is remarkably hard to make. I think that is a huge takeaway. The fact that I'm looking down here at all these bags of M Ms and the Snickers Bar.

22:24 We sort of just assume oh this is a industrial thing that just sort of comes off the line. It's an agricultural product. That then has to go through A variety of different processes developed on different continents many decades apart. In order to create

22:40 something very uniform and predictable and desirable out of that pure agricultural product. Yeah. Okay. So that's all the way from

22:50 The fruit. through the fermentation, through the processing of the beans. through the conching, through the tempering. And in those last steps of the process in the conching and the tempering You're also adding sugar in, right? So like unless you want to make a hundred percent dark chocolate, which is like

23:06 Very complex, but very bitter. No one's gonna eat that. Most people max out at eighty five percent. chocolate and the rest the fifteen percent is sugar. Or you're getting a seventy percent bar and the thirty percent is sugar.

23:17 Or if you're getting a milk chocolate bar, it's more in that thirty to fifty percent cocoa and the rest is sugar and milk. But in reality, most of the time you're eating chocolate these days, unless it's a bean to bar producer like a dandelion or something, you're ending up with all sorts of stuff added in that process. You know, more cocoa butter. sugar, soy lecithin, oftentimes you'll get vanilla. That's added in part of this process to kind of create a chocolate taste you know of. Yep.

23:44 Okay, so we're still in the dark chocolate world here. Let's talk about Nestle and milk chocolate. Which is sort of a funny misnomer, right? Dark chocolate. It's just chocolate. It's chocolate that doesn't have milk. So we needed to retronim it something. Like we needed to come up with a name and we're like, Oh, it's dark chocolate. Okay. It's chocolate that's chocolate and sugar, but doesn't have milk. Okay, anyway, dark chocolate. So what is milk chocolate then? Well, now we need to flash back thirty five years before.

24:09 Milton Hershey sells his first caramel company. This is before he started the Hershey Chocolate Company, 1866. Henri Nestle David, to give some credence to your comment. Is Researching

24:22 Infant feeding as a means to solve infant mortality. He invents a new type of food for babies who are unable to breastfeed. There in Switzerland. And remember, at this point in time, something like one in five babies died before their first birthday. So infant mortality is a Massive, massive global problem.

24:40 Now he's researching this alternative infant feeding methods. Milk would quickly turn rancid. So there was this question of how do you keep milk fresh? He eventually solved it. It is hard to condense milk without burning it, but he figured out this method of using an air pump at low temperatures. to concentrate sort of a milk powder.

24:58 And then he added a bunch of cereal, a proprietary cereal mix he created. And this is effectively the first baby formula. So in eighteen sixty seven, he demonstrated that a baby could drink this formula that he made rehydrated. And it was effectively a miracle to keep babies alive. Totally. This is like

25:16 One of many mind blowing things in the research that I learned. Nestle was a baby formula company. That's how it started. Totally. It's great. It's in the same way that Hermes The uh Birkin bag was a bag for baby bottles. Yeah, right.

25:31 Who knew that? Baby formula literally leads to the modern chocolate industry. Yep. So, incredibly, one of his neighbors who desperately needed this formula because his baby was rejecting breast milk happened to be a chocolatier. Guy by the name of Daniel Peter.

25:46 So he had this idea for milk chocolate in eighteen sixty seven. By combining the dehydrated baby formula with cocoa and sugar to create a creamy drink. We're still in the drink era. And people at that time were already pouring milk in with their drinking chocolate. But he sort of said, Well can I create this as a pre made product?

26:07 Yeah. And again. to the issues with creating baby formula and then Now here are the issues with creating milk chocolate. Milk is not a stable product. Milk goes bad fast.

26:18 So how are you gonna put this in a Product. Milk chocolate is something that sits on a shelf for six months. And you can eat it. And it's not spoiled. It's kind of unique in that way. Totally.

26:28 So the issue that he kept running into, this is Daniel Peter, was that the mixture was grainy. The water in the milk didn't blend well with the cocoa's bean oils. It was a mess. And when he tried to dry the milk on his own, it was really easy, David, to your point that it was spoiling and the chocolate would sort of be rancid by the end when he finished it. Eventually Daniel Peter walked away from Henry Nestle's powdered milk entirely. And instead he tried condensed milk, which is more like a concentrated syrup, not actually dried powder. And when he tried this, Plus then a final step of spreading the milk chocolate mixture on these big trays. to slowly dry them and slowly add a little bit more heat to turn it into these milk chocolate flakes.

27:08 That is the thing that worked. that he finally was able to create this marketable milk chocolate. Flaky stuff. That would turn into a drink. And then later, especially over at Cadbury and you know other European chocolate companies would turn into milk chocolate bars. That

27:26 Milton Hershey would try to emulate. Ah, interesting. I didn't actually know that it was Condensed milk, not the formula milk that Ended up working for Nestle. That's my understanding. I got this from um

27:37 There's a descendant of the Cadbury family, Deborah Cadbury, who wrote this book called Chocolate Wars. And Two chapters out of twenty or something are about Mars, but it was this great primer on the history of the chocolate industry to learn all this. Mm, interesting. Yeah, so you're deeper on this part than me.

27:52 So you might be asking yourself Why was everybody going through all this trouble to combine milk and chocolate? It's the perfect combination. Chocolate is so wonderful and complex and delicious on its own.

28:04 But it's heavily bitter. And when you Temperate. Not tempering. in the chocolate process, but sort of temper that flavor with The smoothness and the creaminess of milk.

28:14 Anybody who likes chocolate knows it's just absolutely delicious. Yeah. So by eighteen seventy nine, once you have milk chocolate in solid form and then you have conching. You now go from bars that are sort of really gritty and hard to bite. to this kind of amazing mouthfeel that just massively increase the market. Ten X, it's hard to get a number on it, but the market for

28:36 what chocolate would be from eighteen seventy nine onward is way bigger than before. Yeah. Totally. So Back to Hershey.

28:44 He of course learns about all of this as he's building his new chocolate company there in Pennsylvania. And He decides that he's gonna make milk chocolate too. Except he's not a chemist.

28:56 He doesn't employ any chemists. He basically has no idea what he's doing. And for years He just experiments via trial and error. To try and find a way to

29:09 Produce. Milk chocolate. He builds a huge new factory in what would become Hershey, Pennsylvania, like the town of Hershey, Pennsylvania. He's basically betting it all of I am going to figure this out and I am going to bring

29:21 Chocolate and milk chocolate to America. At scale. Finally, after a couple of years. He Does it be

29:29 hit on a method that works. for producing milk chocolate. However. You know, it's not quite as scientific as uh what you were just describing, Ben. And

29:42 In the process. Effectively The milk does spoil a little bit. Which is why I'm sure all of our, you know European and other international non American friends who are listening to us.

29:56 Here at our say like Hershey's that is so disgusting. I have no idea how all you Americans Eat her. Chocolate. And why it tastes sour if you're not used to it. This is why. It is sour.

30:11 Yeah, so there are two versions of the story and we don't know which one is true. But either way, David, it leads to this thing that you're talking about, which is there's kind of a little bit of a funk or a little bit of a sourness. in Hershey's chocolate. And That is just what Americans are used to. So to Americans that's chocolate.

30:29 Okay, account number one, and this is all in the Cadbury book that I just mentioned. After a series of laborious failures, the Schmallabach, who was a scientist working with Hershey, seized on the initiative that and tried a slow evaporation of non fat milk over low heat. He succeeded in reducing the water content of the milk and added the sugar to create a sweet creamy concoction with no hint of a burned flavor.

30:52 Better yet, they found that the mixture could be blended with the ingredients of the cocoa bean without spoiling to produce A smooth milk chocolate. Hershey was thrilled. Slightly sour, but distinctly original. The perfect American chocolate bar. Now There's a second view, which is

31:08 That Hershey happened to acquire a large batch of milk powder from Europe, which has slightly soured by the time it crossed the Atlantic. Reluctant to waste such a large amount, he used it to make chocolate and found that it sold well. Company officials have always denied that soured milk powder played any part in the company's formula. Amazing, amazing. Thank you, Deborah Cadbury, for all that. If written by a member of the Cadbury family, you can imagine uh uh why that story is preferred. Regardless. Here's the amazing thing though.

31:39 That this illustrates. When it comes To candy and specifically when it comes to chocolate. The most important thing in the business is being first to market.

31:51 And setting the taste of a specific regional. Area. Because again, Europeans think that Hersey's chocolate is disgusting. And Americans are like this is chocolate. When you're a kid and you eat this stuff for the first time Your taste gets associated with oh this is what

32:07 This is the same. There's also a nostalgia element to this too. Because the tastes are so strong, so powerful, so complex. You bite into a Hershey's bar and like Subconsciously or not, your brain is going right back to childhood when you first ate that. Yep.

32:23 And actually today, seventy five percent of candy is eaten by adults. And in fact, it accounts for ninety percent of total purchases, a complete departure from the pre chocolate world you were talking about with the penny candies at the Checkout counter. Yeah. Totally. So Hershey.

32:38 He was crazy in believing in the potential for all this. But because he invested so much money He set up the only scale chocolate production facility period in America. He was able to

32:54 Set this. taste for the country, which basically locked him in as what chocolate was In America. Fascinating. And he's smart about this too, from a business perspective. Like Ben, you mentioned the Nickel Hershey bar.

33:08 He intentionally Sets the price at a nickel. He totally could have charged a lot more. This is like this great, delicious, luxurious item. He wants it to be Ubiquitous. So he prices the bars at a nickel.

33:21 And he pushes distribution. Everywhere. Five and dime stores, grocery stores, gas stations, newsstands, standard oil stations. He's Pushing Everywhere. I mean he basically invents the modern

33:34 candy industry by doing this. Yes. And Hershey's kind of uniquely positioned to do it. Imagine you're walking around today with forty million bucks from the sale of your previous company.

33:45 You realize there's something going on in Europe. You know it's gonna work in America. You can't get your hands on the formula, but you're gonna try and reverse engineer it. your competitors can't self fund to the degree that you can. And so he decides I'm rich. I'm gonna go big immediately. And so he builds out this huge factory to start production before he's even finalized the formula.

34:07 So it's really like a go bigger, go home strategy. Where if it works Boom. Mass production, mass distribution, I set the flavor profile in America. And I

34:17 Upset the brand. in America for chocolate. And if it fails, it fails pretty catastrophically. Yep. So

34:25 Putting the final pieces on this. Initial. Hershey's success story. Right after Milton Hershey figures out milk chocolate, it starts this production and is expanding distribution nationwide.

34:37 World War One happens. And The American Military. As they have seen.

34:44 European armies do. They source Chocolate. As ration bars for Troops.

34:51 And Hershey's is The big supplier. So millions and millions of American GIs. Now get. Introduced and hooked on the slightly sour Hershey's chocolate. And it's great. It's a super dense store of energy.

35:05 it triggers an emotional response in the brain. I mean, everybody who eats sugar today knows that If you're eating sugar, it is triggering I don't know if it's dopamine or serotonin, but There's definitely a stimulus of a happiness. release which if you're a soldier in World War One. You could use a little of that.

35:21 Yeah. It's got caffeine. Totally. So these soldiers then come home. And right after the war

35:28 Is prohibition. In America. So you can no longer buy alcohol. At least legally by alcohol. And all these adults are now like You need some sort of social lubricant here.

35:40 Well What's the natural Alternative. It's chocolate. Which brings us to

35:46 The candy bar. So All of these Former penny candy entrepreneurs all around the country. Yeah, like

35:54 Well, you know. Chocolate is Amazing, you know, we can market to adults, et cetera. It's expensive. Hershey's selling their own bars. What if I take just a

36:03 Some chocolate. And some other stuff and also make a bar. Well that I could make a lot. cheaper'cause the other ingredients whether it's nuts or nougat or sugar or whatever are Cheaper.

36:15 And I can develop my own unique taste that people in my region Might. Find. Appealing. So by the end of the nineteen twenties

36:23 There are more than forty Thousand Different candy bars. being made in America. Oh my God. Almost all of which are these regional entrepreneurial operations. The most infamous of these is Ben, do you know the story of the baby Ruth candy bar?

36:40 No. So still available today, Baby Reef Candy Bar. Named I think for President Grover Cleveland, I think's daughter, Ruth, baby daughter, Ruth. To introduce the bar.

36:51 The Curtis Candy Company, which made it. Chartered an airplane. To fly over the city of Pittsburgh and drop bars down with little paper parachutes over the city. It is like a literal drop. It puts the visa drop to shame. Wow. Amazing. We're gonna have to do that for an acquired marketing stunt at some point. I know, I know. Charter and airplane I think we would get in a whole lot of trouble if we did that these days. I think so too. Oh man.

37:20 So okay, you might be scratching your head a little bit and being like, Wait a minute, you just told me about how like Hershey controls the means of production for chocolate and nobody in America can make chocolate except Hershey. Well that's right. And Hershey is freaking loving all of this. Because they are supplying the chocolate to all of these entrepreneurs. They're like the AWS of the chocolate business. They've become the blue jeans and pickaxes company in this gold rush.

37:43 Yes. So like if you've ever wondered How the heck did Milton Hershey built a town and how to become like Rockefellers or Carnegie's or Vanderbilt's like this is how. This is when you start to see this separation of the different players in the value chain of chocolate.

37:58 It used to just be Well I buy beans. And then I make consumer branded chocolate bars. And this is the first time there's a sort of intermediation step where you say, Well, Hershey makes the chocolate.

38:09 And then other people buy the chocolate. from Hershey for their consumer products. And yeah, Hershey also makes a chocolate bar. Look in America, this is really the creation of the wholesale business of Chocolate.

38:20 Yeah. And there's one game in town. At least when it comes to milk chocolate, which is most of the market, and that's harsh. And the US military loves it too. Because you can put all these high energy density ingredients into

38:32 inside of the candy bar and then use the chocolate effectively to seal it in and keep it fresh. And so you put a wrapper around it, you send it off with the troops. And you know, you've got eggs in the nougat, which has protein. You've got nuts, which is protein and fat. I mean all of this you you're delivering these

38:49 Kinda complete meals. But It's carbohydrates with sugar and other carbohydrates. It's fat, it's protein. It's not a ton of protein, but They're energy bars. And it's all because the chocolate seals up the

39:02 ingredients inside. Totally. So this now Brings us back to Frank Mars in Minneapolis and the fourth candy company and what is different this time. Which is

39:13 Chocolates. So When Frank first gets back to Minneapolis and starts up The fourth company. He had seen out in Seattle and Tacoma that buttercreffles were like really, really popular.

39:25 So he brings the buttercrews. these steals from the companies out there. Uh brings the concept back to Minneapolis. That's quite successful. He calls them Victorian buttercreams. And I believe started coating them in chocolate. Using her she's chocolate.

39:39 Hm. Which makes sense given everything that's going on. That becomes pretty successful. He adds another line called Patricia's Chocolates, named after his new daughter Patricia, that he has had with And

39:53 After a couple of years the business is doing like call it a hundred thousand dollars ish in revenue. So like Really, really well. We're not talking Hershey levels of entrepreneurial uh ambition here, but that's not the ambition that Frank has. And then

40:08 In nineteen twenty two He decides that He's gonna get in on this candy bar. Craze, that is. Sweeping the nation, and he introduces his first combination bar or candy bar.

40:19 Called The Marrow Bar. Yes. And do you know the other name for these types of candy bars that are sort of chocolate wrapped something else? Combination bars, right?

40:31 Uh the term I read was count lines. Oh no. I didn't come across that. So this is from the Cadbury book. Interestingly. All chocolate before was measured by weight.

40:42 And once somebody kind of rolls their first candy bar off the line. you know, what we now know today, the Snickers Bar or the Milky Way, all these things. You couldn't really just measure it by weight because it's got a bunch of much cheaper ingredients inside. Treating

40:56 Chocolate. as one substance that has weight. no longer maps to the consumer product. And so these lines where you'd manufacture these candy bars. were measured by count of bars.

41:07 So they're called count lines. So these manufacturers are spinning up countlines instead of I don't know, wait lines or whatever they were before. Amazing. It's like uh the K D furniture from the IKEA episode. So Here we are. The first candy bar

41:22 Count line bar. From The Mars Company. Nineteen twenty two. comes out and I don't want to say it's a flop.

41:29 But it's not A success. No one's eaten Marlowe bars today. Correct. Correct indeed. But then The next year.

41:37 In the summer of nineteen twenty three. A fateful Reunion Occurs. In Frank's life.

41:45 Which is that His estranged son. Forest Mars. Reappears In highly dramatic fashion.

41:56 And Two of them. Team up. Father and son. To introduce a new candy bar.

42:03 One that will Take. The nation by storm. It would end up being called. The Milky Way.

42:09 Or at least that's The legend. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work.

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44:35 Alright, David, so forest emerges into his father's life And somehow we end up with the Milky Way. How does that happen? Well, let's tell the legend. So

44:44 Summer nineteen twenty three. Young Forrest Mars is nineteen years old. And on summer break from college. More on. College in a minute.

44:53 He's got a summer job as a traveling salesman selling camel cigarettes. Time sure we're different. Time sure we're different. I mean, it's debatable how true any of this is. So we'll roll with it. One night he's in Chicago in late summer. And he gets instructions from his boss. that they really gotta blow it out. They need to hit big time sales numbers here in Chicago.

45:18 Forest, you gotta go blitz the whole city. With posters. Marketing camel cigarettes. So far as it goes around. And he puts billboards up.

45:28 All over downtown Chicago. Supposedly like every storefront window on State Street, he's plastering with camel cigarette posters. Which Certainly gets attention. It actually makes the Chicago Tribune the next morning that this happened. But also much like if we were to do an acquired marketing stunt like Baby Ruth and drop stuff from an airplane these days. We might go to jail. Illegal. Yes. And it lands young Forrest in jail.

45:56 So From His Chicago prison cell. Forest makes his one phone call to the only soul that he knows. in the area who could possibly bail him out.

46:07 His estranged father Frank Mars. Which this whole thing, I mean This is the legend, and this is the Mars Company's version of the story. This is the journalists' version of the story. This has been in other books. But like

46:20 The guy hasn't seen his father since he was six years old, and he somehow knows his phone number to call him from jail. By the way, his dad lives in Minnesota. There's the whole state of Wisconsin between Minneapolis and Chicago. But uh we're giving you a flavor of who Forest is here. If Forest was in charge of coming up with the story of

46:42 how this all went. This is the story he would have come up with. So Yes. Exactly. And as we'll see, Forrest is in charge of everything. So Frank shows up at the jail.

46:52 Father and son. A reunited after thirteen years. During which yeah, Ben, like you said, they've had no contact with each other. The Forest has his phone number to call him. Frank Bail's out for us. By now it's early afternoon of the next day.

47:06 And he says, All right, son. Let's go out for lunch. And they go. To a lunchette to share a meal. At which

47:14 Young Forest who is selling cigarettes. Order's a wholesome malted milkshake. Over this. Lunch reunion with his father. They get to talking, they're getting reacquainted.

47:26 And Forrest learns that his dad is now this Middlingly successful. Candy entrepreneur. And His dad's telling him about

47:35 This morrow bar that he's introduced. Mm. Forest says, Well, hey, I got an idea for ya. What if you take This malted milkshake here. Everybody loves a malted milkshake. What if you take that? And put that.

47:48 Into a candy bar. And you know, like I'm obviously pretty good at, you know, street marketing here. I bet I can go sell that. All around the country. So They get to talking, jamming, father and son, and uh

48:01 With that The Milky Way bar. Was born. With the marketing of a malted milkshake. In a candy bar.

48:09 And this is the story. There's so much in between I have an idea that you should put a malted milkshake in a bar and actually what a Milky Way is It's Nougat and Carmel. Inside of chocolate. It's a pretty different ingredient set than a malted milkshake.

48:25 There had to be quite a bit of R D experimentation, flavor development to figure out how to make the inside of your candy bar tastes like said malted milkshake. But here is the exact quote from Forrest, as recorded in the family archives that Joel got access to as part of her access to the company. He says quote.

48:44 I'll be damned if a short time after our lunch The old man has a candy bar. And it's a chocolate malted drink. He put some carmel on top of it and some chocolate around it. Not very good chocolate. He was buying cheap chocolate back then, but that damn thing sold. No advertising. Forest.

49:03 Regardless of how all this happens. Frank Mars does release in nineteen twenty four the Milky Way Bar and it does become a big hit. That year alone. The first year that it comes out. It does eight hundred thousand dollars in sales.

49:18 Yes. the Marrow Bar company went from seventy three thousand to seven hundred and ninety three thousand in one year. And that is all the Milky Way. Like undeniably Huge success. And effectively what they were doing was they were the first ones who said, Wait a minute, if we're gonna make a count line.

