Mars Inc. - The Chocolate Story (Audio)

M&M's and Mars Inc.: A Sweet History

• There are various current varieties of M&M's, including milk chocolate, peanut, peanut butter, dark, pretzel, almond, and others, with some being seasonal or limited edition (0s).
• The original plain M&M's are now called milk chocolate, and there have been other flavors like mint, which is now only available during holidays (8s).
• Some limited edition flavors include crunchy cookie, dark chocolate peanut, fudge brownie, campfire s'mores, and caramel cold brew (42s).
• The sales drivers for M&M's are primarily the milk chocolate and peanut varieties (1m20s).

The Mars Family and Mars Incorporated

• Mars Incorporated, the parent company of M&M's, has a thrilling story that involves World War I, World War II, new technologies, inventions, and family drama (2m10s).
• The Mars family is the second wealthiest family in America and is known for being quiet and reclusive (2m27s).
• Mars Incorporated owns various brands beyond M&M's, including Snickers, Ben's Original rice, and Kind bars, and is also in the pet food business (2m53s).
• Mars Incorporated is a massive company that generates more revenue than the Coca-Cola Company, with over $50 billion in sales last year, and is still privately owned by the Mars family (3m14s).
• The company is one of the top five largest private companies in America and has a significant presence globally (3m25s).

Early Life and Candy Ventures of Frank C. Mars

• The story of Mars Inc. begins in September 1883, with some debate about whether it started in Pennsylvania or Minnesota (5m4s).
• Frank Clarence Mars was born in 1883 to a flower grist mill operator father and a housewife mother, both of whom had trades that would later become important to the company (6m6s).
• Frank contracted polio at a young age, which left him with mild leg damage and forced him to wear orthopedic braces, leading him to spend time at home with his mother after school (6m27s).
• Frank and his mother, Elva, spent their time baking, including making candy, which was a big industry at the time but mostly consisted of unbranded, sugar-based sweets like penny candy, gumdrops, and licorice (7m5s).
• The candy industry at that time was similar to the baked goods industry today, with local bakers making and distributing sweets to retailers and drugstores, which sold them to kids (7m54s).
• Joel Glenn Brenner wrote the book "Emperors of Chocolate," which provides valuable insight into the private Mars family and company, and was the only journalist to gain access to the company, which she did in 1991 (5m22s).
• The company's story is being told with the help of Brenner's book, which was originally a Washington Post article that she wrote after calling the company every day for a year to gain access (5m49s).
• Frank Mars became a skilled candy maker in high school, mastering his mom's recipes and experimenting with his own, which people enjoyed, and at 19 years old in 1902, he established his own candy company in Minneapolis, selling his creations and others wholesale to local retailers (8m18s).
• In the same year, Frank briefly married Ethel Kissack, and they had a son named Forrest Mars, who would later become the main protagonist of the story (8m50s).
• Frank's candy business was not the company that would eventually become Mars, Inc., as it was focused on selling penny candy, which was a limited market, and the products were highly perishable due to the lack of air conditioning (9m33s).
• Milton Hershey had started selling his Hershey's chocolate bars in Pennsylvania in 1900, but they were not yet popular around the country, and Hershey had not yet figured out how to scale production (9m41s).
• Frank's business went bankrupt in 1910, and his wife Ethel divorced him, taking their son Forrest to live with her parents in Saskatchewan, Canada, while she stayed in Minneapolis and started a new life (11m6s).
• Frank, undeterred by bankruptcy and divorce, married another woman named Ethel and moved to Seattle, where he set up another candy business, but it also failed, and he went bankrupt again within a year (11m56s).
• Frank skipped town and moved to Tacoma, fleeing his creditors, after his Seattle candy venture failed (12m28s).
• Frank Mars had two failed candy companies before setting up another candy business in Tacoma in 1914, which also failed after a couple of years (12m29s).
• In 1920, Frank and Ethel Mars returned to Minneapolis and set up another candy company, which would eventually become the globally famous Mars Incorporated (12m47s).

The Rise of Chocolate and Milton Hershey

• The fourth candy company was different from the previous ones as it focused on chocolate, which was a scarce and uncommon ingredient in America at that time (13m29s).
• Chocolate was a difficult ingredient to process, and only Europeans and one American entrepreneur, Milton Hershey, were successfully doing it (13m35s).
• Milton Hershey had a successful caramel company that he sold for a million dollars in 1900, which is equivalent to $36-37 million today (14m32s).
• Hershey traveled to Chicago in 1893 and tried chocolate for the first time at the Colombian Exposition, where he was smitten by its rich complexity and deliciousness (14m48s).
• Hershey bought chocolate-making equipment from a German company at the exposition and set up a chocolate-making operation in Lancaster, Pennsylvania (15m11s).
• The concept of solid chocolate was a relatively new thing at that time, and chocolate was mainly consumed as drinking chocolate until the late 1800s (15m41s).
• The history of chocolate dates back to around 5300 years ago, originating from the Aztecs and even before them, around Ecuador (16m10s).
• Hershey initially made plain chocolate, not milk chocolate, which was a new and complex food that was difficult to make (15m33s).

Frank Mars and the Introduction of Milk Chocolate

• Frank Mars traveled to Europe to learn about milk chocolate, which had recently been invented in Switzerland by Nestle, and discovered the process of making chocolate and milk chocolate (16m55s).

The Chocolate Making Process

• Chocolate is made from the seeds of the cocoa fruit, which grows on trees originally in South America and now commonly in Africa (17m48s).
• The cocoa fruit is sweet and pulpy, but it doesn't have a chocolate flavor; the seeds or beans are used to make chocolate (18m1s).
• The process of making chocolate involves fermenting the beans in wooden boxes, where yeast eats the sugar and creates alcohol, and then acid eats the alcohol, killing the bean (18m24s).
• After fermentation, the beans are dried, either in drying beds, mechanical smoke dryers, or on banana leaves, which can affect the flavor (18m44s).
• The dried beans are then transported to Europe, sorted, sterilized, and have their shells removed through a process called winnowing, leaving behind nibs (19m11s).
• The nibs can be pressed to create cocoa powder and cocoa butter, which can be recombined in different ratios later (19m36s).
• The nibs are ground down to the right particle size and then go through a process called conching, which smooths out the particles (19m50s).
• Conching was discovered by Rudolph Lindt in 1879, who accidentally left his cocoa in a roller grinder over the weekend, creating a silky smooth texture (20m7s).
• The final step involves adding more cocoa butter to create a creamy texture, such as in Swiss chocolate (20m28s).
• The process of making chocolate involves conching, which was first discovered in 1879 and involves agitating and aerating the chocolate mixture to develop its flavor and texture (20m43s).
• Conching is typically done using specific machines as part of the chocolate production process, resulting in a liquidous and wonderful chocolate (20m50s).
• However, this chocolate is not shelf-stable and will bloom if left to dry, resulting in a white, gross appearance and a loss of shine and snap (21m2s).
• To prevent blooming, the chocolate must be tempered, which involves aligning the crystals in the cocoa butter to create a shiny and breakable chocolate (21m25s).
• Tempering involves heating the chocolate to a high temperature, cooling it to a specific temperature to form seed crystals, and then heating it again to set the crystal structure (21m44s).
• If the tempering process is not done correctly, the chocolate will bloom, but if done correctly, it will have a nice, shiny appearance and a satisfying snap (22m0s).
• The process of making chocolate is complex and involves multiple stages, including fermentation, processing, conching, and tempering, making it more complicated than wine or coffee production (22m32s).
• Chocolate production is an agricultural process that requires various steps developed on different continents over many decades to create a uniform and desirable product (23m2s).
• In the final stages of the process, sugar is added to the chocolate, unless making 100% dark chocolate, which is very bitter and complex (23m33s).
• Most commercial chocolate products contain a combination of cocoa, sugar, and milk, with the exact proportions varying depending on the type of chocolate (23m52s).
• The process of creating chocolate involves combining cocoa, butter, sugar, soy lecithin, and sometimes vanilla to create a chocolate taste (24m7s).
• Dark chocolate is simply chocolate that doesn't have milk, and the term "dark chocolate" was created as a name for this type of chocolate (24m24s).

The Invention of Milk Chocolate by Henri Nestle and Daniel Peter

• Milk chocolate, on the other hand, has a history that dates back to 1866 when Henri Nestle was researching infant feeding as a means to solve infant mortality (24m49s).
• Nestle invented a new type of food for babies who were unable to breastfeed, which was a powdered milk that could be rehydrated and used as a substitute for breast milk (24m59s).
• The powdered milk was created by using an air pump at low temperatures to concentrate the milk, and then adding a proprietary cereal mix (25m25s).
• This invention led to the creation of the first baby formula, which was demonstrated to be effective in keeping babies alive in 1867 (25m38s).
• One of Nestle's neighbors, Daniel Peter, had the idea to combine the dehydrated baby formula with cocoa and sugar to create a creamy drink, which eventually led to the creation of milk chocolate (26m19s).
• However, creating milk chocolate was a challenge due to the instability of milk, which would spoil quickly, and the difficulty of blending the milk with the cocoa bean oils (26m47s).
• Daniel Peter eventually solved this problem by using condensed milk instead of powdered milk, and by spreading the milk chocolate mixture on trays to slowly dry and add heat to create milk chocolate flakes (27m24s).
• The creation of marketable milk chocolate involved combining milk and chocolate, which was a perfect combination due to the bitterness of chocolate and the smoothness of milk, making it a delicious treat (28m29s).
• By 1879, milk chocolate in solid form and the conching process led to a significant increase in the market, making chocolate bars smoother and more enjoyable to eat (28m51s).

