The Hershey Company, every mention
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Verbatim, from the transcripts: the passages where The Hershey Company comes up
10 Years of Acquired (with Michael Lewis) · Acquired
- ▶ 2:25:42 David Rosenthal So it's the dual history of Hershey and Mars together.
Mars Inc. - The Chocolate Story (Audio) · Acquired
- ▶ 14:09 David Rosenthal So we gotta rewind a little bit and tell the Hershey story, because A, it's also crazy, and B, it is deeply, deeply intertwined with the Mars story.
- ▶ 24:47 Ben Gilbert This is before he started the Hershey Chocolate Company, 1866.
- ▶ 30:23 David Rosenthal Which is why I'm sure all of our, you know, European and other international non-American friends who are listening to us here and are saying, like, Hershey's, that is so disgusting.
- ▶ 31:56 Ben Gilbert Company officials have always denied that soured milk powder played any part in the company's formula.
- ▶ 32:46 David Rosenthal Because the tastes are so strong, so powerful, so complex, you bite into a Hershey's bar, and like, subconsciously or not, your brain is going right back to childhood when you first ate that.
- ▶ 34:11 Ben Gilbert And Hershey's kind of uniquely positioned to do it.
- ▶ 34:59 David Rosenthal Putting the final pieces on this initial Hershey success story.
- ▶ 35:14 David Rosenthal And the American military, as they have seen European armies do, they source chocolate as ration bars for the troops, and Hershey's is the big supplier.
- ▶ 35:33 David Rosenthal Introduced and hooked on the slightly sour Hershey's chocolate.
- ▶ 36:35 David Rosenthal Hershey's selling their own bars.
- ▶ 37:54 David Rosenthal So, okay, you might be scratching your head a little bit and being like, wait a minute, you just told me about how like Hershey controls the means of production for chocolate and nobody in America can make chocolate except Hershey.
- ▶ 38:04 David Rosenthal And Hershey is freaking loving all of this because they are supplying the chocolate to all of these entrepreneurs.
- ▶ 38:11 David Rosenthal They're like the AWS of the chocolate business.
- ▶ 38:14 Ben Gilbert They've become the blue jeans and pickaxes company in this gold rush.
- ▶ 38:33 Ben Gilbert It used to just be, well, I buy beans, and then I make consumer-branded chocolate bars, and this is the first time there's a sort of intermediation step where you say, well, Hershey makes the chocolate, and then other people buy the…
- ▶ 38:55 David Rosenthal Yep, and there's one game in town, at least when it comes to milk chocolate, which is most of the market, and that's Hershey.
- ▶ 40:08 David Rosenthal He calls them Victorian buttercreams and I believe started coating them in chocolate using Hershey's chocolate, which makes sense given everything that's going on.
- ▶ 40:35 David Rosenthal We're not talking Hershey levels of entrepreneurial, uh, ambition here, but that's not the ambition that Frank has.
- ▶ 58:14 David Rosenthal It's kind of like Hershey and the chocolate business.
- ▶ 1:00:32 David Rosenthal They're buying all the chocolate wholesale from Hershey, which probably is another reason for the move to Chicago of like, hey, we need to be on a main train line, not only to get the product out, we need to be there to get the…
- ▶ 1:00:45 David Rosenthal So very quickly, Mars becomes Hershey's biggest customer.
- ▶ 1:00:52 David Rosenthal They are buying millions of dollars of chocolate every year from Hershey.
- ▶ 1:00:58 Ben Gilbert At this point in history is still that Hershey's like, great.
- ▶ 1:01:07 David Rosenthal I mean, I think the right way to think about Hershey at this point in time is like Amazon.
- ▶ 1:06:17 Ben Gilbert And at this point in time, between Mars and Hershey, both were laser-focused on keeping the price low to get as wide a distribution as possible.
- ▶ 1:06:30 David Rosenthal Closely studying Hershey and what they did and realized,
- ▶ 1:08:21 David Rosenthal We're gonna go compete with Hershey.
- ▶ 1:17:57 Ben Gilbert Hershey is super secretive at this point in time.
- ▶ 1:17:59 Ben Gilbert No one knows their formula.
- ▶ 1:18:01 David Rosenthal Well, I think not only is Hershey super secretive, the sense I get, at least from Emperors of Chocolate, is
- ▶ 1:18:09 David Rosenthal They knew how to productionize their recipe, but they didn't actually know the science of how it worked.
- ▶ 1:18:18 David Rosenthal They kind of got there through trial and error.
- ▶ 1:18:28 David Rosenthal And Hershey sort of in an industrial sense knew what they were doing, but nobody there really knew the science behind it.