49:35 We should do it in a mechanical way. And so even though all these other people are selling these one offs locally to different stores and hand making them, they were doing it in factory quantities, all under the same production process and brand. Yeah. Now, it was early industrialization, but it was still much more industrial than the rest of the manufacturers at this point. Totally.

49:54 Now. First question you should be asking here is Wait. Forrest is in college now and ends up in jail in Chicago? Like what the hell happened here? Okay.

50:05 So when Forest Is six years old, as we said. He gets sent off to live in Saskatchewan and in Canada in like a hard scrabble rural mining community with his grandparents. Unlike I imagine Most of the folks around him.

50:21 Forest is eight. Total outlier there. He's super smart. Super entrepreneurial, super ambitious. And he's a super arrogant show off.

50:31 Probably because he's so Insecure from his deeply traumatic childhood. Deborah Cadbury has a good line in her book. Noah's flood wouldn't have deterred Forest Mars. Yes.

50:42 So When Forest graduates, unlike Everybody else there who goes off to work in the mines. He supposedly wins a scholarship. to the University of California in Berkeley.

50:55 Now how he wins a scholarship to U C Berkeley Which is you know, the public University of California when he's living in Canada and he's from Minneapolis is Suspect. But we'll go with it.

51:08 He does show up at Berkeley, though, we know that. And he enrolls in the school of mining there, with the idea that he is going to Study to become a mining engineer and go back and run a mine instead of just being a laborer in a mine. And this all makes sense. He had a engineer's mind. I mean he also had a marketing mind, but he ended up building a company that ran an incredible efficiency And thought through it.

51:30 as sort of a systems thinker. Yes, a hundred percent. So While he's at Berkeley in his first year there. To make money.

51:40 And support himself, he takes a job in the cafeteria. And supposedly he finagles a deal with the head cook That if Forest can go source meat and other ingredients for the meals. Cheaper than budget from local wholesalers.

51:56 That he and the chef would split the savings and just pocket the difference. And of course, you might get a sense that Forrest is a good negotiator here. This works like a charm. And supposedly. He's soon taking home like a hundred dollars a week. Which if you annualise that to you know, fifty two hundred dollars a year, that's about double what the average American was earning.

52:18 At that point in time. So He's making bank. Which, by the way, is a trend among all these entrepreneurs that we study. You look at Ingvar. You look at Sam Walton.

52:28 You look at Buffett, I mean all these guys it feels like it's a part of their childhood story that as a teenager or college student or something, they were out earning the average head of household. Totally. And you know what? It is still true these days. Remember the Zuckerberg story of he and uh Adam D'Angelo are coding up Sy apps and people want to buy it for a million dollars? Yep. Just turns to software instead of

52:51 Candy bars. Yeah. Anyway. This is all during for his freshman year at Berkeley. And then the summer comes and of course the cafeteria closes down, so he needs to

53:00 get a job for the summer, that's when he joins the Traveling camel cigarette sales team. And that probably is when Somewhere or another, maybe it was in Chicago, maybe it was in Minneapolis, he reconnects with his dad, Frank, and

53:13 Discovers that Frank had become a wealthy. Man. And I think regardless of whether Forest had anything to do with the Milky Way idea or launch or anything like that. Meeting his dad.

53:24 seeing that there is a business in the family starts recalibrating forest ambitions. Even higher than just being an engineer who can now go run a mine, he's like oh I should Run a business.

53:36 I should run. My family's business. I should run my dad's business. And I imagine seeing One of his dad's businesses be successful. Is sort of a different type of data point for him. He always knew my dad starts a company and it fails.

53:50 And just seeing an existence proof of a successful business has gotta be a reorientation for him. Yeah. Even when the candy company before Milky Way was just making a hundred thousand dollars a year. I mean a hundred thousand dollars a year, I mean I don't know, who knows what the margins are on that, but Even if they're ten percent, he's making four X, five X, what the average American is. This is eye opening to Forest. So his literal words about this when he gets back to Berkeley are

54:16 The hell with running some mines in the backwoods. Mm. I'm so glad you have these for us quotes. Oh my God, they're so good. Like supposedly In the Mars family archives there's a video. of Forrest. Of like Forrest chatting with one of his longtime lieutenants from the company after he retired, but before he died, and it's like in the family archives and Joel got access to go watch the video, which is where all these quotes are from. It's amazing.

54:43 So He does his sophomore year at Berkeley. But he's got his sights set higher now. He with his father's help and presumably money.

54:53 For for his junior year, he transfers to Yale. And He's going to Yale with the goal of I wanna learn about business. He's like focused. You know it's like the Zuckerberg story of going to Harvard.

55:05 Yeah, Forrest wanted to go to Yale'cause it was Yale, but really he wanted to go to Yale to Meet all the other people. Yeah. So It just so happens.

55:14 That his roommate His first year when he shows up at Yale is the nephew of Pierre S. Dupont. Wait, really? Yes. Really that way Pierre S Dupont, his nephew

55:27 Is forest roommate. At Yale. Whoa. At Pierre S. Dupont at this point in time. is not only running DuPont, which is in and of itself one of the most important and biggest companies in America. Pierre. Is

55:40 Also running General Motors. At this point in time because DuPont is the largest shareholder in GM. And that is a crazy story that we will save for a future episode of Acquired on how that came to be. Oh, we gotta do DuPont. It's an incredible, incredible story. But Back to Mars.

55:58 worms his way through his roommate into getting to know Pierre And starts just pumping Pierre for lessons on How he runs his businesses, like how does he run DuPont? What is this DuPont planning system that you have? How do you run a chemical industrial manufacturing process? Exactly. How do you do accounting? How do you do planning? Like I want to know everything about this business.

56:23 It's freaking unbelievable that here's this kid from the mines in Canada who in a few short years in the nineteen twenties has worked his way up through hook and crook that he's rubbing shoulders with one of the greatest businessmen of that era? Right up there with Rockefeller and Carnegie.

56:42 Yep. Amazing. So After a couple of years, when Forrest graduates from Yale, he's ready to go put all this knowledge to work in His dad's.

56:52 Candy business. So the first thing he suggests. Hey We gotta get out of Minneapolis. We gotta move to Chicago. Chicago is

57:01 the center of the candy industry at this point. But also It's just a way bigger city and it has way better freight. distribution to the rest of the country.

57:12 Yep. If you want to go national, Chicago's a great place to do it. Yeah. And why else, David, you said it's the center of the candy industry. Why else is that true? Oh well. I think yeah, definitely at this point already.

57:24 The Wrigley company is there. Yep. You bet. Yeah, if you want to know how good a business gum is, you should just ask yourself. Why did the Cubs play in a building called Wrigley Field? And why is there an entire neighborhood called Wrigleyville? Yes, yes, exactly. It's kinda like Hershey in the chocolate business. Anyway, we will get to that much later in the episode.

57:49 Spoiler alert. Mars now owns Wrigley. Okay, so Frank goes along with this idea that they're gonna move to Chicago. But

57:57 In his heart of hearts. He's not the same. man that Forrest is. Like he doesn't have anywhere near the same level of ambition. He likes being wealthy now. He likes being comfortable. He's like, I'll go along with you to Chicago, but

58:11 Really I wanna focus on enjoying The fruits of our labor here. So the factory That he builds in Chicago. On the inside is

58:21 Really state of the art per Forests designed. On the Outside. He spends

58:28 Five hundred thousand dollars. In you know, whatever this is nineteen twenty. eight twenty nine. buy a tract of land next to a golf course to put a factory in. The outside of the factory is like

58:40 This beautiful Spanish style building with stucco and cupolas and like wrought iron ornamentation. It looks like a Hollywood studio building. Dude, you're building a factory. Yeah. Must have been great margins on those Milky Ways. Yeah, exactly. Shows you the difference of Where's head is out and where Forests are. Head is app.

58:58 And probably it's differences over this factory, I would Assume start to chafe the relationship here a little bit. Chafe the relationship, yeah. He contracts the Austin company. Which had built And designed all the Ford automobile plants and assembly lines to build the lines.

59:16 In The Mars factory. So Forrest is pushing the workforce super hard. He's like We have this factory, we have these state of the art lines.

59:24 We need to run these lines twenty four seven with multiple shifts. Like everybody else is just, you know, Oh, we run our lines during the day, like hell no. We spent all this money investing in this factory. We need to crank out as many Milky Ways as possible. Scale economies, baby. Totally.

59:38 So by nineteen twenty nine which I think is the first year that the factory is up and running, they're producing twenty million Milky Way bars annually. And if Arist is just like go, go, go, go, go. Twenty million of anything at this point in history is massive. Yes.

59:54 Now One thing that they are not making in the factory, of course, is Chocolate. They're buying all the chocolate wholesale from Hershey, which probably is another reason for the move to Chicago of like, hey We need to be on a main train line not only to get the product out.

1:00:10 We need to be there to get the ingredients, including chocolate, in. Yep. So Very quickly. Mars Becomes

1:00:19 Hershey's biggest customer. They are buying millions of dollars of chocolate every year from Hershey. Which my understanding at this point in history is still that Hershey's like, great We love being a industrial wholesaler supplier to other candy companies. This is only good for us.

1:00:35 Yes. I mean I think the right way to think about Hershey at this point in time is like Amazon. They are both Amazon.com and they are AWS. Mm.

1:00:45 Yeah. They're very happy either way. As long as chocolate is being sold in America. They're taking their tax. Yeah. So once this gets going and money really starts flowing into the company

1:00:56 Frank wants to spend it. So he builds a twenty thousand square foot. Vacation home on a lake in Wisconsin. He buys a two million dollar horse ranch in Tennessee that he names the Milky Way Ranch. He buys his own airplane so that he can be flown around to all of these places.

1:01:13 Forest hates. All of this. He's trying to reinvest as much into the business as possible. Exactly. He wants to be DuPont. He doesn't care about a horse ran or airplanes. But Even he, I think, probably

1:01:26 would have to admit that he's thankful that Frank does these things. Because in nineteen thirty, the next year Frank creates a new chocolate bar. that he wants to introduce to the market and he decides that he wants to name it After his favorite beloved horse at his Tennessee ranch, Ben, you're opening it right now is the most

1:01:46 popular chocolate bar in America and I think in the world. Yep. Yes. The Snickers Bar. Named after The horse in Tennessee. Thank God they bought the horse ranch. I've been waiting for you to get to this part'cause

1:02:00 I'm just trying to be satisfied, you know? I just needed to grab a Snickers. Uh Amazing. It really is so good. It's so good. I massively prefer the

1:02:12 Bean to bar style chocolate, the dandelion. You know. I like dark chocolate more than milk chocolate. I might not even be able to finish a whole Snickers bar just'cause it's so sugary.

1:02:22 But oh my god, is that first bite good. I mean, We're talking about two totally different products here of like high end chocolate versus mass market chocolate. But no, like Snickers are so good. I feel like I go play in the NFL after a bite of this. Totally. Well, so there's another potential story of the origins of Snickers that we heard some

1:02:41 Wind of rumors in the sort of forest. legend canon here. Supposedly. Forest. was thinking about

1:02:51 What? would be like, you know, an incredible product to build on the Milky Way's success and market to all of America and the world. 'Cause by the way, a Snickers is a milky way with peanuts. Exactly. And so supposedly he went to

1:03:06 The library. He wanted to know What did The Roman army. feed their legionnaires when they were, you know, out marching. And uh apparently he learned that it was

1:03:18 Peanuts and Eggs and Sugar. It's a lot of energy. Super dense. So The other story is that that was the inspiration for

1:03:27 Snickers was putting. What the Roman army fed their legionnaires into a candy bar. In practice, it's actually a great energy bar. I was being tongue in cheek about the NFL because they're a partner of the NFL today. But There's a whole industry around

1:03:40 cliff bars and things like that being marketed as energy bars and Snickers being marketed as candy. But really what's the difference? Snickers launches in nineteen thirty. In nineteen thirty two, they add three musketeers to the lineup. Now Three Musketeers originally was something very different. Yes.

1:03:57 So listeners, you are probably thinking to yourself, a three musketeers bar is just that nougat and chocolate. It doesn't have peanuts, it doesn't have caramel. Why would this come after a Snickers? Well, three musketeers is actually a misnomer. I see you're eating a three musketeers way to be in theme. It was actually sold as a package containing three separate bars, each with a different flavor, chocolate, vanilla, and strawberry. And due to restrictions during World War two,

1:04:23 They had to cut production. I think part of it was also a spike in um strawberry prices. And so they just did away with the vanilla. And so now it's just called three musketeers, even though it's only the chocolate variant. One musketeer doesn't have the same ring to it. No.

1:04:39 No, it doesn't. So If you're paying attention here and thinking. Like, wait a minute. They built this factory in nineteen twenty eight, nineteen twenty nine.

1:04:48 Sales are skyrocketing. Frank is living large. Nineteen thirty, they introduced Snickers, nineteen thirty two, they introduced three musketeers. What else is going on in America and in the world in The early nineteen thirties. The Great Depression.

1:05:02 Yeah. This tells you everything you need to know about the resiliency of the candy business. Mars revenue goes up to twenty five million dollars in nineteen thirty two. They're just growing hugely. I mean What did we say? Milky Way did eight hundred thousand.

1:05:16 in its first year in nineteen twenty four. Yep. So they go from eight hundred thousand of revenue In nineteen twenty four. To twenty five million. In nineteen thirty two. All amidst the throes of like the worst years of the Great Depression.

1:05:30 Yeah. Candy may not be good for you, but when you really need a dopamine hit. It is there for you. And boy does it condition a uh Addictive or addictive like activity. where you sort of incorporate it into your habitual everyday life. It's a recurring purchase.

1:05:46 And at this point in time. between Mars and Hershey both were laser focused on keeping the price low to get as wide a distribution as possible. That's exactly what I was gonna say. You know, forest I don't think it probably really was forest here was Closely studying Hershey and What. They did and realized, Oh yeah, this is a scale business.

1:06:05 If we get to scale. We can make profits. while pricing our bars such that they are still accessible even for Americans that have lost their jobs and are in the middle of the Great Depression. And by the way, they want a sweet treat more than ever because their lives are depressing. Brilliant.

1:06:21 Yeah. Absolutely. The other interesting thing is Nowadays you've got all these variations of candy. I mean M's peanut M's almond dark M's.

1:06:31 The Milky Way, the three musketeers and the Snickers. are all just adding one ingredient to the same thing. Yes. But they're not label them that way. They're building entirely different brands franchises around each of these three products. I think that's fascinating. They really didn't get into this whole variation thing until way later in their life.

1:06:51 That was not the standard practice then. This is a different product. It needs a different name and a whole different personality. Yep. And actually, you know, I think to be fair to Frank I think that is really like Frank's influence on

1:07:03 The business and company there. Forrest as great as he was at so many things. He was never uh Product. Innovator in the way that Frank was.

1:07:16 Hm, makes sense. As evidenced by the fact that, you know, here we are today eating the most popular candies in the world that Mars makes and it's still Snickers. Milky Way, three musketeers.

1:07:28 M and Ms, which we will get into. That was for us big contribution. Yeah. So Depression. Sales are going great.

1:07:35 Here we are. Nineteen thirty two, the worst years of the depression. And Forests. Totally recognizes all this, like We need to

1:07:43 Invest, invest, invest. Pedal to the metal. We are gonna Use Everything happening here to blow away our competition, we're gonna go compete with Hershey, we're gonna become huge.

1:07:54 Frank though has No interest. According to Forrest, quote. My father says we're making enough money. We have an airplane. We've got the fishing place. We've got horses. Why do we need any more?

1:08:04 And Forests. reply to that is quote. I want to conquer the whole goddamn world. So he issues his dad an ultimatum. Look.

1:08:15 Obviously You wanna just go enjoy life, let me run things. Give me One third of the stock of the business. You keep two thirds.

1:08:24 And you relax and I will make you even richer. Frank. Turns him down. And I think he turns them down. In

1:08:32 kind of insulted. Like I built this business And You came in recently and you're just randomly asking me to give you a third of it. Go to hell. Yeah.

1:08:42 And you know, of course there's more Yeah. Forrest was not liked within the company. He's driving everybody hard. Frank is this kind of a distracted leader. You can imagine, you know, if you're a line worker or even if you're a manager within the company, which boss do you prefer. Yeah.

1:09:00 So the company certainly sided with Frank here. There's also the family element, too. Frank's got a new family now. So he's got his wife. The other Athol, he's got his daughter, Patricia.

1:09:12 Frank's like Yeah, hey, I mean, you're my son too. You've helped me build this business, but I'm not just gonna give you A third of the business. Mm.

1:09:21 Either way, there's quite a bit of animosity around this. And Forest. Walks out. And in the process tells his dad to quote Stick his business up his ass.

1:09:31 There's no missing words in any of these direct quotes. It's crazy. Yeah, literally. I mean, this is what he said he said. So Forrest leaves town. Not just Chicago, but leaves. America entirely. Goes off to a new continent.

1:09:45 Leave Mars incorporated totally behind him. Leave him in the dust. Almost he takes with him a right. Yes. He has the right to what, David?

1:09:57 He takes actually two things with him that his dad Sur day Gives him as he's heading out the door. One. Fifty thousand dollars.

1:10:06 And two, the foreign rights to the Milky Way recipe. Yes. But I don't think the Milky Way Name. No, not the Milky Way name, just the recipe.

1:10:17 You can't market this as Milky Way, but you can sell this recipe internationally. Yeah. So far as takes these two sort of Parting gifts. Tells his dad that's not a

1:10:27 He'll never hear from him again. leaves America entirely. And Super sadly, Frank. Doesn't ever hear from him again. Yeah, this is the last time that Frank and Forrest would ever speak. Yeah. The next year.

1:10:40 When Frank is just fifty years old, he collapses in the Chicago factory. And dies of kidney failure. And Forest doesn't come back for the funeral. Yeah.

1:10:50 Yep, that was it. Now, granted In the thirties. Much harder to come back from Europe on short notice. But still.

1:10:58 Yeah. So For us is over in Europe. And The set of events.

1:11:04 Of what he does in Europe. To build this ridiculous almost Trojan horse, like the set of skill he acquires, the assets he builds up. Із кразі. before he comes back to the US.

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1:13:07 For a summer in Europe. A little longer than a summer. Summer or you know Close to a decade in Europe. So we're here at the end of nineteen thirty two. Forest and his Young family now, by the way, with his young son Forest Junior.

1:13:23 Land first in Paris. And Parse tries a couple little things. But eventually he decides that If he's really gonna build

1:13:33 His own big company. And stick it to his dad. He needs to learn the one critical thing That his dad didn't know. He needs to learn how to make

1:13:44 Chocolate. Yes. No better place than Europe to learn. Here's his quote on it. You can hire lawyers, you can hire accountants.

1:13:52 You can hire advertising men or financial types. But if you want to get rich, you gotta know how to make a product. And you aren't gonna hire anybody to make a product for you to make you rich. They'll only make it for themselves. True that. Forrest is just like he's such a freaking G.

1:14:08 Like if it hasn't come across already on this episode He is Hall of Fame. Complete G. You gotta know how to do the scarce thing. Totally.

1:14:16 So important. So In early nineteen thirty three Forrest moves his family from Paris to To Switzerland.

1:14:25 To go learn from the chocolate masters. And Forest goes to work. First at Jean Tobler, making Toblerone. And then at the original itself.

1:14:36 Nestle. in the factories without disclosing to anyone who he is. So yeah, when I say he goes to work there. It's not like he calls them up and is like I'm Forrest Mars. He Doesn't tell anybody who he is.

1:14:51 His quote on this later is like, Well, they never asked. And he doesn't go get management roles. He goes and gets jobs on the line as a factory worker. Learning directly How these machines work, how these chemical processes work. How to make. Chocolate.

1:15:08 Amazing. Who would do this today? It it takes a very specific type of person If you're sitting there thinking Hm. Only some European company knows how to do this well and

1:15:18 I'm someone who attended an Ivy League college, my family is wealthy. I'm friends with the DuPons. Not only that, I've basically feel like I've already built a twenty five million dollar business. But I'm gonna upend myself, my family and my life and go and Line worker in a plant. In another country? I mean,

1:15:38 In this era in the thirties, where it's difficult to get over there, I imagine he went by boat. I imagine they didn't speak English in the Swiss factory. Yeah. Would you ever do this, listener, if you're looking around at a pretty good life that you have and you're saying I'm gonna go to a different continent, move my family up in my whole life, so I can go and learn this scarce skill.

1:15:59 That I know is the key to building a world dominating business. It's a big trade off. Big. Big trade off. And totally on brand for Forest.