Milton Hershey's Milk Chocolate and American Taste

• Milton Hershey learned about milk chocolate and decided to produce it, but he wasn't a chemist and had no idea what he was doing, so he experimented through trial and error for years (29m17s).
• Hershey eventually found a method to produce milk chocolate, but it wasn't as scientific as other methods, and the milk would spoil a little, resulting in a sour taste that Americans are used to (30m0s).
• There are two versions of the story, but one account states that a scientist working with Hershey, Schabach, successfully created a sweet and creamy milk chocolate mixture by slowly evaporating non-fat milk over low heat (31m7s).
• The mixture could be blended with cocoa bean ingredients without spoiling, producing a smooth milk chocolate that Hershey was pleased with (31m30s).
• There are two views on how Hershey's chocolate came to be, one being that Milton Hershey created the perfect American chocolate bar, and the other being that he used a large batch of slightly soured milk powder from Europe to make chocolate, which he found sold well (31m34s).
• Company officials have denied that soured milk powder played a part in the company's formula, but regardless, the story illustrates the importance of being first to market and setting the taste of a specific area (31m55s).
• Europeans tend to think that Hershey's chocolate is disgusting, while Americans associate it with their childhood and consider it to be what chocolate is (32m28s).

The Rise of Candy Bars and Hershey's Dominance

• The taste of chocolate is strongly associated with nostalgia, and 75% of candy is eaten by adults, accounting for 90% of total purchases (32m57s).
• Milton Hershey invested heavily in setting up a large-scale chocolate production facility in America, which allowed him to set the taste for the country and lock in his position as the dominant chocolate brand (33m17s).
• Hershey intentionally priced his bars at a nickel to make them ubiquitous, and he pushed distribution everywhere, including five and dime stores, grocery stores, gas stations, and newsstands (33m42s).
• Hershey's unique position, with $40 million from the sale of his previous company, allowed him to reverse-engineer the European chocolate formula and go big with mass production and distribution (34m14s).
• World War I helped to further establish Hershey's as a dominant brand, as the company supplied chocolate ration bars to the American military, introducing millions of American GIs to the slightly sour Hershey's chocolate (35m10s).
• Sugar consumption triggers a release of happiness, which was especially beneficial for soldiers in World War I, and when they returned home, they sought alternative social lubricants, leading to the rise of chocolate (35m41s).
• Following World War I and during Prohibition in America, entrepreneurs began creating candy bars using chocolate and other ingredients, which were cheaper and allowed for unique regional tastes (36m15s).
• By the end of the 1920s, over 40,000 different candy bars were being made in America, mostly by regional entrepreneurial operations, including the infamous Baby Ruth candy bar (36m55s).
• The Baby Ruth candy bar was named after President Grover Cleveland's daughter Ruth, and its marketing stunt involved chartering an airplane to drop bars over Pittsburgh with little paper parachutes (37m11s).
• Despite Hershey controlling the means of production for chocolate, they supplied chocolate to these entrepreneurs, becoming the dominant wholesale chocolate business in America (38m1s).
• This separation of the value chain in the chocolate industry allowed Hershey to become extremely successful, building a town and accumulating wealth comparable to that of the Rockefellers, Carnegies, or Vanderbilts (38m20s).

Frank Mars' Fourth Candy Company and the Mar-O-Bar

• Mars Inc. initially produced energy bars with carbohydrates, fat, and protein, sealed in chocolate, which was a new concept at the time (39m23s).
• Frank Mars started his fourth candy company in Minneapolis, where he introduced buttercream truffles, which he had seen in Seattle and Tacoma, and coated them in Hershey's chocolate, calling them Victorian buttercreams (39m47s).
• Frank Mars added another line of chocolates called Patricia's chocolates, named after his daughter, and the business generated $100,000 in revenue after a couple of years (40m20s).
• In 1922, Frank Mars decided to create a combination bar, introducing the Mar-O-Bar, which was his first candy bar, but it was not a success (40m42s).
• The term "count lines" originated from the Cadbury book, referring to the manufacturing lines that produced candy bars, which were measured by count instead of weight (41m10s).
• The first candy bar from the Mars company, the Mar-O-Bar, was a countline bar, but it did not achieve success (41m54s).

Forrest Mars and the Creation of the Milky Way

• In 1923, Frank Mars' estranged son, Forrest Mars, reunited with him, and they teamed up to introduce a new candy bar that would become the Milky Way (42m12s).
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• JP Morgan's goal is to find the best companies that create value for their audience and will scale with their success, which is why they partner with companies like the one discussed in the show (43m55s).
• Payments are a crucial process for every company that generates revenue, and JP Morgan thinks of payments as a lever for growth, investing heavily in products for fraud prevention, foreign exchange, and working capital (44m24s).
• Forest Mars, the son of Frank Mars, was a 19-year-old college student who got a summer job as a traveling salesman selling Camel cigarettes in 1923 (45m13s).
• Forest was instructed by his boss to increase sales in Chicago, and he put up billboards and posters all over downtown Chicago, which got him arrested and landed him in jail (45m40s).
• From his jail cell, Forest called his estranged father, Frank Mars, who he hadn't seen since he was 6 years old, to bail him out, which led to their reunion after 13 years (46m28s).
• Forest Mars reunites with his father, Frank Mars, after years of no contact, and during their lunch meeting, Forest suggests creating a candy bar inspired by a malted milkshake, which eventually leads to the creation of the Milky Way bar (47m45s).
• Forest's idea involves taking the concept of a malted milkshake and putting it into a candy bar, which he believes he can successfully market and sell across the country (48m8s).
• The Milky Way bar was born, featuring a combination of nougat, caramel, and chocolate, although it differs significantly from the original malted milkshake concept (48m44s).
• Forest's quote from the family archives describes his father's initial creation of the candy bar, which included caramel and cheap chocolate, but still managed to sell well despite its simplicity (49m13s).
• Frank Mars releases the Milky Way bar in 1924, achieving significant success with $800,000 in sales in the first year and transforming the Maro Bar Company's revenue from $73,000 to $793,000 (49m35s).
• The Milky Way bar's success can be attributed to the company's innovative approach to mass-producing candy bars using mechanical methods, setting them apart from other manufacturers who were still producing handmade candies (50m1s).

Forrest Mars' Early Life and Entrepreneurial Spirit

• Forest Mars' life takes a turn when he ends up in jail in Chicago, but prior to this, he had been sent to live with his grandparents in Saskatchewan, Canada, at the age of six, where he developed his entrepreneurial and ambitious nature (50m37s).
• Forest supposedly wins a scholarship to the University of California in Berkeley, which is unusual given his background and the fact that most people in his community went on to work in the mines (51m22s).
• Forest Mars, who was from Minneapolis, enrolled in the school of mining at Berkeley with the intention of becoming a mining engineer and running a mine, showcasing his engineer's mind and marketing skills (51m37s).
• To support himself during his first year at Berkeley, Forest took a job in the cafeteria and negotiated a deal with the head cook to source cheaper ingredients, allowing him to earn around $100 a week, which was double the average American's annual income at that time (52m7s).
• This experience demonstrated Forest's negotiation skills and ability to earn a high income, a trend common among entrepreneurs such as Ingvar, Sam Walton, and Buffett (52m50s).
• During the summer, Forest joined the traveling Camel cigar sales team, where he likely reconnected with his father, Frank, who had become a wealthy man, and discovered the family business, which recalibrated Forest's ambitions to run a business (53m31s).
• Meeting his successful father and seeing the family business's success had a significant impact on Forest, providing him with a new perspective and ambition to run his family's business (53m51s).
• Forest's father's business, which was making $100,000 a year, was a significant success, and even with 10% margins, he was making 4-5 times the average American's income, which was eye-opening for Forest (54m27s).
• Forest's experience and newfound ambition led him to declare, "The hell with running some mines in the Backwoods, I'm going to run a business," showcasing his shift in focus (54m45s).

Forrest's Education and Entry into the Family Business

• Forest Mars, after his sophomore year at Berkeley, transferred to Yale with the goal of learning about business, with the help of his father and presumably his money (55m21s).
• At Yale, Forest's roommate was the nephew of Pierre S. duPont, who was running DuPont and General Motors at the time, and Forest took the opportunity to learn from him (55m42s).
• Forest learned about DuPont's planning system, how to run a chemical industrial manufacturing process, accounting, and planning, and he was determined to apply this knowledge to his father's candy business (56m32s).
• After graduating from Yale, Forest suggested to his father, Frank, that they move the business from Minneapolis to Chicago, which was the center of the candy industry and had better freight distribution to the rest of the country (57m19s).
• Frank agreed to move to Chicago, but he didn't share Forest's level of ambition and wanted to focus on enjoying their wealth, so he built a state-of-the-art factory on the inside but spent $500,000 on a beautiful Spanish-style building on the outside (58m24s).
• The Wrigley company was already established in Chicago, and the city was a hub for the candy industry, with the Cubs playing in Wrigley Field and a neighborhood called Wrigleyville (57m47s).
• Mars would eventually own Wrigley, but at this point, Forest was focused on applying the knowledge he gained from Pierre S. duPont to his family's business (58m17s).
• Mars built a factory that resembled a Hollywood studio building, with state-of-the-art assembly lines designed by the Austin company, which had previously worked with Ford automobile plants (59m15s).
• Forest Mars pushed the workforce to run the lines 24/7 with multiple shifts to maximize production and achieve scale economies, resulting in 20 million Milky Way bars produced annually by 1929 (1h0m9s).
• The factory did not produce its own chocolate, instead buying it wholesale from Hershey, which became Mars' biggest customer, purchasing millions of dollars of chocolate every year (1h0m26s).
• Hershey was happy to supply Mars with chocolate, viewing themselves as an industrial wholesaler, similar to Amazon, and benefiting from the sales of chocolate in America (1h1m7s).

