Mars Inc. (the chocolate story)

Summary

Acquired Podcast Episode Summary: Mars Inc. (The Chocolate Story)

Podcast Information:

• Title: Acquired
• Hosts: Ben Gilbert and David Rosenthal
• Episode: Mars Inc. (The Chocolate Story)
• Release Date: December 16, 2024

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1. Introduction

In this episode, hosts Ben Gilbert and David Rosenthal delve into the captivating history of Mars Inc., uncovering a story that transcends the world of candies to encompass war-time developments, technological innovations, and intricate family dynamics. Initially intended as a lighthearted exploration of M&M's varieties, the episode evolves into an enthralling narrative about one of America's largest private companies.

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2. Early History and Founding of Mars Inc.

The saga begins in September 1883 with the birth of Frank Clarence Mars in Minnesota. Despite contracting polio, which confined him to his home and led to extensive baking sessions with his mother, Frank's passion for candy-making ignited his entrepreneurial spirit. At 19, he founded his first candy company in Minneapolis, focusing on penny candies—a prevalent trend aimed primarily at children. However, due to the highly perishable nature of these confections and stiff competition, Frank's venture faced bankruptcy by 1910, leading to his divorce and the temporary separation from his son, Forrest.

Notable Quote:

Ben Gilbert [07:11]: "Candy was big. It was all about selling sweets to kids."

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3. Competition with Hershey and the Emergence of Mars Products

Frank's persistence led him to establish Mars Inc. a fourth time in 1920, this time pivoting to milk chocolate—a relatively novel product in America. Meanwhile, Milton Hershey was making strides in scaling milk chocolate production. Hershey's strategic pricing of chocolate bars at a nickel made them ubiquitous, especially during World War I when Hershey's bars were supplied to American troops, instilling a national taste for his slightly sour milk chocolate.

Forrest Mars, after reuniting with his father and gaining business acumen from his education at Yale and interactions with industry leaders like Pierre S. Dupont, sought to revolutionize the family business. In 1924, the introduction of the Milky Way bar marked a significant milestone, achieving $800,000 in sales within its first year.

Notable Quote:

David Rosenthal [13:36]: "Milky Way was born with the marketing of a malted milkshake in a candy bar."

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4. Marketing Innovations and Campaigns

Mars Inc.'s growth was significantly propelled by innovative marketing strategies. Recognizing that 75% of candy purchases were by adults—a shift from the previous focus on children—Mars tailored its advertising to appeal to parents, emphasizing convenience and minimal mess. The partnership with major advertising agencies like Ted Bates & Co. allowed Mars to conduct comprehensive market studies, leading to iconic campaigns such as:

• "Melts in your mouth, not in your hand" for M&M's, which effectively targeted both children and their parents.
• Sponsorships of popular TV shows like the Mickey Mouse Club and Howdy Doody to embed Mars products into American households.
• Strategic product placements, including the famous association with the movie E.T., which significantly boosted sales of Reese's Pieces.

Notable Quote:

Ben Gilbert [135:58]: "Everyone needs to make money and everyone needs to be incentivized for the long term."

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5. Company Principles and Culture

Forrest Mars instilled a set of core principles within the company, emphasizing quality, responsibility, mutuality, efficiency, and freedom. These principles fostered a corporate culture focused on:

• Quality: Relentless pursuit of excellence, from product ingredients to packaging and distribution.
• Responsibility: Empowering employees with substantial bonuses tied to company performance, encouraging commitment and accountability.
• Mutuality: Building symbiotic relationships with suppliers, retailers, and distributors to ensure mutual profitability.
• Efficiency: Implementing rigorous production processes and embracing the Toyota production system principles to maximize output and minimize waste.
• Freedom: Maintaining decentralized operations and ensuring the company remained privately owned to allow for long-term strategic planning without external pressures.

Notable Quote:

David Rosenthal [157:14]: "Forrest was one of the greatest American entrepreneurs of all time."

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6. Diversification and Acquisitions

Mars Inc.'s strategic diversification played a pivotal role in its sustained growth. Key acquisitions and expansions included:

• Pet Care: Acquisition of dog food companies like Chapel Brothers led to the creation of brands like Pedigree and later, the largest veterinary hospital chains through purchases of Banfield Pet Hospitals and VCA.
• Rice Production: Establishment of Stouffer's Rice and later, the acquisition of Uncle Ben's Rice, tapping into the growing demand for branded and convenient food products.
• Global Expansion: Entering international markets with products like the Mars Bar in the UK, and later expanding to regions like Japan, China, and the Middle East through strategic acquisitions and partnerships.
• Wrigley Acquisition (2008): A monumental $23 billion purchase that solidified Mars Inc.'s dominance in the global confectionery market, competing directly with giants like Nestlé.
• Kindbar Acquisition (2020): Another significant acquisition that expanded Mars's portfolio into health-conscious snacks, aligning with evolving consumer preferences.

Notable Quote:

David Rosenthal [178:21]: "Buy commodities, sell brands has long been a formula for business success."

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7. Recent Developments and Strategies

In recent years, Mars Inc. has continued to innovate and expand its footprint:

• Global Dominance: By 1973, Mars had surpassed Hershey to become the number one candy company in America. Continued strategic marketing and product diversification kept Mars at the forefront of the industry.
• Climate and Sustainability: With the cacao tree's vulnerability to climate change, Mars has invested in genetic engineering and sustainable farming practices to ensure the longevity of chocolate production.
• Technological Advancements: Embracing modern manufacturing technologies and maintaining operational efficiencies has allowed Mars to sustain high revenue growth rates.
• Large-Scale Acquisitions: The planned acquisition of Kellanova for $35.9 billion signifies Mars's ambition to rival conglomerates like Nestlé, further diversifying its product offerings and global presence.

Notable Quote:

Ben Gilbert [217:56]: "The condition that enable a business to grow like that for that long required being in that place in that time with that technology and that competitive set."

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8. Quintessence and Key Takeaways

Quintessence:

• Path Dependency: Mars Inc.'s monumental success was a product of precise timing, strategic decisions, and leveraging unique opportunities presented by historical contexts, such as World Wars and evolving consumer behaviors.
• Innovative Marketing and Branding: Mars demonstrated that effective marketing, coupled with strong branding, could transform products from regional favorites into global staples.
• Operational Excellence and Scale Economies: By prioritizing efficiency and embracing large-scale production early on, Mars was able to outpace competitors like Hershey, ensuring dominant market share and sustained profitability.
• Strategic Diversification: Diversifying into pet care, rice production, and health-conscious snacks allowed Mars to hedge against market fluctuations and tap into various consumer needs.
• Privately-Owned Stability: Maintaining private ownership insulated Mars from external market pressures, enabling long-term strategic planning and consistent reinvestment into the business.

Notable Quote:

David Rosenthal [219:20]: "Forrest was totally brilliant. This is probably his most brilliant scheme on so many levels."

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Conclusion

Mars Inc.'s journey from a struggling penny candy entrepreneur to a global confectionery giant is a testament to visionary leadership, strategic innovation, and unwavering commitment to quality and efficiency. By adeptly navigating historical challenges, pioneering marketing strategies, and embracing diversification, Mars Inc. secured its place as a dominant force in the global market. This episode of Acquired not only highlights the remarkable growth of Mars Inc. but also offers valuable insights into building a resilient and scalable business.

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Notable Quote:

Ben Gilbert [217:48]: "It's amazing that those things come together in a way that make it possible to grow at 14% for a century if executed well."

Transcript

[Ben Gilbert]

Okay, David, how many current varieties of MM's can you name?

[David Rosenthal]

Ooh, wow. Okay, well, plain peanut, peanut butter.

[Ben Gilbert]

Uh huh. Actually, plain is technically now called milk chocolate.

[David Rosenthal]

Ooh, interesting. There's dark, right?

[Ben Gilbert]

Yep. Which I've got right here.

[David Rosenthal]

They had mint for a while. Did they discontinue mint?

[Ben Gilbert]

Mint is a holiday only theme.

[David Rosenthal]

Mm.

[Ben Gilbert]

So that's a seasonal one.

[David Rosenthal]

Oh. What else? I mean, at the end of the day, it's kind of only plain and peanut that matter, Right.

[Ben Gilbert]

I think in sales numbers.

[David Rosenthal]

Are there pretzel ones?

[Ben Gilbert]

There are pretzel ones. There are also almond.

[David Rosenthal]

Oh, almond. See, yeah, I'm allergic to almond, so I never think about almonds.

[Ben Gilbert]

There's also some weird ones. Caramel. 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 MM's.

[David Rosenthal]

Oh, yeah, I remember the crispies. Yeah.

[Ben Gilbert]

And then there's some specialty ones. Dark chocolate peanut, which I really want. Fudge brownie campfire s'mores and caramel cold brew.

[David Rosenthal]

Ooh, I don't know about any of these.

[Ben Gilbert]

And then there's these really wild limited edition ones in addition to holiday mint birthday cake, chili nut and pumpkin spice latte.

[David Rosenthal]

That sounds disgusting.

[Ben Gilbert]

I know. But yes, I think you are right. The milk chocolate and the peanut are the sales drivers.

[David Rosenthal]

Yep.

[Ben Gilbert]

All right. Should we do it?

[David Rosenthal]

Let's do it. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?

[Ben Gilbert]

Is it you?

[David Rosenthal]

Is it you?

[Ben Gilbert]

Is it you? Sit it down.

[David Rosenthal]

Say it straight. Another story on the way.

[Ben Gilbert]

Who got the truth? Welcome to the fall 2024 season finale of Acquired, the podcast about great companies and the stories and playbooks behind them. 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 MM's, thinking this will be just some nice lighthearted fare about the candies and the characters on commercials that remind us all of our childhood. But as we dug into Mars Incorporated, the parent company, we realized that the story is totally thrilling. It's got World War I, World War II, new technologies and inventions, and serious, serious family drama. And their corporate strategy over the years is just as clever as companies like lvmh, Walmart, and Costco. I mean, you don't get to be the second wealthiest family in America without it.

[David Rosenthal]

Yeah, seriously. Maybe it's because we just did it, but I feel like there are a lot of echoes of Ikea in this one, too.

[Ben Gilbert]

Absolutely. And the Mars family is way more quiet and reclusive than the Kamprad family, too.

[David Rosenthal]

They're way more quiet and reclusive than anybody.

[Ben Gilbert]

Yeah, Mars also owns way more than you think. You may know that they own the world's most popular candy, Snickers, in addition to MM's. 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 Mars now does more revenue than the Coca Cola company? I know wild Mars crossed $50 billion 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 in America. This really is an incredible American and global story. Well, listeners, after this episode, come listen to ACQ2. We just had one of my favorite conversations ever on the show, in part because I just love talking computer architecture with Rene Haas, who is the CEO of ARM holdings, 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.

[David Rosenthal]

Gosh, between synopsys and now ARM, we're going to have to rename ACQ2 into, like, acquired semiconductors. Totally.

[Ben Gilbert]

It was a great computer science lesson and history lesson sort of all rolled into one. So go subscribe to the ACQ2 feed in the podcast player of your choice to check it out. We've got a survey winner. Thank you to everyone who took our survey. It is Curtie from Boston. We will email you with details on how to claim your free Ray ban metas. And 10 other folks in addition to Curtie will also receive free ACQ dad hats. So keep an eye out in your email if that is you. Now, before we dive in, we want to briefly thank our presenting sponsor, JP Morgan Payments, for an incredible year.

[David Rosenthal]

Yes, just like Abby say, every company has a story. Every company's story is powered by payments, and JP Morgan Payments is a part of so many of their journeys from seed to IPO and beyond.

[Ben Gilbert]

Yep. 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?

[David Rosenthal]

Oh, well, we start in September 1883. There's some debate about whether it's in Pennsylvania or Minnesota. But, you know, there's a lot of legend, shall we say, about the Mars family, which we will get into as we go here. But before really we start, I 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 ever got real access to the company, like, ever.

[Ben Gilbert]

And it was in 1991, 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?

[David Rosenthal]

Yep. She was a young reporter at the Post and called the company like every day for a year and finally got access and that became a piece in the Washington Post magazine. And then she turned it into the book Emperors of Chocolate.

[Ben Gilbert]

Yep.

[David Rosenthal]

Okay. So back to 1883 and let's just call it Minnesota when Frank Clarence Mars is born. Now, Frank's father is a flower grist mill operator and his mother, Elva is a housewife. Both of those trades are going to become very important here. So Frank, sadly, when he's very young and in what I think was also very sadly commonplace at the time, he contracts 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, 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 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.

[Ben Gilbert]

And what was candy at this point in time?

[David Rosenthal]

Well, I'm glad you asked. It's not chocolate. Chocolate is basically not a thing in America yet. Candy, though, was big. And specifically we're talking about penny candy, gumdrops, licorice, all sorts of sugar based sweets. 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 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.

[Ben Gilbert]

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 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.

[David Rosenthal]

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 candy entrepreneurs. When he's 19 years old in 1902, 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 in 1902, he would also briefly marry a woman named Ethel Kisak. Now, remember this Ethel, she will come up much, much, much later at the end of the story. But for the moment, the two of them have a son named Forrest.

[Ben Gilbert]

Forrest Mars, our real protagonist, this story.

[David Rosenthal]

Yes, but put a pin in Forrest. We will come back to him in a few minutes. So his dad, Frank, starts this candy business. You'd think you're like, yep, this is it. This is the company. You know, Mars, snickers, M&Ms. Milky Way. It's all to come here out of.

[Ben Gilbert]

This one company named Mars.

[David Rosenthal]

Yes.

[Ben Gilbert]

Not true.

[David Rosenthal]

Well, not yet. So we mentioned a minute ago that chocolate was not a thing yet in America. Now, at this point in time, in 1902, that is not technically true. Milton Hershey has started selling his Hershey's chocolate bars in Pennsylvania, which He started in 1900.

[Ben Gilbert]

The notorious 5 cent just chocolate. I don't even think they had made Hershey's with almonds yet. It was just the, like, single 5 cent slab of chocolate bar called the Hershey Bar.

[David Rosenthal]

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.

[Ben Gilbert]

Hershey had just figured out by the skin of his pants production and 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.

[David Rosenthal]

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 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, which is in those days it was all pretty.

[Ben Gilbert]

Highly perishable and there's not air conditioning yet.

[David Rosenthal]

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 years is exactly what happens to Frank. So in 1910, Frank's now bankrupt. His wife Ethel divorces him and takes their six year old son Forrest, and sends Forrest off to live with her parents 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.

[Ben Gilbert]

Do you know why?

[David Rosenthal]

What I think because nobody had any money to support him. Right.

[Ben Gilbert]

And in particular, Frank actually owed her $20 a month for child support for Forrest when he was six years old, but was failing to make payments. And so she just couldn't support him and needed to send him to the grandparents.

[David Rosenthal]

I mean, you gotta remember, like we're in the early 1900s here, this kind of stuff happened all the time.

[Ben Gilbert]

Yep.

[David Rosenthal]

So Frank, undeterred by bankruptcy, divorce, being a deadbeat parent, not paying child support, he marries another woman, also named Ethel.

[Ben Gilbert]

Unbelievable.

[David Rosenthal]

Specifically, they move to Seattle.

[Ben Gilbert]

Hey, O.

[David Rosenthal]

Where Frank does. What else? He sets up another candy business and starts hawking his candy again. 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.

[Ben Gilbert]

So this is two failed candy companies under his belt.

[David Rosenthal]

Yep. We're now on number three. He sets up another candy business in Tacoma in 1914.

[Ben Gilbert]

Out of his house.

[David Rosenthal]

Yes.

[Ben Gilbert]

He's running the business out of his kitchen.

[David Rosenthal]

That's right. And that business also fails after a couple years. So three down, three strikes, we're now in 1920. And Frank and Ethel, number two, return once again to Minneapolis, figuring that 10 years have gone by, they can now show their face around town again. So Frank sets up yet again another candy company, candy company number four. Now in total, if you're keeping track at home and against all odds, this candy company would go on to become the globally famous $50 billion annual revenue private family business, MARS Incorporated, sort of.

[Ben Gilbert]

It's not totally Frank that is the reason for Its success.

[David Rosenthal]

Yes. Okay, so what's different now about this fourth candy company that Frank starts? It's chocolate.

[Ben Gilbert]

And chocolate is a completely different universe than these penny candies, than caramels. The first thing you have to know is it uses cocoa. 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 for one American entrepreneur, Milton Hershey.

[David Rosenthal]

Yep. So we got to rewind a little bit and tell the Hershey story because A, it's also crazy and B, it is deeply, deeply intertwined with the mars story. So Milton Hershey had been 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.

[Ben Gilbert]

Yeah, he sold it for a million dollars in 1900, which is 36, 37 million today with inflation.

[David Rosenthal]

Yep. He is among the most successful of this kind of generation of pre chocolate candy entrepreneurs. Before he sold the business though, in 1893, 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 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. And Hershey is so taken by the rich complexity, deliciousness of chocolate that he buys from this German company, all of the equipment on display there, just like on the spot. Ed says, I want this shipped back to my production facility in Lancaster, Pennsylvania, out in the Philadelphia countryside. And I am going to set up a chocolate making operation. Now this is not milk chocolate. This is just plain chocolate.

[Ben Gilbert]

And it's worth noting too, this concept of solid chocolate is a pretty new thing like a chocolate bar. Up until, I don't know, 15, 20 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.

[David Rosenthal]

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 in the Aztecs and.

[Ben Gilbert]

Even before the Aztecs about 5,300 years ago around Ecuador.

[David Rosenthal]

Wow, I didn't even know that. So we're talking about a 5,000 year old tradition here. Yes, but like you said, until call it the late 1800s, this is a drinking activity.

[Ben Gilbert]

Yes, and it's so different than the chocolate we think of today. There's no milk chocolate. 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 a borrowed chocolate like, you know, today.

[David Rosenthal]

Yep. So you said milk chocolate and I said Hershey at this point is not making milk chocolate when he first introduces it to his caramel company. As he gets deeper and deeper into the chocolate world, 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.

[Ben Gilbert]

Sort of Nestle. We're going to talk about how to make chocolate and then we're going to 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, how do you make chocolate? And we have a huge thank you to Todd Massonis 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 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. 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.

[David Rosenthal]

Yep. Yeah. The fruit itself is actually quite delicious, but it's like a pulpy sort of milky type thing.

[Ben Gilbert]

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. 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 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 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, because that was the only place that was making chocolate. They then get sorted, sterilized, de bacterialized. 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.

[David Rosenthal]

So just like the core meat of the bean after it's been roasted?

[Ben Gilbert]

Yes. You can press those nibs into, create two separate things, Cocoa powder and cocoa butter. Both of those come from the nib. But there are many reasons why different chocolatiers 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.

[David Rosenthal]

Conching is awesome. It's basically like these big cylinders, right, that like spin around and around and smooth out all these particles.

[Ben Gilbert]

Yeah. And there's a great story back in 1879 that Rudolf Lindt, which is another name you may recognize, the Swiss chocolatier 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 three full days, which created this silky smooth, flowing texture. 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 delicious Swiss chocolate. So 1879 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.

[David Rosenthal]

Still not done yet.

