Deborah Cadbury’s Chocolate Wars is a wonderfully detailed history of the chocolate industry and the struggle for global market share among the titans of confectionery. While Ms. Cadbury, a descendant of the Quaker patriarchs of the Cadbury corporation (now part of Mondelez), focuses much of the early parts of the book on the Cadburys and their initial struggles to build their company, she also writes skillfully on the histories of Milton Hershey, Henri Nestle, and Forrest Mars, who, along with several others, created veritable empires of chocolate. Chocolate Wars also offers several important lessons for investors, which will be the focus of this brief post.
When times get lean, it is tempting for corporations to hunker down and wait for the storm to pass, but often enough boldness is rewarded in the longer term. This is the lesson Ms. Cadbury teaches us about Nestle, which, being a Swiss company, spent much of the early 20th century surrounded by warring neighbors. When World War I came along, Nestle faced a crisis as they were cut off from Britain, a very profitable market for them, by the German submarine blockade, and their continental operations were obviously disrupted by the British blockade of German ports, not to mention the conflagration across the continent. Rather than sit idly by and watch their fortunes deteriorate due to circumstances quite beyond their control, Ms. Cadbury writes that Nestle’s directors embarked on a bold plan:
“The Nestle directors borrowed on a large scale to invest in setting up companies overseas or buying a controlling stake in foreign companies. Through their American branch in Fulton, New York, they acquired interests in firms in North and South America. Their shares in milk-processing companies in Ohio and Philadelphia alone brought them control of twenty-seven factories. Nestle’s production in America rapidly became fives times greater than its entire Swiss production before the war.”
While this large bets on global empire building eventually came at a cost, – the company recorded its first loss in 1921, the result of the cessation of war-related orders and economic turmoil, – the aggressive long-term strategy continued to pay off; during the Second World War, Nestle’s presence in America once again proved to be life-saving as innovations like Nescafe proved immensely popular in one of the few major markets largely untouched by the destruction.
Conversely, Hershey, which had long been a dominant brand in America, felt no need to expand beyond its borders. As Ms. Cadbury notes, American soldiers brought Hershey bars with them around the world, but after the war, Hershey executives failed to capitalize on this free marketing, and they made the decision to focus on where the disposable income then was, which was in the United States. This shortsightedness cost Hershey as they ceded market share in globally to Mars, Cadbury, and others.
Perhaps the most interesting takeaway for me from Ms. Cadbury’s history is the extreme durability of familiar confectionery brands. It might be surprising to many that, for example, Hershey bars are a product that have been sold more or less unchanged since 1900, or that Snickers, introduced in 1930, helped Mars navigate the Depression as its peanut core offered a more satisfying snack to consumers who were short on cash:
In sum, for those who are interested in the history of the confectionery industry, Chocolate Wars is an indispensable resource. Readers will come away with a deeper appreciation for the struggles of the early chocolatiers who had to solve very complex chemical and logistics problems to bring chocolate to consumers. I, for one, now find it difficult to pass through the candy aisle at the grocery store without stopping to think of the long histories of these familiar candies and the rich legacies they still represent.