Growing Tensions and Forrest's Departure

• As the company's profits grew, Frank Mars spent money on personal luxuries, including a 20,000 ft vacation home, a $2 million horse ranch in Tennessee, and his own airplane, which Forest Mars disapproved of (1h1m26s).
• Despite their differences, Forest Mars was thankful for Frank's creation of the Snickers bar in 1930, named after his favorite horse, which became a highly popular chocolate bar in America and the world (1h2m1s).
• Snickers is essentially a Milky Way with peanuts, and one possible story of its origins is that Frank Mars was inspired by the Roman army's diet of peanuts, eggs, and sugar, which provided a lot of energy in a super dense form (1h3m8s).
• Snickers was launched in 1930, and it is actually a great energy bar, with a whole industry around similar products being marketed as energy bars (1h4m0s).
• In 1932, Mars added Three Musketeers to their lineup, which originally consisted of a package containing three separate bars with different flavors: chocolate, vanilla, and strawberry (1h4m20s).
• Due to restrictions during World War II, production was cut to just the chocolate version, and the name Three Musketeers remained, even though it only referred to the chocolate variant (1h4m51s).
• Despite the Great Depression, Mars' revenue continued to grow, reaching $25 million in 1932, demonstrating the resiliency of the candy business (1h5m35s).
• Mars focused on keeping prices low to achieve wide distribution, a strategy that was likely influenced by Hershey's approach, and allowed them to make profits while making their bars accessible to Americans affected by the Great Depression (1h6m20s).
• The candy business thrived during the Great Depression, as people sought comfort and a dopamine hit in the form of sweet treats, leading to a reoccurring purchase and incorporation into everyday life (1h6m1s).
• Mars Inc. created different brands and franchises around similar products, such as M&M's, Milky Way, and Snickers, by adding one ingredient and giving them distinct names and personalities (1h6m59s).
• This approach was not the standard practice at the time and was influenced by Frank Mars, who was a product innovator, unlike his father Forest Mars (1h7m31s).
• Forest Mars recognized the potential for growth during the Great Depression and invested heavily in the business, aiming to compete with Hershey and become huge (1h8m3s).
• Frank Mars, however, was content with the company's current success and had no interest in expanding further, leading to a disagreement with Forest (1h8m23s).
• Forest Mars issued an ultimatum to his father, asking for one-third of the company's stock in exchange for running the business and making Frank richer, but Frank turned him down (1h8m41s).
• The company sided with Frank, and Forest left the company, telling his father to "stick his business up his ass" (1h9m55s).
• Forest Mars left America and started his own business, taking with him $50,000 and the foreign rights to the Milky Way recipe, but not the Milky Way name (1h10m29s).
• Forest Mars never returned to America and never contacted his father again, marking the end of their relationship (1h11m3s).

Frank's Death and Forrest's Time in Europe

• Frank Mars, the founder of Mars Inc., collapses in the Chicago Factory and dies of kidney failure at the age of 50, and his son Forrest does not attend the funeral due to being in Europe at the time (1h11m9s).
• Forrest Mars spends nearly a decade in Europe, acquiring skills and building assets that will later contribute to the growth of Mars Inc. (1h11m31s).
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• Forrest Mars spends nearly a decade in Europe with his young family, returning to the US at the end of 1932 (1h14m58s).
• Forest Mars Jr. decided to learn how to make chocolate in Europe, specifically in Paris and later in Switzerland, to build his own big company and gain an edge over his competitors (1h15m5s).
• Forest believed that to get rich, one needs to know how to make a product, and he couldn't hire someone to make a product that would make him rich (1h15m32s).
• In early 1933, Forest moved his family from Paris to Switzerland to learn from the chocolate masters, working at Jean Tobler and Nestle without disclosing his identity (1h16m3s).
• Forest took jobs on the factory lines as a worker to learn directly how the machines and chemical processes worked, and how to make chocolate (1h16m39s).
• Forest's decision to upend his life and learn a scarce skill in a foreign country was a big trade-off, but it was on-brand for him, as he couldn't learn the skills he needed in America due to Hershey's secrecy (1h17m45s).
• Hershey was super secretive about their formula, and while they knew how to productionize their recipe, they didn't actually know the science behind it, having developed it through trial and error (1h17m55s).
• In contrast, European chocolate manufacturers, particularly Nestle, really knew what they were doing and understood the science behind chocolate-making (1h18m23s).
• Forest spent most of 1933 in Switzerland, working on the factory lines and learning the skills he needed to build his own chocolate business (1h18m54s).

Forrest's Success in the UK with the Mars Bar

• Forest Mars learned how to make chocolate and, with $50,000, opened a small factory in Slough, England, where he produced a version of the Milky Way adapted to British tastes, with more sugar and less malt, which he named the Mars bar (1h19m3s).
• The Mars bar became the most popular candy bar in the UK, despite not having the naming rights to the Milky Way, and the recipe was adapted for British tastes (1h19m50s).
• The Mars bar and the Milky Way are effectively the same products, but they were never unified as a brand, and they still have differences in terms of sweetness, malt, and the type of chocolate used (1h20m19s).
• The Mars bar originally used Cadbury chocolate, which was more suited to British tastes, and Forest Mars did a deal with Cadbury to supply the chocolate for the Mars Bar (1h21m25s).
• Forest Mars' goal was to eventually make his own chocolate, and he repeated the mantra "I'm not a candy maker, I'm an empire builder" (1h22m29s).
• The Mars Bar became a hit pretty quickly after production started, and it remains a popular candy bar in the UK (1h22m41s).
• In the UK, the Milky Way brand is used for a different product, which is actually the Three Musketeers bar, and the Snickers bar was originally known as Marathon in the UK (1h22m2s).
• Forest Mars installed his family in a one-room apartment above the factory, where they started making the Mars Bar, and the factory was located in Slough, a small industrial town about 20 miles west of London (1h19m26s).
• By 1939, Mars UK had become the third-largest candy company in Britain, behind Cadbury and Rowntree, just five years after starting production (1h22m44s).

Mars' Expansion into Pet Food and Company Principles

• The existing UK chocolate companies, such as Cadbury and Rowntree, were founded by Quaker families who had a strong sense of community and social responsibility (1h23m11s).
• In contrast, Forrest Mars, the founder of Mars UK, had a more capitalist approach, focusing on efficiency, profit, and broad distribution (1h23m52s).
• Forrest Mars would later retake control of Mars Inc. in America and demonstrated his strong commitment to the company's products, even praying for their success in a meeting with executives (1h24m30s).
• In 1934, Forrest Mars acquired a small British company called Chappel Brothers, which produced canned dog food, a relatively new concept at the time (1h25m3s).
• Prior to the 1930s, pets were typically fed table scraps, and the idea of specific pet food was not widely accepted (1h25m23s).
• The reasons behind Forrest Mars' decision to acquire a pet food company are unclear, and there is limited information available about the pet business (1h25m54s).
• It is possible that Forrest Mars or the Chappel Brothers anticipated a change in people's relationships with their pets, leading to a growing demand for dedicated pet food in the post-Depression era (1h26m30s).
• Mars Inc. diversified into the pet food business in 1935, just a year or two after its founding, which became profitable after a couple of years and generated enough cash flow to fund the expansion of Mars bars (1h27m10s).
• The pet food business had good margins, even in 1935, contributing to the company's success (1h27m47s).
• Forest Mars established the principles of the company, known as the five principles of Mars, which are still quoted by employees today (1h28m13s).
• The principles originated from a document called the Mars way, which Forest started in England, and were later adapted into the Mars principles by his sons and the next generation (1h28m41s).
• The first principle of Mars is quality, which Forest was completely obsessed with, covering every dimension, including ingredients, products, wrappers, and shelf placement displays (1h28m58s).
• Forest implemented the Toyota production system in the Mars factory in the 1930s, allowing any employee to stop the production line for any reason that could impact quality (1h29m54s).
• If a defect was found, Forest would throw out the whole batch, instilling a cultural norm in the company to prioritize quality above all else (1h30m25s).
• Forest Mars had a strong emphasis on quality, not just for its own sake, but also for providing value for money, recognizing that offering higher quality at a given price would help build a lead over competitors and compound forever in the business (1h30m43s).
• The second principle of quality is responsibility, which involves giving employees the autonomy to do their jobs without micromanaging, as Forest Mars knew he needed the best people working hard to scale the business (1h31m25s).
• To incentivize employees, Mars paid them a lot, with the standard being three to four times the normal salary for their job, which has since come down to around 2x, and also offered high bonuses tied to the performance of the company (1h32m7s).
• Employees' take-home pay was largely based on bonuses, which were tied to overall company performance and hitting company metrics, with no individual performance element except for one thing: showing up on time, which earned a 10% bonus if achieved for the entire year (1h32m55s).
• Every employee, from Forest Mars himself to the CEO today, has a time card and punches in and out every day, with a 10% bonus contingent on not being late (1h33m31s).
• Internally, everyone in the company is referred to as an associate, regardless of their external title or position, and there are no perks, executive parking spaces, or offices, with Mars being the first open office company (1h33m50s).
• Mars Inc. offices have an open floor plan with no private offices or doors on conference rooms, promoting a culture of equality and openness among employees, a practice that started in the 1930s (1h34m22s).
• The company's internal culture is in contrast to its external private nature, with no perks or special treatment for any employees (1h34m58s).