1:16:09 'Cause you couldn't learn it in America. That's the other thing. Hershey is super secretive at this point in time. No one knows their formula. Well, I think not only is Hershey super secretive The sense I get At least from Emperors of Chocolate. Is

1:16:24 They knew how to Productionized their recipe. But they didn't actually know the science of how it worked. They kinda got there through trial and error. Huh. The sense I got is that

1:16:37 the European chocolate manufacturers and probably Nestle in particular They really knew what they were doing. And Hershey sort of in an industrial sense knew what they were doing, but Nobody there really knew the science behind it.

1:16:49 And in fact there's a story about how The first plant that Hershey expands to, their first second plant outside of Hersey, Pennsylvania. They can't get it to work. They can't get the chocolate to taste the same. Hm.

1:17:01 'Cause they like don't exactly know how they get That specific sour note in the taste. That's so interesting. But

1:17:09 Anyway. Back to Forest. So For most of the year of nineteen thirty three They're just in Switzerland and he's working on the factory lines learning how to make chocolate.

1:17:20 And then Toward the end of the year. When he feels like he's learned everything he needs to know. He moves the family To England.

1:17:27 where he uses the fifty thousand dollars to open up a small factory in a slough England. Which is a small industrial town about twenty miles west of London. It's right near where Heathrow Airport is today. And

1:17:40 He installs the family in a one room apartment above the factory. And they start making a version of the Milky Way adapted to British tastes. Which basically means more sugar, right? Yep. More sugar and less malt. Baltic's not as big.

1:17:57 In British tastes. So he has the recipe to the Milky Way that he's adapted now for British tastes. But he doesn't have The naming rights. And so he names it.

1:18:07 The Mars Bar. And this of course goes on to become the most popular Candy bar in the UK, I think still to this day. The funny thing is The lineage of this weird family split.

1:18:19 And this you have the rights to the recipe, but not The marketing is the way that the world works today, even though they are spoiler alert, one company now. If you get a Milky Way in the US and you go and you get a Mars bar in the UK They're a little different, the way you just described, but those are effectively the same products. They never unified the brand.

1:18:38 Yes. Now There is also An important difference besides the Level of sweetness and level of mall.

1:18:46 And that is the type of chocolate. That is used. The Mars Bar versus the Milky Way. Ooh, the Mars Bar is Cadbury, right? Well, in these early days, yes. So Forest has now learned how to make chocolate. But of course, with fifty thousand dollars in a new startup factory, like there's no way that he's going to make his own chocolate. Everything we talked about in chocolate making, it's like an insane amount of capex, really hard, easy to screw up, potentially low yield.

1:19:10 Yeah. Totally. And like Yeah, how are you gonna get the supplier relationships for the beans and like that requires a lot of capital, et cetera, et cetera. And this part of the value chain really wasn't well established yet, where there's these companies specifically to go buy commodity beans from. It was starting, but it was early.

1:19:27 Yeah. Cargill wasn't the like Massive giant with Global liquidity for commodities. Buying and selling than it is today.

1:19:35 Speaking of gigantic US privately held companies. Yes, exactly. We'll have to do that someday. Yeah. So as you said, Forest goes and does deal with Cadbury's to supply the chocolate for

1:19:46 The Mars bar, just like Hershey had supplied. The chocolate back in the US. This is also important because remember we were saying there are local tastes in each country market for chocolate and Cadbury's chocolate is To the British taste. So It actually is a pretty different bar.

1:20:00 Even though The core concept is very similar. Hm. But it's just a matter of time and forest mind until the operation eventually grows big enough that he can and will Make his own chocolate.

1:20:11 David, there is a Milky Way that you can buy today. in the UK. Do you know what that is? Oh Uh I do, but I'm not remembering.

1:20:22 Three Musketeers. That's right. I knew it was one of them. I was like, it's not Snickers. That is the brand that they decided to use for Three Musketeers. Overseas. And um Snickers originally was marathon, I believe, in the UK. Yes.

1:20:37 But now globally Snickers is Snickers. So yes, far not making his own chocolate just yet. But of course his goal is that he will. He has a great saying that he repeats often, that I think this is maybe around the first time it starts coming up. I'm not a candy maker. I'm empire minded. And that's like his mantra. So once they start producing the Mars bar

1:20:58 Pretty quickly it becomes a hit. And starts going really well. So By nineteen thirty nine. Five years ish after they get production up and running?

1:21:07 Mars UK has become the third largest candy company in Britain behind Cadbury and Round Trees. So like they go from Nobody to Third largest player, big industrial scale. Pretty quick.

1:21:21 And in part, I mean this is American capitalist coming in. to an industry I don't know if you know this or not. Both of those families were Quakers. Oh, I didn't know that. Interesting.

1:21:33 And so There was a Pretty Intense.

1:21:38 Spirit. behind the company. of looking after your community Yeah. This is Cadbury's and Round Tree, right? Yeah, in particular Cadbury built their

1:21:47 factory outside the city. In sort of this almost attempt at a utopia. Uh very Hershey like. In the same way that actually Milton Hershey was inspired by when he built Hershey PA. So there's this very like Devout.

1:22:01 duty bound religiosity to the existing UK chocolate companies. An income's brash forest. Who's like we're gonna do things the most efficient we possibly can, we're gonna make the most profit we possibly can, and we're gonna distribute As broadly as we can, as fast as we can. In many ways it feels uh Bernard Arnault esque. Like you guys, look what I learned in America. Yeah, yes, very, very much so. It's funny. I was I wasn't even gonna tell this story because

1:22:29 A I don't know how true it is. It's just ridiculous, but we'll tell you'cause I didn't realize the religious element of The competitors. So Forest. Oh yeah.

1:22:40 Oh man. Eventually. Flash forward. He will come back and he will retake over Mars Inc. in America. And when he does His first thing he does is he goes in the boardroom.

1:22:51 It's a management meeting. It's to his executives. And He falls down on his knees. and says, I'm a religious man and he clasps his hands together and starts to pray. I pray for Milky Way. I pray for Snickers.

1:23:04 I pray for Ms. Uh What a freaking character. Yeah. If he was religious at all, he was religious about Milky Way and Snickers and M Ms.

1:23:15 Yeah. And dog food. So to this empire thing. So in nineteen thirty four, just one year after he started the whole thing and started making Mars bars. He comes across this small British company called Chapel Brothers.

1:23:32 which had started making quote unquote chappies brand Can Dog food. And this is crazy. At the time Nobody fed their pets pet food.

1:23:43 Oh really? Pets, dogs, cats? They just ate table scraps. Oh this whole idea that you feed specific pet food to pets This all started in the thirties, like before that. You know, I was like I don't know, imagine go back to medieval times, like the dogs and cats they just eat. Throw'em a ham. That's the way you clean the table.

1:24:04 Right. So I have no idea how or why. I couldn't find it either. I looked all over the place. I was like why of all the things to buy did he buy a pet food company? Totally. And why did the Chapel brothers start Making pet food.

1:24:19 I don't know. There is like As little information as there is about the company and the family What we do have, we have about the chocolate business. We have almost no information about The pet business. And who are you gonna ask? The Chapel brothers are long dead.

1:24:32 Mars isn't gonna tell you, but I'm so curious, how did For us get the idea, hey, I should go buy A dog food company When The market for dog food is new and unclear and

1:24:45 Yeah. Well I think you know Look, he was visionary and he got so many things and I think he probably thought or The Chapel brothers thought and convinced Forrest that you know, in the post depression era and you know the coming modern world People's relationship with their pets.

1:25:04 would change and That's They would Start feeding them. Dedicated.

1:25:09 Pet food. I mean and obviously That was a huge, huge trend. And there's kind of economies of scale to the manufacturing of this. Making canned dog food isn't that different than making snacks. Yeah, it's a manufacturing process. So

1:25:22 Yeah. Interestingly enough Like I learned this. And the fact that this happened in nineteen thirty five completely blew my mind. Cause I knew that Mars was in the pet food business, much like Nestle Purina. is in the pet food business.

1:25:35 I thought this was like a recent diversification hedge. But here it is, effectively at the founding of Mars, or at least Forests modern Mars. And he's In the first second year of business. Buying

1:25:48 And diversifying To pet food. And it It was immediately a good idea because it became profitable after just a couple of years and And started generating enough cash flow to fund the expansion of Mars bars.

1:26:02 Yeah. It's um Good margins in the pet food business. Apparently, even in nineteen thirty five. Yeah. So

1:26:09 That's a huge success. So As this company is getting set up, I mean, would you expect any less of Forrest, I guess? You know, he's Hitting it out of the park with Mars Bar on the candy side. He's building a whole new industry on the pet food side. And

1:26:23 This here in Slough in England is really where the principles you know literally the principles, Mars calls them the five principles of the company today. But just the culture of Mars gets set. Oh yeah, you found the original ones, right?

1:26:38 Yes. So if you talk to anybody who works or worked at Mars. They will quote the principles at you religiously. It's like the Amazon leadership principles. Totally. It's like oh that's principle number five, freedom. Or oh that's principle number three, mutuality, et cetera, et cetera. I think how these started, maybe even Back in England.

1:26:56 Forest. started a a document called The Mars Way where he was like codifying all this. And I think and then after he retired And the business pass too. his sons in the next generation. I think that's when they sort of adapted that document into the Mars principles. But it's really interesting. It's worth going through them all. So number one, the first principle is quality.

1:27:18 Forest was Completely obsessed. With quality. on every dimension. Yeah. The ingredients that are going into the candy bars, the candy bars themselves, the wrappers. The shelf placement displays.

1:27:30 He was way ahead of the curve on all this stuff. He knew. The candy was an impulse purchase and like the way the product actually looks How it's displayed, what the packaging is. What the placement is on the shelf in the retailer. How consistent it is. How consistent it is. These were like Big, big drivers of purchases.

1:27:49 And there's of course the famous story about He uh you know, finds a defect in a wrapper and then he calls his executives into a room and he hurls it at the glass and says, you know Yeah. It's his temper and his obsession with quality all combined into one. Yeah, I'm laughing. You say famous story. I'm like, which one? I think there are a million of these stories.

1:28:09 But even here in the thirties In the UK. H Basically implements the Toyota production system. In the Mars factory.

1:28:18 This is long before the Toyota production system exists. Any employee In the factory. could stop the line for any reason at any time. Hm.

1:28:29 If there's anything that's out of place, anything that could impact quality You know, anything is dirty, anything is not perfect. Every single worker. in the entire facility can stop the whole line. And he also, if something had a defect, he would throw out the whole batch, right? Yes. As like a let's scorch the earth around the defect.

1:28:48 Yeah. I'm sure he wasn't thinking about it in these terms, but He really wants to instill this as a cultural norm in the company. So anytime. If there was a mistake that Forrest then found that hadn't been caught on the line, he would just berate whoever should have.

1:29:04 Stop the line and be like You needed to have stopped and fixed this. Like you cannot let this get into the finished Product. The other aspect of the quality principle though, much like IKEA It's not just quality for quality's sake.

1:29:17 It's quality. For money. It's quality at a given price, value for money. You know, we've already been talking about how this is like the ultimate scale business and scale economies business in candies. Forest knows that if you can offer a higher quality for a given price.

1:29:33 than your competitors, you're just gonna build a lead and compound forever and ever and ever in this business. Interesting. So quality. Principle number one, most important. Two.

1:29:43 This is awesome. Responsibility is the Second principle. And you might be like, Oh, responsibility, like, okay, whatever. For all of his crazy intensity, Forrest was not

1:29:55 A micromanager. He wanted to like know how to do everything in the business, including making chocolate. But he knew that if he was gonna scale, like he wants to be DuPont here, you know, he wants to be General Motors. He needs the best people. Working the hardest.

1:30:10 in charge of everything. Like he can't be around telling them how to do their jobs. So the question then is when you're starting up in a new country Tiny factory. How do you get the best people? How do you incentivise them? He's like, Well just pay them.

1:30:22 I'll just pay them a lot. So For years and years the standard within Mars was that you should make three to four times the normal salary for your job. That's so insane.

1:30:34 And I think that's come down over the years. It's now like two X, but it's still true. I even saw numbers that say they try to pay their employees a minimum of ten percent higher than other companies in the industry. Ah, interesting. But definitely in those early days, it's like

1:30:49 No, we're gonna pay you three or four times the amount that you would make elsewhere. I also know they try to tie pay aggressively to the performance of the company, so high bonuses rather than high salaries, which also means in tough years they would just cut. It's not quite having equity in the company, but it's much more akin to being a partner in a business. than it is to being an employee. Exactly. Okay. So

1:31:09 You know, I said salaries. It's not salaries, it's bonuses. This is what your take home pay should be. Everyone's salary in the company. Yeah, starting in the earliest days there in Slough. Tied to overall company performance.

1:31:23 And hitting overall company metrics. There is no At least in the early days, individual performance element to your bonus. Except for one thing. Do you know what the one thing is? The one individual performance metric. Did you show up on time?

1:31:37 You get a ten percent bonus. If you are never late. In the entire year. And It's everybody from Forest himself on down. Everybody has a time card. You punch the time card when you go in.

1:31:49 I'm pretty sure this is still true, that the CEO of Mars today has a time card and they punch in and out every day and a ten percent bonus is contingent on Not being late. So even more. I don't think this terminology starts until They get back to America, but

1:32:04 Everybody in the company is an associate. Obviously people are in charge of different things and have different external titles. But internally. Everybody is an associate. There are no perks.

1:32:16 for anyone. So there are no executive parking spaces. There's no executive offices. Boy, Forrest really wants to rebel against his father. There are no offices. Period to this day at Mars. Is this the first open office company? So we said on the meta episode that we thought was the first open office.

1:32:35 No, Mars was the first open office starting in the nineteen thirties. So Every building. Entirely open floor plan. You get a black metal desk.

1:32:45 Get this. This is how crazy it is. Again, even still to this day. There are just a small number of conference rooms in any given Mars office. Oh yeah,'cause they hate presentations, right? They hate presentations, they hate meetings, but like sometimes you have to have a meeting.

1:33:00 The conference rooms do not have doors. There is no privacy allowed Anyway. Which is the craziest thing, given that the company itself, externally, is incredibly private. But no, internally The culture is everything is open. Everyone is equal. There are no perks here whatsoever.

1:33:19 And Forest is doing this in the thirties. This is crazy. I was gonna save this for later, but this is a fun time. I Google mapped The recent factory that they built to make Ms and it's like a corporate headquarters and manufacturing facility. And there's a bunch of pictures on Google Maps of the exterior and interior, just like you would

1:33:38 Expect from anything that's on Google Maps. And it's Pretty dated. It's just a very boring drop ceiling.

1:33:47 fluorescent lit cheap. Office. And the real estate that it's on is like near an Amazon fulfillment center. I mean it's like kind of off the highway in the middle of nowhere, inexpensive. But there are two big

1:33:59 M's waving at you. out of the parking lot. I think that's the standard decoration. Yeah, you can tell how pissed. Forrest wasn't his dad about the Chicago factory specifically, but also just like how deep seated this is.

1:34:13 Yeah. Okay, so then principle number three is Mutuality. So Forest obviously is like hyper competitive. But he also knows that this is

1:34:23 An ecosystem. That he's in. And the retailers are super important. The suppliers are super important. Distributors are critical. Everyone needs to make money and everyone needs to be incentivized for the long term. And as long as his partners are making money and making more money selling Mars products or supplying Mars

1:34:40 than they are any of Mars's competitors. That's gonna be a compounding advantage. Yeah. So that's three. Four is efficiency.

1:34:49 Okay, this is a really Really interesting one. probably back to his whole mindset and time at Yale and studying DuPont. Forrest is crazy about studying business and management.

1:35:03 literature. Like I don't think anybody was reading business management literature in the nineteen thirties and nineteen forties. It's a good point. It's true both for management and for investing. If you think about the way that people were even investing back then.

1:35:17 It was like stocks were gambles. You know, Buffett was one of the first people to believe the intelligent investor, oh, you can tell something about the quality of revenue and this intrinsic way to build to a value of a business. the investment mindset of quality and a discounted cash flow and the management mindset of there's a science. to building an organization, these were pretty new ideas. Totally. I mean Buffett had to go

1:35:41 study with Ben Graham to learn this stuff. Yeah. So While he's in England. Forest.

1:35:49 Reads a textbook called Higher Control in Management. by T G Rose. And the subtitle of this book is A method of producing the facts and figures of industrial and commercial undertakings. So that they can be used for the purpose of management.

1:36:06 It's quite academic. Yeah. Business academia had not yet learned marketing about itself. So in the book though Rose argues. that the primary focus of management should not be on revenue or profit or growth. But instead on a metric called return on total assets, or rota.

1:36:27 And again, if you talk to anybody on Mars today, rota, rota, rota, rota. Everything is about rota. It's funny, I came across this researching, I had to look up the term. We've never studied in on an episode before. All right. So what is return on total assets? It is Nett.

1:36:40 Profit dollars. divided by the total dollar value of the company's fixed assets. So it's effectively an efficiency metric of Yeah. Profits divided by

1:36:53 your fixed cost of your assets. Yep. Now the textbook way to do it. is by the cost of your assets as measured on your balance sheet. The way Forest does it, though, and the way the company still does it today is No, that's insane. Like

1:37:06 whatever this is valued at on our balance sheet, whatever it cost us to build this factory ten years ago. Doesn't matter. What is it? What is the value of it today? Oh, interesting. So they are constantly

1:37:18 revaluing what the replacement cost is of all their fixed assets, all their factories, et cetera. Like Okay, if this factory disappeared. What's the market value if we were to sell this thing and get rid of it? Exactly. And so that way they're always making sure that they're like Hey, we're really efficiently using our assets were not just artificially

1:37:40 being efficient based on what we paid for them ten, twenty years ago. It's fascinating. So for you and I it'd be like the profit dollars of the business from sponsorship. divided by the cost of our microphones and, you know, the very modest tangible assets that we have in this business.

1:37:55 Actually I think if we were to use this We would divide our Profit dollars by the value of the acquired brand. And we would value the acquired brand sort of as highly as possible. So you're basically wanting to say

1:38:08 Per unit of fixed investment I've made, how much yield in terms of profit am I getting out of the fixed investment I've made? Exactly. I'd argue, David, that for acquired we'd actually want to use our time valued at some certain amount. as the denominator. What's our profitability per unit of

1:38:25 Time which is our fixed resource. Well it depends, I think, what you think is more valuable our time or The acquired brand. We should probably do both, actually. Who knew this would turn into a actual holiday special? Yeah. So Anyway, supposedly

1:38:41 Forest had an Mars has or at least used to have A specific target of eighteen percent.

1:38:50 Return on total assets for every division. And every Factory. Which means essentially that every investment needs to pay for itself. In less than five years.

1:39:00 So if you're making eighteen percent of your value back every year you know, that would be like five, six ish years if you're using the textbook definition. But they're always increasing the value of their assets. So it's like In effect any time Forest is making a decision to invest in something. He's like

1:39:17 I want like four year payback on this, four to five year payback. And they don't want to be higher or lower than the 18%, right? Because if you're Lower than 18%, you're not using your resources enough to generate enough profit. If you're higher, Then you're taking too much profit. You're taking too much profit, which is bad for your customers, or you're not reinvesting aggressively enough.

1:39:38 Yeah. You should be spending more on advertising and marketing, et cetera, et cetera. Right. It's totally fascinating. I have a couple um

1:39:46 other things on efficiency that I was gonna say for playbook but since we're here we should bring'em up. Yeah, let's do it. So this one comes from friend of the show, Arvin Navaratnam at Worldly Partners, who writes this great research that we link to for every episode now. He pointed out that Despite operating with thirty percent fewer employees than its closest competitor, So today this is Mars versus Hershey.

1:40:07 Mars generated more output per worker than any other in the industry. So in nineteen ninety, for example, Mars's revenue averaged four hundred and twenty nine thousand for employee compared to two hundred and twenty eight thousand at Hershey. So they're just Doing more with less.

1:40:23 Yeah. Miles ahead. And I think Part of this comes from the fact that they're just amazing at the industrialization of production. David, you raised that point. that the factories run twenty four hours a day and at that Chicago plant.

1:40:37 You know, I think today the fun size Milky Way bars are produced at Over fifty five hundred bars per minute was a stat that I saw. They just run. at incredible efficiency in production. But they also then do effectively share this increase in efficiency with employees by doing the

1:40:57 higher pay. and the bonus based pay. So if the revenue per employee is way higher than their competitors like Hershey, they should pass some of that efficiency benefit along to their employees in terms of higher compensation. Which in turns retains people for longer. You know, which keeps tribal knowledge around, which decreases recruiting costs. I mean, it's very Costco like in that way. It is. It's totally uh

1:41:18 Flywheat reinforcing structure where it all Fits together. The other thing that they do is they aggressively try to reinvest profit dollars back into the business. doing things like R D on new types of manufacturing equipment that they can build for their plants.