[Ben Gilbert]

You now have this great conched, liquidious, wonderful chocolate sitting there. If you just let it dry, it's actually not shelf stable. It will bloom. For any of you who ever left a chocolate bar in a hot car and it 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 conched chocolate and you are tempering it. And what tempering it does is you are aligning the crystals in the cocoa butter to make it so that it forms into that shiny, breakable chocolate that you know of today.

[David Rosenthal]

And this is an incredible process. Right? You take this liquid chocolate after conching, you heat it up to super liquefy it, and then you cool it down to just the right amount of temperature where the right sort of seed crystals form.

[Ben Gilbert]

That's exactly right.

[David Rosenthal]

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 want to get just the right seed crystals to set the right crystal and structure for how it'll come together.

[Ben Gilbert]

That's exactly right. When you're superheating it, you're eliminating all crystals. So then you can kind of 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 lined in that nice, shiny break.

[David Rosenthal]

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.

[Ben Gilbert]

Ooh, shots fired on wine and coffee. You're gonna hear something.

[David Rosenthal]

Well, at least in terms of, like, stages of production, right? Like, let's take coffee. Coffee looks pretty similar until 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.

[Ben Gilbert]

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, We just assume, oh, this is an 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 something very uniform and predictable and desirable out of that pure agricultural product.

[David Rosenthal]

Yep.

[Ben Gilbert]

Okay. So that's all the way from the fruit, through the fermentation, through the processing of the beans, through the conching, through the tempering.

[David Rosenthal]

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 100% dark chocolate, which is, like, very complex but very bitter, no one's going.

[Ben Gilbert]

To eat that, most people max out at 85% chocolate. And the rest, the 15% is sugar or you're getting a 70% bar and the 30% is sugar. Or if you're getting a milk chocolate bar, it's more in that 30 to 50% 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. More cocoa butter, sugar, soy, lecithin. Oftentimes you'll get vanilla that's added in part of this process to create a chocolate taste, you know of.

[David Rosenthal]

Yep. Okay, so we're still in the dark chocolate world here. Let's talk about Nestle and milk chocolate.

[Ben Gilbert]

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 retro nim 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 flashback 35 years before 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 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. 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. And then he added a bunch of cereal, a proprietary cereal mix he created. And this is effectively the first baby formula. So in 1867 he demonstrated that a baby could drink this formula that he made rehydrated and it was effectively a miracle to keep babies alive.

[David Rosenthal]

Totally. This is like one of many mind blowing things in the research that I learned. Nestle was a baby formula company. That's how it started.

[Ben Gilbert]

Totally. It's great. It's in the same way that Hermes The Birkin bag was a bag for baby bottles.

[David Rosenthal]

Yeah. Right. Who knew that baby formula literally leads to the modern chocolate industry?

[Ben Gilbert]

Yep. So, incredibly, one of his neighbors who desperately needed this formula because his baby was rejecting breast milk happened to be a chocolatier, a guy by the name of Daniel Peter. So he had this idea for milk chocolate in 1867 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?

[David Rosenthal]

Yep. 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. So how are you going to put this in a product?

[Ben Gilbert]

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.

[David Rosenthal]

Totally.

[Ben Gilbert]

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 Henri 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. 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 other European chocolate companies, would turn into milk chocolate bars that Milton Hershey would try to emulate.

[David Rosenthal]

Ah, interesting. I didn't actually know that it was condensed milk, not the formula milk that ended up working for Nestle.

[Ben Gilbert]

That's my understanding. I got this from. There's a descendant of the Cadbury family, Deborah Cadbury, who wrote this book called chocolate wars, and two chapters out of 20 or something are about Mars, but it was this great primer on the history of the chocolate industry to learn all this.

[David Rosenthal]

Mm, interesting. Yeah. So you're deeper on this part than me, 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, but it's heavily bitter. And when you temper it, not tempering in the chocolate process, but sort of temper that flavor with the smoothness and the creaminess of milk, anybody who likes chocolate knows it's just absolutely delicious.

[Ben Gilbert]

Yeah. So by 1879, 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 increased the market 10x. It's hard to get a number on it, but the market for what chocolate would be from 1879 onward is way bigger than before.

[David Rosenthal]

Yep, totally. So back to Hershey. 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 going to make milk chocolate too. Except he's not a chemist. 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 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 chocolate and milk chocolate to America at scale. Finally, after a couple of years, he does hit on a method that works for producing milk chocolate. However, you know, it's not quite as scientific as what you were just describing, Ben. And 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 here and are saying, like, Hershey's. That is so disgusting. I have no idea how all you Americans eat Hershey's chocolate and why it tastes sour if you're not used to it. This is why it is sour.

[Ben Gilbert]

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. Okay, account number one, and this is all in the Cadbury book that I just mentioned. After a series of laborious failures Schmalabach, who was a scientist working with Hershey, seized on the initiative and tried a slow evaporation of nonfat 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. 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 that Hershey happened to acquire a large batch of milk powder from Europe which had 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.

[David Rosenthal]

Amazing. Amazing.

[Ben Gilbert]

Thank you, Deborah Cadbury, for all that.

[David Rosenthal]

If written by a member of the Cadbury family, you can imagine why that story is preferred. Regardless, here's the amazing thing, though, 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 and setting the taste of a specific regional area. Because again, Europeans think that Hershey'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 this is. 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.

[Ben Gilbert]

Yep. And actually today, 75% of candy is eaten by adults, and in fact, it accounts for 90% of total purchases. A complete departure from the pre chocolate world you were talking about with the penny candies at the checkout counter.

[David Rosenthal]

Yep, totally. So Hershey, 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 set this taste for the country, which basically locked him in as what chocolate was in America.

[Ben Gilbert]

Fascinating.

[David Rosenthal]

And he's smart about this too, from a business perspective. Like Ben, you mentioned the nickel Hershey bar. 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 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 candy industry by doing this.

[Ben Gilbert]

Yes. And Hershey's kind of uniquely positioned to do it. Imagine you're walking around today with 40 million bucks from the sale of your previous company. You realize there's something going on in Europe. You know it's going to work in America. You can't get your hands on the formula, but you're going to 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 going to go big immediately.

[David Rosenthal]

And.

[Ben Gilbert]

And so he builds out this huge factory to start production before he's even finalized the formula. So it's really like a go big or go home strategy where if it works, boom, mass production, mass distribution. I set the flavor profile in America, and I set the brand in America for chocolate. And if it fails, it fails pretty catastrophically.

[David Rosenthal]

Yep. So 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. World War I happens, and the American military, as they have seen European armies do, they source chocolate as ration bars for the troops. And Hersey's is the big supplier. So millions and millions of American gis now get introduced and hooked on the slightly sour Hershey's chocolate.

[Ben Gilbert]

And it's great. It's a super dense store of energy. 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 I, you could use a little of that.

[David Rosenthal]

Yeah, it's got caffeine, totally. So these soldiers then come home and right after the war is prohibition in America. So you can no longer buy alcohol, or at least legally buy alcohol. And all these adults are now like, you need some sort of social lubricant here. Well, what's the natural alternative? It's chocolate. Which brings us to the candy bar. So all of these former penny candy entrepreneurs all around the country, they're like, wow, 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 some chocolate and some other stuff and also make a bar? Well, that I could make a lot cheaper because the other ingredients, whether it's nuts or nougat or sugar or whatever, or cheaper. And I can develop my own unique tastes that people in my region might find appealing. So by the end of the 1920s, there are more than 40,000 different candy bars being made in America.

[Ben Gilbert]

Oh, my God.

[David Rosenthal]

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?

[Ben Gilbert]

No.

[David Rosenthal]

So still available today. Baby Ruth candy bar, named I think for President Grover Cleveland. I think's daughter Ruth. Baby daughter Ruth. To introduce the bar, 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.

[Ben Gilbert]

We're going to have to do that for an acquired marketing stunt at some point.

[David Rosenthal]

I know, I know. Charter an airplane. I think we would get in a lot of trouble if we did that these days.

[Ben Gilbert]

I think so too.

[David Rosenthal]

Oh, man. 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.

[Ben Gilbert]

They've become the Blue Jeans and Pickaxes company in this gold rush.

[David Rosenthal]

Yes. So if you've ever wondered, how the heck did Milton Hershey build a town? And how do you become like Rockefellers or Carnegie's or Vanderbilts? Like, this is how.

[Ben Gilbert]

This is when you start to see this separation of the different players in the value chain of chocolate. 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 and then other people buy the chocolate from Hershey for their consumer products. And yeah, Hershey also makes a chocolate bar, but in America, this is really the creation of the wholesale business of chocolate.

[David Rosenthal]

Yep. And there's one game in town at least when it comes to milk chocolate, which is most of the market, and that's Hershey.

[Ben Gilbert]

And the US Military loves it too, because you can put all these high energy density ingredients 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 at 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're delivering these kind of complete meals, complete in quotes. 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 ingredients inside.

[David Rosenthal]

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 chocolates. So when Frank first gets back to Minneapolis and starts up the fourth company, he had seen out in Seattle and Tacoma that buttercream truffles were like, really, really popular. So he brings the buttercream truffles, he steals from the companies out there, brings the concept back to Minneapolis. That's quite successful. He calls them Victorian buttercreams and I believe started coating them in chocolate using Hershey's chocolate, 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 Patric, that he has had with wife Ethel number two. And after a couple years, the business is doing like, call it $100,000 ish in revenue. So, like, really, really well. We're not talking Hershey levels of entrepreneurial ambition here, but that's not the ambition that Frank has. And then in 1922, he decides that he's going to get in on this candy bar craze that is sweeping the nation. And he introduces his first combination bar or candy bar called the Marrow bar.

[Ben Gilbert]

Yes. And do you know the other name for these types of candy bars that are sort of chocolate wrapped? Something else.

[David Rosenthal]

Combination bars. Right.

[Ben Gilbert]

The term I read was count lines.

[David Rosenthal]

Oh, no, I didn't come across that.

[Ben Gilbert]

So this is from the Cadbury book. Interestingly, all chocolate before was measured by weight. And once somebody kind of rolls their first candy bar off the line, you know what we now know today, the Snickers bar, 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 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. So they're called count lines. So these manufacturers are spinning up count lines instead of, I don't know, weight lines or whatever they were before.

[David Rosenthal]

Amazing. It's like the KD furniture from the IKEA episode. So here we are. The first candy bar count line bar from the Mars Company, 1922 comes out and I don't want to say it's a flop, but it's not a success.

[Ben Gilbert]

No one's eaten marl bars today, correct?

[David Rosenthal]

Correct, indeed. But then, the next year, in the summer of 1923, a fateful reunion occurs in Frank's life, which is that his estranged son, Forest Mars reappears in highly dramatic fashion. And the two of them team up, father and son, to introduce a new candy bar, one that will take the nation by storm, that would end up being called the Milky Way, or at least that's the legend. And we will tell that in just a second.

[Ben Gilbert]

Yes. But first, this is a great time to tell you about our presenting partner, JP Morgan Payments. So everyone listening knows that we started working with JP Morgan earlier this year and you can probably tell it's going very well. David and I, on this final episode of the year wanted to pause and tell you why.

[David Rosenthal]

Well, first is the team. The folks that we work with there, they are absolutely world class and also they really get acquired. They're huge acquired listeners, just like you. I mean, just look at the Chase center show. They took our vision and said, what if we did all of this times 10.

[Ben Gilbert]

Yeah. And deeper than that, our two products and brands just fit together like a glove. JP Morgan Payments is the world's largest payments franchise. They power 18 of the top 20 corporations in the world. And most companies we've covered on the show, in fact, 90% of Fortune 500 companies do business with them. They're extremely trusted.

[David Rosenthal]

And at first when we started working with JP Morgan, we were a little worried of like, oh, this might only be for big companies, but it's not. We've seen startups that heard about JP Morgan Payments on acquired earlier this year for the first time become customers. Our goal in picking partners is to find the very best companies that A, create value for our audience right now and B, will scale with your success and be around forever. That is JP Morgan Payments. They do literally $10 trillion in payment volume a day.

[Ben Gilbert]

Yeah, listeners, think about how insane that is with JP Morgan processing over 50% of all e commerce transactions in the US their software and payment rails basically underpin our entire global financial system.

[David Rosenthal]

Yep. And lastly, payments is a process that every single one of your companies needs. If you make revenue, you need payments. And JP Morgan thinks about payments as a lever for Growth, not just vanilla operational stuff. They've been investing heavily with products now for fraud prevention, foreign exchange, working capital and more. All of course built enterprise grade and with developer tools and APIs.

[Ben Gilbert]

So thank you listeners for tuning in all year. You can learn [e-mail] acquired, which itself is a very cool custom site they built just for this partnership. And when you get in touch, just tell them that Ben and David sent you or shoot David or I a message in Slack and we'll get you connected with their team. Our thanks to JP Morgan Payments. All right, David. So Forrest emerges into his father's life and somehow we end up with the Milky Way. How does that happen?

[David Rosenthal]

Well, let's tell the legend. So, summer, 1923. Young forest Mars is 19 years old and on summer break from college. More on college in a minute. He's got a summer job as a traveling salesman selling Camel cigarettes.

[Ben Gilbert]

Times sure were different.

[David Rosenthal]

Times sure were 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 got to blow it out. They need to hit big time sales numbers here in Chicago. Forrest, you gotta go blitz the whole city with posters marketing Camel cigarettes. So Forrest goes around and he puts billboards up 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 happen. 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. It's also illegal. Yes, and it lands young Forrest in jail. So from his Chicago prison cell, Forrest makes his one phone call to the only soul that he knows in the area who could possibly bail him out. His estranged father, Frank Mars.

[Ben Gilbert]

Which this whole thing, I mean, this is the legend and this is the Mars company's version of the story. This is the journalist's version of the story. This has been in other books, but like, 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.

[David Rosenthal]

By the way, his dad lives in Minnesota. There's the whole state of Wisconsin between Minneapolis and Chicago. But we're giving you a flavor of who Forrest is here.

[Ben Gilbert]

If Forrest was in charge of coming up with the story of how this all went, this is the story he would have come up with. So.

[David Rosenthal]

Yes, exactly. And as we'll see, Forrest is in charge of everything. So Frank shows up at the jail. Father and son are reunited after 13 years, during which, yeah, Ben, like you said, they've had no contact with each other. But Forrest has his phone number to call him. Frank bails out Forrest. By now, it's early afternoon the next day, and he says, all right, son, let's go out for lunch. And they go to a luncheonette to share a meal, at which young Forrest, who is selling cigarettes, orders a wholesome malted milkshake. Over this lunch reunion with his father, they get to talking, they're getting reacquainted, and Forrest learns that his dad is now this middlingly successful candy entrepreneur, and his dad's telling him about this Maro bar that he's introduced. Forrest says, well, hey, I got an idea for you. What if you take this malted milkshake here? Everybody loves a malted milkshake. What if you take that and put that 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 with that, the Milky Way Bar was born with the marketing of a malted milkshake in a candy bar.

[Ben Gilbert]

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 caramel inside of chocolate. It's a pretty different ingredient set than a malted milkshake. There had to be quite a bit of R and D experimentation, flavor development, to figure out how to make the inside of your candy bar taste like said malted milkshake.

[David Rosenthal]

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, 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 caramel 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, no forest. Regardless of how all this happens, Frank Mars does release in 1924, the Milky Way Bar, and it does become a big hit that year alone. The first year that it comes out, it does $800,000 in sales.

[Ben Gilbert]

Yes, the Marobar company went from 73,000 to 793,000 in one year.

[David Rosenthal]

And that is all the Milky Way, like undeniably huge success.

[Ben Gilbert]

And effectively what they were doing was they were the first ones who said, wait a minute, if we're going to make a count line, 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.

[David Rosenthal]

Yep.

[Ben Gilbert]

Now it was early industrialization, but it was still much more industrial than the rest of the manufacturers at this point.

[David Rosenthal]

Totally. 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, so when Forrest is six years old, as we said, he gets sent off to live in Saskatchewan, in Canada, in like a hardscrabble rural mining community with his grandparents. Unlike I imagine most of the folks around him, Forrest is a total outlier there. He's super smart, super entrepreneurial, super ambitious, and he's a super arrogant show off. Probably because he's so insecure from his deeply traumatic childhood.

[Ben Gilbert]

Deborah Cadbury has a good line in her book, Noah's flood wouldn't have deterred Forrest Mars.

[David Rosenthal]

Yes. So when Forrest 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. Now how he wins a scholarship to UC 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. 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.

[Ben Gilbert]

And this all makes sense. He had an 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 as sort of a Systems thinker.

[David Rosenthal]

Yes, 100%. So while he's at Berkeley in his first year there to make money and support himself, he takes a job in the cafeteria and supposedly he finagles a deal with the head cook that if Forrest can go source meat and other ingredients for the meals cheaper than budget from local wholesalers, 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 $100 a week, which, if you annualize that to $5,200 a year, that's about double what the average American was earning at that point in time. So he's making bank, which, by the.

[Ben Gilbert]

Way, is a trend among all these entrepreneurs that we study. You look at Ingvar, you look at Sam Walton, 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.

[David Rosenthal]

Totally. And you know what? It is still true these days. Remember the Zuckerberg story of he and Adam D'Angelo are coding up Synapse and people want to buy it for a million dollars.

[Ben Gilbert]

Yep.

[David Rosenthal]

Just turns to software instead of candy bars.

[Ben Gilbert]

Yeah.

[David Rosenthal]

Anyway, this is all during Forrest's freshman year at Berkeley. And then the summer comes and of course, the cafeteria closes down, so he needs to 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 discovers that Frank had become a wealthy man. And I think regardless of whether Forrest had anything to do with the Milky Way idea or launch or anything like that, meeting his dad, seeing that there is a business in the family, starts recalibrating Forest's ambitions even higher than just being an engineer who can now go run a mine. He's like, oh, I should run a business. I should run my family's business. I should run my dad's business.

[Ben Gilbert]

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. And just seeing an existence proof of a successful business has got to be a reorientation for him.

[David Rosenthal]

Yeah. Even when the candy company before Milky Way was just making $100,000 a year. I mean, $100,000 a year. I mean, I don't know, who knows what the margins are on that. But Even if they're 10%, he's making 4x5x what the average American is. This is.

[Ben Gilbert]

Yeah, good point.

[David Rosenthal]

Eye opening to Forrest. So his literal words about this when he gets back to Berkeley are, the hell with running some mines in the backwoods.

[Ben Gilbert]

I'm so glad you have these Forrest quotes.

[David Rosenthal]

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 Joelle got access to go watch the video, which is where all these quotes are from. It's amazing. 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 for Forrest's junior year, he transfers to Yale. And he's going to Yale with the goal of, I want to learn about business. He's, like, focused. You know, it's like the Zuckerberg story of going to Harvard. Yeah. Forrest wanted to go to Yale because it was Yale, but really, he wanted to go to Yale to meet all the other people.

[Ben Gilbert]

Yep.

[David Rosenthal]

So it just so happens that his roommate, his first year, when he shows up at Yale, is the nephew of Pierre S. Dupont.

[Ben Gilbert]

Wait, really?

[David Rosenthal]

Yes, really. That Pierre S. Du Pont, his nephew, is Forrest's roommate at Yale. Whoa. And 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 also running General Motors at this point in time because dupont is the largest shareholder in gm.

[Ben Gilbert]

And that is a crazy story that we will save for a future episode of Acquired on how that came to be.

[David Rosenthal]

Oh, we gotta do dupont. It's an incredible, incredible story. But back to mars. Forrest 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?