Mars Inc.'s Principle of Mutuality and Efficiency

• Mars Inc.'s principle of mutuality emphasizes the importance of its ecosystem, including retailers, suppliers, and distributors, and ensures that all partners are incentivized and making a profit (1h35m59s).
• The company's principle of efficiency is influenced by Forest Mars' studies of business and management literature, including the work of DuPont and the concept of return on total assets (ROTA) (1h36m31s).
• Forest Mars was known to be an avid reader of business and management literature, including the textbook "Higher Control in Management" by TG Rose, which emphasizes the importance of ROTA as a key metric for management (1h37m29s).
• The concept of ROTA is still widely used in Mars Inc. today, with employees frequently referencing it in discussions about the company's performance (1h38m12s).
• Return on total assets is an efficiency metric that measures net profit dollars divided by the total dollar value of a company's fixed assets, with the goal of determining how efficiently a company is using its assets to generate profits (1h38m22s).
• Mars Inc. calculates return on total assets by constantly revaluing the replacement cost of its fixed assets, such as factories, rather than using the original cost or value listed on the balance sheet (1h38m50s).
• This approach allows Mars to ensure that it is efficiently using its assets and not artificially inflating efficiency based on outdated values (1h39m16s).
• For a business like the one described, return on total assets could be calculated by dividing profit dollars from sponsorship by the cost of tangible assets, such as microphones, or by the value of an acquired brand (1h39m30s).
• An alternative approach would be to calculate return on total assets by dividing profit dollars by the value of time invested, which could be a more valuable resource for some businesses (1h40m6s).
• Mars Inc. reportedly had a target return on total assets of 18% for every division and factory, which means that every investment needed to pay for itself in less than 5 years (1h40m30s).
• This target allowed Mars to balance resource utilization and profit generation, as falling below 18% would indicate underutilization of resources, while exceeding 18% would indicate taking too much profit or not reinvesting enough (1h41m6s).
• Mars Inc. has demonstrated high efficiency in its operations, generating more output per worker than its competitors, including Hershey, despite operating with 30% fewer employees (1h41m44s).
• In 1990, Mars' revenue averaged $429,000 per employee, compared to $228,000 at Hershey, indicating that Mars was able to achieve more with fewer resources (1h41m55s).
• Mars Inc. is exceptional at industrializing production, with factories running 24 hours a day, resulting in high efficiency and revenue per employee, significantly higher than competitors like Hershey (1h42m11s).
• The company effectively shares its efficiency benefits with employees through higher pay and bonus-based pay, leading to longer employee retention, reduced recruiting costs, and preservation of tribal knowledge (1h42m38s).
• Mars aggressively reinvests profit dollars back into the business, focusing on R&D for new manufacturing equipment, which also helps minimize taxes and retain capital within the business (1h43m6s).
• The company's approach to reinvesting profits and minimizing taxes is similar to the strategies employed by John Malone and Warren Buffett (1h43m25s).

Mars' Value of Freedom and Family Ownership

• Mars values freedom, which initially meant Forest Mars wanting to build his own business and be independent from his father, and later translated to family ownership, remaining a private company, and avoiding debt (1h43m40s).
• The Mars family is extremely private, having refused to have photographs taken of them for years, and has taken measures to protect their privacy, including purchasing the rights to photographs taken by a freelance photographer (1h44m5s).
• Complete ownership or board control, as seen in companies like Ikea and Mars, provides freedom to invest for the long-term, even if it means sub-optimizing short-term results, and allows for the use of alternative operating metrics like Return on Assets (ROA) (1h44m51s).

World War II and Forrest's Return to the US

• Mars' success story began in the 1930s, with the company becoming the third-largest candy company in the US by the end of the decade, but was impacted by the onset of World War II and the UK government's decision to impose heavy taxes on foreign residents (1h45m21s).
• Forest Mars believed that Cadbury's and Rowntree's lobbied Parliament to implement a tax to run him and Mars out of business, as they were threatening their chocolate business in the UK (1h46m20s).
• In 1939, Forest Mars left his businesses in the UK and moved back to the US with his family, trusting his employees to run the businesses while he was away (1h46m50s).
• Forest Mars' decision to leave the UK was likely influenced by his ambitions to return to America, and the timing seemed right due to the outbreak of World War II (1h46m47s).
• Upon his return to the US, Forest Mars found that he was not welcome at the Chicago Mars company, which was being run by his widowed stepmother and her half-brother, who detested him (1h47m40s).
• Forest Mars was a minority shareholder in the company, owning around 10-20% of the business, and was not able to gain control (1h48m36s).
• Undeterred, Forest Mars decided to start a new candy company from scratch in the US, despite the challenges of competing with the established Mars company (1h48m44s).

The Creation of M&M's and Partnership with Hershey

• Forest Mars brought back a secret weapon from Europe, a type of chocolate candy called Dragees, which had become popular with soldiers in the Spanish Civil War (1h49m24s).
• Dragees were small, round pieces of chocolate coated with a candy shell, originally designed for French noble ladies who wanted to eat chocolate without it melting on their gloves (1h50m1s).
• Confectioners use a process called hard panning to create a colored candy shell that prevents chocolate from melting in hot weather or in one's hand, effectively hardening sugar syrup (1h50m16s).
• Forrest Mars Sr. thought there might be global appeal for the M&M's product after learning about hard panning (1h50m26s).
• Blue Sky is a new open social network that emphasizes user choice, allowing users to build their own home feed and move between apps in the open ecosystem (1h51m3s).
• Blue Sky has gained significant momentum, adding 10 million new users in just a couple of weeks (1h51m34s).
• The Blue Sky team uses Stat Sig for various purposes, including running experiments, collecting user analytics, and releasing new features (1h51m43s).
• Stat Sig helped Blue Sky realize an influx of Brazilian users after the Brazilian Supreme Court banned X in Brazil, as they had a dashboard tracking posts by language (1h52m1s).
• Blue Sky used Stat Sig to run an experiment to prove that users want and enjoy browsing a feed in chronological order (1h52m22s).
• Blue Sky CTO stated that Stat Sig provided concrete answers about what was working and what wasn't, making it achievable for a small team to evaluate product decisions (1h52m46s).
• Stat Sig offers an insanely generous free tier for small companies, a startup program with 1 billion free events, and significant discounts for Enterprise customers (1h53m7s).
• Mars, the son of Frank Mars, took over the company and launched peanut butter M&M's, a uniquely American concept that was popularized by Reese's, which was founded by a former Hershey employee and later acquired by Hershey's (1h53m50s).
• In August 1939, Forest Mars moved back to America and visited Hershey, Pennsylvania, where he took a public factory tour and then asked to meet with William Murray, the president of Hershey (1h54m20s).
• Forest Mars introduced himself to Murray and showed him Dr. candy-coated chocolates that he had been carrying in his pocket, demonstrating their resistance to melting (1h56m28s).
• Murray was impressed, and Forest Mars proposed a joint venture to start a new candy company, which would be 80% owned by Forest and 20% owned by Murray's son Bruce (1h57m23s).
• The new company would be called Mars and Murray M&M's, and Forest Mars would use this venture to build a new candy company and compete with Hershey's (1h57m41s).
• Forest Mars' plan was to use the joint venture to gain access to Hershey's chocolate and eventually build his own company, which would allow him to compete with Hershey's in the US market (1h58m1s).
• Forest Mars needed resources, chocolate, and capital to defeat his father's company, and he specifically targeted Hershey's chocolate, requiring a partnership with Bruce Murray, who was running Hershey at the time, to achieve his goal (1h58m7s).
• Murray was chosen because he didn't own Hershey, which was owned by the Hershey trust, and he had no inheritance to give to his family, making him more open to Forest's proposal of wealth and a legacy (1h58m28s).
• Forest offered Murray the chance to have wealth and a business to pass on to his son, and Murray had access to the military purchasing division, which was crucial for Forest's plan (1h59m2s).
• Hershey had an exclusive arrangement to supply chocolate to the US Military, and Forest proposed starting a new company with Murray, using Hershey's chocolate, to sell to the government, with Forest owning 80% and Murray's son owning 20% (1h59m14s).
• The deal was made possible because Murray wanted a legacy to pass on to his son and couldn't do it himself without violating his employment contract or creating a conflict of interest (2h0m6s).
• Forest's proposal was strategic, as he avoided offering a partnership directly to William Murray, which would have been at least 50/50, and instead offered it to his son, making the deal more favorable to Forest (2h0m31s).
• Murray agreed to the proposal, and in the spring of 1940, Forest and Bruce Murray set up M&M Limited as a partnership, building a factory in New York/New Jersey and starting production in 1941 (2h0m51s).
• The partnership was made possible with Hershey's capital, resources, chocolate, and sugar, and Forest's return to the US was made possible without the support of his own family but with the support of his leading rival, Hershey (2h1m11s).
• The US entry into World War II in 1941 led to significant chocolate rationing for consumers and significant chocolate consumption by the military, making the US military Hershey's biggest customer, and Hershey the only one producing milk chocolate at the time (2h1m35s).
• Mars Inc. significantly limited their wholesale chocolate supply to all their enterprise customers in America, except for one company, Eminem Limited Partnership, which was partly owned by Bruce Murray, due to its ties with the military (2h2m8s).
• The majority of Eminem Limited Partnership's production went to the military, with the Air Force being the biggest customer during World War II, followed by the Army, and possibly the Navy (2h2m48s).
• Bruce Murray, as head of sales at Eminem Limited Partnership, was well-positioned to maintain relationships with purchasing officers in the Pentagon, similar to William Murray at Hershey's (2h3m6s).
• Eminem Limited Partnership had limited customers, mainly the Army, Air Force, and Navy, and did not sell to the public at that time (2h3m22s).
• Rowntree introduced Smarties to the British market in 1937, three to four years before M&M's started in the US, and it is likely that Forrest Mars saw Smarties in the UK before leaving and was inspired to launch M&M's (2h4m2s).
• Early M&M's came in tube packaging, similar to Smarties, and British Smarties are a different product from the non-chocolate candy Smarties in the US market (2h4m33s).
• Forrest Mars and George Harris of Rowntree supposedly negotiated a gentleman's agreement, allowing Rowntree to have the British market for Dr. candies and Mars to have the American market, with Mars also giving Rowntree the rights to manufacture and market Mars Bars in other British Commonwealth countries (2h5m20s).
• During World War II, most of the world's chocolate production went to sovereign militaries, making the agreement between Mars and Rowntree less relevant at the time (2h6m1s).
• Meanwhile, Forrest Mars was looking to introduce a product equivalent to Smarties in the US market, which would eventually lead to the discussion of another product (2h6m19s).