1:41:33 That's the primary benefit. The second benefit is they don't pay as many taxes since they're reinvesting before those dollars fall all the way to the bottom line as income. Yeah. Totally. It's very uh John Malone esque. They wanna keep as much capital in the business as possible. And not recognize a lot of it as income.

1:41:49 Yep. Malone and Buffett too. Yeah. So then that brings us to the last principle, which is freedom. Which, you know, I think in the early days here

1:41:59 To the extent Forrest thought about this as a principle. Like I think it was just like He wants to build his own business, be free from his dad. Be his own person, prove himself. Over time this comes to mean family ownership.

1:42:11 And Not going public, being a private company. Not taking on debt. And then in The next generation after Forest and Beyond it means.

1:42:19 being incredibly private. We've alluded to the privacy of the family, like For years the family refused to have Any photographs taken of them for fear that They might get published.

1:42:30 They really, really mean it about being private. In fact. When Joel wrote the Washington Post article, do you know the thing about the photographs? I think it was the first time That's the thing.

1:42:40 John and Forrest Junior had ever been photographed in public? It was, but then Mars didn't like the Washington Post article. Like didn't like the way it came out. So not only did they then fire their PR consultant, They went and found the newspaper's freelance photographer and paid off. twenty thousand dollars for the rights to the photos to be sure they couldn't be reused.

1:43:01 Yeah. Wild. Just wild. But as we've talked about From

1:43:05 IKEA to our business here at Acquired. complete ownership or at least board control in Meta's case. Is freedom. You can do things like Invest for 10 years from now when it's going to be a super lumpy period between now and 10 years from now. If you believe in the long-term vision, you can suboptimize.

1:43:23 the short term and For Mars, that means private ownership. Yeah. And I think it means things like you can operate with Rhoda as your primary

1:43:32 Operating metric instead of profitability. Good point. So Back to the Forest Mars story in progress.

1:43:40 Starting up in the thirties. Amazing success story within a couple of years by the end of the decade. They're the third biggest candy company. In the country. Incredible achievement.

1:43:52 Riding high. And then the end of the third East brings something else. Which of course is World War Two. Yep.

1:44:00 Now to hear Forest tell it. The UK government decides that in order to help fund the war effort. They're gonna impose a very heavy tax on all foreign residents. living within the country, which of course would include forest

1:44:17 And the Mars family. Which is kind of an interesting philosophical tax. We need to go to war. How are we gonna finance the war? Well Who's riding the coattails of us being an awesome place to live, but isn't actually a citizen? Let's tax them to pay for the war. Right.

1:44:30 And so he would also claim that he believed that it was Cadbury's and Round Trees that actually lobbied Parliament to implement this tax expressly To run him and Mars out of town because they were threatening their business. Chocolate was a big national business. They were among the biggest companies in the country. Totally.

1:44:51 It's not unreasonable to think that. On the other hand, I suspect. Forrest also had his ambitions always on. Coming back to America anyway. And now seemed like a pretty good time.

1:45:04 To do it. In fact it was A very, very good time to do it. So in nineteen thirty nine He leaves

1:45:13 All of his business is Running in the UK. And he moves with his family. Back. To the US.

1:45:20 Also, that's crazy. The fact that you can trust Someone's In the UK. as World War Two is breaking out, hey, you run these businesses.

1:45:28 That I own. And I can trust that I continue to own them. While I move across the ocean. I wouldn't be confident that when all the dust settled I would continue to own those businesses. Totally right. Which

1:45:40 If Cadbury's and Round Trees was actually behind trying to run forest out of town Clearly they didn't know the loyalty of his employee base well enough. Yeah. Yeah, totally wild. In nineteen thirty nine that

1:45:54 So he moves back to America. And of course he has his sights set. Back on Chicago. And Chicago, Mars. Honey, I'm home. Yeah. Remember, Frank had died a few years before.

1:46:07 And at this point. Chicago Mars is being run by Forrest's widowed stepmother, the other Athol. And her half brother. Who is the president and CEO.

1:46:19 Of business. And they Of course, detest. Forest. And they won't let him

1:46:25 Anywhere near. The company. And who owns the company at this point? So Forest has some shares after His dad has died.

1:46:33 But he's by far a minority shareholder. The biggest shareholder, I believe, is the other ethyl. The second wife. And then Forest's half sister Patricia, her daughter. Also holds a large stake.

1:46:45 And then I think the employees of the business owned equity at this point. So forest I don't know, I'm guessing he probably owns maybe ten, maybe twenty percent of the business. Not enough to be a controlling shareholder. Okay. So

1:46:59 Faris does what Farrest does, he says the hell with you. I started from scratch once to prove you all wrong. I can start from scratch. And do it again. Back here in America.

1:47:08 Which is the final gauntlet, right? It's one thing to go across the ocean and start from scratch in a smaller market where no one knows your name. You can kinda sneak around and do these deals. Now he's here in America. Can he start a from scratch candy company on the world's greatest stage? Which on the one hand he has

1:47:26 more connection here and more resources. On the other hand, he's battling The old Mars. At every step of the way. Right. And he hasn't lived here in close to a decade.

1:47:35 Right. But He's confident. in his chances. Because he has brought back a secret. Weapon.

1:47:45 Before Forest leaves Europe. He had spied a new To him at least. Type of chocolate candy. that had become popular with soldiers in the Spanish Civil War.

1:47:57 Called Drag. I think it's called Dragé because I believe it was originally a French style of candy. intended for French Noble ladies.

1:48:07 Who wanted to eat. Chocolate, but not Have the chocolate melt on their white gloved. Hands. Oh.

1:48:15 Interesting. And so what is dragay? Well drage is Small round pieces of chocolate coated With a candy shell to prevent them from From melting. In your hand.

1:48:28 Or it. Hot weather. And confectioners call this hard panning. The colored candy shell. Which is effectively hardened sugar syrup.

1:48:37 Yes. And so Forrest as he's heading back to the US thinks, you know? I think there might be some global appeal here. In this drage product. All right listeners.

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1:50:36 Let's do it. Hell yeah. Let's do it. I'm gonna eat some dark chocolate and some almond M to celebrate. Ooh, nice. I think I'm gonna pop a peanut butter. Okay.

1:50:47 So the legend is That the reason Peanut butter Ms are not as big as what you would think their market potential is in the US. is because Forest Junior and John Mars, the Sons of Far Senior who would take over.

1:51:00 And then launch peanut butter Ms they grew up in England. So They didn't get the peanut butter and chocolate thing. Mm. Is that like a uniquely American Yeah. It's an American thing.

1:51:11 Fascinating. Reese's kind of invented it. There's a whole great Reese story. Reese's was a separate company from Hershey that was built down the road. And I think it was a former Hershey employee. Former Hershey employee started it. And then Hershey's later acquired the company. Great story.

1:51:26 Yeah. Anyway. Here we are. In August of nineteen thirty nine. Forest and the family have moved back to America.

1:51:35 He's ready to hatch his plan. Is revenge. Campaign. And he goes and pays a visit to Hershey. Pennsylvania.

1:51:45 And by paying a visit In typical forest fashion. I mean That he shows up there anonymously. And unannounced.

1:51:53 And he signs up and does the public factory tour. So awesome. So far. So freaking awesome. After the tour is over, however. He asks the tour guide if he could please go see

1:52:08 Mr. William Murray. William Murray, of course, being the president of Hershey. And Milton Hershey's long time. Number two. President and COO type.

1:52:18 But the guy who actually ran the company. Milton by this point is like Very much focused on the town and the orphanage and the Hershey Trust and all that. And the gest here is I need to buy some chocolate.

1:52:29 Well Let's keep telling the story. So the guide's like uh Excuse me, who are you? And uh why do you want to see Mr. Murray? Twitch Forest replies.

1:52:39 Just tell him Mars is here. That's all he needs to know. Because at this point, while Hershey was still a supplier to Chicago Mars. They were really starting to be a competitor. They're starting to wake up to this idea that Yeah, we're selling these other people chocolate, but they could just go eat all of our market share.

1:52:56 Yes, they're starting to wake up to that, but If this story is true. Forrest is saying, Tell Murray that Mars is here. Obviously the implication being Chicago Mars is here. Which is totally not true. Right, because his father's past this point. So the Mars that it probably is is whoever is running the Mars company. Right. It's ethyl number two's Half brother.

1:53:17 Who is? Installed running the company. Either way. Forrest does get in to see William Murray. And Murray has never met Forest before, but of course

1:53:26 knows who he is once Forrest introduces himself and Right, it's like um Great. Okay. You're back in the US. What can I do for you?

1:53:36 Forest then proceeds to theatrically Remove a handkerchief. From his pocket. And place it down on Murray's desk. And he opens up the handkerchief and there inside

1:53:47 Horror. Draje. Candy coated. Chocolates. This is so Steve Jobs. So Steve Jobs showmanship. It's amazing. Romans. Amazing. Uh forest is like try one.

1:53:59 Some where he does and he's like. Yeah. It's pretty good. Forest says, What if I told you that I have had these candies in In my pocket.

1:54:09 All the way on the trip here from New York. The whole train ride. All the time outside in this hot Muggy August weather all through the factory tour.

1:54:21 And not once. Did they ever melt? In fact, how do they taste? Do they taste melted? They don't taste melted, do they? And Murray's like Oh.

1:54:28 All right, you've got my attention. So Forrest and William Murray. Work out a deal. To start a new joint venture. Candy company.

1:54:38 That will be eighty percent owned by Forest. And twenty percent owned. By Murray's son. Bruce. And Forrest says, I've even got the name for it.

1:54:49 We're gonna call it Mars and Murray. Ms. And it's a new company. That's what's worth noting here. Well, several things are worth noting.

1:54:57 Obviously Forest is totally brilliant. This is probably his most Brilliant scheme. On so many levels. He

1:55:07 No. That if he's gonna build a new candy company Come back to the US. Take on and defeat. His father's old company in bars.

1:55:17 He's gonna need Resources. He's gonna need chocolate, which means he's gonna need Hershey's chocolate. Yeah. And he's also gonna need capital and money. He just can't get that much capital out of his UK businesses, remember the tax.

1:55:29 So There's a reason though that he specifically goes to Murray. To make this proposal. Not to Milton Hershey. A Murray is kind of the COO type. He's actually running the place and can marshal resources.

1:55:42 But even more important. Murray doesn't own Hershey. He's just An employee. The Hershey Trust.

1:55:49 owns Hershey. Murray has no inheritance. To give his family. He's now At this point, I think Murray is sixty six years old. So Mars is dangling something he wants. Forrest is offering Murray

1:56:02 The chance to have wealth and a legacy and a business. To pass on. To his son. Do you know what else Bruce Marie had access to?

1:56:12 The military Yep. Purchasing. Division. Yes. Okay. We will get into that. It's so brilliant. So

1:56:19 This deal is nuts. Because Hershey. has an exclusive arrangement To supply chocolate.

1:56:26 To the US military. The exclusive agreement. And Forest Mars has this thing that God, if you think the military liked countlines. They're gonna love these non melt candy coated Chocolates.

1:56:39 And so He is going to to the person who has the sole ability to provide the military with chocolate and saying, Let's start a new company together. With your chocolate that is rationed for the war in World War Two for the military. We're only gonna sell this to the government.

1:56:56 I'm gonna own eighty percent of it. Your son's gonna own only twenty percent of it. I'm showing up with just the idea. And Hershey's gonna provide the chocolate, the sugar, and the technical expertise. And capital. Yeah. And it's gonna be an 80-20 deal? I don't understand how this deal got done.

1:57:12 Well. What else is Murray gonna do if he wants a legacy to pass on to his son? Murray's not gonna go off. And do this himself. That would be disloyalty to

1:57:23 And in fact, I would guess it's to avoid a conflict of interest for Marie himself to say, My partner is actually your son, not you. Yeah. So his employment contract isn't in violation. And he's only a twenty percent owner, blah, blah, blah. Yeah, when you think about if Forrest were to go to William Murray and say, Hey, you and me enter into a partnership That's at least gonna be fifty fifty, if not eighty twenty, Murray to Mars.

1:57:47 But by saying no your son Yeah. He's just so freaking brilliant. What a G. Yeah. So Murray agrees to this.

1:57:57 And in the spring of nineteen forty. Forrest and Bruce Murray, the Sun set up. M Limited. As a partnership. They build a factory in Newark, New Jersey, and they start production in nineteen forty one.

1:58:10 Then as you say, build a factory with Hershey capital and resources. And chocolate and sugar and everything else. Yeah, and there's a great quote in the Cadbury book about how amazing it is that this is how Forrest makes his return to the US. The line is Without the support of his own family.

1:58:27 But with the support of his leading rival, Hershey. Yeah. It is Spooky. It's like you wanna say diabolical, but like I don't think

1:58:35 Forest is diabolical, per se. It's just truly genius. It's just strategic. Yeah. So of course now What else happens in nineteen forty one, right as they set up the factory and start production?

1:58:47 The US enters World War Two. Which means significant chocolate rationing. for all the consumers in America and significant chocolate consumption. Bye.

1:58:59 The military. So all of a sudden The US military becomes Hershey's biggest customer. Just like During World War One.

1:59:08 Which means And Hershey's is the only one with a chocolate contract. And the only one producing milk chocolate at significant scale in America, which means that they start severely limiting their wholesale chocolate supply to all of their enterprise customers.

1:59:23 Like Chicago Mars. Or actually they limit their chocolate supply to all of their wholesale enterprise customers except for one. M Limited partnership.

1:59:35 Because of course. It's Bruce Murray's company. Yep. Sort of. In minority.

1:59:42 Yes. Twenty percent of it is. Bruce Murray's company. Now, of course, just like Hershey. the vast majority of young M limited partnerships production Is also going.

1:59:53 to the military. So the air force was the biggest customer of Ms during World War Two. The army was number two, I presume the Davy was probably also a large customer. And

2:00:06 Like we've been talking about. who has the chocolate sales relationship with the purchasing officers in the Pentagon. It's William Murray at Hersey's and Bruce gets to tag right along and as head of sales in the new M Limited Partnership.

2:00:22 He is perfectly positioned to do that. It's so funny, head of sales. There's one customer. Yes. They're not selling it to the public yet. No, there's three customers. There's the army and the air force and the navy. Okay. Yeah. They're not selling it to the public yet, or at any sort of real value. Now. There's an interesting

2:00:38 Little sidebar to the M Ms. Story here. And I suspect many of our British friends are listening to all this and saying like Hey, guys. What about smarties?

2:00:49 Forest, of course, was not the only one To spot the potential of Traje chocolates. For military use and then Eventually for

2:00:57 public consumption. Well Like all things with forest history, it's a little bit hard to untangle truth from fiction. But one thing that is undeniably true. Is that round trees

2:01:10 introduced Smarties to the British market in nineteen thirty seven. So three to four years before Eminem startup in the US and two years before Forest even leaves the UK. Right. So he's saying it's this. Spanish American war or thing, but very plausibly he just

2:01:27 saw smarties in the UK and was like, I gotta go back to America and launch this quick. There is No way that Forest did not see Smarties in the UK before he left. And The early Ms came in

2:01:41 Tube packaging. Just like smarties. Suspicious. Also, for the American listeners, you're probably like smarties, those are a non chocolate candy. What are you talking about? Those are different smarties that that are in the US market. Yes.

2:01:52 British smarties are delicious. I loved eating them. Growing up with my British family when I would go visit them in the summers. Well As best as I think

2:02:03 Anyone can tell. Apparently there is some documentation about this in the Nestle archives. Apparently Forest. And

2:02:15 George Harris of Round Tree. Had both learned about drages around the same time. So during the Spanish Civil War. And supposedly they negotiated a gentleman's agreement. That round tree could have

2:02:29 The British market. For Drache candies. Mm and Forest, who was at this point in time starting to plan to go back to the US anyway. He could have the American market.

2:02:41 And in return Forest supposedly gave Round Tree the rights to Manufacture and market. Mars bars in other British Commonwealth countries like Canada and South Africa.

2:02:54 Mm. So Supposedly. There's evidence to this effect in the Nestle archives. But we can't know for sure.

2:03:02 Regardless, none of this really matters at least for a few years because Basically all of the world's chocolate production is going to sovereign militaries around the world that are all fighting in World War Two. Okay. Meanwhile

2:03:16 During the war. as M is starting up and the US military is a big customer And Forest is sort of rebuilding his empire in America. He's on the lookout. For

2:03:28 His chappy's equivalent. To bring. Into the US. You talk about rice? Time to talk about race. Another business that can provide, you know, diversification and cash and resources.

2:03:39 To build up. The candy business. This is so crazy. He owns a British company that makes Mars bars. He bought the Chapel Brothers, he started a new partnership in the US, a third business called M Limited.

2:03:51 And now he's looking to start a fourth company that makes rice. Yes. In Houston, Texas. So There are also, as always, a couple versions of this story.

2:04:01 But I think the one that is closest to the truth is that back when Forest was in England. He had gotten to know a chemist. Who had invented a new method. For milling rice that was called par boiling. And when you parboil rice through this new method.

2:04:17 It results in More nutritious and importantly faster cooking. Rice for when you ultimately prepare it for Eating. And in Nineteen Forty Two.

2:04:27 This chemist and forest. Form another Joint venture company. In Houston, Texas. And they patent the method in America.

2:04:36 And start producing rice. To sell. Just like Ms. To the military. 'Cause what's the military need a lot of? Cheap calories.

2:04:44 Rice. And hey, this is more nutritious. It cooks faster. Like great. Great customer. And this becomes Uncle Ben's Race. Today, Ben's original. The idea of launching a branded rice Product.

2:04:58 In America was Crazy. I mean it's not as crazy as like the pet food business, but There were no brands in the race category before Uncle Ben's You just bought rice.

2:05:09 The commodity. So this is the first brand At least in rice. Ever launched in America. Fast forward.

2:05:16 Today Ben's original. does over a billion dollars in revenue. Annually. Crazy. listeners, you can tell all these did become one company at some point, but at first they weren't.

2:05:28 Right. It was all these puzzle pieces that Forest was assembling. So back to M's. After the war. Forrest and Bruce Murray, of course, now need to find

2:05:39 new customers for Eminem's, they're gonna relaunch it as a consumer candy. Like obviously that was the plan, use the military, bootstrap up the production, hersey's resources, but like obviously This is gonna be a Consumer candy. So yeah, it's crazy. Basically five years elapsed between when they founded the company

2:05:57 and when they are able to actually do the consumer launch because of World War Two. Yeah. And you would think, great, what potential for the consumer market. All the soldiers and pilots have been eating these all war. It's gonna be the same story as Percy's bar is all over again. It's gonna

2:06:12 Make Ms. For us big success coming back to America. Mm nope. Consumer launch. Pretty tepid.

2:06:21 Doesn't Get a lot of pickup. back with consumers in America. For years. For years.

2:06:29 This of course as you would imagine, creates quite a lot of tension between Forest and Bruce. Especially because Bruce was in charge of sales. And Bruce had been great at sales when he's selling to the military. Selling the consumers not so much. So did you hear about

2:06:45 What supposedly forest. Did the Bruce here. No. Oh my gosh. So

2:06:51 The story is As sales are not going well. Forest orders. Bruce. to produce a daily report.

2:07:01 Oh. the past days sales of Ms in a written form to him every morning in the office. And every morning. Where The previous days sales did not hit Forest Target.

2:07:13 he would write in big letters in red ink, failed on the paper and then he would go Tape it up. in the men's bathroom. Uh in the company. We've obviously been very laudatory of Forrest and he was incredible, incredible genius. The dude also had a temper.

2:07:29 To match. His genius. Is he trying to get Bruce to leave the company at this point, or is he just trying to motivate him? Well, Yes.

2:07:38 So here's the thing. You know, you read about lots of people who worked for Forest and the lots of accounts in Emperors of Chocolate and elsewhere about His temper and how Awful he was, and he clearly was awful. He's also at doing things.

2:07:51 For a reason. He's trying to get. Bruce to leave the company. He's trying to push him out because he wants to own Ms a hundred percent. So in nineteen forty nine

2:08:01 Four years after the end of the war and middling sales at best of Ebin M's Forest finally succeeds in pushing Bruce out. And supposedly it comes down to a confrontation one day.

2:08:12 Where Bruce is like I can't take it anymore as far as how you're treating me, you know posting these reports in the men's bathroom. Supposedly they get into a literal fist fight. in the office in New Jersey Forest kicks Bruce out of the plant.