[Ben Gilbert]

How do you run a chemical industrial manufacturing process?

[David Rosenthal]

Exactly. How do you do accounting? How do you do planning? Like, I want to know everything about this business. It's freaking unbelievable that here's this kid from the mines in Canada who in a few short years in the 1920s, 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.

[Ben Gilbert]

Yep. Amazing.

[David Rosenthal]

So after a couple years, when Forrest graduates from Yale, he's ready to go, put all this knowledge to work in his dad's candy business. So the first thing he suggests to his dad, Frank, is that, hey, we gotta get out of Minneapolis. We gotta move to Chicago. Chicago is 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.

[Ben Gilbert]

Yep. If you want to go national, Chicago is a great place to do it.

[David Rosenthal]

Yep.

[Ben Gilbert]

And why Else, David, you said it's the center of the candy industry. Why else? Is that true?

[David Rosenthal]

Ooh. Well, I think. Yeah, definitely at this point already, the Wrigley Company is there.

[Ben Gilbert]

Yep, you bet.

[David Rosenthal]

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?

[Ben Gilbert]

And why is there an entire neighborhood called Wrigleyville?

[David Rosenthal]

Yes, yes, exactly. It's kind of like Hershey and the chocolate business. Anyway, we will get to that much later in the episode. Spoiler alert. Mars now owns Wrigley. Okay, so Frank goes along with this idea that they're going to move to Chicago. But 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 really, I want to focus on enjoying the fruits of our labor here. So the factory that he builds in Chicago on the inside is really state of the art, per Forrest's designs. On the outside, he spends $500,000 in, you know, whatever this is. 1928, 29, buying a tract of land next to a golf course to put a factory in. The outside of the factory is like 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.

[Ben Gilbert]

Yeah. Must have been great margins on those Milky Ways.

[David Rosenthal]

Yeah, exactly. Shows you the difference of where Frank's head is at and where Forrest's head is at and probably its differences over this factory, I would assume, start to.

[Ben Gilbert]

Chafe the relationship here a little bit.

[David Rosenthal]

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 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. We need to run these lines 247 with multiple shifts. Like everybody else is just, oh, we run our lines during the day. Like, hell no. We spend all this money investing in this factory. We need to crank out as many Milky Ways as possible.

[Ben Gilbert]

Scale economies, baby.

[David Rosenthal]

Totally. So by 1929, which I think is the first year that the factory is up and running, they're producing 20 million Milky Way bars annually. And the forest is just like, go, go, go, go, go.

[Ben Gilbert]

20 million of anything at this point in history is massive.

[David Rosenthal]

Yes. 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, we need to be there to get the ingredients, including chocolate, in.

[Ben Gilbert]

Yep.

[David Rosenthal]

So very quickly, Mars becomes Hershey's biggest customer. They are buying millions of dollars of chocolate every year from Hershey.

[Ben Gilbert]

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.

[David Rosenthal]

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. Yeah, they're very happy either way. As long as chocolate is being sold in America, they're taking their tax.

[Ben Gilbert]

Yep.

[David Rosenthal]

So once this gets going and money really starts flowing into the company, Frank wants to spend it. So he builds a 20,000 square foot vacation home on a lake in Wisconsin. He buys a $2 million 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. Forrest hates all of this.

[Ben Gilbert]

He's trying to reinvest as much into the business as possible.

[David Rosenthal]

Exactly. He wants to be Dupont. He doesn't care about a horse ranch or airplanes. But even he, I think, probably would have to admit that he's thankful that Frank does these things. Because in 1930, 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 are opening it right now. It's the most popular chocolate bar in America and I think in the world.

[Ben Gilbert]

Yep.

[David Rosenthal]

Yes, the Snickers bar, named after the horse in Tennessee.

[Ben Gilbert]

Thank God they bought the horse ranch. I've been waiting for you to get to this part. Cause I'm just trying to be satisfied, you know, I just needed to grab a Snickers.

[David Rosenthal]

Amazing.

[Ben Gilbert]

It really is so good.

[David Rosenthal]

It's so good.

[Ben Gilbert]

I massively prefer the 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. But oh my God, is that first bite good?

[David Rosenthal]

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.

[Ben Gilbert]

I feel like I'd go play in the NFL after a bite of this.

[David Rosenthal]

Totally. Well, so there's another potential story of the origins of Snickers that we heard some wind of rumors in the sort of forest legend canon here. Supposedly, Forrest was thinking about 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.

[Ben Gilbert]

Because, by the way, a Snickers is a Milky Way with peanuts.

[David Rosenthal]

Exactly. And so supposedly, he went to the library. He wanted to know what did the Roman army feed their legionnaires when they were, you know, out marching? And apparently he learned that it was peanuts and eggs and sugar.

[Ben Gilbert]

It's a lot of energy. Super dense.

[David Rosenthal]

So the other story is that that was the inspiration for Snickers was putting what the Roman army fed their legionnaires into a candy bar in practice.

[Ben Gilbert]

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 Clif bars and things like that being marketed as energy bars, and Snickers being marketed as candy. But really, what's the difference?

[David Rosenthal]

Snickers launches in 1930. In 1932, they add Three Musketeers to the lineup. Now, Three Musketeers originally was something very different.

[Ben Gilbert]

Yes. 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 at 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 II, they had to cut production to just the chocolate version. I think part of it was also a spike in 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.

[David Rosenthal]

No. No, it doesn't. So if you're paying attention here and thinking, you're like, wait a minute, they built this factory in 1928, 1929, sales are skyrocketing. Frank is living large. 1930, they introduced Snickers. 1932, they introduced Three Musketeers. What else is going on in America? And in the world in the early 1930s. The Great Depression.

[Ben Gilbert]

Yeah.

[David Rosenthal]

This tells you everything you need to know about the resiliency of the candy business. Mars revenue goes up to $25 million in 1932. They're just growing hugely. I mean, what did we say Milky Way did? 800,000 in its first year in 1924.

[Ben Gilbert]

Yep.

[David Rosenthal]

So they go from 800,000 of revenue in 1924 to 25 million in 1932. All amidst the throes of, like, the worst years of the Great Depression.

[Ben Gilbert]

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 an addictive or addictive like activity where you sort of incorporate it into your habitual everyday life. It's a reoccurring purchase. 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.

[David Rosenthal]

That's exactly what I was going to say, Forest. And I think it probably really was Forest here was closely studying Hershey and what they did and realized, oh, yeah, this is a scale business. 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.

[Ben Gilbert]

Yep, absolutely. The other interesting thing is nowadays you've got all these variations of candy. I mean, M and Ms, Peanut, M&M's, Almond, Dark, M&MS, the Milky Way, the Three Musketeers, and the Snickers are all just adding one ingredient to the same thing. Yes, but they're not labeling them that way. They're building entirely different brands and 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. That was not the standard practice then. This is a different product. It needs a different name and a whole different personality.

[David Rosenthal]

Yep. And actually, you know, I think, to be fair to Frank, I think that is really, like, Frank's influence on the business and company there. Forrest, as great as he was at so many things, he was never a product innovator in the way that Frank was.

[Ben Gilbert]

Hmm. Makes sense.

[David Rosenthal]

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, M&MS, which we will get into that was Forrest's big contribution.

[Ben Gilbert]

Yep. So Depression sales are going great.

[David Rosenthal]

Here we are, 1932, the worst years of the Depression, and Forrest totally recognizes all this. Like, we need to invest, invest, invest. Pedal to the metal. We are going to use everything happening here to blow away our competition. We're going to go compete with Hershey. We're gonna become huge. 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? And Forrest's reply to that is, quote, I want to conquer the whole goddamn world. So he issues his dad an ultimatum. Look, obviously, you want to just go enjoy life, let me run things. Give me one third of the stock of the business, you keep two thirds, and you relax, and I will make you even richer. Frank turns him down, and I think.

[Ben Gilbert]

He turns him down 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.

[David Rosenthal]

Yeah. And of course, there's more behind this. 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, that's great. Which boss do you prefer? Right, yeah. 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. Frank's like, yeah, hey, I mean, you're my son, too. You've helped me build this business. But I'm not just going to give you a third of the business. Either way, there's quite a bit of animosity around this. And Forrest walks out and in the process, tells his dad to, quote, stick his business up his ass.

[Ben Gilbert]

There's no missing words in any of these direct quotes. It's crazy.

[David Rosenthal]

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 to build his own business his own way. Leave Mars Incorporated totally behind him. Leave him in the dust almost.

[Ben Gilbert]

He takes with him a right.

[David Rosenthal]

Yes.

[Ben Gilbert]

He has the right to what, David?

[David Rosenthal]

He takes actually two things with him that his dad sort of gives him as he's heading out the door. One, $50,000, and two, the foreign rights to the Milky Way recipe.

[Ben Gilbert]

Yes. But I don't think the Milky Way name.

[David Rosenthal]

No, not the Milky Way name, just the recipe.

[Ben Gilbert]

You can't market this as Milky Way, but you can sell this recipe internationally.

[David Rosenthal]

Yep. So far as takes these two sort of parting gifts, tells his dad that he'll never hear from him again, leaves America entirely, and super sadly, Frank doesn't ever hear from him again.

[Ben Gilbert]

Yeah, this is the last time that Frank and Forrest would ever speak.

[David Rosenthal]

Yeah. The next year, when Frank is just 50 years old, he collapses in the Chicago factory and dies of kidney failure. And Forrest doesn't come back for the funeral.

[Ben Gilbert]

Yeah.

[David Rosenthal]

Yep, that was it.

[Ben Gilbert]

Now granted, in the 30s, much harder to come back from Europe on short notice, but still.

[David Rosenthal]

Yep.

[Ben Gilbert]

So Forrest is over in Europe and the set of events of what he does in Europe to build this ridiculous almost Trojan horse, like the set of skills he acquires, the assets he builds up, is crazy. Before he comes back to the US and before we talk about his European adventure, now is a great time to talk about one of our favorite companies, the climate aligned AI infrastructure company, Crusoe.

[David Rosenthal]

Yes, they build and operate GPU data centers for AI workloads. And each one is powered by low cost stranded energy that otherwise would go to waste or worse, get emitted as greenhouse gases. For this episode though, we thought it'd be fun to talk about what actually goes into building and running a GPU cloud and how it's different from traditional clouds run by the hyperscalers.

[Ben Gilbert]

Right. You might have been thinking, have Ben and David lost their minds talking about a new cloud provider in 2024? Isn't it impossible to compete with the incumbent hyperscalers at this point? And yeah, if you're trying to start a traditional cloud. But GPU clouds are different.

[David Rosenthal]

Yes. Counter positioning.

[Ben Gilbert]

Yeah. I mean, all the infrastructure that the hyperscalers have built up over the past two decades actually is not optimal for GPU clusters.

[David Rosenthal]

Yep. Which brings us to crucial difference number one, location. Hyperscaler data centers need to be physically located where the Internet happens. Like, latency is really, really important when, say, you're powering an e commerce website. But for 99% of AI training workloads, latency actually doesn't matter at all. So instead, Crusoe puts their data centers in remote locations where, quote, unquote, energy happens.

[Ben Gilbert]

Like where oil is being flared and you can take that energy and use it to power your data center.

[David Rosenthal]

Totally. So this not only creates cost efficiencies, it also just enables way more absolute power density in a single location, which is super important when you're trying to build a huge GPU cluster.

[Ben Gilbert]

Yep. And that leads to big difference number two, cooling. AI training generates a tremendous amount of heat. And traditional cloud data centers usually manage that with air conditioning. But air cooling is not going to cut it when you're running a massive GPU cluster full out for weeks or months on end. So Crusoe builds their data halls, which is the rows of racks within data centers with direct to chip liquid cooling. This is where the liquid coolant gets pumped through the racks to cold plate heat exchangers mounted directly on each individual chip.

[David Rosenthal]

Yep, it's super cool. This is all state of the art stuff and impossible for the hyperscalers to replicate in their existing data center footprints. Which means that Crusoe's customers get AI infrastructure that just scales way, way better. Bigger GPU clusters with less failures. And when you're trying to train cutting edge large parameter models, that doesn't just mean lower usage costs and better efficiency. It can mean the binary yes or no difference in being able to accomplish your workload at all.

[Ben Gilbert]

It's just an awesome, awesome company. David and I are super proud to work with them and also to be investors. So to learn more, go to Crusoe AI Acquired. That's C R U S O E AI Acquired. Or click the link in the show notes and just be sure to tell them that Ben and David sent you.

[David Rosenthal]

Thank you, Caruso.

[Ben Gilbert]

All right, for a summer in Europe. A little longer than a summer summer.

[David Rosenthal]

Or close to a decade in Europe. So we're here at the end of 1932. Forrest and his young family now, by the way, with his young son, Forrest Jr. Land first in Paris. And Forrest tries a couple little things. But eventually he decides that if he's really going to build 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 chocolate.

[Ben Gilbert]

Yes. No better place than Europe to learn.

[David Rosenthal]

Here's his quote on it. You can hire lawyers, you can hire accountants, you can hire advertising men or financial types. But if you want to get rich, you got to know how to make a product. And you aren't going to 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. Like, if it hasn't come across already on this episode, he is hall of fame complete G. You gotta.

[Ben Gilbert]

Know how to do the scarce thing.

[David Rosenthal]

Totally so important. So in early 1930, three, Forrest moves his family from Paris to Switzerland to go learn from the chocolate masters. And Forrest goes to work first at Jean Tobler making Toblerone, and then at the original itself, Nestle in the factories.

[Ben Gilbert]

Without disclosing to anyone who he is.

[David Rosenthal]

So, yeah, when I say he goes to work there, it's not like he calls them up and is like, I'm Forest Mars. He doesn't tell anybody who he is. 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.

[Ben Gilbert]

Amazing. Who would do this today? It takes a very specific type of person. If you're sitting there thinking, hmm, only some European company knows how to do this. Well, and I'm someone who attended an Ivy League college, my family is wealthy.

[David Rosenthal]

I'm friends with the duponts. Not only that, I basically feel like I've already built a $25 million business.

[Ben Gilbert]

But I'm going to upend myself, my family and my life and go and be a line worker in a plant in another country. I mean, in this era, in the 30s, 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.

[David Rosenthal]

Yeah.

[Ben Gilbert]

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 going to go to a different continent, move my family up in my whole life so I can go and learn this scarce skill that I know is the key to building a world dominating business. It's a big trade off.

[David Rosenthal]

Big, big trade off and totally on.

[Ben Gilbert]

Brand for forest because 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.

[David Rosenthal]

Well, I think not only is Hershey super secretive, the sense I get, at least from emperors of chocolate, is they knew how to productionize their recipe, but they didn't actually know the science of how it worked. They kind of got there through trial and error.

[Ben Gilbert]

Huh.

[David Rosenthal]

The sense I got is that 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. And in fact, there's a story about how the first plant that Hershey expands to their first, second plant outside of Hershey, Pennsylvania, they can't get it to work. They can't get the chocolate to taste the same.

[Ben Gilbert]

Hmm.

[David Rosenthal]

Because they, like, don't exactly know how they get that specific sour note in the taste.

[Ben Gilbert]

That's so interesting.

[David Rosenthal]

But anyway, back to Forrest. So for most of the year of 1933, they're just in Switzerland and he's working on the factory lines learning how to make chocolate. 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, where He uses the $50,000 to open up a small factory in Slough, England, which is a small industrial town about 20 miles west of London. It's right near where Heathrow Airport is today. And 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.

[Ben Gilbert]

Which basically means more sugar, right?

[David Rosenthal]

Yep, more sugar and less malt. Malt is not as big 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 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.

[Ben Gilbert]

The funny thing is the lineage of this weird family split 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.

[David Rosenthal]

Yes. Now there is also an important difference besides the level of sweetness and level of malt, and that is the type of chocolate that is used in the Mars Bar versus the Milky Way.

[Ben Gilbert]

Ooh, the Mars Bar is Cadbury, right?

[David Rosenthal]

Well, in these early days, yes. So Forrest has now learned how to make chocolate. But of course, with $50,000 in a new startup factory, like, there's no way that he's going to make his own chocolate.

[Ben Gilbert]

Everything we talked about in chocolate making, it's like an insane amount of capex, really hard, easy to screw up, potentially low yield.

[David Rosenthal]

Yep, totally. And like, you know, how are you going to get the supplier relationships for the beans and like, that requires a lot of capital, et cetera, et cetera.

[Ben Gilbert]

And this part of the value chain really wasn't well established yet where there are these companies specifically to go buy commodity beans from. It was starting, but it Was early.

[David Rosenthal]

Yeah. Cargill wasn't the like massive giant with global liquidity for commodities buying and selling that it is today.

[Ben Gilbert]

Speaking of gigantic US privately held companies.

[David Rosenthal]

Yes, exactly. We'll have to do that someday.

[Ben Gilbert]

Yep.

[David Rosenthal]

So as you said, Forrest goes and does a deal with Cadbury's to supply the chocolate for the Mars bar, just like Hershey had supplied the chocolate back in the U.S. this is also important because remember we were saying their 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, even though the core concept is very similar. But it's just a matter of time in Forrest's mind until the operation eventually grows big enough that he can and will make his own chocolate.

[Ben Gilbert]

David, there is a Milky Way that you can buy today in the uk. Do you know what that is?

[David Rosenthal]

Oh, I do, but I'm not remembering.

[Ben Gilbert]

Three Musketeers.

[David Rosenthal]

That's right. I knew it was one of them. I was like, it's not Snickers.

[Ben Gilbert]

That is the brand that they decided to use for three Musketeers overseas.

[David Rosenthal]

And Snickers originally was marathon, I believe in the uk, yes.

[Ben Gilbert]

But now globally, Snickers is Snickers.

[David Rosenthal]

So yes, Farrest 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, pretty quickly it becomes a hit and starts going really well. So by 1939, five years ish after they get production up and running, Mars UK has become the third largest candy company in Britain behind Cadbury and Roundtrees. So like they go from nobody to third largest player. Big industrial scale, pretty quick.

[Ben Gilbert]

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.

[David Rosenthal]

Oh, I didn't know that. Interesting.

[Ben Gilbert]

And so there was a pretty intense spirit behind the company of looking after your community.

[David Rosenthal]

Yep. This is Cadbury's and Ramtree, right?

[Ben Gilbert]

Yeah. In particular, Cadbury built their factory outside the city in sort of this almost attempt at a utopia, very Hershey. Like in the same way that actually Milton Hershey was inspired by when he built Hershey Pennsylvania. So there's this very devout, duty bound religiosity to the existing UK chocolate companies and incomes. Brash. Forrest, who's like, we're going to do things the most efficient we possibly can. We're going to make the most profit we possibly can, and we're going to distribute as broadly as we can, as fast as we can. In many ways, it feels Bernard Arnault esque. Like, you guys, look what I learned in America.

[David Rosenthal]

Yeah. Yes. Very, very much so. It's funny, I wasn't even going to tell this story because a. I don't know how true it is. It's just ridiculous. But we'll tell it because I didn't realize the religious element of the competitors. So Forrest. Oh, yeah. 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.

[Ben Gilbert]

Boardroom, it's a management meeting, it's to.

[David Rosenthal]

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.

[Ben Gilbert]

I pray for Milky Way.