Diversification into Rice and Uncle Ben's

• Forest Mars owned multiple businesses, including a British company that made Mars Bars, a US partnership called Eminem Limited, and a fourth company that produced rice in Houston, Texas, which would eventually become Uncle Ben's rice (2h6m28s).
• Forest met a chemist in England who invented a new method for milling rice called parboiling, which resulted in more nutritious and faster-cooking rice (2h6m59s).
• In 1942, Forest and the chemist formed a joint venture company in Houston, Texas, patented the parboiling method in America, and started producing rice to sell to the military (2h7m19s).
• The idea of launching a branded rice product in America was unprecedented, as there were no brands in the rice category before Uncle Ben's (2h7m46s).
• Today, Uncle Ben's original rice generates over a billion dollars in revenue annually (2h8m7s).

Post-War Challenges and Forrest's Takeover of M&M's

• After World War II, Forest and Bruce Murray needed to find new customers for M&M's and relaunched it as a consumer candy, but the initial consumer launch was met with a tepid response (2h8m27s).
• The slow sales of M&M's created tension between Forest and Bruce, who was in charge of sales, and Forest responded by ordering Bruce to produce daily sales reports, which he would publicly criticize if targets were not met (2h9m43s).
• Forest's behavior towards Bruce has been interpreted as either an attempt to motivate him or to push him out of the company (2h10m25s).
• Forest Mars was trying to push Bruce Murrie out of the company to own M&M's 100%, and in 1949, he finally succeeded after a confrontation that allegedly ended in a fistfight, leading to Bruce's resignation (2h11m0s).
• After Bruce resigned, Forest began negotiating to buy out his 20% stake in the company, eventually settling on $1 million, which valued the M&M's business at $5 million in 1949, equivalent to around $65 million in 2024 (2h11m42s).
• Adjusted for inflation, the $1 million payout to Bruce would be equivalent to around $13 million in today's dollars (2h11m59s).

Marketing Innovation and the Rise of M&M's

• Forest then hired the Ad Agency Ted Bates and Company to perform a comprehensive market study for M&M's, a move that was innovative for the candy industry at the time (2h12m42s).
• The candy industry, including companies like Hershey, was slow to adopt sophisticated market research and advertising strategies, with Hershey not advertising at all until 1970 (2h13m29s).
• The story of M&M's from this point on becomes one of marketing innovation, with the company's success largely due to its marketing and distribution strategies rather than product innovation (2h14m12s).
• The hiring of the Ted Bates agency marked the beginning of the creation of the modern marketing discipline, with ad agencies playing a more consultative role in marketing strategy at the time (2h14m44s).
• A market study found that M&M's were highly appealing to kids, which was interesting since the candy industry had shifted its focus to adults by that time (2h14m56s).
• The problem was that kids didn't buy the candy, but rather their parents did, so the company needed to market to parents to buy M&M's for their kids (2h15m31s).
• To address this, the company created the slogan "Melts in your mouth, not in your hand," which was highly effective in appealing to parents who wanted to keep their homes clean and avoid chaos caused by messy children (2h15m51s).
• The slogan worked by tapping into the core psychology of parents who wanted their kids to be happy but also wanted to maintain a clean and orderly home (2h16m9s).
• The company also sponsored popular kids' television shows, such as The Mickey Mouse Club and The Howdy Doody Show, to further market to parents (2h17m22s).
• By 1956, M&M's had become the biggest-selling candy in America, with over $40 million in annual sales, and the company started to worry about copycats (2h17m37s).
• To combat this, the company added the "M" logo to each piece of candy and ran a second ad campaign telling consumers to look for the "M" to verify authenticity (2h18m15s).
• The company was building a brand and creating a sense of nostalgia and trust with consumers, which has endured to this day (2h18m25s).
• In 1954, the first TV commercial featuring animated M&M's characters was released, which was a new concept at the time but has since become iconic (2h18m52s).
• The success of M&M's led to copycats, including from Hershey's, which was worried about the popularity of M&M's (2h19m18s).
• Hershey's launched a product called Hershey ETS in response to M&M's success, but it failed due to marketing issues, as people would compare it to M&M's, making it a tough marketing position (2h19m28s).
• Being first to market is crucial, and M&M's became the product of reference when describing the category, making it difficult for competitors like Hershey's to enter the market (2h19m48s).
• In 1954, the peanut M&M was launched, initially only in tan, but later added yellow, red, and green in 1960 (2h20m18s).
• The rise of TV in American homes in 1955 created a perfect opportunity for candy companies to utilize TV commercials and create demand for their products (2h20m31s).
• A great TV campaign could shift decades of customer loyalty in a matter of weeks, especially in a new category like candy-coated chocolates (2h20m52s).

Expansion and the Quest to Control Mars Inc.

• Mars entered the vending machine business in 1955 and also started a business called Vend Pack in England, which created early vending machines and coin mechanisms (2h21m2s).
• Forest Mars had built a large empire by the mid-to-late 1950s, with the most popular candy bar in the UK, a large European operation, and a successful pet food and rice business in the US (2h21m36s).
• Despite his success, Forest Mars still didn't control his father's company, Mars Inc. Chicago, and relied on Hershey's for chocolate production in the US (2h22m31s).
• Forest Mars had a liability in relying on Hershey's for chocolate production, as if Hershey's cut him off, M&M's would be severely impacted (2h22m51s).
• Forest Mars strategically pushed Bruce out of the business, and by that time, William Murray had already retired, indicating Forest's planning and strategic moves (2h23m10s).
• Forest Empire was generating around $200 million in revenue annually, while Chicago Mars had about $50 million, making Forest Empire four times the size of Chicago Mars (2h23m27s).
• When Frank Mars's dad died, the majority of the company (about 2/3) went to his second wife, Ethel, and 1/3 went to random other shareholders, including employees, and possibly small stakes for Forest and Patricia (2h23m41s).
• Ethel installed her half-brother, William, as the CEO, and when she died in 1945, her stock was split 50/50 between Patricia and Forest, as per Frank's original will (2h24m5s).
• Forest, who had turned M&M's into a big success, started turning his attention to Chicago Mars, requesting an office and the right to inspect operations, which the board agreed to, not knowing Forest's intentions (2h24m34s).
• Forest relocated to Chicago, spent a lot of time at the company, and started criticizing and writing memos to the board about the mistakes William was making as CEO, suggesting he should be fired and Forest should take over (2h25m5s).
• When William retired as CEO in 1959, Forest saw an opportunity to take over but was met with resistance from Patricia, William, and the rest of the management, who instead installed James, Patricia's husband, as the new CEO (2h25m54s).
• James proved to be a terrible CEO, and revenue dropped from $50 million to $40 million by 1963, resulting in a catastrophic decline for the company, which Forest saw as an opportunity to pressure others into selling and taking over (2h26m28s).
• In 1963, Forest flew to San Diego to meet with Patricia, taking advantage of the company's struggles to pressure her into selling and allowing him to take control (2h27m12s).
• Forest Mars convinces Patricia to sell her shares of the company, with two conditions: James, her husband, would remain CEO, and the company would be renamed Mars Incorporated to preserve their father's legacy (2h27m32s).
• Forest agrees to the conditions, but it's likely what he wanted anyway, as he would be the controlling shareholder of both companies (2h28m14s).
• Patricia sells out in 1963, and Forest now owns two-thirds of the business, spending the next few months buying out other shareholders' shares (2h28m29s).
• By mid-1964, Forest has full control of Mars Incorporated, 20 years after Ethel's death, marking the end of his long quest for control (2h28m46s).
• Forest's ability to buy out two-thirds of the business without external financing is notable, especially considering the company's $40 million annual revenue (2h29m12s).
• After taking control, Forest makes significant changes, including introducing an open floor plan, demolishing the executive dining room, and selling the company art collection and helicopter (2h29m55s).
• He also hands out time cards to all employees, including James, and later fires James as CEO after Patricia's death, taking the position for himself (2h30m11s).
• Forest's actions are seen as a significant alteration of the deal, with him finally achieving his goal of uniting the company under Mars Incorporated (2h30m45s).