2:08:27 has, you know, security or whatever, come and take'em out. And Forrest is his boss. I mean this guy owns twenty percent, but Forest is the CEO. Telling you can take his shares, but he can fire him. Exactly. So Bruce resigns And then once Bruce resigns

2:08:41 After this, this starts the negotiations of Forest buying out his twenty percent stake. They settle on One million dollars. for the twenty percent stake. So they're valuing the M M's business at five million dollars. Which

2:08:56 You know, this is nineteen forty nine, so if you adjust for inflation in twenty twenty four dollars That would be like valuing the business at sixty five million. And buying Bruce Al for Thirteen million. So

2:09:08 Mm. You know. Thirteen million dollar payout, you know, in today's dollars for Bruce to walk away. For a company that like it's not clear it's gonna catch with consumers. Right. Exactly.

2:09:18 Okay. You worked on it for well, it's nine years of work. Yeah, it's nine years of work, so like You know, I think you could really debate. Yeah. The valuation there.

2:09:29 In both sides. Certainly Ms were not yet. Ms. But In fact they hadn't even started having the M' printed on them yet. No, they haven't.

2:09:41 As soon as Forest completes the purchase and kicks Bruce out of the company, takes a hundred percent ownership. He goes in nineteen fifty and hires the ad agency Ted Bates and Company. to perform a comprehensive market study. For the product.

2:09:57 This is also another genius innovation on Forests part. So other big diversified CPG companies like Procter and Gamble. They were starting to do

2:10:08 the sophisticated kind of market research here, like we're talking about, you know, the legendary Proctor and Gamble product management function. This was starting to happen. But nobody in the candy industry did this. Like the candy industry still operated Seat of the pants. Frank Mars type entrepreneurial stuff.

2:10:28 This is emblematic of the industry. Hershey had a strict policy. of not advertising at all. No advertising whatsoever.

2:10:39 They did not do any advertising until nineteen seventy. That's so insane. Which is absolutely freaking insane. They didn't have sales targets either, right? The story about sales targets and revenue growth targets in Hershey. was that in some file card in some system

2:10:56 Milton Hershey had written Grow sales four percent every year. And that was the plan. That was Hercy's annual plan was grow sales four percent. Yeah. I will say it is pretty incredible. how much from here on out The story is a story of ad campaigns. We are getting from a place where before this it was all product innovation. And from here on out

2:11:20 It's Marketing innovation. Like who won chocolate between nineteen Fifty and 2024 is a story of marketing.

2:11:29 And distribution. Yes, a hundred percent marketing and distribution. And you say ad agencies, I don't want listeners to get the sense that Oh, it's just ad agencies that are doing this and it's advertising. It really is the discipline of marketing.

2:11:41 Of which ad agencies I think were a lot more consultative. in this function back in the day than today they're much more Execution oriented. Really, this is like the creation of The modern

2:11:54 marketing. Discipline. Yeah. So The Ted Bates agency.

2:11:59 Goes off. They do this. Product study, market study. Oh. Who do Ms appeal to?

2:12:07 And they find that actually Ms are super appealing to kids. Now this is interesting. The candy industry had obviously started as a kids' market. But by this point in time it's an adult's market.

2:12:20 Everybody's marketing to adults, that's where everybody thinks. The market is. And Ms and smarties, et cetera. This had started as food for soldiers. So they were focusing on the adult market.

2:12:31 Turns out kids love the little pieces and the bright colors, et cetera, et cetera. Here's the problem though. Kids don't buy the candy. The parents buy the candy. So you gotta mark it to the parents.

2:12:44 To buy'em for the kids. Exactly. So They need to come up with some way to get that message across. to the parents.

2:12:53 And this is where Frankly, I'm gonna think just like One of the most brilliant slogans and ad campaigns of all time. Is born.

2:13:03 The milk chocolate that melts in your mouth. Not in your hand. And It's become a Like water these days. Everybody knows that slogan.

2:13:13 What makes it so effective, I think. Is it just so gets at the very, very, very core. Of the psychology of being a parent. Of Candy age eating children.

2:13:26 Mm. And The core Truth that it gets at. Is

2:13:33 Yeah, you want your kids to be happy. But really What you want. Is for your kids. Not to cause chaos.

2:13:42 In your home. David, how do you know all this information? I'm just reading about this and thinking of like oh my God. Imagining myself as a parent in, you know, nineteen fifty, nineteen fifty one, when this comes out. The last thing in the world I want is my smotty nose kids. Running around the house, smearing chocolate all over the furniture, all over the walls, all over everything. Which also is the last thing that I want as a parent in twenty twenty four. Yep.

2:14:10 And now here is this message being delivered to me of Make your kids happy. Get them to stop whining give them the chocolate that they so desire. And it will not ruin your furniture and your house. It's perfect.

2:14:25 Yep. They of course back up the Parent marketing. With also Sponsoring the most popular kids television shows of the day, the Mickey Mouse Club and the Howdy Doody television shows.

2:14:39 And Boy does it work. By nineteen fifty six. So they start This campaign and call it Fifty fifty one.

2:14:48 So five years later. Ms. the biggest selling candy in all of America. Doing

2:14:56 Over forty miljon dollars. In annual sales. And growing. Super fast. Bigger than Snickers, bigger than Milky Way.

2:15:04 Bigger than the Hershey's bar. Incredible. Wow. Five years from basically zero to forty million dollars in sales. They're just crushing it. And they're starting to get worried about copycat, so they start adding the little M's. Actually, they were black at first, and then in nineteen fifty four, they transitioned it to white.

2:15:22 And they ran a second ad campaign telling consumers look for the M on every piece. To verify the authenticity. We're building IP here. We're not just Making candy we are Building

2:15:34 A frame of mind and a nostalgia point and a trust with consumers. Yeah. And of course today. I say as a

2:15:43 pop some Ms into my mouth. Ms are not just a kid's candy. Kids still love'em, but adults love'em too. But it's back to this nostalgia thing like everybody today who is An adult eating Ms grew up eating them as kids. Yep.

2:15:57 Nineteen fifty four. There's the first T V commercial featuring the animated M M's characters. obviously different than the ones you know today, which are computer animated, but Very cute, hand drawn.

2:16:09 Uh actually a few different versions of them. But pretty consistent concept all the way from then until now. The personality's changed a little bit, but these personified Ms that Have witty stuff to say is There pretty early. Yep.

2:16:21 Totally. Speaking of copycats. Mm. were so successful that Hershey's really was getting worried.

2:16:29 David, as you said, it became the better selling candy than Hershey's bars. So Hershey's launched something called Hershey Ets. And we'll link to it in the show notes. It's fun looking at the old marketing for this failed product.

2:16:41 The biggest issue with marketing Herschietts is people would say, What is it? And in order to say what it is, you had to say they're like M and Ms. Which that's a Tough marketing position to be in. I mean, you nailed it earlier when you said being first to market is really important. And in markets where it is important to be first to market, getting scale quickly.

2:17:01 So you become the product of record or of reference when people are trying to describe the category. M's was that to a T. Totally. Totally was. Hershey's would then later, as a part of the Reese's franchise, try to do Reese's pieces.

2:17:15 Actually there's a fun story around that that we will talk about. But here in nineteen fifty four land, there's just a lot of fun dialing in happening. Of All the marketing.

2:17:26 The peanut Ms launched, but first only in tan. they then realized what are we doing that we need to change this. So in nineteen sixty they added Yellow, red, and green. right around the same time in nineteen fifty five TV started becoming a real factor in Americans' homes.

2:17:42 And it was just perfect timing. I mean, it was a match made in heaven. For these candy companies. to utilize and create demand for their products after the war. If you wanted a brief moment of emotion for your brand with a quick tagline, A TV commercial is just custom made for that. And Debora Cadbury puts it really well. She says

2:18:00 One great T V campaign could shift decades of customer loyalty in a matter of weeks. Especially in a new category like Candy coated chocolates. Yep. Nineteen fifty five, Mars also gets into the vending machine business. Interestingly, over in England, they start this business called Vend Pack.

2:18:18 which created the earliest vending machines. They eventually sold this off in two thousand and six, but They had built coin mechanisms and bill validators, I think they were like the market share leader. in how to read bills in vending machines. All across the world.

2:18:32 Yeah, they also got into change makers, like you know, you put bills in and you get coins out. Oh, interesting. Yeah. So speaking of Empire Minded. At this point Forest Empire is

2:18:44 Pretty much complete. He's got The Most popular candy bar in the UK with the Mars Bar. Mars's European operations have become

2:18:53 Very, very large in and of themselves. I think they had started making their own chocolate instead of buying from Cadbury by this point. I think that's right. I think they had transitioned or were transitioning to making their own chocolate. In the US obviously's got M and Ms, which are now

2:19:08 The number one. candy in the US, he's crushing it there. He's got the biggest and pretty much the only pet food business in the entire world. He's also got the biggest and only branded rice business.

2:19:21 All told. All of his sets of companies, I believe, here now in the call it mid to late nineteen fifties are doing like Two hundred million ish in Revenue.

2:19:32 So A big empire. However, There are two things that he still Doesn't have.

2:19:39 One. Of course is. His father's company, Mars Inc., Chicago Mars. And he owns what, ten ish percent around this point. But he doesn't control the company.

2:19:50 And then two, of course, is fully separating himself from Hershey's And controlling all the means of production for all of his American businesses and making His own chocolate.

2:20:00 Yeah. America. Right,'cause if Hershey's cut him off, Ms would be screwed. He has a big liability there. Now, of course Perseus doesn't want to do that because then they'd lose a whole lot of business. They'd lose their biggest customer. Yeah.

2:20:12 Exactly. And Probably also Knowing Forest was strategic. When he chose

2:20:19 to push Bruce out of the business'cause I believe William Murray had already retired. It would be like Forest to plan all that out to a T. Yeah. Anyway.

2:20:32 Like I said, at this point Forest Empire is Doing call it two hundred million ish. of revenue annually around the world. Chicago Mars had

2:20:41 About fifty of revenue. So forest is call it four times. The size of Chicago Mars. Now when Frank Mars his dad had died The majority of the company went to his second wife, Ethel. It's about two thirds, I think, that she gets, and then there was one third that had gone to random other shareholders over time, many of which were employees, I think.

2:21:02 Yep, I think that's right. And I think maybe Forrest and Patricia got like some small stakes at that point in time. Okay. And Ethel, like we said, installed her half brother William

2:21:12 running the company. Ethel dies in nineteen forty five, and when that happens Her stock gets split. fifty fifty between Patricia and And forest.

2:21:24 Per Franks. original will. Ethel had two thirds. One third goes to Patricia. One third goes to Forest.

2:21:31 As we get on into the nineteen fifties And Forest has now Turned M's into a big success. He starts turning his attention. To Chicago Mars.

2:21:41 So he goes to the board and he says, Hey I own a third of this business. I think I should have an office at the company. And the right

2:21:52 And inspect the operations whenever I want. I think They were like, sure, this seems like an easy demand to give this guy. Like, whatever, we'll make an office for him. There's a fox that wants to hang out in our henhouse. Is there anything anybody sees that's an issue here? Nah, just build'em an office. Clearly they did not know Forest very well because

2:22:11 He shows up. I think he basically like relocates to Chicago and is like coming in every day. He's spending a ton of time. He's criticizing everywhere. He starts writing memos. To the board.

2:22:23 About everything that is wrong at the company. All the big mistakes that William is making as CEO and why William should be fired and Farrest should take over. This is not so different than how Elon ended up owning Twitter. Yeah. Yeah. It actually is very similar. Oh, I'm just a five percent position. Oh, I should be on the board. Oh, I have recommendations. Yeah. Before you know it. This is exactly

2:22:48 The same way. Oh boy. Still though William and Patricia and the rest of the management. Isn't gonna get on board with selling the forest or letting him Take over.

2:23:00 And in fact, in nineteen fifty nine William retires as CEO. Forest figures like okay, great, this is my chance. He starts lobbying Patricia, he's lobbying everyone else. Who owns the company, all the management saying like Great. Sell to me.

2:23:16 Let me take over. Let me run this business. Instead. Patricia decides to install her husband James who had been working in the business as CEO.

2:23:28 Whether he was a good employee or not. He is a totally Totally terrible. CEO. Of Mars, Chicago.

2:23:36 So once he takes over in nineteen fifty nine revenue drops from about fifty million, like we said. to by nineteen sixty three it's down to about forty million. So On the one hand.

2:23:48 Okay, a twenty percent decline. On the other hand, this is a very, very high fixed cost business. Yeah. So a twenty percent decline in revenue on a Significant fixed cost base is Catastrophic. That would be a huge, huge change in the negative direction on your return on total assets.

2:24:06 Yeah. It is a disaster. for the company. Now it's Also a very convenient disaster for Forest, who wants to pressure everybody else into selling and

2:24:17 being able to take things over. So Finally as this is happening in nineteen sixty three. Forest flies to San Diego, where Patricia lives.

2:24:28 Again to give you a sense of James the husband here. He's commuting from San Diego to uh run this business. And they didn't have Zoom then. No, they didn't. And it's a manufacturing business. So yeah. Anyway. Forest finally convinces Patricia to sell.

2:24:43 He says, Like, look, if we don't do something here, this company's gonna go bankrupt. I can save it. I will take it over. I will run it. She says okay. I will finally agree on two conditions. One.

2:24:55 You have to promise me that you will not fire James, my husband. He can remain his CEO, as far as like Oh. Okay.

2:25:03 Are we putting that in writing or for how long? And condition number two. You need to promise me that you will make This company, our father's company. Mars Incorporated.

2:25:15 the new parent company of all of your businesses and preserve our father's legacy. And he says, Sure, done. Which is probably what he wanted. Anyway. Totally.

2:25:25 It's also his name. And so is it that different if left absorbs right or right absorbs left, then if you're the Controlling shareholder of both. No, it doesn't matter. Yes. Not yet.

2:25:35 See you. So Patty sells out. And Nineteen sixty three, Forest now owns two thirds of the business.

2:25:44 He spends the next few months going around to all the other shareholders of the business, again, mostly current and former management. And buying out their shares. And By mid nineteen sixty four, he has full control. Of

2:25:56 Mars Incorporated. Which by the way is twenty years after Ethel dies. That's how long he has been on this quest to get full control of the business. Right. Well, and really, I mean, going back to him leaving for Europe. Like you have to imagine that

2:26:10 This was on his mind the whole time. And Just as a like a side note here. It's pretty insane that Forrest is able to out of his pocket without external financing. Go and buy up.

2:26:23 two thirds of a business that is doing forty million a year in revenue. I mean It's Just because he owns Ms and Uncle Ben's Rice and the UK businesses.

2:26:34 This is not a strategy that most people could run. If they're like, Oh, I wish I was a larger shareholder of this business that is large and dominant. Right. You need some other way to get the money. Yes. Now it was a distressed business at this point, but like yeah, still. I'm gonna guess it's still valued north of forty million. Seems.

2:26:53 Reasonable? He needs to come up with twenty five plus million in cash to pull this all off. Yeah. Amazing. So once he takes control

2:27:02 Comes to Chicago. He immediately Rips out. All the office walls in the building, open floor plan for everybody. He demolishes the executive dining room.

2:27:12 He sells the company art collection and the company helicopter. And he hands everybody, including James. A time card. He may as well have walked in with a sink. He may as well have walked Seriously. Oh my God.

2:27:31 Tragically, later that year, Patty dies of cancer, super young. I don't think she was even fifty years old yet. And once that happens, Forrest fires James and makes himself CEO. Of the entire Empire.

2:27:44 All united. Finally. Under Mars Incorporated. You know, I read this story. And I thought of the Darth Vader quote.

2:27:53 I am altering the deal. Pray I don't alter it any further. Yes. Yes. Uh Now I'm not a hundred percent sure. He may have kept James still employed in the business.

2:28:08 Or something, but Yeah, he was out as CEO. Forrest is the captain now. Yeah. Ha ha.

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2:29:13 So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. Okay, this now brings us to Forest's final conquest, which is making his own chocolate in America and fully Ditching. Herses. And we should say too, at this point, he has

2:29:35 completely overhauled the Chicago factory. They're all in on mass productions. These count lines are moving at They used to make a Snickers bar in a day and now they can do it in under an hour.

2:29:46 I mean he's just Going. He's gone. So His first active business once he becomes

2:29:53 CEO of Mars America. Is he calls Hershey up and he's like Hello? Remember me?

2:30:00 I'm the new CEO of Mars. I just want to let you know that we are going to start phasing out our chocolate purchases from you all. And the way Hershey reacts to this is What? You would be stupid to do that. Imagine how long it would take you Tip.

2:30:13 Pay back the investment necessary. To spin up your own chocolate factory. You would have to be nuts. To take on all that fixed cost. We have literally an entire town here that is dedicated to making chocolate. And we are supplying it to you at a competitive price.

2:30:29 Yep. So The Hershey's team estimates that it'll be at least ten years before Mars turns profitable on This decision to make their own chocolate.

2:30:40 And okay, so let's say he just did it for control and he didn't think the math would pencil, which I don't think is right, but let's assume that. It's been sixty years since they made that decision, so I am sure they have reaped Plenty of benefits in operating leverage. on having their own plant versus needing to pay all those extra little margin dollars here and there to Hershey's. Totally.

2:31:01 So Forest gives His Chicago plant managers a deadline of six months. to start making their own chocolate in the factory. And I suspect they turn profitable on this decision a lot faster. Than ten years out.

2:31:15 But There are obviously other reasons that Forest is doing this too. One is the quality principle, which, you know, I really do think The quality principle is number one in Mars for a reason. And if you really are serious about wanting to produce the highest quality Products at a given price. You kinda need to control

2:31:33 All the means of production. Yourself. Anyone who's serious about software should make their own hardware. Yes.

2:31:39 Yes. Alan Kay for the win. The other reason That I think. Forrest always had the dream of making his own chocolate. Is

2:31:50 To be able to scale as large as possible. Like we've been saying all episode. This man so deeply knew in his bones how to operate in a scale economies. Market. And

2:32:03 By controlling all the production himself, that was just another step that enabled him to scale as big as possible. I think in any CPG business It's a scale economies business.

2:32:15 But here we haven't Talk directly yet. About How important shelf spaces.

2:32:23 Four. Candy. Yes, I was about to bring up supermarkets. Yes. So for candy especially

2:32:31 It really is a zero sum game. Ninety percent nine zero. Of all candy purchases are impulse purchases. Only ten percent of candy purchases are plann purchases. So I found that it was 70% and the place that I found it was from this is flashing forward a little bit, some nineteen seventy nine consumer market research that Mars commissioned.

2:32:55 And what they did with that information. was they launched an all out Initiative to lobby merchants to put candy displays near the cash registers, which didn't happen until that point in history and is now ubiquitous. Ah, interesting. So it may indeed be ninety percent now. In part because of

2:33:13 Those efforts by Mars. Yes. They were like, How do we lean into the idea that seventy percent in nineteen seventy nine Of our candy is purchased on an impulse basis. Wow. I didn't realize that. I thought that candy had always been by the cash registers. It wasn't until this Mars initiative in nineteen seventy nine.

2:33:30 Maybe in smaller shops, but that's I think w especially with supermarkets when that changed. Interesting, interesting. Well, So Given the impulse nature of purchases here.

2:33:42 I mean it really is whatever candy is right in front of your face. Tempting you. To buy is what you're gonna buy. And so being the scale player being able to have the

2:33:55 Muscle with retailers. to push Hershey's and other candy to the Back of the aisle or bottom of the shelf. Makes. All the difference in the world here.

2:34:06 There's Another interaction with supermarkets where the power actually flows the opposite direction. It's sort of an aggregation theory thing. If you think about

2:34:16 The way that Merchants used to work. No one owned a lot of stores. The power was sort of diffuse among retailers.

2:34:27 And so if you were a candy maker and you went to the local store in your town and you said, You want to buy my bar? And they'd say, Sure. And they didn't really have an ability to push back or bargain. They didn't have a lot of leverage. Supermarkets and especially chain supermarkets

2:34:42 made it so there was a power concentration. Where the supermarkets could go to the candy manufacturers and say Here's what we want. We want to market A uniform set.

2:34:52 Of candy. And a small number of SKUs that don't overwhelm us with inventory. And we want you to put A lot of marketing.

2:35:00 Behind those things that we're selling and we're only gonna stock them in the store if you're really doing marketing campaigns. Because television's blowing up. And

2:35:10 We know that that moves product in our stores. So Tell us whatever you're gonna do big campaigns on, and that's the shelf space that's gonna get allotted. Yeah. You're totally right.