[David Rosenthal]

I pray for Snickers. I pray for mms. And what a freaking character. Yeah. If he was religious at all, he was religious about Milky Way and Snickers and M&Ms.

[Ben Gilbert]

Yep.

[David Rosenthal]

And dog food. So to this Empire thing. So in 1934, just one year after he started the whole thing and started making Mars bars, he comes across this small British company called Chapel Brothers, which had started making, quote unquote, Chappie's brand canned dog food. And this is crazy. At the time, nobody fed their pets pet food.

[Ben Gilbert]

Oh, really?

[David Rosenthal]

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 30s, 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, right?

[Ben Gilbert]

Throw them a ham.

[David Rosenthal]

That's the way you clean the table.

[Ben Gilbert]

Right.

[David Rosenthal]

So I have no idea how or.

[Ben Gilbert]

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?

[David Rosenthal]

Totally. And why did the Chapel Brothers start making pet food? 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.

[Ben Gilbert]

And who are you going to ask? The Chapel Brothers are long dead. Mars isn't going to tell you. But I'm so curious. How did Forrest get the idea, hey, I should go buy a dog food company? When the market for dog food is new and unclear and.

[David Rosenthal]

Yeah, well, I think, you know, look, he was visionary and he got so many things, and I think he probably thought, or maybe the Chappell Brothers thought, and convinced Forrest that, you know, in the post Depression era, you know, the coming modern world, people's relationship with their pets would change and that they would start feeding them dedicated pet food. I mean, and obviously that was a huge, huge trend, and there's kind of.

[Ben Gilbert]

Economies of scale to the manufacturing of this. Making canned dog food isn't that different than making snacks.

[David Rosenthal]

Yeah, it's a manufacturing process.

[Ben Gilbert]

So, yeah, interestingly enough, like, I learned this and the fact that this happened in 1935 completely blew my mind, because I knew that Mars was in the pet food business, much like Nestle Purina is in the pet food business. I thought this was like a recent diversification hedge, but here it is, effectively at the founding of Mars, or at least Forrest's Modern Mars, and he's in the first, second year of business buying and diversifying to pet food. And it was immediately a good idea because it became profitable after just a couple of years and started generating enough cash flow to fund the expansion of Mars bars.

[David Rosenthal]

Yeah, it's good margins in the pet.

[Ben Gilbert]

Food business, apparently, even in 1935.

[David Rosenthal]

Yeah. So 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 Barr on the candy side. He's building a whole new industry on the pet food side. And 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.

[Ben Gilbert]

Oh, yeah. You found the original ones, right?

[David Rosenthal]

Yes. So if you talk to anybody who works or worked at Mars, they will quote the principles at you religiously.

[Ben Gilbert]

It's like the Amazon leadership principles.

[David Rosenthal]

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, Forrest started a document called the Mars Way, where he was like, codifying all this. And I think. And after he retired and the business passed to his sons and 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. Forrest was completely obsessed with quality on every dimension. You know, the ingredients that are going into the candy bars, the candy bars themselves, the wrappers, the shelf placement displays. He was way ahead of the curve on all this stuff. He knew that 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 in the shelf in the retailer, how consistent it is, how consistent it is. These were like big, big drivers of purchases.

[Ben Gilbert]

And there's, of course, the famous story about he, 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.

[David Rosenthal]

Yeah, I'm laughing. You say famous story. I'm like, which one? I think there are a million of these stories. But even here in the 30s in the UK, he basically implements the Toyota production system in the Mars factory. This is long before the Toyota production system exists. Any employee in the factory could stop the line for any reason at anytime. 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.

[Ben Gilbert]

And he also, if something had a defect, he would throw out the whole batch, Right?

[David Rosenthal]

Yes.

[Ben Gilbert]

As like a let's scorch the earth around the defect.

[David Rosenthal]

Yep. 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 stopped the line and be like, you needed to have stopped and fixed this. 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 sake. 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. Forrest knows that if you can offer a higher quality for a given price than your competitors, you're just going to build a lead and compound forever and ever and ever in this business.

[Ben Gilbert]

Interesting.

[David Rosenthal]

So quality principle number one, most important two. 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 a micromanager. He wanted to know how to do everything in the business, including making chocolate. But he knew that if he was going to scale, he wants to be Dupont here, he wants to be General Motors. He needs the best people working the hardest in charge of everything. He can't be around telling them how to do their jobs. 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 incentivize them? He's like, well, I'll just pay them. 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.

[Ben Gilbert]

That's so insane.

[David Rosenthal]

And I think that's come down over the years. It's now like 2x, but it's still true.

[Ben Gilbert]

I even saw numbers that say they try to pay their employees a minimum of 10% higher than other companies in the industry.

[David Rosenthal]

Interesting. But definitely in those early days, it's like, no, we're going to pay you three or four times the amount that you would make elsewhere.

[Ben Gilbert]

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.

[David Rosenthal]

Exactly. Okay, so 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. Again, starting in the earliest days there in Slough, tied to overall company performance 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.

[Ben Gilbert]

Did you show up on time?

[David Rosenthal]

You get a 10% bonus if you are never late in the entire year. And it's everybody, from Forrest himself on down, everybody has a time card. You punch the time card when you go in.

[Ben Gilbert]

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 10% bonus is contingent on not being late.

[David Rosenthal]

So even more, I don't think this terminology starts until they get back to America. But 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 for anyone. So there are no executive parking spaces. There's no executive offices.

[Ben Gilbert]

Boy, Forrest really wants to rebel against his father.

[David Rosenthal]

There are no offices Period. To this day at Mars, is this.

[Ben Gilbert]

The first open office company?

[David Rosenthal]

So we said on the Meta episode that we thought Facebook was the first open office. No, Mars was the first open office starting in the 1930s. So every building entirely open. Floor plan, you get a black metal desk. 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.

[Ben Gilbert]

Oh yeah, because they hate presentations, right?

[David Rosenthal]

They hate presentations, they hate meetings. But like, sometimes you have to have a meeting. The conference rooms do not have doors. There is no privacy allowed anywhere. 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. And Forest is doing this in the 30s. This is crazy.

[Ben Gilbert]

I was going to save this for later, but this is a fun time. I Google mapped the recent factory that they built to make M&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 expect from anything that's on Google Maps. And it's pretty dated. It's just a very boring drop ceiling, 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 MMs waving at you out of the parking lot.

[David Rosenthal]

I think that's the standard decoration. Yeah. You can tell how pissed Forrest was at his dad about the Chicago factory specifically, but also just like how deep seated this is.

[Ben Gilbert]

Yep.

[David Rosenthal]

Okay, so then principle number three is mutuality. So Forrest obviously is like hyper competitive, but he also knows that this is an ecosystem that he's in and the retailers are super important, the suppliers are super important, distributors are critical.

[Ben Gilbert]

Everyone needs to make money and everyone needs to be incentivized for the long term.

[David Rosenthal]

And as long as his partners are making money and making more money selling Mars products or supplying Mars than they are any of Mars competitors, that's going to be a compounding advantage.

[Ben Gilbert]

Yep.

[David Rosenthal]

So that's three. Four is efficiency. 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 literature. Like, I don't think anybody was reading business management literature in the 1930s and 1940s.

[Ben Gilbert]

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, it was like stocks were gambles. 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.

[David Rosenthal]

Totally. I mean, Buffett had to go study with Ben Graham to learn this stuff.

[Ben Gilbert]

Yep.

[David Rosenthal]

So while he's in England, Forrest reads a textbook called Higher Control in Management by TG 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.

[Ben Gilbert]

It's quite academic.

[David Rosenthal]

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. And again, if you talk to anybody in Mars today. Rota, Rota, Rota, Rota. Everything is about rota.

[Ben Gilbert]

It's funny, I came across this researching. I had to look up the term we've never studied in on an episode before.

[David Rosenthal]

All right, so what is return on total assets? It is net profit dollars divided by the total dollar value of the company's fixed assets.

[Ben Gilbert]

So it's effectively an efficiency metric of your profits divided by your fixed cost of your assets.

[David Rosenthal]

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, whatever this is valued at on our balance sheet, whatever it cost us to build this factory 10 years ago doesn't matter. What matters is what is the value of it today.

[Ben Gilbert]

Oh, interesting.

[David Rosenthal]

So they are constantly revaluing what the replacement cost is of all their fixed assets, all their factories, et cetera. Of like, okay, if this factory disappeared.

[Ben Gilbert]

What'S the market value if we were to sell this thing and get rid of it.

[David Rosenthal]

Exactly. And so that way they're always making sure that they're like, hey, we're really efficiently using our assets. We're not just artificially being efficient based on what we paid for them 10, 20 years ago.

[Ben Gilbert]

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.

[David Rosenthal]

This business, 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.

[Ben Gilbert]

So you're basically wanting to say 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?

[David Rosenthal]

Exactly.

[Ben Gilbert]

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 time, which is our fixed resource?

[David Rosenthal]

Well, it depends. I think what you think is more valuable, our time or the acquired brand? We should probably do both, actually.

[Ben Gilbert]

Who knew this would turn into an actual holiday special?

[David Rosenthal]

Yeah. So anyway, supposedly Forest had, and Mars has, or at least used to have a specific target of 18% 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. So if you're making 18% of your value back every year, you know, that would be like 5, 6 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, anytime Forest is making a decision to invest in something, he's like, I want like four year payback on this, four to five year payback.

[Ben Gilbert]

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.

[David Rosenthal]

If you're higher, then you're taking too much profit.

[Ben Gilbert]

You're taking too much profit, which is bad for your customers or you're not reinvesting aggressively enough.

[David Rosenthal]

Yeah, you should be spending more on advertising and marketing, et cetera, et cetera.

[Ben Gilbert]

Right. It's totally fascinating. I have a couple other things on efficiency that I was going to say for Playbook, but since we're here, we should bring them up.

[David Rosenthal]

Yeah, let's do it.

[Ben Gilbert]

So this one comes from a friend of the show, Arvind Navaratnam at Worldly Partners, who writes this great research that we link to for every episode. Now, he pointed out that despite operating with 30% fewer employees than its closest competitor. So today this is Mars versus Hershey. Mars generated more output per worker than any other in the industry. So in 1990, for example, Mars revenue averaged 429,000 for employee compared to 228,000 at Hershey. So they're just doing more with less.

[David Rosenthal]

Yeah, miles ahead.

[Ben Gilbert]

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 24 hours a day. And at that Chicago plant, I think today the fun size Milky Way bars are produced at over 5,500 bars per minute. It 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 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 turn 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.

[David Rosenthal]

It is. It's totally a flywheel type reinforcing structure where it all fits together.

[Ben Gilbert]

The other thing that they do is they aggressively try to reinvest profit dollars back into the business, doing things like R and D on new types of manufacturing equipment that they can build for their plants. 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.

[David Rosenthal]

Yep, totally.

[Ben Gilbert]

It's very John Malone esque. They want to keep as much capital in the business as possible and not recognize a lot of it as income.

[David Rosenthal]

Yep. Malone and Buffett too.

[Ben Gilbert]

Yep.

[David Rosenthal]

So then that brings us to the last principle, which is freedom, which I think in the early days here, 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 and not going public, being a private company, not taking on debt. And then in the next generation after Forrest and beyond, it means 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. They really, really mean it about being private.

[Ben Gilbert]

In fact, when Joelle wrote the Washington Post article, do you know the thing about the photographs?

[David Rosenthal]

I think it was the first time that John and Forrest Jr. Had ever been photographed in public.

[Ben Gilbert]

It was. But then Mars didn't like the Washington Post article. They 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 $20,000 for the rights to the photos to be sure they couldn't be reused.

[David Rosenthal]

Yeah, wild, just wild.

[Ben Gilbert]

But as we've talked about, from 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 ten years from now. If you believe in the long term vision, you can sub optimize the short term. And for Mars, that means private ownership.

[David Rosenthal]

Yep. And I think it means things like you can operate with Rota as your primary operating metric instead of profitability.

[Ben Gilbert]

Good point.

[David Rosenthal]

So back to the forest. Mars story in progress. Starting up in the 30s, 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, riding high. And then the end of the 30s brings something else, which of course is World War II.

[Ben Gilbert]

Yep.

[David Rosenthal]

Now, to hear Forrest tell it, the UK government decides that in order to help fund the war effort, they're going to impose a very heavy tax on all foreign residents living within the country, which of course would include Forrest and.

[Ben Gilbert]

Lamar's family, which is kind of an interesting philosophical tax. We need to go to war. How are we going to 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.

[David Rosenthal]

Right. And so he would also claim that he believed that it was Cadbury's and Roundtrees that actually lobbied parliament to implement this tax expressly to run him and Mars out of town because they were threatening their business.

[Ben Gilbert]

Chocolate was a big national business. They were among the biggest companies in the country.

[David Rosenthal]

Totally. 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 to do it. In fact, it was a very, very good time to do it. So in 1939, he leaves all of his businesses running in the UK and he moves with his family back to the US also.

[Ben Gilbert]

That's crazy. The fact that you can trust someone in the UK as World War II is breaking out, hey, you run these businesses 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.

[David Rosenthal]

Totally. Right. Which if Cadbury's and Roundtrees was actually behind trying to run Forrest out of town. Clearly they didn't know the loyalty of his employee base well enough. Yeah, yeah, totally wild in 1939 that Forrest could do that. So he moves back to America, and of course he has his sights set back on Chicago and Chicago. Mars.

[Ben Gilbert]

Honey, I'm home.

[David Rosenthal]

Yeah, remember, Frank had died a few years before. And at this point, Chicago Mars is being run by Forrest's widowed stepmother, the other Ethel, and her half brother, who is the president and CEO of the business. And they of course detest Forrest and they won't let him anywhere near the company.

[Ben Gilbert]

And who owns the company at this point?

[David Rosenthal]

So Forrest has some shares after his dad has died, but he's by far a minority shareholder. The biggest shareholder, I believe, is the other Ethel, the second wife. And then Forrest's half sister, Patricia, her daughter also holds a large stake. And then I think the employees of the business owned equity at this point. So Forrest, I don't know. I'm guessing he probably owns maybe 10, maybe 20% of the business. Not enough to be a controlling shareholder. Okay, so Forrest does what Forrest 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, which.

[Ben Gilbert]

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 kind of 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?

[David Rosenthal]

Which, on the one hand, he has more connection here and more resources. On the other hand, he's battling the old Mars at every step of the way.

[Ben Gilbert]

Right. And he hasn't lived here in close to a decade.

[David Rosenthal]

Right. But he's confident in his chances because he has brought back a secret weapon. Before Forrest 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, called drage. And I think it's called Drage because I believe it was originally a French style of candy intended for French noble ladies who wanted to eat chocolate but not have the chocolate melt on their white gloved hands.

[Ben Gilbert]

Oh, interesting.

[David Rosenthal]

And so what is Drage? Well, drage is small, round pieces of chocolate coated with a candy shell to prevent them from melting in your hand or in hot weather.

[Ben Gilbert]

And confectioners call this hard panning, the colored candy shell, which is effectively hardened sugar syrup.

[David Rosenthal]

Yes. And so farrest as he's heading back to the US thinks, you know, I think there might be some global appeal here in this Drage product. But before we tell The M&M's story, now is a great time to tell you about one of our favorite companies, Statsig.

[Ben Gilbert]

Yes, we are going to do something a little bit different today, listeners, by sharing a story from one of their customers, bluesky.

[David Rosenthal]

I was somehow not at all surprised when Statsig told us bluesky was a customer. It really does seem like every up and coming tech company these days is using Statsig, OpenAI, Figma, Vercel Notion, BlueSky, et cetera.

[Ben Gilbert]

Yep. So listeners, by this point you've probably heard of bluesky. They're a new open social network that has a serious emphasis on user choice. For example, users can build their own home feed and move between apps in the open ecosystem. And if you ever Decide to leave BlueSky or Switch providers, you can just take all of your followers with you. They've got a ton of momentum. And David, I didn't even tell you this yet. I actually just set up the HiredFM account there yesterday.

[David Rosenthal]

Ah, I saw the email come into the acquiredFM email address. That must be what that was.

[Ben Gilbert]

Yep.

[David Rosenthal]

The influx of new users that they have gotten over the last few weeks is massive. They have added 10 million new users just in the last couple of weeks. Pretty crazy for a relatively new social media app.

[Ben Gilbert]

Yep. And the bluesky team has been using statsig for pretty much everything from running experiments to collecting user analytics and releasing new features.

[David Rosenthal]

We asked bluesky to share a couple specific use cases with us to illustrate. 1. When the Brazilian Supreme Court banned X in Brazil, Bluesky obviously saw an influx of Brazilian users. The way they realized this was statsig. They had a dashboard that tracked posts by language and all of a sudden they saw Portuguese posts spike, which tipped them off. 2. You may also be one of the many people crying out that you just wish you had a feed of people you follow in chronological order. Like the old days of social media, bluesky has been using Statsig to run an experiment to mathematically prove that users want and enjoy this style of browsing a feed. It's kind of an inversion of the rest of algorithmic social media these days.

[Ben Gilbert]

Totally. So listeners, we are a grownup podcast now and we do things like get real quotes from customers as a part of segments like this. So here's what bluesky's CTO had to say. Bluesky collects a lot of feedback from users, but statsig gave us concrete answers about what was working and what Wasn't. We thought that we didn't have the resources for an A B testing framework, but statsig made it achievable for a small team. It remains our best tool for evaluating product decisions.

[David Rosenthal]

So good. If you want to leverage statsig to grow your business, there's a bunch of ways to get started. Statsig has an insanely generous free tier for small companies. A startup program with 1 billion free events, which is $50,000 in value and significant discounts for enterprise customers. To get started, just go to statsig.com that's S T A T S I G dot com acquired. And remember to tell them that Ben and David sent you.

[Ben Gilbert]

All right, David. M&Ms. Let's do it.

[David Rosenthal]

Hell yeah, let's do it.

[Ben Gilbert]

I'm going to eat some dark chocolate and some almond M and Ms. To celebrate.

[David Rosenthal]

Ooh, nice. I think I'm going to pop a peanut butter. Okay. So the legend is that the reason peanut butter M and Ms. Are not as big as what you would think their market potential is in the US is because Forrest Jr and John Mars, the sons of Forrest Senior, who would take over and then launch peanut Butter M&MS. They grew up in England, so they didn't get the peanut butter and chocolate thing.

[Ben Gilbert]

Mm. Is that like a uniquely American.

[David Rosenthal]

Yeah, it's an American thing.

[Ben Gilbert]

Fascinating.

[David Rosenthal]

Reese's kind of invented it. And there's a whole great Reese's story. Reese's was a separate company from Hershey that was built down the road, and.

[Ben Gilbert]

I think it was a former Hershey employee.

[David Rosenthal]

Former Hershey employee started it, and then Hershey's later acquired the company. Great story.

[Ben Gilbert]

Yep.

[David Rosenthal]

Anyway, here we are in August of 1939. Forrest and the family have moved back to America. He's ready to hatch his plan, his revenge campaign, and he goes and pays a visit to Hershey, Pennsylvania. And by pays a visit in typical Forest fashion, I mean that he shows up there anonymously and unannounced, and he signs up and does the public factory tour.

[Ben Gilbert]

So awesome.

[David Rosenthal]

So forest. So freaking awesome. After the tour is over, however, he asks the tour guide if he could please go see Mr. William Murray. William Murray, of course, being the president of Hershey and Milton Hershey's longtime number two president and COO type. 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.