Vertical Integration and the Decision to Make Chocolate

• With full control, Forest sets his sights on making his own chocolate in America and overhauling the Chicago factory to increase production efficiency (2h31m16s).
• Mars' new CEO informed Hershey that they would be phasing out their chocolate purchases from them, which Hershey reacted to by estimating it would take at least 10 years for Mars to turn profitable on this decision to make their own chocolate (2h31m50s).
• Mars decided to start making their own chocolate, despite Hershey's warnings, and gave their Chicago plant managers a deadline of six months to start production (2h32m53s).
• One reason for this decision was the quality principle, as Mars wanted to control all the means of production to ensure the highest quality products at a given price (2h33m10s).
• Another reason was to be able to scale as large as possible, as Forest Mars knew how to operate in a scale economies market and controlling production would enable him to scale bigger (2h33m37s).
• In the candy business, shelf space is crucial, and 90% of all candy purchases are impulse purchases, with only 10% being planned purchases (2h34m22s).
• Mars commissioned consumer market research in 1979, which found that 70% of candy purchases were impulse buys, and they launched an initiative to lobby merchants to put candy displays near cash registers (2h34m42s).
• This initiative led to candy displays being placed near cash registers, which is now ubiquitous, and may have contributed to the current 90% impulse purchase rate (2h34m58s).
• Being a scale player in the candy business allows Mars to have the muscle with retailers to push competitors' products to the back of the aisle or bottom of the shelf, making a significant difference in sales (2h35m44s).
• The power dynamics between supermarkets and candy manufacturers shifted with the rise of chain supermarkets, allowing supermarkets to dictate terms to manufacturers, including uniform marketing and limited product offerings (2h36m32s).
• This shift in power, combined with the rise of television advertising, led to massive returns to scale players in the industry (2h37m18s).

Hershey's Stagnation and the Rise of Mars

• Hershey's had previously benefited from this shift, but after Milton Hershey's tenure, the company became stagnant for three decades, failing to adapt to changing market conditions and neglecting advertising and marketing efforts (2h37m52s).
• Hershey's lack of marketing efforts was due in part to internalized behaviors and a rule against advertising that was developed in a different time and environment (2h38m17s).
• The company's ownership structure, with a controlling interest held by a trust, contributed to management becoming removed from the realities of the business and market (2h38m37s).
• The early 20th century was a pivotal time for the global scale economy, allowing founders like Forest Mars to take advantage of economies of scale and rise to success through national and international marketing and branding efforts (2h39m0s).
• The rise of television advertising and globalization enabled entrepreneurs like Forest Mars to succeed on a large scale, marking the beginning of the scale economies entrepreneur era (2h39m46s).

The Hershey Bar and Shrinkflation

• Milton Hershey introduced the Hershey chocolate bar in 1900, pricing it at a nickel to make it affordable for everyone (2h40m4s).
• The price of the Hershey chocolate bar remained unchanged at a nickel from 1900 until November 1969, almost 70 years, despite inflation (2h40m21s).
• To maintain the price, Hershey's reduced the size of the chocolate bar over time, shrinking it to half its original weight by 1969 (2h41m23s).
• The original Hershey's bar weighed 1.25 ounces, while a Snickers bar, introduced later, weighed 1.86 ounces, making the Hershey's bar seem smaller in comparison (2h41m32s).
• Consumers cared more about the perceived value of the product rather than the actual cost, which is why the Snickers slogan "Satisfies" was effective (2h42m0s).
• In 1969, Hershey's finally raised the price of the bar to 10 cents and increased its size back to the original 1.25 ounces, but this move was seen as too little, too late (2h42m19s).
• The decision to raise the price and increase the size of the bar was an attempt to make the change more palatable to consumers, but it ultimately backfired (2h42m26s).
• The move exposed Hershey's practice of shrinking the bar size over the years, leading to consumer outrage and a perception that the company had been "gaming" them (2h43m15s).
• The issue of "shrinkflation" remains a problem today, with even the president addressing it in a commercial, highlighting the practice of keeping prices the same while reducing product sizes (2h43m30s).

Mars' Dominance and Hershey's Response

• Forest Mars, the founder of Mars, Inc., took advantage of Hershey's misstep by increasing advertising for M&M's and Mars products, further expanding his company's market share (2h44m1s).
• Mars Inc. increases the size of its bars while maintaining the same price, starting a price and size war with Hershey in the 1970s (2h44m10s).
• In response, Hershey starts advertising for the first time in the company's history, which initially works well but is eventually stopped due to high commodity prices and pressure on profits (2h44m22s).
• Despite the advertising efforts, Hershey's profits decline, and the company stops advertising after two years (2h44m54s).
• In 1973, Mars Inc. surpasses Hershey to become the number one candy company in America, with its combined products, including Snickers, Milky Way, and M&M's (2h45m7s).
• Mars Inc. maintains its global lead in the candy industry, while Hershey is primarily focused on the American market (2h45m31s).
• Mars Inc. has a durable competitive advantage due to its products having lower costs of goods sold, such as nougat and peanuts, compared to Hershey's dense and expensive chocolate bars (2h46m3s).
• Mars Inc. announces bigger bars at cheaper prices in the early 1980s, further pressuring Hershey's margins (2h46m24s).
• Mars Inc. develops a sophisticated commodities trading department, which allows the company to hedge and profit from market swings in commodity prices (2h47m0s).
• Rumors suggest that Mars Inc. has made billions of dollars in profit from commodity trading over the years (2h47m22s).

Forrest's Retirement and Ethel M Chocolates

• In 1973, Forrest Mars retires, and the company stops communicating with the outside world, making it more difficult to obtain information about the company's activities (2h48m4s).
• Forest Mars Sr. built an empire, expanded to Europe, established a pet business, and took over M&M's, before giving the company to his three children, Forest Jr., John Mars, and Jackie Mars, and retiring in the early 1970s with the company generating around $800 million in annual revenue (2h48m30s).
• Forest Mars Sr. spent the rest of the decade in retirement, taking care of his mother, Ethel, before deciding to start another candy company, Ethel M Chocolates, in 1980, at the age of 76 (2h49m38s).
• Ethel M Chocolates was named after his mother and focused on high-end chocolates, including liquor-filled chocolates, which were gaining popularity in the 1980s (2h49m52s).
• Forest Mars Sr. moved to Nevada, where liquor-filled chocolates were legal, and built a factory and apartment in Henderson, Nevada, from which he ran the business (2h51m15s).
• Ethel M Chocolates became a success, generating $150 million in revenue within a couple of years, and eventually caught the attention of Mars Inc., which acquired the company in 1988 for an undisclosed amount (2h51m51s).
• The acquisition was made by Forest Jr. and John Mars, who were running Mars Inc. as co-CEOs at the time, and marked a significant addition to the company's portfolio (2h52m51s).

Mars Inc.'s Increased Transparency and Acquisitions

• Mars Inc. has become more open to sharing information with the public, with their CEO speaking publicly and releasing press releases, as they recognize the changing times and consumer demand for transparency (2h53m10s).
• Despite this, the company still maintains secrecy around certain aspects, such as not allowing in-depth pieces or books to be written about them, and not producing financial statements for their bankers (2h53m51s).
• In 1974, Mars started producing Skittles in the United States after its success in the UK, and also brought Twix and Starburst (previously known as Opal Fruits in the UK) to the US market (2h54m10s).
• In 1986, Mars acquired Calan Foods in Los Angeles, marking the beginning of their association with dog and cat owners in America, and later rebranded Calan dog as Pedigree and Calan cat as Whiskas (2h54m23s).
• Mars also acquired Dove in 1986, which was initially an ice cream bar company, and later launched Dove chocolate bars and pieces (2h54m36s).

Globalization and Growth Under the Brothers' Leadership

• The company's globalization efforts during the brothers' tenure, which ended in 2001, led to significant growth, with revenue increasing from $800 million to $20 billion (2h55m26s).
• Mars expanded to new markets, including Japan, China, Russia, the Middle East, and South America, and began sponsoring the Olympics in 1984, unifying their product brands globally (2h55m42s).
• The brothers' 28-year tenure saw a 25x increase in revenue, with the company's globalization efforts playing a significant role in this growth (2h56m5s).