2:35:20 It's a shift in technology with TV. It's a shift in consumer behavior with the supermarkets. And what it results in is Massive returns to the scale player. And what's so? Frankly, just kinda sad. Is

2:35:33 With the exception of advertising. Hershey had been Benefiting. from this for its entire life as a company. I mean, this really was Milton Hershey's strategy from the get go.

2:35:44 Lower prices Get distribution. Go nationwide, get shelf space, get placement. Build a big company. He just didn't put his foot on the gas. Exactly. Well and then

2:35:55 after his tenure and after Murray's tenure. The company basically became brain dead for like Three decades. They don't do advertising. They don't have a marketing department. At all. And it's not like, you know, I mean, Hermes doesn't have a marketing department. Like Hershey really didn't have a marketing department. I think it was one of these things where a company internalizes a behavior.

2:36:18 Because it's always been that way. And they say, Well, there's a rule and the rule is we don't do advertising. But that rule was developed in a different time in a different environment where the rule made sense. And now you're sort of senselessly following a religion.

2:36:34 that is no longer relevant in the new world. Yeah. You know, we haven't talked yet about Hershey's ownership structure. So it was and is a public company. But

2:36:44 The controlling interest is Owned by the trust. The management of the trust. became super, super removed from

2:36:53 the realities of the business and the market. And I think that's how. This happened. Make sense. Reflecting back on this period of time, thinking about forest Mars.

2:37:03 This sort of was the moment in world history for the global scale economy's founder to rise. If you think about the early nineteen tens You couldn't Take advantage of economies of scale. In the way that

2:37:18 you sort of can now with the rise of globalization. There are things that would have been non economic before in addressing these small regional markets. but now that you're distributing everywhere. And America is a huge market on its own. Finally.

2:37:33 And beyond that international, you sort of have the potential for this personality type. that forest Mars was to really succeed. And

2:37:43 You can advertise and market and brand nationally for the first time via television. And then in the coming decades internationally. Yeah, it's the rise of the scale economies entrepreneur, I think is sort of a way to summarize it. Yeah.

2:37:57 Totally. So Now that Forrest finally has his own Chocolate making means of production. How do they finally

2:38:07 Knock off Hershey's. Well When Milton introduced the Hershey chocolate bar in nineteen hundred, as we've talked about all episode, he priced it at a nickel. So that everybody even in nineteen hundred could afford it.

2:38:19 The problem, as we've been talking about Hersey's Decades long brain deadness here. They kept the price. Add a nickel. From nineteen hundred.

2:38:29 Until November nineteen sixty nine. What? They never Changed. The price. I didn't realize it was that long.

2:38:38 Almost Seventy years. A hair's width. From seventy years They not once changed the price. Of the chocolate bar.

2:38:48 And which, you know, it was sacrosanct. It was like it's the nickel chocolate bar. It's Melton Hershey's legacy. We can't change the price. So what did they do? How did they manage inflation? They just kept shrinking the bar size. I gotta say, by the way, that five cents in nineteen hundred, just so people get a sense, is twenty three cents in nineteen seventy. So it's a four and a half X. that they sort of have to figure out how to handle.

2:39:10 Yep. So what do they do? Rather than Changing the price. They change the quantity.

2:39:17 They just keep shrinking and shrinking and shrinking. The size of the bar. Consumers are gonna love that. Oh yeah, they're gonna love that. So The original Hershey's bar was one point two five ounces, one and a quarter ounces in nineteen hundred. By the time nineteen sixty nine rolls around, It is

2:39:36 Half the original weight. Then I see you are looking at a Snickers there. How much is a Snickers today? One point eight six. One point eight six. Now That's not all chocolate. A lot of the mass of that is cheaper stuff like peanuts.

2:39:49 But you can see in the consumer's mind, you're like, Wait, I've got this paper thin Hershey's bar that like, yeah, it's a nickel, but Compare that to the big, meaty, satisfying Snickers. This looks ridiculous.

2:40:04 Consumers don't care that the new gets cheaper. Consumers care about I mean truly that is why Snickers is dissatisfied slogan. Consumers care about how much value does it seem like when I bite into this thing and eat it. Yep. So

2:40:18 Finally in nineteen sixty nine, Hershey can hold out no longer. Commodity prices spike. And they make the historic decision to raise the price of the bar. And they think That the way they can

2:40:33 Make this palatable to consumers. is they will also boost the size of the bar back up to the original One and a quarter ounces. So actually economically there's still I don't watch here. Both were about double.

2:40:46 Okay, so it doesn't solve their problem. It's just totally brain dead. The problem is inflation. And I think the thought process probably was Okay, consumers are gonna be outraged when we double the price of the bar after seventy years.

2:41:00 Oh the first time we raise the price of the bar we should Give him some value. So in the second time. This is where not having a marketing department or doing consumer surveys or anything. A way to communicate with customers at all. Yeah. Turns out to be a really big problem. Consumers are just like

2:41:17 What the hell? Hey, you just raised the price. You doubled the price. But B. You have just totally exposed that you have been gaming us for seventy years. I mean this is literally still

2:41:28 A big deal today. So much so that Do you remember the commercial that aired? I think it was during the Super Bowl. From Joe Biden talking about shrinkflation. Oh no.

2:41:40 This is like a presidential thing in our country today where the president is railing against shrinkflation. keeping prices the same and making CPG food smaller. Amazing. Amazing.

2:41:53 So yeah, I believe that people were outraged by it. People We're past. So Forest is like oh man Boy, am I ever glad that I started my own chocolate baking process here. Because he now decides that in response.

2:42:09 He is not only going to increase his advertising and blitz the nation. With. M and Ms and Mars products. He's also gonna increase the size of his bars. While keeping price the same.

2:42:23 And he starts A price in size for With. H. Now interestingly, in response to this

2:42:31 Hershey Counters by actually finally starting to advertise for the first time here in nineteen seventies. The first time in the company's history that they advertise. And surprise, it works great. But because commodity prices are staying high and it's putting pressure on profits

2:42:49 The board. pulls the plug on their advertising. Well because they say like oh profits are down, we can't be spending. So we need to stop. Advertising. So they do two years of advertising. It works great.

2:43:06 But profits are down, so they say nope, we gotta stop that. Unbelievable. And As a result. In nineteen seventy three. The combined Mars, which is all of the legacy Mars Inc. products, Snickers, Milky Way. Three musketeers, et cetera, plus Ms.

2:43:24 Passes all of Hershey. To become the number one candy company in America. There it is. I don't think they ever looked back. Well, Hershey did eventually retake the lead in America from Mars much later.

2:43:39 But Mars is by far the largest candy company globally, like Hershey is basically just in America. And I think Mars' American candy business is about the size of Hershey's American candy business today. I think they're kinda neck and neck. But Mars has everything else too.

2:43:55 Yep. this game that you're talking about, David, of the cat and mouse price war game. would continue and Mars would basically have the advantage every time because Hershey's primary thing they're marketing. is the chocolate bar.

2:44:09 Which is Made of the densest, most expensive thing in the whole process. And Mars just has a durable competitive advantage in that they're selling something to consumers that they value at the same price, but the cost of goods sold is way lower.

2:44:24 I mean it has NuGet. And peanuts. And so what they basically do there's a another time, I think this happens in the early eighties. Where Mars knows that the commodity prices are on the uptick for

2:44:36 Coco? And so it's gonna squeeze everyone's margins, but it's gonna hurt Hershey the most. So what does Mars do? They announced bigger bars at cheaper prices. What can Hershey do? They're just getting boxed in from all angles.

2:44:49 And so this is a sustainable competitive advantage that Mars has selling something that has just lower cost of goods for a equal perception of value to customers. Yeah.

2:45:01 The other thing that Mars Builds up through The same maybe even starting in the sixties, but definitely in the seventies and eighties. is a very Very sophisticated commodities trading.

2:45:12 Department. That Hershey doesn't have. Oh, really? Of course they do, hedging and Of course. Mars style to do this. Obviously it's a private company.

2:45:24 They never report any of this, but Rumors are Things are rumors, but heard it from multiple places. Mars has actually made

2:45:33 Many billions of dollars of profit. From commodity trading. Over the years. So whereas for competitors like Hershey's Commodity.

2:45:42 Spikes in prices are like a big risk and impact to the business. I'm sure Hershey's hedging also. These days they are. But like back in the seventies, eighties. No, they weren't. Mars is actually profiting hugely from market swings in commodity prices.

2:45:56 Well. Total G. Total G. So speaking of This is incredible. Here we are.

2:46:03 Nineteen seventy three. Mars Passes Hershey. The number one. Candy company.

2:46:09 In America. And a pretty surprising twist happens here in Forest's story. Which is the end. He retires. He hangs it up.

2:46:19 He walks away. And concurrently with him. Deciding that's it. This is basically when the company stops communicating with the outside world. So everything we're about to share from here on out is

2:46:30 Short. Is Basically just headlines that happen from news articles. And The company gets way, way, way more private after this.

2:46:38 Yeah. End of nineteen seventy three. He's built up this whole empire. Gone to Europe, built the Europe business, built the pet business, come back to America, built Ms. retaken over

2:46:51 Mars Inc. Battled her, she Beat them at their own game. He gives the company to his three children. A third.

2:47:00 Each to Forest Junior. John Mars and Jackie Mars. And totally walks away. It retires.

2:47:07 At this point. The Empire is doing about eight hundred million in Annual revenue. And uh He's just done.

2:47:15 He no longer owns Any part of it. For the moment. So Forest spends the rest of the decade of the seventies.

2:47:26 In Retirement. His mother, the original Ethyl. Is actually still alive.

2:47:32 And I think he spends a lot of it. With her and taking care of her. And then After you know, call it six, seven years, he's starting to get a little Ficy.

2:47:42 Uh you know, you can't keep an old horse out to pasture here. So in nineteen eighty When Forest is seventy six years old. He decides he's getting back in the game. He is his father's son.

2:47:56 What's he gonna do? He's gonna start a candy company. He's gonna start Another Candy Company. Which he names Ethel M Chocolates.

2:48:06 After his dear mother Ethel. who of course he considers the real Ethel Mars. And Matearch. Yep. The family.

2:48:15 By the way, I ate some Thylm chocolates last night. I I ordered some to prep for this episode. They're great. Delicious. I have never tried any. I Need to get my hands on some. It's extremely different than the rest of Mars products. It's like a

2:48:27 specialty chocolate. Yes. Well, so Forest business plan and starting. is basically to build a competitor to seize.

2:48:35 Oh, that makes sense. He C's just like Warren and Charlie did back in the day that Cs and high end. Chocolate is actually a really

2:48:45 Really good business. And The plan is The way they're gonna compete with Cs is they are going to specialize in liquor filled chocolates. So they'll make

2:48:56 regular non alcoholic chocolates, you know, high end chocolates just like Cs, truffles and the like. But they also will specialize in Alcohol. Filled chocolates. Which were

2:49:07 Going through a moment of popularity here in the go go nineteen eighties. So Forest. As always, decides he's all in. On this.

2:49:17 Liquor filled chocolates are not legal in every state. And Nevada is the epicenter of them. So He moves to Nevada. I did not realize that's why FLM is in Nevada. That's so funny.

2:49:31 That is why Ethel M is located in Henderson, Nevada, which is a suburb just outside of Las Vegas. And Forest? By God. Builds a factory.

2:49:41 They're outside of Las Vegas. builds an apartment directly above the factory and lives in the apartment Above the factory. From which he runs The business.

2:49:53 Guy has one speed and one playbook. And This dude is like in his late seventies. It's a success. Within a couple of years, Th L M is doing a hundred and fifty million dollars in revenue.

2:50:05 Unbelievable. Get out of here. Um Believable. Now, as you said, Ben, it's not competing with Mars in any way, it's competing with Cs. But

2:50:15 The business gets so big and Mars and For his children. decide that they wanna own this business. So in nineteen eighty eight After Forest has been running it for seven, eight years.

2:50:28 Mars acquires Ethylm for an undisclosed amount. I would love to have been a fly on the wall. For those negotiations between Forrest and his children. I mean What's the point of even negotiating? He's already given all of Mars to the kids. So what's he gonna do after the sale completes? Give the new stake to the kids, too?

2:50:49 Unbelievable. It is like the best coda. Ever. Two. The story. So shortly after

2:50:58 The FLM acquisition is when Forrest Junior and John Mars, the brothers who are running Mars now as co CEOs. This is when they give Joelle Brenner. access and the Washington Post access to right. The piece about the company.

2:51:12 But yeah, Ben, as you say, they weren't happy with it and uh they never gave anyone access again. And today their CEO does speak publicly, like does give quotes and statements. They do release press releases. They have a website. They as a company have recognized that times have changed. That consumers

2:51:31 are not willing to go buy a product off the shelf when they know nothing about the company. in this era of people wondering about what is Mars doing with sustainability? And We live in an America in a world right now where diabetes is a massive epidemic, and obviously they make a lot of products that contribute to that. They want to have a voice in that conversation too. And so they

2:51:51 Do say more now. than they used to because they've kinda realized We can't be a fifty billion dollar company that doesn't ever say anything ever. True.

2:52:01 But what they don't do is Allow books to be written about them. Or any sort of in depth piece. No one knows what their balance sheet looks like, including their bankers. I don't produce financial statements for their bankers.

2:52:15 Yeah. And some product stuff that happens in this time in nineteen seventy four. They start producing Skittles in the United States after it becomes a success in the UK. They bring Twix over from the UK, they bring Starburst over, which was Opal Fruits in the UK. Yeah.

2:52:29 Nineteen eighty six, Mars acquires Calcan Foods in Los Angeles. and begins its association in America with dogs, cats, and their owners. They've had the British business for a long time. Calcan dog becomes pedigree, Calcan cat becomes whiskus. Or whiskas? Also in nineteen eighty six, they acquired Dove. Dub bars, dub chocolate.

2:52:51 Yes. They enter the frozen snack business. And then later launched Dove Promises and Dove Chocolate Bars on the brand. So Dove was a ice cream bar company when they bought it. And then they launch the chocolate bars.

2:53:06 And Chocolate pieces after having acquired the company? Which I think works reasonably well. Yeah. I think so.

2:53:12 It's not a huge business for them, but It's their direct Hershey Bar competitor now. of like a direct competitor to kisses and to the chocolate bar. Yeah. The really big story though, I think, of the brother's tenure, and Jackie too, is a third owner of the business, and eventually later she does also work in the business herself.

2:53:29 Is globalization. So during their tenure. by the time they hand the business over to professional management in two thousand one They've grown it from, you know, that eight hundred million when Forest left to twenty billion. in revenue.

2:53:44 And yes, there are all those acquisition and product launches we just talked about. But the big, big thing is going global. The brothers take them to Japan, China, Russia, the Middle East, South America. This is really fun. In nineteen eighty four, they start sponsoring the Olympics and they totally run the Visa playbook. This is when they start unifying all the product brands globally.

2:54:04 Snickers is stickers everywhere. And we can market globally. They really do an amazing job. Yeah. And so the Brothers took it from eight hundred million to twenty billion.

2:54:14 Yes. Over twenty eight years, I believe. Was their tenure? A twenty five X in twenty eight years. It's almost like the Tim Cook story too, where it's the out years of compounding

2:54:24 And the globalization end up making the more recent story numerically far more interesting than the early story. But the early story is where the Maverick is. I mean we told this whole story about

2:54:36 For a senior We're gonna spend ten minutes here on the next generation. And the next generation hundreds of millions to twenty billion dollars yes a year. Incredible. Now that's it.

2:54:48 While globalization was I'm sure a Herculean task and required a lot of vision. And commitment to it from the brothers. It really was outside of the M and A.

2:55:00 was about globalizing all The successful brands that Forest had built. Yeah. So speaking of M and A and uh we're also talking about Cs and Warren and Charlie A minute ago.

2:55:11 In two thousand eight. Mars buys. Wrigley. With the help of Uncle Warren and Uncle Charlie. I love that they come into this story. It's the best. I know.

2:55:22 There's some amazing Quotes from Warren at the time of the deal. One of them's like I've been conducting a seventy year taste test on both Mars and Wrigley and uh they both passed the test. Oh, it's so good.'Cause you know the analysis is actually far deeper than that, but that also totally sells it's Warren's personality. Yeah.

2:55:41 He actually is a really insightful quote in the twenty eleven Berkshire shareholder letter while they were still a Shareholder and Wrigley as a Mars subsidiary. He says quote.

2:55:51 Buy commodities, sell brands has long been a formula for business success. It has produced enormous and sustained profits for Coca-Cola since eighteen eighty six. and Wrigley since eighteen ninety one. It doesn't say this, but like obviously. This is the Mars formula two. Sell commodities by brands.

2:56:11 Uh. Buy commodities, sell brands. Oh, not as an investor. Yeah, not as an investor. Companies that buy raw products and then sell them as a branded product.

2:56:20 Basically. you're allowed to create margin. Yes. the market is giving you the right, consumers are giving you the right to do that. Yes.

2:56:28 It's funny, if you flip it and you say sell commodities buy brands. That's a good mentality for an investment portfolio. Yes, definitely. In fact, I thought that's what he meant. I want to buy this because it's a durable brand. Or house of brands.

2:56:41 Interesting. Yeah, no no, as the operating paradigm for a company. of purchasing raw commodities and selling them as branded products. Right. If you have cocoa beans backed up to one side of your factory and then sticker spars coming out the other, it's a good business. Yeah, you're gonna do good. Interesting. So

2:56:59 It goes down in the middle of the financial crisis. They announce the deal in April two thousand eight. But it closes in October two thousand eight, like right after Lehman. Collapses. Mars buys the Wrigley Company.

2:57:13 For twenty three billion dollars. Which is a twenty eight percent premium to where it was trading that day. Yeah. And even Mars at this point in time. doesn't have twenty three billion of cash on hand. Well, they may have, but they didn't want to use it.

2:57:27 I'm always trying to guess how much through all these points in history I think Mars piles up a lot of cash, but I think they're really conservative in how they decide to deploy it. I mean this is the trade off with Efficiency, freedom. return on total assets as the way that you're gonna manage.

2:57:43 Is you're just gonna be very conservative. And how you run the company. Yeah. But yeah, so Mars pays eleven billion dollars itself. They get five point seven billion dollars in bank debt from Goldman Sachs.

2:57:55 And then Berkshire comes in with the rest of the financing. About six and a half. billion dollars. Total. And four point four billion of that was a loan, and then two point one billion is an investment into the newly created Wrigley subsidiary.

2:58:11 Over time. Wrigley will use the profits from all their businesses. To buy out. Berkshire. And so it must have been negotiated in that Mars had the right over some period of time to buy out that two point one billion dollar equity investment.

2:58:24 Indeed, that is correct. So What happens five years later in twenty thirtine. Mars repurchases the debt portion. of Berkshire's financing. And man.

2:58:38 This God, the financial crisis, like Warren was so good to be investing in such high quality companies. At the interest rates that he got. So the four point four billion in debt. That Berkshire invested.

2:58:51 had an eleven point four five percent interest rate. Oh my God. So during the five years that it was outstanding Berkshire earned two and a half billion dollars. Just in interest. Now, when Mars bought it back in twenty thirteen, that was before the debt matured. So they had to pay Warren

2:59:12 A premium. to buy it back early. They paid A six hundred and eighty million dollar premium. So all told for the four and a half billion dollar debt investment.

2:59:23 Brokshire gets its money back. Plus another call it three point one, three point two. billion just on the dip. Over five years. Over five years. Now The equity portion.

2:59:35 The two point one billion. In twenty sixteen Mars buys out Burkshire. So Buffett. sells Mars his entire stake back

2:59:45 for four point six billion dollars versus the two point one That he originally. Investment. He more than doubled the money in five years on that, in addition to almost doubling the money on the debt. Even better for Warren.

2:59:59 Because that equity that he held was preferred equity, it also had a dividend associated with it. Of which They likely made another billion dollars in dividends on the Preferred equity. It's interesting that they did the bank debt from Goldman Sachs and this dual instrument from

3:00:19 Berkshire. Yeah. Why not go all one or all the other?'Cause you would think they would have the option to. Well I think this

3:00:28 Gets back to the value that Warren and Berkshire always provide, but we're especially providing during the financial crisis. Which is just the reputational Guarantee and solidity.

3:00:41 Oh, you think getting Berkshire was what they used to be able to pull in the bank debt. I bet it helped pull in the bank, Dad. 'Cause I doubt Mars had significant banking relationships going into this'cause they didn't have any debt. No, in fact they classically Never.

3:00:59 do acquisitions with outside banks. They're obsessed with using only their own cash. Yep. And Goldman. was

3:01:07 Berkshire's preferred bank, so probably put Goldman in. The other aspect to this Is The Wrigley shareholders. You had to give confidence to the Wrigley shareholders to vote.