[Ben Gilbert]

And the gist here is, I need to buy some chocolate.

[David Rosenthal]

Well, let's keep telling the story. So the guide's like, excuse me, who are you and why do you Want to see Mr. Murray? To which Forrest replies, just tell him Mars is here. That's all he needs to know.

[Ben Gilbert]

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.

[David Rosenthal]

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.

[Ben Gilbert]

Right. Because his father's past at this point. So the Mars that it probably is is whoever is running the Mars company.

[David Rosenthal]

Right. It's Ethel number two's half brother who is installed running the company. Either way, Forrest does get in to see William Murray. And Murray has never met Forrest before, but of course knows who he is once Forrest introduces himself and Murray's like, great, okay, you're back in the U.S. what can I do for you? Forrest 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 are Drage candy coated chocolates.

[Ben Gilbert]

This is so Steve Jobs.

[David Rosenthal]

So Steve Jobs.

[Ben Gilbert]

Showmanship.

[David Rosenthal]

It's amazing.

[Ben Gilbert]

Drama.

[David Rosenthal]

It's amazing. Forrest is like, try one. So Murray does, and he's like, yeah, it's pretty good. Forrest says, what if I told you that I have had these candies in my pocket 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, 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, all right, you've got my attention. So Forrest and William Murray work out a deal to start a new joint venture candy company that will be 80% owned by Forrest and 20% owned by Murray's son Bruce. And Forrest says, I've even got the name for it. We're going to call it Mars and Murray M&MS.

[Ben Gilbert]

And it's a new company. That's what's worth noting here.

[David Rosenthal]

Well, several things are worth noting. Obviously, Forrest is totally brilliant. This is probably his most brilliant scheme on so many levels. He knows that if he's going to build a new candy company, come back to the us, take on and defeat his father's old company in Mars, he's going to need resources he's going to need chocolate, which means he's going to need Hershey's chocolate.

[Ben Gilbert]

Yep.

[David Rosenthal]

And he's also going to need capital and money. He just can't get that much capital out of his UK business as remember the tax. 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. But even more important, Murray doesn't own Hershey. He's just an employee. The Hershey Trust owns Hershey. Murray has no inheritance to give his family. He's now at this point, I think Murray is 66 years old.

[Ben Gilbert]

So Mars is dangling something he wants.

[David Rosenthal]

Forrest is offering Murray the chance to have wealth and a legacy and a business to pass on to his son.

[Ben Gilbert]

Do you know what else Bruce Murray had?

[David Rosenthal]

Access to the military.

[Ben Gilbert]

Yep.

[David Rosenthal]

Purchasing division. Yes. Okay, we will get into that. It's so brilliant.

[Ben Gilbert]

So this deal is nuts because Hershey has an exclusive arrangement to supply chocolate to the US military. The exclusive agreement. And Forest Mars has this thing that. God, if you think the military liked count lines, they are going to love these non melt candy coated chocolates. And so he is going 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 II for the military. We're only going to sell this to the government. I'm going to own 80% of it. Your son's going to own only 20% of it.

[David Rosenthal]

I'm showing up with just the idea.

[Ben Gilbert]

And Hershey's gonna provide the chocolate, the sugar and the technical expertise and capital.

[David Rosenthal]

Yep.

[Ben Gilbert]

And it's gonna be an 8020 deal. I don't understand how this deal got done.

[David Rosenthal]

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 Hershey.

[Ben Gilbert]

And in fact, I would guess it's to avoid a conflict of interest for Murray himself to say, my partner is actually your son, not you.

[David Rosenthal]

Yeah.

[Ben Gilbert]

So his employment contract isn't in violation.

[David Rosenthal]

And he's only a 20% 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 going to be 50, 50, if not 80, 20. Murray to Mars. But by saying, know your son. Yeah, he's just so freaking brilliant. What a G. Yeah. So Murray agrees to this. And in the spring of 1940, Forrest and Bruce Murray, the son, set up M&M Limited as a partnership. They build a factory in Newark, New Jersey, and they start production in 1941. Ben, as you say, build a factory with Hershey capital and resources and chocolate and sugar and everything else.

[Ben Gilbert]

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, but with the support of his leading rival, Hershey.

[David Rosenthal]

Yep.

[Ben Gilbert]

It is spooky.

[David Rosenthal]

It's like, you want to say diabolical. But, like, I don't think Forrest is diabolical per se. It's just truly genius.

[Ben Gilbert]

It's just strategic.

[David Rosenthal]

Yeah. So, of course, now, what else happens? In 1941, right. As they set up the factory and start production, the US enters World War II, which means significant chocolate rationing for all the consumers in America and significant chocolate consumption by the military. So all of a sudden, the US Military becomes Hershey's biggest customer, just like during World War I. Which means.

[Ben Gilbert]

And Hershey's is the only one with a chocolate contract and the only one.

[David Rosenthal]

Producing milk chocolate at significant scale in America. Which means that they start severely limiting their wholesale chocolate supply to all of their enterprise custom. Like Chicago Mars. Or actually, they limit their chocolate supply to all of their wholesale enterprise customers except for one. Mm, limited partnership. Because, of course, it's Bruce Murray's company.

[Ben Gilbert]

Yep. Sort of in minority.

[David Rosenthal]

Yes. 20% of it is Bruce Murray's company. Now, of course, just like Hershey, the vast majority of young Eminem limited partnerships production is also going to the military. So the Air Force was the biggest customer of M and Ms. During World War II. The army was number two. I presume the Navy was probably also a large customer. And like we've been talking about, who has the chocolate sales relationship with the purchasing officers in the Pentagon, it's William Murray at Hershey's. And Bruce gets to tag right along. And as head of sales in the new M and M limited partnership, he is perfectly positioned to do that.

[Ben Gilbert]

It's so funny. Head of sales, there's one customer.

[David Rosenthal]

Yes.

[Ben Gilbert]

They're not selling it to the public yet.

[David Rosenthal]

No, there's three customers. There's the army and the Air Force and the Navy.

[Ben Gilbert]

Okay.

[David Rosenthal]

Yeah. They're not selling it to the public yet or at any sort of real volume. Now, there's an interesting little sidebar to the M&M's story here. And I suspect many of our British friends are listening to all this and saying like, hey guys, what about Smarties? Forest, of course, was not the only one to spot the potential of Drage chocolates for military use and then eventually for 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 Roundtrees introduced Smarties to the British market in 1937. So three to four years before Eminem's startup in the US and two years before Forrest even leaves the UK. Right.

[Ben Gilbert]

So he's saying it's this Spanish American war thing, but very plausibly he just saw Smarties in the UK and was like, I gotta go back to America and launch this quick.

[David Rosenthal]

There is no way that Forrest did not see smarties in the UK before he left. And the early MM's came in tube packaging, just like Smarties. Suspicious.

[Ben Gilbert]

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 are in the US market.

[David Rosenthal]

Yes, 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 anyone can tell, apparently there is some documentation about this in the Nestle archives. Apparently Forrest and George Harris of Roundtree had both learned about Droge's around the same time. So during the Spanish Civil War. And supposedly they negotiated a gentleman's agreement that Roundtree could halve the British market for Drage candies. And Forrest, who was at this point in time starting to plan to go back to the U.S. anyway, he could have the American market. And in return, Forrest supposedly gave Roundtree the rights to manufacture and market Mars bars in other British Commonwealth countries like Canada and South Africa. So supposedly there's evidence to this effect in the Nestle archives, but we can't know for sure. 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 II. Okay. Meanwhile, during the war, as M&M's is starting up and the US military is a big customer and Forrest is sort of rebuilding his empire in America, he's on the lookout for his chappies equivalent to bring into the us.

[Ben Gilbert]

You talk about rice, time to talk about rice.

[David Rosenthal]

Another business that can provide, you know, diversification and cash and resources to build up the Candy business.

[Ben Gilbert]

This is so crazy. He owns a British company that makes Mars bars. He bought the Chappell Brothers. He started a new partnership in the US a third business called Eminem Ltd. And now he's looking to start a fourth company that makes rice.

[David Rosenthal]

Yes, in Houston, Texas. So there are also, as always, a couple versions of this story. But I think the one that is closest to the truth is that back when Forrest was in England, he had gotten to know a chemist who had invented a new method for milling rice that was called parboiling. And when you parboil rice through this new method, it results in more nutritious and importantly, faster cooking rice for when you ultimately prepare it for eating. And in 1942, this chemist, Ann Forrest form another joint venture company in Houston, Texas. And they patent the method in America and start producing rice to sell just like M and Ms. To the military. Because what's the military need? A lot of cheap calories rice. And hey, this is more nutritious. It cooks faster. Like great, great customer. And this becomes Uncle Ben's Rice today. Ben's Original. The idea of launching a branded rice product in America was crazy. I mean it's not as crazy as like the pet food business, but there were no brands in the rice category before Uncle Ben's.

[Ben Gilbert]

You just bought rice. It's a commodity.

[David Rosenthal]

So this is the first brand, at least in rice ever launched in America. Fast forward today, Ben's Original does over a billion dollars in revenue annually. Crazy listeners.

[Ben Gilbert]

You can tell all these did become one company at some point. But at first they weren't right.

[David Rosenthal]

It was all these puzzle pieces that Forrest was assembling. So back to MM's after the war. Forrest and Bruce Murray, of course, now need to find new customers for MMs. They're going to relaunch it as a consumer candy. Like obviously that was the plan. Use the military, bootstrap up the production, Hershey's resources. But like obviously this is going to be a consumer candy.

[Ben Gilbert]

So yeah, it's crazy. Basically five years elapsed between when they founded the company and when they are able to actually do the consumer launch because of World War II.

[David Rosenthal]

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 going to be the same story as Hershey's bar is all over again. It's going to make M and Ms. Be Forrest's big success coming back to America. Nope. Consumer launch, pretty tepid. Doesn't get a lot of pickup. Back with Consumers in America for years. For years. This, of course, as you would imagine, creates quite a lot of tension between Forrest 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 to consumers, not so much. So did you hear about what supposedly Forrest did to Bruce here?

[Ben Gilbert]

No.

[David Rosenthal]

Oh, my gosh. So the story is, as sales are not going well, Forrest orders Bruce to produce a daily report of the past days sales of M and Ms. In a written form to him every morning in the office. And every morning where the previous day's sales did not hit Forrest's target, 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 in the company. We've obviously been very laudatory of Forrest, and he was incredible, incredible genius. The dude also had a temper to match his genius.

[Ben Gilbert]

Is he trying to get Bruce to leave the company at this point, or is he just trying to motivate him?

[David Rosenthal]

Well, yes. So here's the thing. You know, you read about lots of people who worked for Forest and 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 doing things 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 M&Ms. 100%. So in 1949, four years after the end of the war and middling sales at best of Ebony's, Forrest finally succeeds in pushing Bruce out. And supposedly it comes down to a confrontation one day where Bruce is like, I can't take it anymore with Forrest how you're treating me? You know, posting these reports in the men's bathroom. Supposedly they get into a literal fistfight in the office in New Jersey. Forrest kicks Bruce out of the plant, as, you know, security or whatever, come and take him out.

[Ben Gilbert]

And Forrest is his boss. I mean, this guy owns 20%, but Forrest is the CEO. It's not like he can take his shares, but he can fire him.

[David Rosenthal]

Exactly. So Bruce resigns. And then once Bruce resigns after this, this starts the negotiations of Forrest buying out his 20% stake. They settle on $1 million for the 20% stake. So they're valuing the M&M's business at $5 million, which this is 1949. So if you adjust for inflation in 20, $24, that would be like valuing the business at 65 million and buying Bruce out for 13 million so, meh, you know, $13 million payout in today's dollars for Bruce to walk away for.

[Ben Gilbert]

A company that it's not clear it's going to catch with consumers.

[David Rosenthal]

Right, Exactly.

[Ben Gilbert]

Okay. You worked on it for. Well, it's nine years of work.

[David Rosenthal]

Yeah, it's nine years of work. So, like, you know, I think you could really debate the valuation there in both sides. Certainly M&MS. Were not yet M&MS, but in fact.

[Ben Gilbert]

They hadn't even started having the Ms. Printed on them yet.

[David Rosenthal]

No, they hadn't. As soon as Forrest completes the purchase and kicks Bruce out of the company, takes 100% ownership, he goes in 1950 and hires the ad agency Ted Bates & Co. To perform a comprehensive market study for the product. This is also another genius innovation on Forrest's part. So other big diversified CPG companies like Procter and Gamble, they were starting to do the sophisticated kind of market research here. Like we're talking about the legendary Procter 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. This is emblematic of the industry. Hershey had a strict policy of not advertising at all. No advertising whatsoever. They did not do any advertising until 1970.

[Ben Gilbert]

That's so insane.

[David Rosenthal]

Which is absolutely freaking insane.

[Ben Gilbert]

They didn't have sales targets, targets either. Right.

[David Rosenthal]

The story about sales targets and revenue growth targets in Hershey was that in some file card in some system, Milton Hershey had written gross sales 4% every year. And that was the plan. That was Hershey's annual plan. Was gross sales 4%.

[Ben Gilbert]

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, it's marketing innovation. Like who won chocolate between 1950 and 2024 is a story of marketing and distribution.

[David Rosenthal]

Yes, 100% 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, 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 marketing discipline.

[Ben Gilbert]

Yeah.

[David Rosenthal]

So the Ted Bates Agency goes off, they do this product study, market study of who do M and Ms. Appeal to, and they find that actually M and Ms. Are super Appealing to kids. Now this is interesting. The candy industry had obviously started as a kid's market, but by this point in time, it's an adults market. Everybody's marketing to adults. That's where everybody thinks the market is. And M and Ms. And smarties, et cetera. This had started as food for soldiers, so they were focusing on the adult market. 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.

[Ben Gilbert]

So you gotta market to the parents to buy em for the kids.

[David Rosenthal]

Exactly. So they need to come up with some way to get that message across to the parents. 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 the milk chocolate that.

[Ben Gilbert]

Melts in your mouth, not in your hand.

[David Rosenthal]

And it's become like water. These days. Everybody knows that slogan. 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. And the core truth that it gets at is, yeah, you want your kids to be happy, but really what you want is for your kids not to cause chaos in your home.

[Ben Gilbert]

David, how do you know all this information?

[David Rosenthal]

I'm just reading about this and thinking of like, oh my God. Imagining myself as a parent in, you know, 1950, 1951, when this comes out, the last thing in the world I want is my snotty nodes. 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 2024.

[Ben Gilbert]

Yep.

[David Rosenthal]

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.

[Ben Gilbert]

Yep.

[David Rosenthal]

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. And boy, does it work by 1956. So they start this campaign and call it 50:51. So five years later, M&Ms. Have become the biggest selling candy in all of America, doing over $40 million in annual sales and growing super fast. Bigger than Snickers, bigger than Milky Way, bigger than the Hershey's bar. Incredible.

[Ben Gilbert]

Wow.

[David Rosenthal]

Five years from basically zero to $40 million in sales. They're just crushing it.

[Ben Gilbert]

And they're starting to get worried about copycats, they start adding the little M's. Actually, they were black at first, and then in 1954, they transitioned it to white and they ran a second ad campaign telling consumers, look for the M on every piece to verify the authenticity. So they're saying that we're building IP here. We're not just making candy. We are building a frame of mind and a nostalgia point and a trust with consumers.

[David Rosenthal]

Yep. And of course, today I say as I pop some M and Ms. Into my mouth, M and Ms. Are not just a kid's candy. Kids still love them, but adults love them too. But it's back to this nostalgia thing. Like everybody today who is an adult eating M and Ms. Grew up eating them as kids.

[Ben Gilbert]

Yep. 1954, there's the first TV 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. Actually a few different versions of them, but pretty consistent concept all the way from then till now. The personality's changed a little bit. But these personified MM's that have witty stuff to say is there pretty early?

[David Rosenthal]

Yep, totally.

[Ben Gilbert]

Speaking of copycats, M and Ms. Were so successful that Hershey's really was getting worried. David, as you said, it became the better selling candy than Hershey's bars. So Hershey's launched something called Hersheyettes and we'll link to it in the show notes. It's fun looking at the old marketing for this failed product. The biggest issue with marketing Hershey ETS is people would say, what is it? And in order to say what it is, you had to say, they're like M&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 so you become the product of record or of reference. When people are trying to describe the category M and Ms. Was that to a T?

[David Rosenthal]

Totally, totally was.

[Ben Gilbert]

Hershey's would then later, as a part of the Reese's franchise, try to do Reese's Pieces. Actually, there's a fun story around that that we will talk about a little bit later. But here in 1954 land, there's just a lot of fun dialing in happening of all the marketing. The Peanut MM's launched, but first only in tan. They then realized, what are we doing that we need to change this? So in 1960, they added yellow, red and green right around the Same time in 1955, TV started becoming a real factor in Americans homes 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 Deborah Cadbury puts it really well. She says one great TV campaign could shift decades of customer loyalty in a matter of weeks.

[David Rosenthal]

Especially in a new category like candy coated chocolates.

[Ben Gilbert]

Yep. 1955, Mars also gets into the vending machine business. Interestingly over in England they start this business called Vendpak which created the earliest vending machines. They eventually sold this off in 2006, 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.

[David Rosenthal]

Yeah, they also got into change makers like, you know, you put bills in and you get coins out.

[Ben Gilbert]

Oh, interesting.

[David Rosenthal]

Yeah. So speaking of empire minded, at this point Forrest's empire is pretty much complete. He's got the most popular candy bar in the UK with the Mars bar, Mars. European operations have become very, very large in and of themselves.

[Ben Gilbert]

I think they had started making their own chocolate instead of buying from Cadbury by this point.

[David Rosenthal]

I think that's right. I think they had transitioned or were transitioning to making their own chocolate in the US obviously he's got M&Ms, which are now 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. All told, all of his sets of companies I believe here now in the call it mid to late 1950s, are doing like 200 million ish in revenue. Wow. So a big empire. However, there are two things that he still doesn't have. One of course is his father's company, Mars Inc. Chicago Mars.

[Ben Gilbert]

And he owns what, 10ish percent around this point.

[David Rosenthal]

But he doesn't control the company. 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 in America.

[Ben Gilbert]

Right. Because if Hershey's cut him off, M and Ms. Would be screwed. He has a big liability there. Now of course Hershey's doesn't want to do that because then they'd lose a whole lot of business.

[David Rosenthal]

They'd lose their biggest customer. Yeah, exactly. And probably Also knowing Forrest was strategic when he chose to push Bruce out of the business, because I believe William Murray had already retired from Hershey's at that point. It would be like Forrest to plan all that out to a T. Yeah. Anyway, like I said, at this point, Forrest's empire is doing call it 200 million ish of revenue annually around the world. And Chicago Mars had about 50 million of revenue. So Forrest 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.

[Ben Gilbert]

It's about 2/3, 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.

[David Rosenthal]

Yep, I think that's right. And I think maybe Forrest and Patricia got like some small stakes at that point in time.

[Ben Gilbert]

Okay.

[David Rosenthal]

And Ethel, like we said, installed her half brother William running the company. Ethel dies in 1945, and when that happens, her stock gets split 50, 50 between Patricia and Forrest. Per Frank's original will, Ethel had 2/3. 1/3 goes to Patricia, one third goes to Forrest. As we get on into the 1950s, and Forrest has now turned M&M's into a big success, he starts turning his attention to Chicago Mars. 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 to come in 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 it.