The Acquisition of Wrigley and Berkshire Hathaway's Involvement

• Mars globalized successful brands built by Forest, and in 2008, Mars acquired Wrigley with the help of Warren Buffett and Charlie Munger (2h56m53s).
• Warren Buffett had been conducting a 70-year taste test on both Mars and Wrigley and stated that they both passed the test, showcasing his personality and insightful analysis (2h57m19s).
• In the 2011 Berkshire shareholder letter, Warren Buffett mentioned that buying commodities and selling brands has been a formula for business success, which is also the Mars formula (2h57m42s).
• This formula involves companies buying raw products, selling them as branded products, and creating margin, which is allowed by the market and consumers (2h58m10s).
• Warren Buffett also mentioned that flipping the formula to sell commodities and buy brands is a good mentality for an investment portfolio (2h58m23s).
• In April 2008, Mars announced the deal to acquire Wrigley, which closed in October 2008, right after the Lehman collapse, for $23 billion, a 28% premium to its trading price (2h58m53s).
• Mars paid $11 billion itself, got $5.7 billion in bank debt from Goldman Sachs, and Berkshire provided the rest of the financing, about $6.5 billion (2h59m39s).
• Over time, Wrigley used its profits to buy out Berkshire, and Mars had the right to buy out Berkshire's $2.1 billion equity investment (3h0m8s).
• In 2013, Mars repurchased the debt portion of Berkshire's financing, and Berkshire earned $2.5 billion in interest from the 4.4 billion debt investment with an 11.45% interest rate (3h0m23s).
• Mars bought back its debt from Berkshire Hathaway in 2013, before the debt matured, and paid a $680 million premium, in addition to the original $4.5 billion debt investment, resulting in a total return of around $3.1-3.2 billion over five years (3h0m57s).
• Berkshire Hathaway invested $2.1 billion in equity in 2016, which Mars bought out for $4.6 billion, more than doubling the investment in five years, and also earned around $1 billion in dividends on the preferred equity (3h1m24s).
• The deal involved a combination of bank debt from Goldman Sachs and a dual instrument from Berkshire Hathaway, which provided a reputational guarantee and solidity during the financial crisis (3h2m6s).
• Berkshire Hathaway's involvement likely helped pull in the bank debt, as Mars did not have significant banking relationships at the time, and Goldman Sachs was Berkshire's preferred bank (3h2m35s).
• The Wrigley shareholders had to be given confidence to vote for the deal, and having Warren Buffett's stamp of approval helped calm them down during the financial crisis (3h3m8s).
• Berkshire Hathaway put in $6.5 billion and doubled its money over eight years, with five years on the debt and a few more years on the equity (3h3m33s).
• Goldman Sachs likely made a premium for using Berkshire's reputation in the deal, but the exact amount is unknown (3h3m51s).

Wrigley's Business and Mars' Expansion into Pet Care

• Wrigley is a good business, possibly even better than the candy business, with high margins due to gum being a petroleum byproduct, and had around 50% gross margins and 20% net income margins before being acquired by Mars (3h3m58s).
• Wrigley also owned mints like Altoids and Lifesavers, and gum is a relatively inexpensive product to make, unlike chocolate (3h4m47s).
• Mars bought a significant stake in the Banfield Pet Hospital chain, the largest chain of pet hospitals in America, which was started in partnership with PetSmart, and now owns Banfield outright (3h5m6s).
• Mars Inc. acquired a large stake in PetMart in 2007 and fully bought it out in 2015 for 100% ownership, which is interesting as pet hospitals are a different business from dog food-related pet care, although pet hospitals can be used as a channel for dog food (3h5m27s).
• Mars acquired Banfield in 2017 and VCA, the largest independent vet hospital operator in America, for $9 billion in 2017, which is a large acquisition and a very different business from manufacturing (3h6m2s).
• Mars' strategy in acquiring pet hospitals may be related to the distribution of pet food, as they acquired Royal Canin, a French pet food company that makes prescription pet food, in 2002 (3h6m43s).
• Prescription pet food became a big business as dogs became more like family members and people started caring for them more like humans (3h7m2s).
• Mars' acquisition of Royal Canin may have led them to consolidate the distribution and value chain in the prescription pet food business by acquiring Banfield and VCA (3h7m20s).

Mars' Decentralized Operations and Acquisition Strategy

• Mars runs a decentralized operation, which allows them to manage different businesses, including services businesses like veterinary clinics, without having people who make candy trying to run a veterinary clinic (3h7m34s).
• Mars grows through inorganic acquisitions, and they have overpaid for some of their acquisitions, such as Wrigley and Royal Canin, but they may have understood what they were buying and underwritten better than anyone else (3h8m5s).
• Multiples are a blunt instrument used for valuation when you don't actually deeply know and understand the business, but when you do, you can underwrite better than everyone else and have more margin of safety in the price you are willing to pay (3h8m41s).
• Mars' acquisition strategy involves taking small steps to understand the business before making a larger acquisition, which may involve overpaying for some assets (3h9m17s).

The Acquisition of Kind and Kellogg's NOA

• Mars Inc. recently acquired Kind, a company that generates $1.5 billion in revenue, almost entirely domestically in America, and took it global, which has been a big success for the company (3h9m39s).
• Kind's success can be attributed to its presence at checkout counters in Starbucks, where its healthy and low-sugar bars fit with the Starbucks brand ethos (3h10m9s).
• Mars' acquisition of Kind is part of its strategy to diversify and hedge against the possibility of people stopping eating candy bars (3h10m37s).
• In August, Mars announced a definitive agreement to purchase Kellogg's NOA (Kellogg's minus the American cereal business) for $35.9 billion, which is the largest CPG transaction since the merger between Kraft and Heinz in 2015 (3h11m2s).
• Kellogg's NOA includes snack businesses such as Rice Krispy Treats, Pringles, and Pop-Tarts, as well as international cereal businesses (3h11m30s).
• The acquisition of Kellogg's NOA will make Mars look more like its competitor Nestle, which is a highly diversified company with over $100 billion in revenue (3h12m48s).
• Mars is raising outside capital through the sale of investment-grade bonds to help finance the acquisition of Kellogg's NOA (3h13m14s).
• The Mars family is worth $117 billion, and the company's annual revenue is around $50 billion, although its enterprise value is pegged at $117 billion by Forbes (3h11m56s).
• Mars Inc. generated $45 billion in revenue in 2021, $47 billion in 2022, and $50 billion in 2023, with the company now stating revenue is over $50 billion (3h13m30s).
• The Mars snacking segment, which includes candy, generated $18 billion in revenue, which is less than half of the company's total revenue (3h13m42s).
• The Pet Care segment is the dominant component of Mars Inc.'s business, accounting for 59% of revenue and employing almost 100,000 people out of the company's 140,000 employees (3h14m5s).

Mars Inc.'s Market Share and Competitive Advantages

• Mars Inc. owns thousands of pet hospitals and has a significant presence in the veterinary services industry, with 3,000 locations out of 35 to 40,000 vets in the US, making them one of the largest players in the market (3h15m13s).
• In the US candy and confections market, Mars and Hershey each have around 24% market share, with no other company coming close (3h15m45s).
• Internationally, the candy and confections market is more fragmented, with Mars being the largest player with 11% market share, followed by companies with 7% and 5% market share (3h16m3s).
• The top five companies in the international candy and confections market, including Mars, M&M's, Ferrero, Hershey, and Nestle, only account for a third of the market, leaving a significant longtail of smaller companies (3h16m12s).
• Mars Inc.'s pet business is larger in revenue and likely in profits as well, but the company's candy business may also be a significant contributor to profits (3h16m47s).
• Mars Inc. has seven ways to achieve more profit than its competitors, which include counter positioning, scale economies, network economies, switching costs, process power, branding, and cornered resources (3h17m33s).
• Scale economies is often the biggest factor for the largest businesses in the world, as they operate at high gross margins in large markets, allowing them to build a massive fixed cost base and have great operating leverage (3h17m49s).
• Businesses that benefit from scale economies can amortize their high-margin sales in huge volumes across a relatively small fixed cost base, such as manufacturing, software, and cloud computing businesses (3h18m5s).
• Branding can show up in different ways, not just by charging more for a branded product, but also by increasing consumer trust and leading to higher volume sales over time (3h18m48s).
• Mars Inc. has brand power, but it doesn't necessarily translate to higher prices; instead, it leads to higher total lifetime margin dollars due to increased consumer trust and loyalty (3h20m5s).
• The candy industry used to have cornered resources, but it's not the case anymore, and process power is not a significant factor in the industry as any superior manufacturing methods are widely known (3h20m30s).
• Mars Inc. has historically had the best technology and equipment in the industry, but it has kept these advancements as trade secrets rather than patenting them to avoid tipping off competitors (3h20m46s).

Switching Costs and the Importance of Marketing

• In the pet business, switching costs are a significant factor, as pet owners are unlikely to change their pet's food if it's not causing any problems (3h21m19s).
• Switching pet food can be challenging due to digestive issues, and pet owners often stick to one food to avoid these problems, resulting in significant switching costs for pet hospitals and veterinarians (3h21m29s).
• A durable and sustainable business can be built through great marketing, not just a great product, as seen in the story of Mars Inc. and its marketing campaigns (3h22m11s).
• The growth of a company can come from marketing rather than just the product, as was the case with Mars Inc., where marketing campaigns played a significant role in its success (3h22m36s).

The ET Product Placement and Mars' Branding Strategy

• The movie ET featured Reese's Pieces instead of M&M's due to Mars' refusal to commit to a guaranteed million dollars of co-marketing and promotions, which ultimately led to a significant increase in Reese's Pieces sales (3h23m2s).
• The decision to feature Reese's Pieces in ET was a result of timing and the confidence of the CEOs, with Hershey almost passing on the opportunity as well (3h23m54s).
• The product placement deal in ET was a paradigm-setting deal that tripled the sales of Reese's Pieces and left a lasting legacy, with Reese's Pieces becoming a staple at movie theater concession stands (3h24m33s).
• Mars Inc. has a strong brand presence in the candy industry, with products like M&M's, Snickers, and Milky Way, which are considered commodity products that have become successful due to their ability to create a better lifetime story and nostalgia element for consumers (3h25m20s).
• The candy industry is similar to the luxury industry in that once a product and brand are established, it is impossible to kill them, as seen with Hershey's despite their past mistakes (3h25m52s).
• Mars Inc. has successfully associated their brands with popular culture, such as M&M's with Disney, and has run a classic Christmas commercial for 20 years (3h26m19s).
• Snickers has associated with the Rolling Stones and the Olympics, and has partnered with the NFL, finding ways to link with national or global premier brands that evoke nostalgia (3h26m55s).
• Mars Inc. has also partnered with NASA, with M&M's being part of the menu on the Space Shuttle, and has been featured in astronaut videos (3h27m13s).
• The company has used computer-generated characters in their commercials, such as the M&M's characters, which were first introduced in 1994, a year after the first use of computer-generated 3D modeling in cinema (3h27m48s).
• Mars Inc. has created durable marketing franchises and moments, but missed the opportunity to partner with the movie ET, although this did not significantly impact their business in the long run (3h28m17s).

