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

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.

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."

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."

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."

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."

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."

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."

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."

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.

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."