[Ben Gilbert]

There's a fox that wants to hang out in our hen house. Is there anything anybody sees that's an issue here? Nah, just build him an office.

[David Rosenthal]

Clearly they did not know Forrest very well because 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 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 Forrest should take over.

[Ben Gilbert]

This is not so different than how Elon ended up owning Twitter.

[David Rosenthal]

Yeah, yeah. It actually is very similar.

[Ben Gilbert]

Oh, I'm just a 5% position. Oh, I should be on the board. Oh, I have recommendations.

[David Rosenthal]

Yeah. Before you know it, this is exactly the same way. Oh, boy. Still, though, William and Patricia and the rest of the management isn't going to get on board with selling to Forrest or letting him take over. And in fact, in 1959, William retires as CEO. Forrest 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. 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. Whether he was a good employee or not, he is a totally, totally terrible CEO of Mars Chicago. So once he takes over in 1959, revenue drops from about 50 million, like we said to. By 1963, it's down to about 40 million. So on the one hand, okay, a 20% decline. On the other hand, this is a very, very high fixed cost business.

[Ben Gilbert]

Yeah.

[David Rosenthal]

So a 20% decline in revenue on a significant fixed cost base is catastrophic.

[Ben Gilbert]

That would be a huge, huge change in the negative direction on your return on total assets.

[David Rosenthal]

Yeah. It is a disaster for the company. Now it's also a very convenient disaster for Forrest, who wants to pressure everybody else into selling and being able to take things over. So finally, as this is happening in 1963, Forrest flies to San Diego, where Patricia lives again, to give you a sense of James, the husband. Here he's commuting from San Diego to run this business.

[Ben Gilbert]

And they didn't have Zoom then.

[David Rosenthal]

No, they didn't. And it's a manufacturing business. So, yeah. Anyway, Forrest finally convinces Patricia to sell. He says, like, look, if we don't do something here, this company is going to 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, you have to promise me that you will not fire James, my husband. He can remain as CEO. Farce is like, okay, are we putting.

[Ben Gilbert]

That in writing or for how long?

[David Rosenthal]

And condition number two, you need to promise me that you will make this company our father's company, Mars Incorporated, 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.

[Ben Gilbert]

Totally. It's also his name. And so is it that different if left absorbs right or right absorbs left? And if you're the controlling shareholder of both. No, it doesn't matter.

[David Rosenthal]

Yes, not yet. CEO. So Patty sells out in 1963. Forrest now owns two thirds of the business. 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-1964, he has full control of Mars, Inc.

[Ben Gilbert]

Which, by the way, is 20 years after Ethel dies, that's how long he has been on this quest to get full control of the business.

[David Rosenthal]

Right. Well, and really, I mean, going back to him leaving for Europe, you have to imagine that this was on his mind the whole time.

[Ben Gilbert]

And just as a side note here, it's pretty insane that Forrest is able to out of his pocket without external financing, go and buy up two thirds of a business that is doing 40 million a year in revenue. I mean, it's just because he owns M and Ms. And Uncle Ben's Rice and the UK businesses. 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.

[David Rosenthal]

Right. You need some other way to get the money.

[Ben Gilbert]

Yes.

[David Rosenthal]

Now, it was a distressed business at this point, but like, yeah, still, I'm.

[Ben Gilbert]

Going to guess it's still valued north of 40 million.

[David Rosenthal]

Seems reasonable.

[Ben Gilbert]

He needs to come up with 25 plus million in cash to pull this all off.

[David Rosenthal]

Yeah. Amazing. So once he takes control, he 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, he sells the company art collection and the company helicopter, and he hands everybody, including James, a time card.

[Ben Gilbert]

He may as well have walked in with a sink.

[David Rosenthal]

He may as well have walked in with a sink. Seriously? Oh my God. Tragically, later that year, Patty dies of cancer. Super young. I don't think she was even 50 years old yet. And once that happens, Forrest fires James and makes himself CEO of the entire empire. All united finally under Mars Incorporated.

[Ben Gilbert]

You know, I read this story and I thought of the Darth Vader quote. I am altering the deal. Pray I don't alter it any further. Yes, yes.

[David Rosenthal]

Oh, Now I'm not 100% sure. He may have kept James still employed in the business or something, but yeah, he was out as CEO.

[Ben Gilbert]

Forrest is the captain now.

[David Rosenthal]

Yeah, I am altering the deal. Pray I don't alter. So, so, so great. Okay. This now brings us to Forrest's final conquest, which is making his own chocolate in America and fully ditching Hershey's.

[Ben Gilbert]

And we should say too at this point, he has 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. I mean, he's just going, he's going.

[David Rosenthal]

So his first act of business once he becomes CEO of Mars America is he calls Hershey up and he's like, hello, remember me? 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.

[Ben Gilbert]

And the way Hershey reacts to this is what you would be stupid to do that. Imagine how long it would take you to 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.

[David Rosenthal]

We have literally an entire town here that is dedicated to making chocolate, and we are supplying it to you at a competitive price.

[Ben Gilbert]

Yep.

[David Rosenthal]

So the Hershey's team estimates that it'll be at least 10 years before Mars turns profitable on this decision to make their own chocolate.

[Ben Gilbert]

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 60 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 so.

[David Rosenthal]

Faris 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 10 years out. But there are obviously other reasons that Forrest 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 kind of need to control all the means of production yourself.

[Ben Gilbert]

Anyone who's serious about software should make their own hardware.

[David Rosenthal]

Yes, yes. Alan Kay for the win. The other reason that I think Forrest always had the dream of making his own chocolate is to be able to scale as large as possible. Like we've been saying all episodes, this man so deeply knew in his bones how to operate in a scale economies market. And 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. But here we haven't talked directly yet about how important shelf space is for candy.

[Ben Gilbert]

Yes. I was about to bring up supermarkets.

[David Rosenthal]

Yes. So for candy especially, it really is a zero sum game. 90% 90 of all candy purchases are impulse purchases. Only 10% of candy purchases are planned purchases.

[Ben Gilbert]

So I found that it was 70%. And the place that I found it was from this is flashing forward a little bit some 1979 consumer market research that MARS commissioned. 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.

[David Rosenthal]

Ah, interesting. So it may indeed be 90% now in part because of those efforts by Mars.

[Ben Gilbert]

Yes. They were like, how do we lean into the idea that 70% in 1979 of our candy is purchased on an impulse basis?

[David Rosenthal]

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 1979, maybe in smaller shops, but that's.

[Ben Gilbert]

I think especially with supermarkets when that changed.

[David Rosenthal]

Interesting, interesting. Well, so given the impulse nature of purchases here, I mean it really is whatever candy is right in front of your face tempting you to buy is what you're going to buy. And so being the scale player, being able to have the 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.

[Ben Gilbert]

Here 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 the way that merchants used to work, no one owned a lot of stores. The power was sort of diffuse among retailers. 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 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 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 behind those things that we're selling. And we're only going to stock them in the store. If you're really doing marketing campaigns because television's blowing up and we know that that moves product in our stores. So tell us whatever you're going to do big campaigns on and that's the shelf space that's going to get allotted.

[David Rosenthal]

Yeah, you're totally right.

[Ben Gilbert]

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.

[David Rosenthal]

And what's so frankly just kind of sad is 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. Lower prices, get distribution, go nationwide, get shelf space, get placement, build a big company.

[Ben Gilbert]

He just didn't put his foot on the gas exactly.

[David Rosenthal]

Well, and then 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.

[Ben Gilbert]

I think it was one of these things where a company internalizes a behavior 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 that is no longer relevant in the new world.

[David Rosenthal]

Yep. We haven't talked yet about Hershey's ownership structure. So it was and is a public.

[Ben Gilbert]

Company, but the controlling interest is owned by the trust.

[David Rosenthal]

The management of the trust became super, super removed from the realities of the business and the market. And I think that's how this happened.

[Ben Gilbert]

Makes sense. Reflecting back on this period of time, thinking about Forest Mars, this sort of was the moment in world history for the global scale economy's founder to rise. If you think about the early 1910s, you couldn't take advantage of economies of scale in the way that you 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 and beyond that internationally, you have the potential for this personality type that Forest Mars was to really succeed.

[David Rosenthal]

And you can advertise and market and brand nationally for the first time via television, and then in the coming decades internationally.

[Ben Gilbert]

Yeah, it's the rise of the scale economies. Entrepreneur, I think is sort of a way to summarize it.

[David Rosenthal]

Yep, totally. So now that Forrest finally has his own chocolate making means of production, how do they finally knock off Hershey's? Well, when Milton introduced the Hershey chocolate bar in 1900, as we've talked about all episode, he priced it at a nickel so that Everybody, even in 1900 could afford it. The problem, as we've Been talking about Hershey's decades long brain deadness here. They kept the price at a nickel from 1900 until November 1969.

[Ben Gilbert]

What?

[David Rosenthal]

They never changed the price?

[Ben Gilbert]

I didn't realize it was that long.

[David Rosenthal]

Almost 70 years. A hair's width from 70 years. They not once changed the price of the chocolate bar. And which, you know, it was sacrosanct. It was like, it's the nickel chocolate bar. It's Milton 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.

[Ben Gilbert]

I gotta say, by the way, that five cents in 1900, just so people get a sense, is 23 cents in 1970. So it's a four and a half X that they sort of have to figure out how to handle.

[David Rosenthal]

Yep. So what do they do? Rather than changing the price, they change the quantity. They just keep shrinking and shrinking and shrinking the size of the bar.

[Ben Gilbert]

Consumers are going to love that.

[David Rosenthal]

Oh yeah, they're going to love that. So the original Hershey's Bar was 1.25 ounces, one and a quarter ounces in 1900. By the time 1969 rolls around, it is half of the original weight. Ben, I see you are looking at a Snickers there. How much is a Snickers today?

[Ben Gilbert]

1.86.

[David Rosenthal]

1.86. Now that's not all chocolate. A lot of the mass of that is cheaper stuff like peanuts. But you can see in the consumer's mind, you're like, wait, I've got this paper thin Hershey's bar that, yeah, it's a nickel. But compare that to the big meaty, satisfying Snickers. This looks ridiculous.

[Ben Gilbert]

Consumers don't care that the new gets cheaper. Consumers care about. I mean, truly. That is why Snickers is the satisfied slogan consumers care about. How much value does it seem like when I bite into this thing and eat it?

[David Rosenthal]

Yep. So finally, in 1969, Hershey can hold out no longer. Commodity prices spike and they make the historic decision to raise the price of the bar to 10 cents. And they think that the way they can 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, they're still at a wash here. Both were about double.

[Ben Gilbert]

Okay, so it doesn't solve their problem.

[David Rosenthal]

It's just totally brain dead. The problem is inflation. And I think the thought process probably was okay. Consumers are going to be outraged when we double the price of the bar after 70 years.

[Ben Gilbert]

Oh, the first time we raise the price of the bar, we should give them some value. So in the second time, well, this.

[David Rosenthal]

Is where not having a marketing department or doing consumer surveys or anything, a.

[Ben Gilbert]

Way to communicate with customers at all.

[David Rosenthal]

Yeah. Turns out to be a really big problem. Consumers are just like, what the hell? A, you just raised the price, you doubled the price, but B, you have just totally exposed that you have been gaming us for 70 years.

[Ben Gilbert]

I mean, this is literally still 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.

[David Rosenthal]

Oh, no.

[Ben Gilbert]

This is like a presidential thing in our country today where the president is railing against Shrinkflation by keeping prices the same and making CPG food smaller.

[David Rosenthal]

Amazing. Amazing.

[Ben Gilbert]

So, yeah, I believe that people were outraged by it.

[David Rosenthal]

People were pissed. So Forrest 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, he is not only going to increase his advertising and blitz the nation with M and Ms. And Mars products, he's also going to increase the size of his bars while keeping price the same. And he starts a price and size war with Hershey. Now, interestingly, in response to this, Hershey counters by actually finally starting to advertise for the first time here in 1970s, 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, the board pulls the plug on their advertising. 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, but profits are down. So they say, nope, we got to stop that.

[Ben Gilbert]

Unbelievable.

[David Rosenthal]

And as a result, in 1973, the combined Mars, which is all of the legacy Mars, Inc. Products, snickers, Milky Way, Three Musketeers, et cetera, plus M&Ms. Passes, all of Hershey to become the number one candy company in America.

[Ben Gilbert]

There it is. I don't think they ever looked back.

[David Rosenthal]

Well, Hershey did eventually retake the lead in America from Mars much later. But Mars is by far the largest candy company globally. Like, Hershey is basically just in America.

[Ben Gilbert]

And I think Mars American candy business is about the size of Hershey's American candy business today. I think they're kind of neck and neck, but Mars has everything else, too.

[David Rosenthal]

Yep.

[Ben Gilbert]

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, 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. I mean, it has nougat and peanuts. And so what they basically do. There's another time, I think this happens in the early 80s, where Mars knows that the commodity prices are on the uptick for cocoa. And so it's going to squeeze everyone's margins, but it's going to hurt Hershey the most. So what does Mars do? They announce bigger bars at cheaper prices. What can Hershey do? They're just getting boxed in from all angles. 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.

[David Rosenthal]

Yep. The other thing that Mars builds up through this, maybe even starting in the 60s, but definitely in the 70s and 80s, is a very, very sophisticated commodities trading department that Hershey doesn't have.

[Ben Gilbert]

Oh, really? Of course they do hedging.

[David Rosenthal]

And of course, you know, it's this very Mars style to do this. Now, obviously it's a private company. They never report any of this, but rumors are. These are rumors, but I've heard it from multiple places. Mars has actually made many billions of dollars of profit from commodity trading over the years. So whereas for competitors like Hershey's, commodity spikes in prices are like a big risk and impact to the business.

[Ben Gilbert]

I'm sure Hershey's hedging also these days.

[David Rosenthal]

They are, but like back in the 70s, 80s. No, no, they weren't. Mars is actually profiting hugely from market swings in commodity prices.

[Ben Gilbert]

Wow.

[David Rosenthal]

Total G. Total G. So speaking of this is incredible, here we are, 1973, Mars passes Hershey to become the number one candy company in America. And a pretty surprising twist happens here in Forrest's story, which is the end. He retires, he hangs it up, he walks away.

[Ben Gilbert]

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 short, is basically just headlines that happen from news articles. And the company gets way, way, way more private after this.

[David Rosenthal]

Yeah. End of 1973, he's built up this whole empire, Gone to Europe, built the Europe business, built the pet business, come back to America, built M. And Ms. Retaken over Mars Inc. Battled Hershey, beat them at their own game. He gives the company to his three children, a third each to Forrest Jr, John Mars and Jackie Mars, and totally walks away and retires. At this point the empire is doing about 800 million in annual revenue. And he's just done. He no longer owns any part of it for the moment. So Forrest spends the rest of the decade of the 70s in retirement. His mother, the original Ethel, is actually still alive. 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 feisty. You know, you can't keep an old horse out to pasture here. So in 1980, when Forrest is 76 years old, he decides he's getting back in the game.

[Ben Gilbert]

He is his father's son. What's he going to do? He's going to start a candy company.

[David Rosenthal]

He's going to start another candy company which he names Ethel M. Chocolates after his dear mother, Ethel, who of course he considers the real Ethel Mars and matriarch of the family.

[Ben Gilbert]

By the way, I ate some Ethel M Chocolates last night. I ordered some to prep for this episode. They're great, delicious.

[David Rosenthal]

I have never tried any. I need to get my hands on some.

[Ben Gilbert]

It's extremely different than the rest of Mars products. It's like a specialty chocolate.

[David Rosenthal]

Yes, well, so Forrest's business plan in starting ethelm is basically to build a competitor to seize.

[Ben Gilbert]

Oh, that makes sense.

[David Rosenthal]

He sees just like Warren and Charlie did back in the day, that sees. And high end chocolate is actually a really, really good business. And the plan is the way they're going to compete with Cs is they are going to specialize in liquor filled chocolates. So they'll make regular non alcoholic chocolates, you know, high end chocolates, just like sees truffles and the like. But they also will specialize in alcohol filled chocolates which were going through a moment of popularity here in the go go 1980s. So Forrest as always, decides he's all in on this. Liquor filled chocolates are not legal in every state and Nevada is the epicenter of them. So he moves to Nevada.

[Ben Gilbert]

I did not realize that's why Ethel M. Is in Nevada. That's so funny.

[David Rosenthal]

That is why. Ethel M. Is located in Henderson, Nevada, which is a suburb just outside of Las Vegas. And Forrest by God, builds a factory there 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 guy has.

[Ben Gilbert]

One speed and one playbook and this.

[David Rosenthal]

Dude is like in his late 70s. It's a success. Within a couple years ethelm is doing $150 million in revenue.

[Ben Gilbert]

Unbelievable.

[David Rosenthal]

Like get out of here. Unbelievable. Now as you said Ben, it's not competing with Mars in any way, it's competing with seas. But the business gets so big and Mars and Forest Children decide that they want to own this business. So in 1988 after Forest has been running it for seven, eight years, Mars acquires Ethel M for an undisclosed amount. I would love to have been a fly on the wall for those negotiations between Forrest and his children.

[Ben Gilbert]

I mean what's the point of even negotiating? He's already given all of Mars to the kids. So what's he going to do after the sale completes? Give the new stake to the kids too?

[David Rosenthal]

Unbelievable. It is like the best coda ever to the story. So shortly after the Ethelm acquisition is when Forrest Jr. And John Mars, the brothers who are running Mars now as co CEOs. This is when they give Joel Brenner access and the Washington Post access to write the piece about the company. But yeah Ben, as you say, they weren't happy with it and they never gave anyone access again.

[Ben Gilbert]

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 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 and 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 do say more now than they used to because they've kind of realized we can't be a $50 billion company that doesn't ever say anything ever.

[David Rosenthal]

True. But what they don't do is allow books to be written about them or any sort of in depth piece.

[Ben Gilbert]

No one knows what their balance sheet looks like including their bankers. They don't produce financial statements for their bankers.

[David Rosenthal]

Yep.

[Ben Gilbert]

And some product stuff that happens in this time in 1974 they start producing Skittles in the United States after it becomes a success in the uk.

[David Rosenthal]

They bring Twix over from the uk. They bring Starburst over which was Opal fruits in the UK.

[Ben Gilbert]

Yep. 1986 Mars acquires Cal Can 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.

[David Rosenthal]

Also, in 1986, they acquire Dove, Dove Bars and Dove Chocolate.

[Ben Gilbert]

Yes. They enter the frozen snack business and.

[David Rosenthal]

Then later launch Dove Promises and Dove Chocolate bars on the brand. So Dove was an ice cream bar company when they bought it, and then they launched the chocolate bars and chocolate pieces after having acquired the company, which.

[Ben Gilbert]

I think works reasonably well.

[David Rosenthal]

Yeah, I think so.

[Ben Gilbert]

It's not a huge business for them.

[David Rosenthal]

But it's their direct Hershey bar competitor now. Of like a direct competitor to kisses and to the chocolate bar.

[Ben Gilbert]

Yep.