The Tan M&M's Replacement and Recession-Proof Business

• In 1995, Mars Inc. announced that they would be replacing the tan M&M's with a new color, which was chosen through a public vote, with blue being the winning color, a move that was seen as a genius marketing strategy (3h28m35s).
• Mars Inc. had a marketing campaign where people could call 1-800-FUN-COLOR to vote for the new color to replace tan, and blue won, with the Empire State Building being lit up in blue to announce the result (3h29m9s).
• The company constantly rebalances the ratios of colors in M&M's bags to suit current tastes, with the exact ratios being a secret (3h29m46s).
• Mars Inc. is a recession-proof business, as people don't stop buying candy during economic downturns, and the company's sales didn't take a hit during the 2008 recession (3h30m10s).
• The company's business is also universal, with a survey showing that 98% of households buy candy every year, and 97% of those purchases are recurring, with an average of 35 times a year (3h30m40s).

Sugar Consumption and the Future of Chocolate

• Sugar is an addictive habit, and Mars Inc.'s business is participatory in the increase of sugar consumption among Americans and around the world, which is good for their business but concerning for public health (3h30m59s).
• Despite concerns about sugar consumption, chocolate sales are still at an all-time high, and it's unlikely that sales will fall even if people start eating healthier (3h31m58s).
• Chocolate is a complex and rich food, with a hundred years of marketing by companies like Mars and Hershey's contributing to its popularity, but also having a complex production process (3h32m19s).
• Milton Hershey exited the caramel business, believing chocolate to be a complete food with lower risk, unlike gummy candies (3h32m47s).
• The chocolate industry is undergoing significant changes due to climate change, with the cacao tree being highly sensitive to temperature and climate (3h33m11s).
• Cacao trees have a long lead time of around 25 years to become productive and can only produce fruit within a narrow temperature and climate band (3h33m46s).
• As global chocolate consumption and production increase, climate change has impacted production, leading to efforts in genetic engineering and hybridization to optimize for resiliency and output (3h34m17s).
• However, these efforts have not prioritized preserving the current taste of chocolate, resulting in a change in the taste of chocolate over the years (3h34m55s).
• The industry, including Mars, is focused on addressing this issue, recognizing the importance of maintaining the richness and complexity of chocolate (3h35m32s).

Mars' Acquisition Approach and Growth

• Mars has successfully acquired and conglomerated companies, developing the ability to do so well by decentralizing most parts and centralizing very few (3h35m52s).
• Mars has made 30 acquisitions since the 1990s and has only sold two companies since 2015, adopting a buy-and-hold approach similar to LVMH (3h36m34s).
• Unlike private equity firms, Mars does not rebrand acquired companies, instead keeping their original branding (3h36m47s).
• Mars Inc. has maintained separate brands, such as VCA and Banfield, in the pet hospital business, rather than centralizing them under a single brand (3h36m56s).
• Over the last 100 years, Mars Inc. has grown its revenue at a compound annual growth rate of 14%, which is attributed to factors such as global applicability, margin structure, operational efficiency, and scale economies (3h37m7s).
• The company's success can also be attributed to its ability to create habitual and addictive products, as well as its dominant market share in various industries (3h37m42s).

Forrest Mars Sr.'s Legacy and Mars Inc.'s Innovation

• Forest Mars Sr. is considered one of the greatest American entrepreneurs of all time, alongside Sam Walton and Henry Ford, due to his innovative business strategies and vision (3h38m26s).
• Mars Inc. is considered one of the first modern companies, with Forest Mars Sr. implementing radical ideas in the 1930s that are now widely accepted, such as open office structures, diversification, and scientific management (3h39m16s).
• The company's success with M&M's is attributed to its market research and positioning, which was ahead of its time and involved tailoring marketing messages to specific target consumers (3h40m7s).
• The outcome of Mars Inc.'s success is path-dependent, meaning that it was heavily influenced by the time period, technology, and competitive set in which it operated, and it would not be possible to replicate the same success today (3h40m41s).
• The success of Mars Inc. can be attributed to a combination of factors, including the assets Forrest Mars inherited from his father, his exposure to the DuPont company while attending Yale, and the timing of industrialization, mechanization, television, and commercials, all of which allowed him to make brilliant decisions within the context of his time (3h40m55s).

The Hershey Trust and Milton Hershey School

• The Hershey trust is responsible for maintaining the Milton Hershey School, which started as a school for orphans and now serves students from low-income families or those in need, with an endowment of $17.4 billion, making it the largest endowment of a secondary school in America and the world (3h42m3s).
• The Milton Hershey School has an enrollment of 2,200 students, resulting in the highest endowment dollars per student anywhere in the world, with the trust having a hard time spending all the money due to its massive size (3h42m41s).
• The primary purpose of the Hershey trust is to maintain the school, with the company being owned by the trust, which operates with a specific mission to support the school (3h43m7s).
• The required budget to run the school is significantly lower than the 4% annual return on the $17 billion endowment, making it challenging for the trust to spend all the money (3h43m34s).

Dandelion Chocolate and the Bean-to-Bar Movement

• Dandelion Chocolate is a part of the bean-to-bar movement, sourcing single-origin beans and crafting high-quality chocolate, with a unique factory and a team that is passionate about making exceptional chocolate (3h43m43s).
• The team at Dandelion Chocolate is grateful for the opportunity to explain how chocolate is made, and their products are highly recommended, including their Advent calendar (3h44m17s).
• Mars Inc. created an Advent calendar that is considered the single greatest Advent calendar ever made, featuring artwork, design, and presentation comparable to Hermes, with each day's chocolate being an ornament that can go on the tree, and partnering with chocolatiers from around the world to showcase the best talent in the chocolate-making industry globally (3h44m36s).

Mars' Advent Calendar and Other Product Mentions

• Mars Inc. created an Advent calendar that is considered the single greatest Advent calendar ever made, featuring artwork, design, and presentation comparable to Hermes, with each day's chocolate being an ornament that can go on the tree, and partnering with chocolatiers from around the world to showcase the best talent in the chocolate-making industry globally (3h44m36s).
• The Tesla Model Y is an awesome car with great service, as evidenced by a recent experience where a flat tire was repaired within 90 minutes, and the whole process, including a follow-up repair, cost only $120 (3h45m23s).
• The Tesla Model Y is considered the best family vehicle ever created, comparable to the Model T of its generation, with a unique service experience that sets it apart from other car companies (3h46m14s).
• Silo season 2 on Apple TV is excellent, and the book it's based on, "Wool," is also great, maintaining its momentum from season one (3h46m32s).
• The author of "Wool," Hugh Howey, is a great person who was met in person, and his work is highly regarded (3h46m54s).
• The movie "Home Alone" is a nostalgic favorite, and its themes of holiday travel and parental worries are relatable, especially after a recent wild plane ride to Pennsylvania to visit family (3h47m3s).

Acknowledgements and Closing Remarks

• A flight passenger, who was listening to the podcast, approached the host after the flight and revealed that he had been listening to the podcast during the flight, turning a stressful situation into a wonderful memory for the host (3h48m25s).
• The host thanks various companies, including JP Morgan Payments, Cruso, and Stat Zig, for their support, and invites listeners to click on the links in the show notes to learn more about these companies (3h49m27s).
• The host also thanks Arvind Navaratnam at Worldly Partners for his write-up on Mars, which contains more data and statistics than could be covered in the podcast, and recommends reading his PDF (3h49m40s).
• The host expresses gratitude to Todd at Dandelion Chocolate and Clara Shen, who works at Dandelion, for sharing their insights on the industry and Mars (3h50m5s).
• The host thanks Gary Guittard, whose company supplies chocolate to many excellent chocolate companies, including the world-famous See's Candies (3h50m16s).
• Before Milton Hershey started making chocolate in 1900, there were three chocolate producers in America that predated him, including Guittard, Ghirardelli, and Walter Baker in Massachusetts (3h50m43s).
• The host notes that two of these manufacturers, Guittard and Ghirardelli, were located in San Francisco, which had a suitable climate for chocolate production before air conditioning (3h51m33s).
• The host thanks Joelle Glenn Brener, the author of "Emperors of Chocolate," for her book, which is a page-turner and one of the great business histories (3h51m44s).
• The book being discussed is highly recommended and provides insight into the story behind the stories, with helpful clarification on several points (3h52m3s).
• Other episodes to check out include those on LVMH, Sony, and Berkshire Hathaway for conglomerates, and Nova Nordisk for complex manufacturing (3h52m16s).
• More recent episodes include an interview with the CEO of Arm Holdings, Rene Haas, for those interested in semiconductors (3h52m28s).
• Listeners are invited to join the discussion at acquired.fm/slack with other smart, respectful, and kind individuals (3h52m37s).
• The episode ends with holiday greetings and a preview of the next episode (3h52m45s).