The chocolate industry is a $100 billion annual business. Put in different terms, this industry’s value is greater than the GDP of 130 countries (Martin, Lecture 1). Despite its vast size, the chocolate industry is extremely concentrated with only five major companies controlling over 50% of the world’s chocolate confectionery market. Just in the U.S., Mars and Hershey control 70% of the American candy market(Coe & Coe, Chapter 8). It’s hard for consumers to imagine the chocolate industry being a cutthroat environment like the one that’s usually associated with the financial services industry or others. After all, what could evil possibly have to do with a business that has brought so much happiness to chocolate lovers through its many products? Certainly, this ugly side of the chocolate industry is not conveyed through its warmhearted and sweet advertising. Perhaps the most fascinating part of this story is the development of today’s current market dynamics among key players. Spoiler alert, things were not always as bitter as they came to be…
Early Industrialization and Competition
Today’s chocolate industry would simply not exist without the discoveries made during the Industrial Revolution. The developments made during this period not only permanently changed the way chocolate was popularly consumed (from liquid to solid), but also its availability to consumers from different socioeconomic backgrounds. Previously, chocolate consumption was considered a luxury reserved only for the elite, but the invention of industrial machinery allowed chocolate to be processed in greater quantities and different forms.
The creation of the cocoa press by the Dutch chemist Coenraad Johannes van Houten in 1828 radically transformed chocolate-making by allowing cocoa to be separated into cocoa butter and cocoa powder more efficiently and faster. This further enabled chocolate to be used as a confectionary ingredient, and resulted in the drastic decrease in production costs that made chocolate affordable (Klein, 2014). Soon, many other chocolate creations followed. In 1849, J.S. Fry & Sons created the first chocolate bar, an invention that was later improved by the 1879 creation of Rudolphe Lindt’s conche machine, which increased the quality of chocolate confectionery and paved the way for the solid chocolate bars we know today. 1879 also saw the birth of the world’s first milk chocolate bar, courtesy of Swiss chemist Henri Nestlé, who discovered a novel process to make powdered milk by evaporation and who is also the founder of the world’s largest food corporation that bears his last name.
Undoubtedly, the 19th century was a period of discovery and of disruption that changed the history of chocolate consumption and production forever as each invention also seemed to consolidate the success of its respective developer in the industry. Amid these discoveries, competition among the top firms started to stiffen in more than the sales area. Soon, established chocolate companies fought for the control of the market by claiming their chocolate was the best in quality. During the time when adulteration fears were strongly present among consumers, the Cadbury firm claimed that their chocolate was “Absolutely Pure, therefore [The] Best” and insisted that other chocolate manufacturers present all ingredients on their wrappings (Coe & Coe, Chapter 8). Furthermore, the Cadbury and Rowntree firms sought to position themselves as socially conscientious by establishing their own model towns with adequate housing for its workers and other amenities adjacent to their factories. This type of competition appeared to be healthy to some extent, but with the growth of a global market things soon would change.
Enter the Americans
Up until the late 19th century, the selling of chocolate confections to the masses had largely been a European affair, but this changed with Milton Hershey. Hershey was a chocolate and candy confectioner who established the Hershey Chocolate Company in 1894 and went on to become America’s first successful chocolate businessman by building a chocolate empire similar, if not greater, than those already established in Europe. Hershey was able to produce milk chocolate faster and cheaper than the Europeans thanks to the substitution of powder milk for skim milk (D’Antonio 2006, p. 108). His success was not only reflected in the chocolate sales but also in the creation of Hershey, Pennsylvania, the town built around his chocolate factory. Hershey’s town had all sort of amenities that made similar chocolate-built towns like those of Cadbury and Rowntree look small. Hershey had schools, houses, a trolley line, a hotel and eventually its own hospital. Hershey’s legacy still lives on, and his commercial success would’ve been remained unmatched had Mars not entered the picture.
In 1923, Frank Mars, a candy and chocolate confectioner, finally found success with his Mar-O-Bar Co., which later simply became Mars, Inc. Famous creations like the Milky Way bar, Three Musketeers, and the Snickers bar, catapulted Mars into a national success and in 1932 Mars was ranked as the second largest candy maker in the United States, just behind Hershey. Surprisingly, Hershey and Mars did not see each other as rivals at this point. In fact, they had a strong partnership, as Hershey was the supplier of the chocolate coating for Mars products until 1964. Curiously, the famous M&M brand was the collaboration product between Forrest Mars, Frank Mars’s son, and Bruce Murrie, the son of then Hershey Chocolate president William F. R. Murrie (William F.R. Murrie, 2018). At the peak of their partnership, the Mars business accounted for 20% of Hershey’s total sales. This strong partnership and relationship drastically changed once Forrest Mars assumed control of his father’s company in 1965.
Forrest Mars best embodied the spirit of relentless competition. After being bought out of his father’s company in 1932, he moved to Europe to try his luck. He went on to learn the business of confections by infiltrating the ranks of Nestlé before starting his own chocolate company in England. After gaining success in Europe, he returned to America ready to implement his ambitious goals through his father’s company. He effectively ended the partnership with Bruce Murrie by buying him out of the M&M business, and once he became the leader of Mars, he was determined to not let anything stop him from realizing his vision to dominate the confectionery market. He severed the relationship with Hershey and other suppliers in an effort to control every aspect of the Mars business and not depend on any other company. Suddenly, with Forrest’s decision, Hershey’s profits dramatically declined over 20% in a matter of three years, and they were facing a huge competitor who would soon surpass their success. Forrest was determined to become the industry leader, and through secretive innovations and a ruthless engineering strategy, Mars outperformed the competition’s manufacturing.
The chocolate manufacturing industry today is becoming more and more fragmented, but the big five confectionery firms still hold their ground as industry giants. With consumer trends rapidly changing towards healthier habits, perhaps their biggest threat may not come from established business rivals, but from their inability to adapt to consumer demand. Companies like Hershey, are already looking to expand to new snack markets through their “snackfection” strategy, which seeks to combine chocolate with new edible products (Shirsch, 2014). Only time will tell how the industry changes, and maybe new partnerships or rivalries will arise. However, one thing is undeniable, the history of the chocolate confection business has not been anything short of bittersweet.
https://www.cnbc.com/video/2018/04/24/why-hershey-the-iconic-chocolate-company-is-branching-into-salt-and-snacking.html
Works Cited:
Brenner, Joël G. The Emperors of Chocolate: Inside the Secret World on Hershey and Mars. Broadway Books, 2000.
Coe, Michael D. and Sophie D. Coe. The True History of Chocolate, 3rd edition. London: Thames and Hudson, 2013.
D’Antonio, Michael D. Hershey: Milton S. Hershey’s Extraordinary Life of Wealth, Empire, and Utopian Dreams. New York: Simon & Schuster, 2006.
Klein, Christopher. “The Sweet History of Chocolate.” History.com, A&E Television Networks, 14 Feb. 2014, http://www.history.com/news/the-sweet-history-of-chocolate.
Shirsch, Lauren. “After 124 Years, Hershey Tries to Be More than Just a Chocolate Company (Again).” CNBC, CNBC, 24 Apr. 2018, http://www.cnbc.com/2018/04/24/not-just-a-chocolate-company-hershey-plots-its-future-in-snacking.html.
“William F.R. Murrie, 1873-1950.” Hershey Community Archives, 7 Sept. 2018, hersheyarchives.org/encyclopedia/murrie-william-f-r-1873-1950/.
Chocolate Class 