[David Rosenthal]

The really big story, though, I think of the brothers tenure and Jackie too, as a third owner of the business, and eventually later she does also work in the business herself, is globalization. So during their tenure, by the time they hand the business over to professional management in 2001, they've grown it from, you know, that 800 million when Forrest left to 20 billion in revenue. And yes, there are all those acquisitions 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 1984, they start sponsoring the Olympics and they totally run the Visa playbook. This is when they start unifying all the product brands globally. Snickers is Snickers everywhere, and we can market globally. They really do an amazing job.

[Ben Gilbert]

Yeah. And so the brothers took it from 800 million to 20 billion.

[David Rosenthal]

Yes. Over 28 years, I believe.

[Ben Gilbert]

Was their tenure a 25x in 28 years? It's almost like the Tim Cook story, too, where the out years of compounding 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, for a senior, we're going to spend 10 minutes here on the next generation. And the next generation took it from hundreds of millions to $20 billion a year.

[David Rosenthal]

Incredible. Now, that said, 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 was about globalizing all the successful brands that Forrest had built.

[Ben Gilbert]

Yeah.

[David Rosenthal]

So speaking of M and A, and we were also talking about C and Warren and Charlie a minute ago. In 2008, Mars buys Wrigley with the help of Uncle Warren and Uncle Charlie.

[Ben Gilbert]

I love that they come into this story. It's the best.

[David Rosenthal]

I know there's some amazing quotes from Warren at the time of the deal. One of them is like, I've been conducting a 70 year taste test on both Mars and Wrigley and they both passed the test.

[Ben Gilbert]

Oh, it's so good. Because, you know, the analysis is actually far deeper than that. But that also totally sells. It's Warren's personality.

[David Rosenthal]

Yeah. He actually has a really insightful quote in the 2011 Berkshire shareholder letter. While they were still a shareholder in Wrigley as a Mars subsidiary, he says, quote, buy commodities, sell brands has long been a formula for business success. It has produced enormous and sustained profits for Coca Cola since 1886 and Wrigley since 1891. He doesn't say this, but, like, obviously this is the Mars formula too.

[Ben Gilbert]

Sell commodities, buy brands.

[David Rosenthal]

Buy commodities, sell brands.

[Ben Gilbert]

Oh, not as an investor.

[David Rosenthal]

Yeah, not as an investor. Companies that buy raw products and then sell them as a branded product, basically.

[Ben Gilbert]

You'Re allowed to create margin.

[David Rosenthal]

Yes.

[Ben Gilbert]

The market is giving you the right. Consumers are giving you the right to do that.

[David Rosenthal]

Yes.

[Ben Gilbert]

It's funny, if you flip it and you say, sell commodities, buy brands, that's a good mentality for an investment portfolio.

[David Rosenthal]

Yes, definitely.

[Ben Gilbert]

In fact, I thought that's what he meant. I want to buy this because it's a durable brand or house of brands. Interesting.

[David Rosenthal]

Yeah. No, no. As the operating paradigm for a company of purchasing raw commodities and selling them as branded products.

[Ben Gilbert]

Right. If you have cocoa beans backed up to one side of your factory and then Snickers bars coming out the other, it's a good business.

[David Rosenthal]

Yeah, you're going to do good.

[Ben Gilbert]

Interesting.

[David Rosenthal]

So it goes down in the middle of the financial crisis. They announce the deal in April 2008, but it closes in October 2008, like right after Lehman collapses. Mars buys the Wrigley Co. For $23.

[Ben Gilbert]

Billion, which is a 28% premium to where it was trading that day.

[David Rosenthal]

Yep. And even Mars at this point in time doesn't have 23 billion of cash on hand.

[Ben Gilbert]

Well, they may have, but they didn't want to use it. 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.

[David Rosenthal]

I mean, this is the trade off with efficiency, freedom, return on total assets. As the way that you're going to manage is you're just going to be very conservative in how you run the company. Yeah, but, yeah, so Mars pays $11 billion itself. They get $5.7 billion in bank debt from Goldman Sachs. And then Berkshire comes in with the rest of the financing, about six and a half billion dollars total.

[Ben Gilbert]

And 4.4 billion of that was a loan. And then 2.1 billion is an investment into the newly created Wrigley subsidiary. 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 $2.1 billion equity investment.

[David Rosenthal]

Indeed, that is correct. So what happens five years later in 2013, Mars repurchases the debt portion of Berkshire's financing. And man, this debt. God, the financial crisis. Warren was so good to be investing in such high quality companies at the interest rates that he got. So the 4.4 billion in debt that Berkshire invested had an 11.45% interest rate.

[Ben Gilbert]

Oh my God.

[David Rosenthal]

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 2013, that was before the debt matured. So they had to pay Warren a premium to buy it back early. They paid a $680 million premium. So all told, for the four and a half billion dollar debt investment, Berkshire gets its money back, plus another call it 3.1, 3.2 billion just on the debt.

[Ben Gilbert]

Over five years.

[David Rosenthal]

Over five years. Now the equity portion, the 2.1 billion. In 2016, Mars buys out Berkshire. So Buffett sells Mars his entire stake back for $4.6 billion, versus the 2.1 that he originally invested.

[Ben Gilbert]

He more than doubled the money in five years on that, in addition to almost doubling the money on the debt.

[David Rosenthal]

Even better for Warren 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.

[Ben Gilbert]

It's interesting that they did the bank debt from Goldman Sachs and this dual instrument from Berkshire. Yeah, why not go all one or all the other? Because you would think they would have the option to.

[David Rosenthal]

Well, I think this gets back to the value that Warren and Berkshire always provide, but were especially providing during the financial crisis, which is just the reputational guarantee and solidity.

[Ben Gilbert]

Oh, you think getting Berkshire was what they used to be able to pull in the bank debt?

[David Rosenthal]

I bet it helped pull in the bank debt because I doubt Mars had significant banking relationships going into this because they didn't have any debt.

[Ben Gilbert]

No, in fact, they classically never do acquisitions with outside Banks, they're obsessed with using only their own cash.

[David Rosenthal]

Yep. And Goldman was Berkshire's preferred bank, so probably pulled Goldman in. The other aspect to this is the Wrigley shareholders. You had to give confidence to the Wrigley shareholders to vote for the deal, to get it done. And so having Buffett come in, 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 2008.

[Ben Gilbert]

Wow.

[David Rosenthal]

All told, 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? I doubt that much.

[Ben Gilbert]

Right. Definitely Berkshire got some sort of premium for using their reputation in this deal.

[David Rosenthal]

Yep. 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, because gum, I believe, is mostly a petroleum byproduct.

[Ben Gilbert]

Is it really?

[David Rosenthal]

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 gross that if you can brand that and sell it to consumers, you're going to have pretty good margins. So Wrigley, I went back and looked at their old 10Ks before Mars acquired them. They had about 50% gross margins and 20% net income margins in the last sort of decade of the company. Pretty good for a business like that.

[Ben Gilbert]

Not bad.

[David Rosenthal]

Not bad at all. They also owned mints like Altoids and Lifesavers. That's the other big part of the business.

[Ben Gilbert]

Right.

[David Rosenthal]

If chocolate is a expensive product to make, gum is a not expensive product to make.

[Ben Gilbert]

Yep. Okay. Other things that happened in the 2000s, they bought a significant stake in the Banfield Pet Hospital chain, which is the largest chain of pet hospitals in America.

[David Rosenthal]

And was started in partnership with petsmart.

[Ben Gilbert]

That's right. Because most of them are actually in petsmarts.

[David Rosenthal]

Yes. That partnership has now ended and Mars now owns Banfield outright, 100%. And I believe in 2007 they took a large stake. And then in 2015, they fully bought out Petsmart for 100% ownership.

[Ben Gilbert]

That's interesting. It is worth noting we did some sleight of hand there. That's a completely different business, Pet hospitals than dog Food related in pet care. You can use the pet hospitals as channel for your dog food, but very different type of operation that needs to be performed.

[David Rosenthal]

Yeah, this really is the big story about Mars of the last 10 years. So after they fully acquired Banfield in 2017, they acquired VCA, which is even bigger, right? Yes. They were the largest independent vet hospital operator in America for $9 billion. So like a large acquisition. And Ben, like you say, there's two interesting things about getting into this business. One, it's a super different business. We're talking about a services business. Like this is not manufacturing.

[Ben Gilbert]

Yep.

[David Rosenthal]

So very, very, very different DNA. I think a big part of the strategy though, like you said about distribution of pet food. In 2002, Mars had bought a French pet food company called Royal Canin, or I've also heard it pronounced Royal Canine. And Royal Canaan makes prescription pet food like, especially for like an aging dog or a mobility challenge dog. 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 Canaan was like a grand slam acquisition for the company. And I think that's partially what led them to then get involved with Banfield and VCA of like, oh, well, let's consolidate a lot of the distribution and value chain here in this prescription pet food business.

[Ben Gilbert]

Pretty interesting. I mean, it's a very different business, but they run so decentralized that it's probably okay that it's a services business and you're not having people who are making candy trying to run a veterinary clinic. 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. But these independent operating groups are independent operating groups.

[David Rosenthal]

Yep.

[Ben Gilbert]

I'll pull a playbook theme forward, which is that this company obviously grows through inorganic acquisitions. So in buying Wrigley, Royal Kanan, vca, all these Mars itself, Mars itself, they've kind of overpaid on a price to earnings basis. Wrigley was a 35x and a 27% premium over the public valuation. Royal Kanin was a 39x. But if you kind of 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 2021 episode, 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 at a 35x for Wrigley, maybe they know more about Wrigley than other bidders do.

[David Rosenthal]

Interesting. Yeah.

[Ben Gilbert]

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.

[David Rosenthal]

Yep. I totally buy it.

[Ben Gilbert]

Arvind 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 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.

[David Rosenthal]

Yep. Speaking of, they ran this playbook again with their most recently completed big acquisition of Kindbar.

[Ben Gilbert]

Yes. $5 billion in 2020 after buying a small piece of it a few years earlier and then buying the rest of it in 2020.

[David Rosenthal]

I didn't realize how big Kind was. Kind was doing one and a half billion in revenue, I believe almost completely domestically in America.

[Ben Gilbert]

Yeah. And Mars took it global.

[David Rosenthal]

And Mars took it global. Yeah. So I think that has been a big success for the company as well.

[Ben Gilbert]

Do you know how they grew so big domestically?

[David Rosenthal]

Ooh, I don't.

[Ben Gilbert]

Starbucks.

[David Rosenthal]

Ah, makes sense.

[Ben Gilbert]

Checkout counters at Starbucks. Impulse purchase.

[David Rosenthal]

There you go. There you go.

[Ben Gilbert]

And it fits with Starbucks brand ethos. It's like healthy. Honestly, I eat them all the time. It's a 5 gram of sugar bar. That's super satisfying. That doesn't leave my teeth feeling gross or make me feel like I ate something with a bunch of unnatural ingredients. I know it's still a candy bar, but it's a 5 gram of sugar candy bar. So I think as far as Mars thinking about, geez, we want some sort of diversification hedge. If people stop eating candy bars, they're on a good trend there.

[David Rosenthal]

Which leads us to the final piece of the story, maybe, which is the biggest deal that the company has ever done or is attempting to do.

[Ben Gilbert]

So in August, Mars announced that they have entered a definitive agreement with Kelanova to purchase the company for $35.9 billion. So what is Kellanova?

[David Rosenthal]

Right. Yeah. As we were researching this and getting into this, I was like, Mars is paying $36 billion. What is Kellanova?

[Ben Gilbert]

It's like Mondelez. You're like, ooh, what's Mondelez? That sounds interesting and foreign. And you're like, oh, it's craft. It's like a weird corner of craft.

[David Rosenthal]

Yeah. So Kellanova, do I have this right? Is Kellogg's minus the American cereal business?

[Ben Gilbert]

That is correct. So it's all the snack businesses and international cereal. So the snacks are like Rice Krispie treats, Pringles eggs, Pop Tarts, rxbar, which is going to be interesting that they'll own Rxbar and Kindbar. It is the largest CPG transaction since the merger between Kraft and Heinz in 2015.

[David Rosenthal]

And so another Berkshire Hathaway special.

[Ben Gilbert]

I mean, if you think about it, the family is worth 117 billion today, which essentially means the company's worth 117 billion, which is kind of interesting. It's a $50 billion company that at least Forbes, I think it's Forbes, pegs it at 117 billion of enterprise value. Of course, there's no market to buy these shares, so who knows how to value it, really?

[David Rosenthal]

And when you say $50 billion company, that's their annual revenue.

[Ben Gilbert]

Annual revenue, yeah.

[David Rosenthal]

So they have started reporting in recent years or at least alluding to what the top line revenue number is.

[Ben Gilbert]

Yes, that's correct. They're going to get a lot bigger, I guess, is the takeaway from this. If they're worth 117 billion now and they're using a bunch of their cash and presumably some outside leverage, we'll have to see for a $35.9 billion acquisition. That's a big size up.

[David Rosenthal]

That is transformative. Yes. It also basically makes them look like Nestle. Yeah, Which Nestle has been the real competition for years now.

[Ben Gilbert]

And Nestle's huge. They're over $100 billion in revenue and they're extremely diversified.

[David Rosenthal]

Extremely diversified, yes. Which obviously, again, Mars has always been diversified, but nowhere near the extent that Nestle is. And now with the Kellanova acquisition, they're going to look a lot more like Nestle.

[Ben Gilbert]

And Mars is going to be selling, I just looked it up, investment grade bonds to help with its planned sale of Kellanova. So they are raising some outside capital for that, not just using their cash.

[David Rosenthal]

Interesting, interesting.

[Ben Gilbert]

So that brings us to today, David. We were just talking about it. In 2021, they did 45 billion in revenue. 2022 was 47, 2023 was 50. And to your point, they're now saying over 50. Here's the interesting Thing that we have been hiding from listeners the whole episode, and I know you've been dying to say, Mars snacking did $18 billion in revenue. That is a segment of their business that includes all the candy.

[David Rosenthal]

So we've told this whole story all about the smaller piece of the business.

[Ben Gilbert]

You'll notice 18 is not only a smaller number than 50, it's less than half of 50.

[David Rosenthal]

Yeah.

[Ben Gilbert]

Pet care is actually the bigger business. 59% of revenue comes from the pet care segment. And of their 140,000 employees, almost 100,000 work in pet care.

[David Rosenthal]

Yep. Of course, services business. They own thousands of hospitals.

[Ben Gilbert]

Yep. So we don't know the margin 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, pet care is the dominant component of this business. If you want a little bit of a Hint, the new CEO in 2022 came from their pet care division. In many ways they are a pet food company that also makes candy and always has been. 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.

[David Rosenthal]

Totally.

[Ben Gilbert]

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. So you might be wondering, well, how significant of the market of vets do they own? Mars owns 3,000 locations out of 35 to 40,000 vets in the U.S. so that's like 8% of vets. They're not just exploring vets, they're, I don't know, the largest or one of the few largest player in vets in the entire country.

[David Rosenthal]

I think they are the largest. There are other vet roll up plays has been a darling of search funds and private equity in the last decade is veterinary roll ups, dental roll ups, you know, stuff like that.

[Ben Gilbert]

Yeah. Looking at the market, at least in the U.S. mars and Hershey each have about 24% 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. It is a very fragmented industry. Mars is the whale with 11%, but the next highest are 7% and 5%. And only a third of the market is made up by the top five companies. Mars, Mondelez, Ferrero, Hershey and Nestle. So 2/3 of international 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.

[David Rosenthal]

Wow. Because there's already been huge consolidation.

[Ben Gilbert]

Yeah. So that is the shape of the business today. You've got a pet business masquerading as a candy business. And we continued to perpetrate that narrative.

[David Rosenthal]

Yes. Now obviously the pet business huge bigger in revenue and I'm sure very, very large in profits as well. I don't know, I'm just purely speculating, but I suspect profit contribution wise, they're at least equal, if not bigger on the candy side. Oh, man, I could be totally wrong. I don't know. I don't know the economics of pet hospitals.

[Ben Gilbert]

Yeah, I would love to know that. If your last name is Mars, please reach out or join us in the Slack acquired FM Slack. We'd love to hear from you.

[David Rosenthal]

Yeah.

[Ben Gilbert]

Power.

[David Rosenthal]

Power. So this is a segment we do in analysis in every episode based on Hamilton Helmer's excellent Seven Powers book and framework. And the idea is that there are seven ways that a business can sustainably generate significantly more profit than its closest competitors. And those seven ways are through counter positioning, scale economies, network economies, switching costs, process power, branding, and cornered resources. We have spent a lot of this episode talking about the biggest and most obvious one here in scale economies.

[Ben Gilbert]

Actually, like a lot of the businesses we study on this show, scale economies is the biggest deal.

[David Rosenthal]

It is actually kind of crazy. It's almost always scale economies is a big part of it.

[Ben Gilbert]

I think for the biggest businesses in the world, 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 your high margin sales in huge volume across a comparatively small fixed cost base? Manufacturing businesses are like that. Software businesses are like that.

[David Rosenthal]

Cloud computing is like that.

[Ben Gilbert]

Exactly. And the businesses that get the biggest tend to benefit from this principle.

[David Rosenthal]

Totally. Okay. Scale economies.

[Ben Gilbert]

Check done. So there's a thing I want to 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. Hmm. 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 for the one with the better brand? The Tiffany ring versus the unbranded ring Yep. I think there's another way that branding shows up. 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 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 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.

[David Rosenthal]

Definitely. I think it's got to be a version of our Costco episode. Scale economies. Shared brand power. Shared.

[Ben Gilbert]

There was someone in the Slack that pointed out that 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 over time, especially in a reoccurring 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.

[David Rosenthal]

I'd totally buy that.

[Ben Gilbert]

So by that definition, they absolutely have branding.

[David Rosenthal]

Yep. I've got one I want to talk about. I'm curious if any of the other set jump off the page to you.

[Ben Gilbert]

Hmm. 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 way to make something that is not known by others in the industry.

[David Rosenthal]

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 to the manufacturing equipment, but they would never patent it because he didn't want to tip off any competitors.

[Ben Gilbert]

Makes total sense. Keep it trade secret.

[David Rosenthal]

Yep, totally.

[Ben Gilbert]

No, none of the others jump off the page to me.

[David Rosenthal]

So obviously we did not do a deep dive on the pet business, despite it being the larger business. I think though, the main power in the pet business is switching costs.

[Ben Gilbert]

Oh, if your dog doesn't have problems with its current food, you're never changing to another food.

[David Rosenthal]

Yes. Well, there's a couple dimensions. One, you're never going to change to another food because it's going to 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.

[Ben Gilbert]

What are we doing? We should be feeding them table scraps so they get a well rounded diet.

[David Rosenthal]

Just like the 30s. Exactly, exactly. I mean, it happens. Dogs switch food all the time, but it's not like humans choosing to eat something else. It's a process.

[Ben Gilbert]

Right.

[David Rosenthal]

But then pet hospitals, like vets, like, huge, huge switching costs. So I actually think this is like the primary power in the business on the pet side.

[Ben Gilbert]

Yeah, I think that's right.

[David Rosenthal]

Okay, that's power. Should we do Playbook?

[Ben Gilbert]

Yes. The first one that I have is that you actually can build a durable, sustainable business through great marketing, not just great product. 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 kind of feel like it's the opposite. 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 1960, was.

[David Rosenthal]

Able to lean on that after the advent of television.

[Ben Gilbert]

Yeah. And of course, paired with distribution, paired with grocery stores, paired with. Actually, let's talk about the E.T.