3:01:19 For the deal. Uh Get it done. And so Having Buffett come in.

3:01:24 you know, put his stamp of approval, calm everybody down, even in the midst of all the craziness with Lehman. I suspect there's no way the deal gets done if Berkshire doesn't get involved. That's really interesting. Given what was happening in October two thousand eight. Wow. All told

3:01:41 Berkshire puts in six and a half billion and about doubles its money. In the whole eight years. So five years on the debt and then another few years on the Equity. How much did Goldman make on the deal?

3:01:55 I doubt that much. Right. Definitely. Berkshire got some sort of premium for m using their reputation in this deal.

3:02:02 Yeah. Now interestingly. We didn't dive super deep on Wrigley as a company, but Is a very good business. Probably I'm guessing even better than the candy business.

3:02:12 Because gum I believe Is Mostly A petroleum byproduct?

3:02:20 Is it really? Yeah. So for a long time, I don't know if this is still true. Goodyear, the tire company, was one of Wrigley's major suppliers. And it was like unused byproducts from Petroleum. that if you can brand that and sell it to consumers, you're gonna have pretty good margins. So

3:02:38 Wrigley, I went back and looked at their old ten K's before Mars acquired them. They had about fifty percent gross margins. And twenty percent net income margins. in the last, you know, sort of decade of the company. Pretty good for a business like that.

3:02:53 Not bad. Not That at all. They also owned uh mints like uh Altoids and Lifesavers. That's the other big part of the business. Right.

3:03:02 If chocolate is a expensive product to make Gum is a not expensive product to me. Yeah. Okay, other things that happened in the two thousands, they bought a significant stake in the Banfield Pet Hospital chain. Which is the largest

3:03:20 chain of pet hospitals in America. And was started in partnership with Pet Smart. That's right,'cause most of them are actually in PetSmarts. Yes, that partnership is now ended and Mars now owns Banfield outright, a hundred percent.

3:03:36 And I believe in two thousand seven they took a large stake. And then in twenty fifteen they fully bought out Pet Smart for a hundred percent ownership. That's interesting. It is worth noting. We did some sleight of hand there. That's a completely different business.

3:03:49 Pet hospitals then Dog food. Related. In pet care. You can use

3:03:56 The Pet hospitals as channel for your dog food. But Very different. type of operation that needs to be performed. Yeah.

3:04:05 This really is the big story about Mars of the last ten years. So after they fully acquired Banfield in twenty seventeen, they acquired V CA. Which is even bigger, right? Yes, they were the largest independent vet hospital operator in America.

3:04:22 for nine billion dollars. So like a large acquisition. And Ben, like you say, you know There's two interesting Things. about getting into this business.

3:04:32 One. It's a super different business. We're talking about a services business. Like this is not manufacturing. Yep. So very, very, very different DNA. I think A big part of the strategy though, like you said, about

3:04:46 distribution of pet food. In Two thousand two Mars had bought A French pet food company called Royal Caden, or I've also heard it pronounced Royal Canine.

3:04:58 Mm. And Roy Canine makes prescription. Pet food. Like especially for like an aging dog or a mobility challenge dog.

3:05:08 And As Dogs became more and more family members and people started caring for them more and more like humans, prescription pet food became a really, really big business. So I think Royal Cain was like a

3:05:22 Grand Slam acquisition. For the company. And I think that's partially what led them to then get involved with Banfield and B CA of like, Oh, well Let's consolidate a lot of the distribution and value chain here in this

3:05:37 Prescription pet food business. Pretty interesting. I mean, it's a very different business, but they run so decentralized. That It's

3:05:45 probably okay that it's a services business and you're not having people who are making candy trying to run A veterinary clinic. Yeah, it's a pretty small head office. And it's a very decentralized operation. I think the decision making authority really rests with the board still.

3:06:01 But these independent operating groups are independent operating groups. Yep. I'll pull a playbook theme. Forward, which is that this company

3:06:11 Obviously. grows through inorganic acquisitions. So in buying Wrigley, Royal Kanan, VCA, all these Mars itself. Mars itself. They've kind of overpaid.

3:06:22 On a Price to earnings basis. I mean, Wrigley was a thirty five X and a twenty seven percent premium over the public valuation. Royal Canin was a Thirty nine X. But

3:06:33 If you kinda think about Especially with Banfield Pets hospitals. They really understood what they were buying. So they were able to underwrite better than anyone else. And I think this is very similar to the idea that Ho Nam shared with us way back in our twenty twenty one episode.

3:06:49 Which is multiples are kind of a blunt instrument used for valuation when you don't actually deeply know and understand the business. And when you do You can just underwrite better than everyone else, and you have more margin of safety in the price that you are willing to pay than the rest of the market does. So when they want to come in over the top

3:07:07 at a thirty five X for Wrigley. Maybe they know more about Wrigley than other bidders do. Interesting. Yeah. Or at least the case on Banfield was we've owned pieces of this business over and over. And so now that we've amassed a minority share. We feel good about buying a majority share.

3:07:22 Yep. I totally buy it. Arvin from Worldly Partners had a good comment to me about this that they shoot bullets not cannonballs. And when you sort of see that in an acquisition strategy. You should be

3:07:33 careful not to judge too harshly when people overpay for things because they're taking these little baby steps to try and understand first and maybe they know something you don't. Yep. Speaking of They ran this playbook. Again.

3:07:46 with their most recently completed Big acquisition. Yes, five billion dollars in twenty twenty after Buying a small piece of it a few years earlier and then

3:07:59 buying the rest of it in twenty twenty. I didn't realize how big kind of Kind was doing one and a half billion in revenue. I believe almost completely domestically in America.

3:08:10 Yeah, and Mars took it global. And Mars took it global. Yeah. So I think that has been a big success for the company as well. Do you know how they grew so big domestically? Ooh, I don't. Starbucks. Ah makes sense. Check out counters at Starbucks. Impulse purchase. There you go. There you go. And it fits with Starbucks brand ethos. It's like healthy.

3:08:28 Honestly, I eat them all the time. It's a five gram of sugar bar that's super satisfying that doesn't leave my teeth feeling gross or make me feel like I Eat something with a bunch of unnatural ingredients. I know it's still a candy bar, but it's a five gram of sugar candy bar. So I I think as far as Mars thinking about

3:08:44 Geez, we want some sort of diversification hedge if people Stop. Eating candy bars. They're on a good trend there. Which leads us

3:08:52 Two The final piece of the story Maybe? Which is the biggest deal that the company has ever done. Yep. Or is attempting to do. So in August, Mars announced that they have entered a definitive agreement with Kelnova.

3:09:09 to purchase the company for thirty five point nine billion dollars. So what is Celinova? Right. Yeah, as we were researching this and getting into this, I was like Mars is paying thirty six billion dollars. What is Calinova? It's like Mondelez. You're like, Oh, what's Mondelez? That sounds interesting and foreign. And you're like, Oh, it's craft. It's like a weird corner of craft. Yeah.

3:09:29 Celanova. Do I have this right is Kellogg's Minus the American cereal business. That is correct. So it's all the snack businesses.

3:09:39 and international cereal. So the snacks are like Rice crispy treats, Pringles, eggs, Pop Tarts, R X bar, which is gonna be interesting if they'll own R X bar and Kind Bar. It is the largest CPG transaction since the merger between Kraft and Heinz in twenty fifteen. And so Another

3:09:58 Berkshire Hathaway Special. I mean if you think about it. The family is worth a hundred and seventeen billion today. Which essentially means the company's worth a hundred and seventeen billion. Which is kind of interesting. It's a fifty billion dollar company that

3:10:11 At least Forbes, I think it's Forbes, pegs it at one hundred and seventeen billion of enterprise value. Of course there's no market to buy these shares, so who knows how to value it really. Right. And when you say fift billion dollar company, that's their annual revenue.

3:10:24 Annual revenue. Yep. So they have started reporting in recent years, or at least Alluding to What the top line revenue number is. Yes, that's correct. They're gonna get a lot bigger, I guess is the takeaway from this. If they're worth 117 billion now.

3:10:38 And they're using a bunch of their cash and presumably some outside leverage. We'll have to see. for a thirty five point nine billion dollar acquisition. That's a big size up. That is Transformative.

3:10:51 Yes. It also basically makes Yeah. Which Nestle has been the real competition for Years now?

3:11:01 And Nestle's huge. They're over a hundred billion dollars in revenue and they're extremely diversified. Extremely diversified. Yes. Which obviously again, Mars has always been diversified, but Nowhere near the extent that Nestle is and now with the Kelanova acquisition, they're gonna look a lot more Like Nestle.

3:11:19 And Mars is gonna be selling uh I just looked it up, investment grade bonds to help with its plann sale of Celinova. So they are raising some outside capital for that, not just using their cash. Interesting. Interesting. So that brings us to today. David, we were just talking about it in twenty twenty-one, they did forty five billion in revenue, twenty twenty two was forty seven, twenty twenty-three was fifty, and to your point, they're now saying over fifty. Here's the interesting thing that we have been hiding from listeners the whole episode, and I know you've been dying to say.

3:11:50 Mars snacking. eighteen billion dollars in revenue. That is a segment of their business that includes all the candy. So we've told this whole story all about The smaller piece of the business. You'll notice eighteen.

3:12:06 is not only a smaller number than fifty, it's less than half of fifty. Yeah. Pet care is actually the bigger business. Fifty nine percent of revenue comes from the pet care segment. And of their hundred and forty thousand employees, almost a hundred thousand work in pet care.

3:12:22 Ciao. Of course. Services business. They own Thousands of hospitals. Yep. So we don't know the margin

3:12:29 Of the Pet hospitals versus the dog food versus the candy. specifically about Mars, we can probably look at industry comparables to try to understand that. But At least on a top line basis and an employee basis.

3:12:41 Pet care is the dominant component of this business. If you want a little bit of a hint. The new CEO in twenty twenty two came from their pet care division. In many ways, they are a pet food company that also makes candy. And always has been.

3:12:58 I mean if you look back, it was the year after Forest Mars founded the UK division. is when they bought the first dog food, which was almost immediately cash generative. Totally. That's like the biggest aha moment to me is they've been doing this the whole time. Other than the veterinary services. That is again new.

3:13:16 So you might be wondering, well, how significant Of the market of vets do they own. Mars owns three thousand locations out of thirty-five to forty thousand vets in the US. So that's like eight percent. of vets. They're not just

3:13:31 Exploring that there are I don't know, the largest or one of the few largest player in vets in the entire country. I think they are the largest. There are other vet roll up plays. It's been a darling of search funds and private equity, uh, in the last decade is Veterinary roll ups, dental roll ups, you know, stuff like that. Yeah.

3:13:51 Looking at the market, at least in the US Mars and Hershey each have about twenty four percent market share of candy and confections. And no one else even comes close. It's the Hershey and Mars show here domestically. internationally, it's kind of a different story.

3:14:07 It is a very fragmented industry. Mars is the whale. with eleven percent. But the next highest are seven percent and five percent. And only a third of the market is made up by the top five companies: Mars, Mondelez, Ferrero, Hershey, and Nestle. So two thirds of international

3:14:25 Candy and confections. is made up by smaller companies. And that is even after all these mergers from the last few decades. So there's still this huge international long tail of candy companies. Wow. 'Cause there's already been huge consolidation. Yeah.

3:14:40 So that is the shape of the business today. You've got a pet business masquerading as a uh candy business. And uh we continued to Perpetrate that narrative. Yes. Yeah, obviously the pet business, huge, bigger in revenue and

3:14:56 I'm sure very, very large and Profits as well. I don't know, I'm just purely speculating, but I suspect Profit contribution wise.

3:15:05 They're at least equal, if not bigger on the candy side. Oh maybe. I could be totally wrong. I don't know. I don't know the economics of Pet hospitals. Yeah.

3:15:15 I would love to know that. If your last name is Mars, please reach out. Or join us in the Slack. Acquire dot Fm slash Slack. We'd love to hear from you. Yeah. Power?

3:15:24 Power. So this is segment we do in analysis in every episode based on Hamilton Helmer's excellent Seven powers. And framework. And the idea is that there are seven ways that a business can sustainably generate significantly more profit.

3:15:41 than its closest competitors. And there's seven. Ways are through counter positioning, scale economies. Network economies, switching costs. Process power branding.

3:15:51 And Cornered. Resources. We have spent a lot of this episode talking about the biggest and most obvious one here. In

3:15:59 Scale economies. Actually I like a lot of the businesses we study on this show. scale economies is the biggest deal. It is actually kind of crazy. It's almost always scale economies is a big part of it. I think for the biggest businesses in the world.

3:16:12 It's these businesses that operate at high gross margin. In very large markets. where you basically can build out a massive, massive fixed cost base. And then have great operating leverage. Can you amortize

3:16:27 Your high margin sales. in huge volume across a comparatively small fixed cost base. Manufacturing businesses are like that, software businesses are like that. Cloud computing is like that. Exactly.

3:16:41 And the businesses that get the biggest intend to benefit from this principle. Totally. Okay. Scale economies, check. Done.

3:16:48 So there's a thing I wanna bring up with you, and this has been a debate in the acquired Slack. I don't know if you've seen it at all, around branding. Mm. So the classic definition of branding, and I need to reread Seven Powers to refresh myself on this, but The idea is if I show you Two products side by side that are identical, but one is branded. Will you pay me more money?

3:17:10 For the one with the better brand, you know, the Tiffany ring versus the unbranded ring. Yeah. I think there's another way that branding shows up. Hm.

3:17:20 Okay. We said That IKEA doesn't have brand power last episode. That's obviously not true. It might be technically true in that they don't

3:17:31 Take margin because of their but They have to deploy their brand power in another way. In the same way that Mars I don't think charges more for a snickers.

3:17:41 than a different candy bar. Mars doesn't Take price in the form of brand. But they do something else. There's brand power here for sure. Consumers pick Snickers over unbranded random, unsafe, untrusted candy bar.

3:17:54 Definitely. I think it's gotta be a version of uh our Costco episode. Scale economy shared. Brand power shared. There was someone in the Slack that pointed out Got. this brand power could translate to volume. Essentially, if you trust the brand more and the prices are the same, you just buy more of it over time. So you give more absolute margin dollars to that company.

3:18:16 over time, especially in a recurring purchase business like this. That's the way that brand power accrues. It's not in margin percentage, it's in total lifetime margin dollars. I totally buy that.

3:18:29 So by that definition, they absolutely have branding. Yep. I've got one I wanna talk about. I'm curious if Any of the other set jump off the page to you.

3:18:39 Hm. I think The candy industry used to have cornered resources. I don't really think it does anymore. Same with process power. I'm not convinced that anyone's actually developed a superior

3:18:50 way to make something that is not known. By others in the industry. I think Mars has always had the best technology and the best equipment and the best resources. There's actually great stories about Forrest, perhaps both himself, but also through employees and outside firms he'd hire would come up with all these technical improvements too.

3:19:10 the manufacturing equipment, but they would never patent it because he didn't want to tip off any competitors. Makes total sense. Keep it trade secret. Yep, totally. Uh no, none of the others jump off the page to me. So Obviously We did not do a deep dive on the pet business.

3:19:24 Despite it being the larger business. I think though The main power in the pet business is switching costs. Oh, if your dog doesn't have problems with its current food, you're never changing to another food.

3:19:37 Yes. Well, there's a couple dimensions. One You're never gonna change to another food because it's gonna cause digestive issues for a while. Like imagine if you only ate one food for years and years of your life. And then all of a sudden you started eating. What are we doing? We should be feeding'em table scraps so they get a well rounded diet. Just like the thirties. Exactly. Exactly.

3:19:57 I mean, I It happens. Dogs switch food all the time, but it's not like humans choosing to eat something else. It's a process. Right. But then Pet hospitals, like that's like huge, huge switching costs. So I actually think this is like the primary power in the business on the pet side.

3:20:15 Yeah, I think that's right. Okay. That's power. Should we do playbook? Yes. The first one that I have.

3:20:22 Is that you actually can build A durable, sustainable business. through great marketing. Not just great product.

3:20:30 And This makes me uncomfortable. as someone who kind of doesn't want to believe that, who always believes the best product wins. I mean on the meta episode, the takeaway was their growth came from product and not from marketing. On this episode I kinda feel like it's the opposite.

3:20:45 The whole thing is the story of marketing campaigns and how Whoever had the better message for America. At that moment. I mean at least Post nineteen sixty.

3:20:57 was able to lean on that. After the advent of television. Yeah. And of course paired with distribution, paired with grocery stores, paired with Actually, let's talk about the E T thing. Yes. Let's talk about the E T thing.

3:21:12 This is really fun. So And the Late nineteen seventies, early nineteen eighties, when Spielberg is making E T.

3:21:22 The movie E. T. He's written into the script. that E. T. is gonna be lured into the house by a trail of Ms. And anybody who remembers the details of the movie remembers that it is not. M.

3:21:36 And M's passed on the opportunity because it had to come with a guaranteed million dollars of co marketing, consumer promotion, trade promotions, displays. featuring E.T. Mars was not down to do that with the M's characters and passed on the opportunity. If you saw the movie There's a

3:21:56 Pretty memorable moment. Where it's Reese's pieces. Yeah. This was relatively early in the brother's tenure. So I wonder

3:22:06 A if Forest would have made a different decision. And also B if the brothers would have made a different decision had they had a little more confidence in Their owners. Security in their own place as CEOs.

3:22:19 So I think there was a timing element to this. Hershey almost passed too. Someone had to basically go bang down the door and say, I'll actually pledge a million dollars from my budget that I was going to use for other stuff to use for this instead. So the Hershey leadership was also going to pass on it. Yeah, I mean this was one of if not the biggest Deal up until this point for product placement. Yeah. It was a paradigm setting deal. And it worked.

3:22:43 In a huge way. multiple sources cite that It three X'd the sales of Reese's pieces. When this came out. And Reese's PCs, they launched it a year before. It had done well initially. It kind of fell off, and then they were trying to use this to

3:22:56 Hey, maybe we can galvanize sales. And I think it tripled Reese's piece of sales for a while and then it ultimately Everyone knows R species are not Ms. They're good, but they're never gonna be competitive with Ms. But At least in my experience, I haven't been to a movie theater much lately, but

3:23:12 I believe there is a lasting legacy of this, which is Reese's PCs are a mainstay at movie theater concession stands. And it's all because of this. Totally. So Maybe the takeaway is actually

3:23:26 Ms are a better product. And Resus pieces are sort of this specialty niche product, and that's why they don't have the market share. And maybe that this whole postulate is wrong that marketing can create durable brands and the reason why all these snickers and Milky Way and M's. are victorious is because they're just better products.

3:23:45 Well, I think they're good products, but I think it's like the nostalgia element is just so huge. Right, they're somewhat commodity products or could have been either product. And then it was about who could create a better lifetime story over the story of your life about the associations you have with that product. Yep. I think the candy industry is much like the luxury industry in that Once you have an established product

3:24:07 And product brand. It is impossible to kill it. You just can't. I mean All the fumbles that Hershey had for decades and decades still today. What is a chocolate bar in America? It's a Hershey bar.

3:24:21 You just can't kill it. That's so true. And let's flip back to the Mars side of the world. the associations that they have leaned into with the brand that people love. It's a very Disney like playbook.

3:24:34 That Ms has run. In fact They operate a M store. In Disney World or in Disneyland. I can't remember which one.

3:24:42 But they associate with the holidays. They've got that commercial where the two M characters come in the house, Santa's just come down the chimney, they run into them at the Christmas tree. They do exist. So great. I mean it's a classic. They've run it every year for Twenty years or something? I think it started in the nineties. Yeah. the rolling stones they've associated with for Snickers. They had the I can't get no satisfaction.

3:25:06 Bad. obviously the Olympics. I mean I'm looking at my Snickers bar right now. The only other logo on it that is not Snickers. Is the NFL.

3:25:15 I mean they find ways to associate with national or global premier brands. That everyone loves that you have nostalgia for. In fact NA, they went up on I think it was the space shuttle. NASA can't obviously endorse because it's a government agency, but

3:25:31 It's on the menu and it's a part of all the astronaut videos you watch where they're popping M's up and having fun trying to chase them around the cabin in zero gravity. It's been a strategy. for Mars to chase known, loved universal brands. Well.

3:25:49 Sounds like we've learned a lot here at Acquired from the Mars playbook. Yeah. Another one, just like the innovation on commercials. Think about how long they've had those computer generated M characters. I looked it up. The first one I could find was in nineteen ninety four.

3:26:05 Jurassic Park was in ninety three. And that was effectively the first use of computer generated three D modeling in cinema. That's right. Within one year they were running commercials with those characters. Yeah. Wow.