[David Rosenthal]

Thing. Yes, let's talk about the E.T. thing. This is really fun. So in the late 1970s, early 1980s, when Spielberg is making E.T. the movie E.T. he's written into the script that E.T. is going to be lured into the house by a trail of MMs. And anybody who remembers the details of the movie remembers that it is not M&MS.

[Ben Gilbert]

And M& Ms. Passed on the opportunity because it had to come with a guaranteed million dollars of co marketing, consumer promotion, trade promotions, displays featuring ET Mars was not down to do that with the M&M's characters and passed on the opportunity. If you saw the movie, there's a pretty memorable moment where it's Reese's Pieces.

[David Rosenthal]

Yep. This was relatively early in the brothers tenure. So I wonder, A, Forrest 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 own security, in their own Place as CEOs. So I think there was a timing element to this.

[Ben Gilbert]

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 Hershey leadership was also a pass on it.

[David Rosenthal]

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.

[Ben Gilbert]

And it worked in a huge way. Multiple Sources cite that it 3x'd the sales of Reese's Pieces when this came out. And Reese's PCs, they'd launched it a year before. It had done well initially. It kind of fell off. And then they were trying to use this to 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 Reese's pieces are not MM's. They're good, but they're never going to be competitive with MM's.

[David Rosenthal]

But at least in my experience, I haven't been to a movie theater much lately. But 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.

[Ben Gilbert]

Totally. So maybe the takeaway is actually MM's are a better product and Reese's Pieces are sort of this specialty niche product and that's why they don't have the market share. And maybe this whole postulate is wrong, that marketing can create durable brands. And the reason why all these Snickers and Milky Way and MM's are victorious is because they're just better products.

[David Rosenthal]

Well, I think they're good products, but I think it's like the nostalgia element is just so huge.

[Ben Gilbert]

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.

[David Rosenthal]

Yep. I think the candy industry is much like the luxury industry in that once you have an established product 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. You just can't kill it.

[Ben Gilbert]

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 brands that people love. It's a very Disney like playbook that M&M's has run. In fact, they operate a MM store in Disney World or in Disneyland, I can't remember which one. But they associate with the holidays. They've got that commercial where the two M&Ms. Characters come in the house, Santa's just come down the chimney, they run into them at the Christmas tree. They do exist.

[David Rosenthal]

So great.

[Ben Gilbert]

I mean, it's a classic They've run it every year for 20 years or something.

[David Rosenthal]

I think it started in the 90s.

[Ben Gilbert]

Yeah. The rolling Stones, they've associated with. For Snickers, they had the I can't get no Satisfaction ad. 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. I mean, they find ways to associate with national or global premier brands that everyone loves, that you have nostalgia for. In fact, NASA, they went up on, I think it was the space shuttle. NASA can't obviously endorse because it's a government agency, but it's on the menu and it's a part of all the astronaut videos you watch where they're popping M and Ms. 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.

[David Rosenthal]

Well, sounds like we've learned a lot here at Acquired from the Mars Playbook.

[Ben Gilbert]

Yep. Another one just like the innovation on commercials. Think about how long they've had those computer generated M and Ms. Characters. I looked it up. The first one I could find was in 1994. Jurassic park was in 93. And that was effectively the first use of computer generated 3D modeling in cinema.

[David Rosenthal]

That's right.

[Ben Gilbert]

Within one year they were running commercials with those characters.

[David Rosenthal]

Yeah. Wow.

[Ben Gilbert]

They know how to create these durable marketing franchises and moments. In some ways, it's actually shocking that they missed ET Given how good they've been in all these other facets. And ultimately the ET Thing's a fun story. But did missing it really hurt them? Not really. Not in the long run.

[David Rosenthal]

No.

[Ben Gilbert]

My last one around this is in this sort of marketing world. Do you remember in 1995 when they said they were going to do away with the tan MM's?

[David Rosenthal]

Yes.

[Ben Gilbert]

Do you remember anything about that?

[David Rosenthal]

Is that when they were replacing it, when there was a vote right. Of which color to replace it with, and blue won?

[Ben Gilbert]

Absolutely. Genius.

[David Rosenthal]

Total genius.

[Ben Gilbert]

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 they got millions and millions of Americans to call 1-800-fun color, which, by the way, I called yesterday.

[David Rosenthal]

Oh, amazing.

[Ben Gilbert]

Is no longer in service. You call 1-800-fun color to vote. So they're giving everyone this vested interest in what the new color is. Blue wins. Blue replaces tan. They lit up The Empire State Building after announcing it was blue with blue. Genius.

[David Rosenthal]

So great. This is like the Facebook internationalization where they have local people in each market translate and then they feel ownership over the product. Yeah. Yes, Totally.

[Ben Gilbert]

All right. That's all I got on their consumer marketing.

[David Rosenthal]

I'm sure you read, too. Mars is constantly rebalancing the ratios of colors in M and M bags to suit current tastes.

[Ben Gilbert]

Yes. It's amazing. Yeah, it's not even. I was shocked. I was like, looking at the bag trying to. I'm not going to go count, but apparently it's a secret what the ratios.

[David Rosenthal]

Are, but I think they're adjusting it constantly.

[Ben Gilbert]

Interesting. I believe that. Okay, next one I've got is be a recession proof business. I thought 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 2008, 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.

[David Rosenthal]

Yep.

[Ben Gilbert]

A corollary to being recession proof is being universal. A survey done by the Food institute says that 98% of households buy candy every year. And of those, 97% are reoccurring purchases at an average of 35 times a year.

[David Rosenthal]

Wow.

[Ben Gilbert]

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 MM's and Snickers. I probably ate more than a recommended amount because we've been sitting here for five and a half hours doing this. But 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 diversifying away from those core franchises into Kind.

[David Rosenthal]

And Calanova, et cetera, et cetera.

[Ben Gilbert]

Yep, more Kind bars are in my future. Maybe some detox tomorrow.

[David Rosenthal]

All that said, no matter what happens, I don't think M&Ms. And Snickers, they're not going anywhere.

[Ben Gilbert]

Even if everyone starts taking Ozempic, I don't actually think chocolate sales are going to fall. In fact, all the numbers show to this point. Everybody who's been 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.

[David Rosenthal]

Yeah, 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. One is just that chocolate. I'm sort of biased here because I love chocolate.

[Ben Gilbert]

Me too. Same. I loved doing this episode because I love learning about chocolate.

[David Rosenthal]

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 the production process of chocolate earlier in the episode, it is one of the most complex, rich foods on the planet.

[Ben Gilbert]

When Milton Hershey shut down and got out of the caramels business, he thought caramels is a fad, but chocolate is a complete food.

[David Rosenthal]

Chocolate is a food. Exactly. And like he was totally right. I don't think chocolate is going anywhere. And the Ozempic risk for chocolate is.

[Ben Gilbert]

Way lower, far lower than like gummy candies.

[David Rosenthal]

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, is changing hugely. And 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 is a very, very sensitive tree. It's this bizarre plant. I don't think we talked about this earlier, but the pods, the fruit that have the 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 sized pods that just go right off the trunk of the tree.

[Ben Gilbert]

Yeah. And that's something like only 25 years of their full hundred and something year life. They actually can produce the fruit in a way where you can use it to make chocolate.

[David Rosenthal]

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 grown in. So as both world consumption and thus production of chocolate has increased Hugely over the 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. The arguably as bigger, bigger is the second order effect of how the industry has responded. So there's been huge efforts over the last couple decades 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.

[Ben Gilbert]

As it doesn't come at the expense of taste.

[David Rosenthal]

Right. So that's the downside. It has not been optimizing for taste, either preservation of the current tastes 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 been engineered and changed a lot to.

[Ben Gilbert]

Be more resilient and productive.

[David Rosenthal]

Yep, exactly. So a lot of the real, real richness and complexity that has for thousands of years made chocolate like a super attractive food for humans is sort of in danger of being lost or being watered down. I will say the industry is very focused on this. This is like a existential, super, super important focus of Mars and the entire chocolate industry.

[Ben Gilbert]

Yeah. That is the correct takeaway. Whenever you talk to people in the industry, this is what they're talking about.

[David Rosenthal]

Yep.

[Ben Gilbert]

All right, I have got 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. 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 going to get into xyz. 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. I think they've made 30 acquisitions since the 90s and they've only sold two things since 2015. It's very Bernard Arnault style.

[David Rosenthal]

They also don't rebrand things. They keep the original brands. Even in the pet hospital business.

[Ben Gilbert]

Yeah, that's super interesting.

[David Rosenthal]

You think of anywhere where you would want to centralize the brand. It's like, no, vca Banfield, they're separate.

[Ben Gilbert]

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 at a compound annual growth rate of 14% for a century.

[David Rosenthal]

Pretty good.

[Ben Gilbert]

The question sort of comes back to what conditions enable a business to grow 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. It's the operational efficiency of doing it. It's the reoccurring purchase that has a habitual, if not addictive component to it.

[David Rosenthal]

It's the scale economies of being able to achieve and maintain number one dominant market share over many decade long periods.

[Ben Gilbert]

Yep. It's pretty amazing that those things come together in a way that make it possible to grow at 14% for a century if executed well.

[David Rosenthal]

Wild.

[Ben Gilbert]

All right, David. We are into the quintessence.

[David Rosenthal]

Quintessence, listeners.

[Ben Gilbert]

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 stop thinking about after talking through the whole story of the episode.

[David Rosenthal]

Great. I'll go first. Couple things about this company. One man, Forrest Senior, was such a freaking G. And because the company is so private, nobody knows about him. But he should be right up there with Sam Walton, Henry Ford, with the very, very 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.

[Ben Gilbert]

The same thing as basically everyone we cover on this show.

[David Rosenthal]

Rockefeller, all of them. Yes. But when it comes to business and entrepreneurial leaders, he's one of the greatest. Yep, 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 because it's not like a widely accepted fact.

[Ben Gilbert]

Totally.

[David Rosenthal]

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, I think Mars is one of the first modern companies.

[Ben Gilbert]

That's interesting.

[David Rosenthal]

You know, everything that Forrest was doing back in the 30s when he was starting were like radical and now are just completely widely 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.

[Ben Gilbert]

Maximizing yield on equipment for efficiency, maximizing yield.

[David Rosenthal]

Operating, 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 M&Ms, taking what essentially was a failed product 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.

[Ben Gilbert]

Yep, you're so right. It's funny, that leads me all to my quintessence of this episode is how path dependent the outcome was. And what I mean by that is, could you do all of the things that Forest Mars did to create a company like this today? No, you could not. It required being in 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. He needed the assets that he got from his dad when he went to Europe.

[David Rosenthal]

Yeah. 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, he wouldn't have gotten exposed to the duponts. Yeah. So many path dependencies here.

[Ben Gilbert]

Right. He happened to be a American capitalist competing against British Quaker and British Quaker inspired competitors. Industrialization and mechanization, the timing of television and commercials and grocery stores when it did. All of 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?

[David Rosenthal]

Yep. You don't. You build your own company. Because all of the great companies that we study are their own companies.

[Ben Gilbert]

Yep, that's exactly right.

[David Rosenthal]

Love it.

[Ben Gilbert]

All right, before we get to carve outs, I have one piece of trivia for you.

[David Rosenthal]

Ooh, I love trivia.

[Ben Gilbert]

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. David, how big is the endowment of the Milton Hershey School?

[David Rosenthal]

I think it is by far the largest endowment of a secondary school in America and assuredly the world.

[Ben Gilbert]

Yes.

[David Rosenthal]

I want to say it's like 10 or 15 billion.

[Ben Gilbert]

Yep. $17.4 billion.

[David Rosenthal]

Yeah. For a high school.

[Ben Gilbert]

Well, it's some Younger than that. But the enrollment of the school is 2,200 students. And so the endowment dollars per student, I assume, are the absolute highest anywhere in the world.

[David Rosenthal]

It is totally incredible. I mean, we debated 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.

[Ben Gilbert]

Milton Hershey gave the whole company to the Hershey Trust.

[David Rosenthal]

Yeah. Which operated a school for orphans, like a high school for orphans. That owns the company.

[Ben Gilbert]

The primary shareholder has a primary purpose that is maintain the school.

[David Rosenthal]

Right. It is a very specific mission to support this school.

[Ben Gilbert]

They have a hard time spending all the money. I mean, they're never going to get close to actually spending the endowment dollars or have any risk of spending the endowment dollars. Just think about what 4% of 17 billion is a year and think about what the required budget is to run a 2,200 person school.

[David Rosenthal]

Yeah. Totally wild. Love it. Okay, carve outs.

[Ben Gilbert]

I got three. One, we've already talked about 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 beans that are not commodity beans. They specifically source single origin beans. They go the extra mile to, you know, remove any imperfections, and then in a very craft way, they make some of the best chocolate you've ever tasted.

[David Rosenthal]

It really is like the wine industry.

[Ben Gilbert]

Yeah. I think I speak for you, too. We're both very grateful to Todd, Elaine and the team there for just kind of taking us through it all and explaining how chocolate is made. It was very cool. So if you're looking for any late holiday gifts or just any good chocolate, I can't recommend Dandelion enough.

[David Rosenthal]

Ah, well, you stole one of my carve outs. Dandelion was one of my carve outs. But specifically the Dandelion Advent calendar.

[Ben Gilbert]

Didn't you buy that for Jenny?

[David Rosenthal]

Which, thanks to our relationship with the company, yes, I got the opportunity to buy. I bought the double so that Jenny and I can both enjoy every night.

[Ben Gilbert]

Oh.

[David Rosenthal]

Oh, my God. 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. Like every day is an ornament that can go on the tree. It's so great. And then the chocolate inside. They partnered with chocolatiers all over the country, I think maybe even internationally, all over the world to just highlight some of the very best talent in the chocolate making industry. Globally. Anyway. Amazing Dandelion. They're so great.

[Ben Gilbert]

All right. My second one, I think a while ago I mentioned I got a Tesla Model Y, 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 90 minutes, there was somebody at my house that was taking off the wheel, throwing it in a truck, putting on a temporary wheel. So I was good to go immediately, within 90 minutes. And 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 back, took the other wheel. I didn't have to do anything. I'm just standing there, and the whole thing cost me like $120.

[David Rosenthal]

Wow.

[Ben Gilbert]

It was like the best car service experience I've ever had in my life.

[David Rosenthal]

That's pretty awesome. It is wild how different Tesla is from other car companies. The Model Y is the best family vehicle ever created by mankind. It's like the Model T of our generation.

[Ben Gilbert]

Yeah, it totally is.

[David Rosenthal]

So great. Okay, that's number two.

[Ben Gilbert]

You got one more last one. I think last year I carved out silo. Silo Season 2 is here on Apple TV, and it is excellent.

[David Rosenthal]

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.

[Ben Gilbert]

You read Wool?

[David Rosenthal]

I read Wool, yeah.

[Ben Gilbert]

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 there's no problem with that here.

[David Rosenthal]

Didn't you get to meet the author a while back, Hugh?

[Ben Gilbert]

Yeah, he's great. He's really great.

[David Rosenthal]

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. I saw it in theaters. When it came out, I was the perfect age. I think Macaulay Culkin and I are roughly the same age, give or take a year. Loved it so much. After Thanksgiving, holiday travel this year, I have a whole new appreciation for that movie, which is the perspective of the parents.

[Ben Gilbert]

Did you leave one at home?

[David Rosenthal]

No, but I also.

[Ben Gilbert]

Did you come close?

[David Rosenthal]

I Now understand exactly how it could happen. And I am excited to watch it again at the holidays this year through the lens of mom and dad.

[Ben Gilbert]

Nice.

[David Rosenthal]

Yeah, 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 the most awesome moment though, I mean it was, this was one of those plane trips as a parent where, oh man, like the lowest of the lows, shall we say?

[Ben Gilbert]

You're sorry for everyone around you.

[David Rosenthal]

Sorry for everyone around you, but the most amazing thing happened. We landed after the five and a half hour flight and very kind gentleman sitting in the seat directly ahead of my 3 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? I was like, yes. I'm sorry, you're like, oh no, I've been identified. Oh no, oh no. And he's like, I've been listening to you the whole flight. And then some other people in the rows started popping up being like, oh, I've been listening.

[Ben Gilbert]

It was, wait, multiple people were popping.

[David Rosenthal]

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 truly one of the lowest lows of my parenting journey into a wonderful memory. So thank you to you all on that flight from SFO to Philadelphia the day before Thanksgiving.

[Ben Gilbert]

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.

[David Rosenthal]

Yeah, yeah, yeah, yeah. That was my first reaction too of like, oh, no. But no, it turned into the most wonderful turnaround of the day.

[Ben Gilbert]

Wow, wow, wow. All right, listeners, well with that, a huge thank you to JP Morgan Payments, to Crusoe and to Statsig. You can click the links in the show notes to learn more about some of our favorite companies. Special shout outs. Also 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, industry stats on chocolate over the years, on sugar consumption, on Hershey, on Mars, on the whole competitive set, it's linked in the show notes. I can't recommend reading through his whole PDF enough.

[David Rosenthal]

Arvind is so great, so great.

[Ben Gilbert]

To Todd at Dandelion Chocolate, as we mentioned.

[David Rosenthal]

Yes. And also Clara Shen who works at Dandelion as well. And Chatted with me and had a lot of great insights also on the industry and on Mars.

[Ben Gilbert]

Yeah. To Gary Guittard, who I'm sure many of you have eaten Guittard Chocolate either directly by knowing it or indirectly by not knowing it. As they are the chocolate supplier to many excellent chocolate companies around the world.

[David Rosenthal]

Including the world famous See's Candies.

[Ben Gilbert]

Yes. Which I didn't know how much I enjoyed Guittard Chocolate until, well, I realized how much of it I'd eaten through seas.

[David Rosenthal]

Yes. Speaking of trivia, I've got one for you related to Guitard. Before Milton Hershey started making chocolate in 1900, there were three chocolate producers in America who predated him. And I believe all of which are still operating. Making dark chocolate, not milk chocolate, obviously, at the time. One of which was Guittard here in San Francisco. 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.

[Ben Gilbert]

Ghirardelli.

[David Rosenthal]

Ghirardelli, yep.

[Ben Gilbert]

Yes.

[David Rosenthal]

And then the East Coast, I don't know. The one on the east coast was Walter Baker's in Massachusetts, I think.

[Ben Gilbert]

Oh, shoot. I did know that. Yeah.

[David Rosenthal]

Yeah.

[Ben Gilbert]

Baker's sort of like the godfather of chocolate in the U.S. right?

[David Rosenthal]

I think that's right. I think that's right. But it's super interesting how two manufacturers popped up here in San Francisco in the 1800s.

[Ben Gilbert]

Nice climate for it before air conditioning, at least.

[David Rosenthal]

And then one more big thank you to say on multiple fronts to Joelle 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 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 in clarifying a few points and getting the story behind the stories. Can't recommend the book enough. Go check it out.

[Ben Gilbert]

Great. Well, if you like this episode, go check out our other episodes on lvmh, Sony or Berkshire Hathaway. If conglomerates are your thing, or for more complex manufacturing, Novo Nordisk, the makers of Ozempic. 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 Slack with the other smart, respectful, kind folks there with that, listeners, happy holidays and we will see you next time.

[David Rosenthal]

We'll see you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?