3:26:19 They know how to create these durable marketing franchises and moments. In some ways it's actually shocking that they missed E T. given how good they've been

3:26:30 in all these other facets. And ultimately the E T thing's a fun story. But Did missing it really hurt them? Not really. Not in the long run. No.

3:26:39 My last one around this is in this sort of marketing world. Do you remember in nineteen ninety five when they said they were gonna do away with the tan Eminems? Yes. Do you remember anything about that? Is that when they were replacing it when there was a vote, right, of which color to replace it with and blue won. Absolutely.

3:26:59 Genius. Total genius. They needed to spice it up because Basically it was boring. And does it cost them anything or does it have any impact on their business if they change the color of one to something else? No. Do they actually care what it is? No. But

3:27:13 They got millions and millions of Americans. to call one eight hundred fun color, which by the way, I called yesterday. Oh amazing. Is no longer in service. You call one eight hundred fun caller to vote. So they're giving everyone this like vested interest in what the new color is. Blue winds.

3:27:32 Blu replaces tan. They lit up the Empire State Building after announcing it was blue. With blue. Genius. So great. This is like the Facebook internationalization where they have

3:27:45 local people in each market translate and then they feel ownership over the product. Yeah yes. Totally. All right, that's all I got on their consumer marketing. I'm sure you read too, Mars is constantly rebalancing the ratios of colors in M M bags to suit

3:28:01 Current tastes. Yes. It's amazing. Yeah, it's not even. I was shocked. I was like looking at the bag trying to I'm not gonna go count, but Apparently it's a secret what the ratios are. But I think they're adjusting it constantly.

3:28:14 Interesting. I believe that. Okay. Next one I've got is be a recession proof business. I thought

3:28:22 Candy was the one I was talking about, and the deeper I got into the research I realized nope. Pet pet food is one too. People don't stop buying candy when times are bad, and they certainly don't stop feeding their pets, especially now in this era where we consider pets part of our families. And I think the data shows it if you look back at two thousand and eight. Neither of their businesses took a hit from being in that recession. And that's an awesome business to be in if you can get it. Yeah.

3:28:45 A corollary to being recession proof is being universal. A survey done by the Food Institute says that ninety-eight percent of households buy candy every year. And of those Ninety seven percent are reoccurring purchases at an average of thirty five times a year. Wow.

3:29:04 Again, good, good business if you can get it. It's just like our Starbucks episode too. Sugar is an addictive habit, so All the research. I don't know. It seems like sugar is way worse for our bodies than coffee. I'm not at all worried that I'm addicted to coffee. I'm pretty worried that I am addicted to sugar. In fact I feel pretty crappy after eating all these Ms and stickers. I probably ate more than a recommended amount'cause we've been sitting here for five and a half hours doing this, but

3:29:28 That's probably the most concerning thing about the whole business is they're extremely participatory In the increase of sugar consumption among Americans and around the world. And that it's very good for their business, at least their original core business, if we eat more sugar. So I can see why they're diversify away from those core franchises. Into kind and

3:29:49 Celanova, et cetera, et cetera. Yep. More kind bars are uh in my future. Maybe some detox tomorrow. All that said. No matter what happens, I don't think.

3:29:59 Mm. They're not going anywhere. Even if everyone starts taking Ozempic. I don't actually think chocolate sales are gonna fall. In fact, all the numbers show to this point. Everybody who's been

3:30:10 Saying Oh, people are trying to eat healthier and they're doing their very best and they're changing their habits. Chocolate revenues are still at an all time high. Yep. I think this is a good place here in Playbook. There are a couple things about chocolate that I want to talk about that are more general than specific to Mars.

3:30:25 One is just that. Chocolate. I'm sort of biased here because I love chocolate. Me too, same. I loved doing this episode'cause I love learning about chocolate. It really is a food. Part of that is marketing and part of that is a hundred years of Mars marketing and Hershey's marketing and all that, but Really, really, when you were describing

3:30:43 the production process of chocolate. earlier in the episode. Like it is one of the most complex rich foods on the planet. When Milton Hershey shut down and got out of the Carmel's business He thought Carmel's is a fad.

3:30:57 But chocolate is a complete food. Chocolate is a food. Exactly. And like he was Totally right. I don't think chocolate is going. Anywhere and the Zempic Risk. For chocolate is

3:31:08 Way lower lower than like gummy candies. The other aspect about chocolate though, and I think Here is the right place to talk about it. Is The industry and what chocolate is

3:31:19 is changing hugely. I think most people have no idea about this, but Both the first and second order effects of climate change are like Massively, massively changing. The chocolate industry. The cacao tree

3:31:34 Is a very, very sensitive. Tree. It's just Bizarre plant. I don't think we talked about this earlier, but the pods, the fruit That have the

3:31:44 Seeds and beans in them. It grows directly on the trunk of the tree. There's no like branches. It's the weirdest thing to look at. It's like these football size pods that just go right off the trunk of the tree. Yeah, and that's something like only twenty five years of their full hundred and something year life, they actually can produce

3:32:02 The fruit in a way where you can use it to make chocolate. Yeah. So it's this super, super long lead time. To get a tree to the point where it's productive and it's a really narrow Temperature and climate band that they can be.

3:32:16 Grown in. So As both World. consumption and thus production of chocolate has increased hugely over the

3:32:25 Past decades. And climate change is happening. These trees are so sensitive to it. Like it's really impacted. Production. That's the first order effect on the industry.

3:32:36 So arguably as bigger bigger is the second order effect of how the industry has responded. So There's been huge efforts. Over the last Yeah.

3:32:46 in genetic engineering and hybridization and breeding. of cacao trees to optimize for resiliency. And output and production. All of which is Good, you know, ensuring continued production of chocolate. As long as it doesn't come at the expense of taste.

3:33:02 Right, so that's the downside. It has not been optimizing for taste, either preservation of the current taste or just Good taste in general. So like actually The taste of chocolate has changed a lot in the last few years, as the plants themselves have.

3:33:20 been engineered and changed a lot. To be more resilient and productive. Yep. Exactly. So a lot of the real, real richness and complexity. That has for thousands of years made chocolate like a super attractive

3:33:35 Food for humans. is sort of in danger being lost or being watered down. I will say the industry is very focused. This is like a Existential

3:33:46 Super, super important focus. Of Mars in the entire chocolate industry. Yeah, that is the correct takeaway. Whenever you talk to people in the industry, this is what they're talking about. Yeah. Alright, I have got

3:33:58 A couple more. The first one is conglomeration and doing it well. They very early on learned how to acquire and conglomerate. How to do acquisitions, which parts to centralize.

3:34:11 Spoiler alert, very few. Which parts to decentralize, actually most of them. when you are running two completely different businesses and running two completely different geographies from the first five years of your company's existence. you end up actually developing the muscle to do this well. And so I think it's very different than these companies that later in life are like we're gonna get into XYZ.

3:34:32 Mars always has been a diversified conglomerate. And They actually look a lot like LVMH in that They aren't a private equity firm. They're a buy and hold. Yep. I think they've made thirty acquisition since the nineties.

3:34:47 And they've only sold two things since twenty fifteen. It's very Bernard Arnaud style. They also don't rebrand things. They keep

3:34:58 The pet hospital business. Yeah, that's super interesting. You think of Anywhere where you would want to centralize the brand is like no. VCA, Banfield, separate. Yeah, it's super true. And then my last one is duration. If you look at them over the last hundred years, they have grown revenue.

3:35:14 at a compound annual growth rate of fourteen percent for a century. Pretty good. The question sort of comes back to What conditions enable a business? To grow.

3:35:26 Like that. For that long. It's global applicability. It's the margin structure you're talking about, where you can take in commodities and spit out brands.

3:35:35 It's the operational efficiency of doing it. It's the reoccurring purchase. That has uh habitual, if not addictive component to it. It's the scale economies of being able to

3:35:48 Achieve and maintain. Number one dominant market share over Many decade long periods. Yeah. It's pretty amazing that those things come together in a way that make it possible to grow at fourteen percent for a century.

3:36:01 If executed well. Wow. All right, David, we are into the quintessence. Quintessence. Listeners, this is a new thing that we added as we tried to figure out how do we land the plane? What is the big takeaway? That we can't

3:36:14 Stop thinking about After talking through the whole story of the episode. Okay. I'll go first. Couple things about this company. One

3:36:24 Man, Forrest Senior was such a freaking G. And because the company is so private, like nobody knows about him. You know, like, but he should be right up there. With Sam Walton. Henry Ford. With The very, very

3:36:39 greatest American entrepreneurs of all time. He was truly a genius. I think probably had a lot of complications and faults in his personal life. Which is the same thing as basically everyone we cover on this show. Rockefeller, all of them. Yes. But when it comes Two business and entrepreneurial Leadership.

3:36:57 He's one of the greatest. Yeah. For sure. Okay. So that's one. That's not necessarily the quintessence of the company. But I feel like we need to say that just'cause it's not like a widely accepted fact.

3:37:09 Totally. Two though. You know, we have not yet studied Coca Cola. We haven't studied Procter and Gamble, so With the caveat that those companies and ones like them probably also fit this bill.

3:37:21 I think Mars is one of the first. Modern companies. Hm. That's interesting. You know, everything that Forest was doing. back in the thirties when he was starting were like radical And now are just completely widely

3:37:36 Accepted. Yeah. Everything from Open office structures to Diversification to getting into pet food to seeing that dogs and cats were going to become part of families. Maximizing yield on equipment for efficiency. Maximizing yield operating

3:37:52 managing companies in a scientific way. Getting into television advertising. You know, all of it. He was like really, really visionary on this stuff. In an era where None of his competitors were doing this. I mean, God, the market research and the positioning that they did with MMs, taking what essentially was a failed product.

3:38:12 And then doing the research to understand who the target consumers were and who the target buyers were and how that was different. And then tailoring marketing messages Appropriately for that. Way, way, way ahead of its time. Yep.

3:38:27 You're so right. funny that leads me All to My quintessence of this episode. Is

3:38:35 How path dependent. the outcome was. Mm. And what I mean by that is Could you do all of the things

3:38:45 That forest Mars did. to create a company like this today. No, you could not. It required

3:38:52 that place in that time with that technology and that competitive set. And this is probably true across all episodes, but it just strikes me in the face right now. That he needed to have the chip on his shoulder from the relationship. With his dad.

3:39:06 He needed the assets. That he got from his dad when he went to Europe. Yep. Oh, even before that. I mean He wouldn't have gone to Yale if it weren't for his dad finally becoming somewhat wealthy. And if he hadn't gone to Yale.

3:39:19 He wouldn't have gotten exposed to the DuPonts. Yeah, so many path dependencies here. Right. he happened to be a American capitalist competing against British Quaker.

3:39:32 and British Quaker inspired competitors. industrialization and mechanization, the timing of television and commercials and grocery stores when it did. All these were brilliant decisions executed within the context of his time. but you needed to be in that time in that place in that specific situation in order to pull any of this off. So the question is, how do you do this today? with a completely different playbook.

3:39:54 Yeah. You don't. You build your own company. Because all of the great companies that we study Are their own companies?

3:40:00 Yep. Exactly right. Love it. All right. Before we get to carve outs, I have one piece of trivia for you.

3:40:06 Ooh, I love trivia. So you mentioned that the Hershey Trust. is responsible for maintaining the Milton Hershey School, which started as a school for orphans and now is a school for students that come from low income families or sort of need a home or, you know, just need a benefit from what the school provides.

3:40:26 David, how big is the endowment? of the Milton Hershey school. I think it is by far the largest endowment of a secondary school in America and assuredly the world. Yes.

3:40:38 I wanna say it's like ten or fifteen billion. Yep, seventeen point four billion dollars. Yeah. For a high school. Well, it's some younger than that, but the enrollment Of the school.

3:40:51 is twenty two hundred students. And so the Endowment dollars per student, I assume, are the absolute highest anywhere in the world. It is totally incredible. I mean We debated

3:41:02 When we first set out. to do this episode, whether it should be about Mars or Hershey. We ultimately decided Mars because these days it's the bigger and more important company. But the Hershey story is freaking wild. Milton Hershey gave the whole company to the Hershey Trust. Yeah. Which operated a school for orphans.

3:41:19 Like a high school. For orphans. That owns the company. The primary shareholder has a primary purpose that is maintain the school.

3:41:26 Right. It is a very specific mission. to support this school. They have a hard time spending all the money. I mean they're never gonna get close to actually spending the endowment dollars or have any risk of spending the endowment dollars. Just think about what four percent of seventeen billion is a year and think about what the required budget is to run a twenty two hundred person school. Yeah, totally wild.

3:41:46 Limit. Okay. Carve outs. I got three. One we've already talked about.

3:41:51 Dandelion chocolate. These people are the best. The factory is so freaking cool and the chocolate is absolutely amazing. They are a part of the bean to bar movement. So they source

3:42:03 Beans. That are Not commodity beans. They specifically source single origin beans. They go the extra mile to you know, remove any imperfections.

3:42:12 And then in a very craft way, they make some of the best chocolate you've ever tasted. It really is Like the wine industry. Yeah, I think I speak for you two. We're both very grateful to Todd, Elaine and the team there for Just kinda taking us through it all and explaining how chocolate is made. It was very cool. So

3:42:30 If you're looking for any late holiday gifts or Just any good chocolate. I can't recommend Dandelion enough. Ah, well You stole one of my carve outs. Dandelion was one of my carve outs. But specifically the Dandelion advent calendar. Didn't you buy that for Jenny? Which. Thanks to our relationship with the company. Yes, I got the opportunity to buy about the double so that Jetty and I can both enjoy every night. Oh my God.

3:42:53 This is the single greatest advent calendar that has ever been created in the history of mankind. The artwork, the design, the presentation, it's like This is if Hermes made an advent calendar. with all of the presentation and the objectness to like every

3:43:10 There is an ornament that can go on the tree. It's so great. And then the chocolate inside. they partnered with chocolateers all over the country, I think maybe even internationally, all over the world. Two. Just highlight some of the very best.

3:43:23 talent in the chocolate making industry. Globally. Anyway, amazing. Dandelion. They're so great. All right. My second one, I think a while ago I mentioned I got a Tesla model Y.

3:43:34 Which is just an awesome car. It's just great. Went out the other day, noticed that there was a bolt sticking through the tire that we had driven over and the tire was flat. I opened up the app and within ninety minutes. There was somebody at my house.

3:43:50 That was taking off the wheel. Throwing it in a Truck putting on a temporary wheel, so I was good to go. Immediately, you know, within ninety minutes. And

3:44:00 Then two days later. It showed back up at my house. They had repaired the issue with the tire, pumped it back up. gave me my wheel, took the other wheel. I didn't have to do anything. I'm just standing there. And the whole thing cost me like a hundred and twenty bucks. Wow.

3:44:15 It was like the best car service experience I've ever had in my life. That's pretty awesome. It is wild how different. Tesla is from other.

3:44:23 Car companies. The ballow wai. Is The best family vehicle ever. Created by mankind.

3:44:31 It's like the model T of our generation. Yeah, it totally is. So great. Okay, that's number two. You got one more? Last one. I think last year I carved out Silo. Silo season two is here on Apple TV and it is excellent.

3:44:45 Uh yeah. per usual part for the course for me, I have not watched Any of it but I did read. The book and the book is excellent. You read Wall? I read Wall, yep. It's great though. I mean a lot of times shows I think have a hard time maintaining their season one into momentum into two and two into three and

3:45:01 There's no problem with that here. Didn't you get to meet the author? A while back. Hugh. Yeah. He's great. He's really great.

3:45:08 All right, I had one other besides the dandelion advent calendar. Which is the movie Home Alone. This is sort of a humorous one. But since this is a nostalgic episode about our childhood and the holidays. Home alone was my very, very, very favorite movie growing up. As a kid.

3:45:25 I saw it in theaters when it came out. I was the perfect age. I think Macaulay Calkin and I are Roughly the same age. Yeah, give or take a year. Loved it so much. after Thanksgiving holiday travel this year.

3:45:39 I have a whole new appreciation for that movie. Which is the perspective of the parents. Do you leave one at home? No, but I almost come close. I now understand exactly how it Could happen. And I am excited to watch it again at the holidays this year.

3:45:59 Through The lens of Mom and Dad. Nice. Yeah.

3:46:04 Thanksgiving travel was pretty wild this year. We went back to Pennsylvania to visit my parents. And It was exciting. On the plane ride there. I'll put it that way. And uh

3:46:17 The most awesome moment though. I mean it was this was one of those Playing trips as a parent where Oh man. Like the lowest of the lows, shall we say. You're just sorry for everyone around you. Sorry for everyone around you, but the most amazing thing happened. We landed after the five and a half hour flight. And uh very kind gentleman.

3:46:36 Sitting in the seat. directly ahead of my three year old daughter who was Causing ruckus the whole time and kicking his seat, et cetera. He turned around, he said Are you David from Acquired? It's like yes, I'm sorry. No, no. He's like I've been listening to you the whole flight.

3:46:54 And then some other people in the rows started popping up and being like Oh I've been listening it was uh Wait, multiple people were popping up and saying Yeah, that they listened to acquired and either had been listening on the flight or these are their favorite episodes or It turned what was like a Truly one of the lowest lows of my parenting journey into a uh A wonderful memory. So thank you to you all on on that flight from SFO to Philadelphia the day before Thanksgiving.

3:47:19 After watching your daughter kick someone's seat for five hours, you have to be like, I really hope that guy doesn't ever know who I am. Yeah, yeah, yeah. Yeah. That was my first reaction too of like, Oh no. But but no, it turned into The most wonderful uh Turn around of the day. Wow. Wow, wow.

3:47:37 All right, listeners. Well with that Special shout outs to Arvind Navaratnam. at Worldly Partners for his awesome, awesome write up on Mars. There's way more data in that than we were able to describe on air. So if you want to see some great charts.

3:47:51 industry's stats on chocolate over the years, on sugar consumption. On Hershey on Mars, on the whole competitive set. Uh it's linked in the show notes. I can't recommend reading through his whole PDF enough. Arvid is so great. So great. Tit at Dandelion Chocolate, as we mentioned. Yes, and also Clara Shen, who works at Dandelion as well and chatted with me.

3:48:12 And had a lot of great insights also on the industry and on Mars. Yeah. To Gary Guittard, who I'm sure many of you have eaten guitard chocolate either directly By knowing it or indirectly by not knowing it, as they are the chocolate supplier to many excellent chocolate companies. Including the world famous C' Candies. Yes.

3:48:33 Which I didn't know how much I enjoyed guitar chocolate until Well I realized how much of it I'd eaten through Cs. Yes. Speaking of trivia, I've got one for you related to guitar. Before Milton Hershey started making chocolate.

3:48:49 And Nineteen. There were three chocolate producers in America. Who predated him. And I believe all of which are still operating.

3:48:59 Making. Dark chocolate, not milk chocolate, obviously at the time. One of which Was guitar. Here in San Francisco.

3:49:06 Do you know who the two others were? I don't think you will get the one on the east coast. But the Third was also located here in San Francisco. Girardelli. Ghirdelli, yep.

3:49:16 Yes. And then the uh East Coast, I don't know. The one on the East Coast was Walter Baker's in uh Massachusetts, I think. Oh shoot, I Did know that. Yeah. Yeah, Baker is sort of like the godfather of chocolate in the US, right? I think that's right. I think that's right.

3:49:31 But it's super interesting how Two Manufacturers popped up here in San Francisco in the eighteen hundreds. Nice climate for it. Before air conditioning, at least.

3:49:39 And then One more big thank you to say. On multiple fronts too. Joel Glenn Brenner. The author of Emperors of Chocolate and the only journalist ever to get access to Mars one for just writing the book. We read a lot of

3:49:53 Business books. business histories here on acquired and Emperors of Chocolate. Is one of the greats. It's a total page turner. And then also thank you to her for chatting with me as we were preparing. She was very, very helpful.

3:50:06 In uh clarifying a few points and Getting the story behind the stories. Can't recommend the book enough. Go check it out. Great.

3:50:14 Well if you like this episode, go check out our other episodes on L VMH, Sony, or Berkshire Hathaway if conglomerates are your thing, or for more complex manufacturing, Nova Nordisk, the makers of Ozempik. Or if you want something more recent, check out ACQ2. We just had that awesome conversation with the CEO of Arm Holdings. Rene Haas, if you're looking for more semiconductors in your life. And if you want to discuss it, please Come join us at acquired.fm slash slack with the other smart, respectful, kind folks there. Without listeners.

3:50:47 Happy holidays. And we will see you next time. We'll see you next time. Who got the truth? Is it you, is it you, is it you Who got the truth now

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