- ▶ 1:18:34 David Rosenthal And in fact, there's a story about how the first plant that Hershey expands to, their first second plant outside of Hershey, Pennsylvania, they can't get it to work.
- ▶ 1:18:44 David Rosenthal They can't get the chocolate to taste the same.
- ▶ 1:18:47 David Rosenthal Because they, like, don't exactly know how they get that specific sour note in the taste.
- ▶ 1:21:26 David Rosenthal So, as you said, Forrest goes and does a deal with Cadbury's to supply the chocolate for the Mars bar, just like Hershey had supplied the chocolate back in the US.
- ▶ 1:41:44 Ben Gilbert He pointed out that despite operating with 30% fewer employees than its closest competitor, so today this is Mars versus Hershey,
- ▶ 1:41:57 Ben Gilbert So in 1990, for example, Mars' revenue averaged 429,000 for employee compared to 228,000 at Hershey.
- ▶ 1:42:45 Ben Gilbert So if the revenue per employee is way higher than their competitors like Hershey,
- ▶ 1:54:10 David Rosenthal Reese's was a separate company from Hershey that was built down the road.
- ▶ 1:54:13 Ben Gilbert And I think it was a former Hershey employee.
- ▶ 1:54:15 David Rosenthal Former Hershey employee started it, and then Hershey's later acquired the company.
- ▶ 1:55:04 David Rosenthal William Murray, of course, being the president of Hershey and Milton Hershey's longtime number two president and COO type, but the guy who actually ran the company.
- ▶ 1:55:37 Ben Gilbert Because at this point, while Hershey was still a supplier to Chicago Mars, they were really starting to be a competitor.
- ▶ 1:58:13 David Rosenthal He's gonna need chocolate, which means he's gonna need Hershey's chocolate.
- ▶ 1:58:36 David Rosenthal But even more important, Murray doesn't own Hershey.
- ▶ 1:58:42 David Rosenthal The Hershey Trust owns Hershey.
- ▶ 1:59:13 Ben Gilbert So, this deal is nuts, because Hershey has an exclusive arrangement to supply chocolate to the US military.
- ▶ 1:59:56 Ben Gilbert And Hershey's gonna provide the chocolate, the sugar, and the technical expertise, and capital.
- ▶ 2:00:15 David Rosenthal That would be disloyalty to Hershey.
- ▶ 2:01:05 David Rosenthal Ben, as you say, build a factory with Hershey Capital and resources and chocolate and sugar and everything else.
- ▶ 2:01:18 Ben Gilbert The line is, without the support of his own family, but with the support of his leading rival, Hershey.
- ▶ 2:01:54 David Rosenthal So all of a sudden, the U.S. military becomes Hershey's biggest customer, just like during World War I, which means.
- ▶ 2:02:03 Ben Gilbert And Hershey's is the only one with a chocolate contract.
- ▶ 2:02:40 David Rosenthal Now, of course, just like Hershey, the vast majority of young M&M limited partnerships production is also going to the military.
- ▶ 2:03:07 David Rosenthal It's William Murray at Hershey's and
- ▶ 2:08:42 David Rosenthal Hershey's resources.
- ▶ 2:13:25 David Rosenthal Hershey had a strict policy of not advertising at all.
- ▶ 2:13:43 David Rosenthal The story about sales targets and revenue growth targets in Hershey was that in some file card in some system, Milton Hershey had written gross sales four percent every year, and that was the plan.
- ▶ 2:13:56 David Rosenthal That was Hershey's annual plan was gross sales four percent.
- ▶ 2:19:16 Ben Gilbert Speaking of copycats, M&Ms were so successful that Hershey's really was getting worried.
- ▶ 2:19:27 Ben Gilbert So, Hershey's launched something called Hersheyettes, and we'll link to it in the show notes.
- ▶ 2:20:04 Ben Gilbert Hershey's would then later, as a part of the Reese's franchise, try to do Reese's Pieces.
- ▶ 2:22:44 David Rosenthal And then two, of course, is fully separating himself from Hershey's and controlling all the means of production for all of his American businesses and making his own chocolate in America.
- ▶ 2:22:56 Ben Gilbert Right, because if Hershey's cut him off, M&M's would be screwed.
- ▶ 2:23:00 Ben Gilbert Now, of course, Hershey's doesn't want to do that, because then they'd lose a whole lot of business.
- ▶ 2:23:04 David Rosenthal They'd lose their biggest customer.
- ▶ 2:23:07 David Rosenthal And probably also knowing Forrest was strategic when he chose to push Bruce out of the business, because I believe William Murray had already retired from Hershey's at that point.
- ▶ 2:31:18 David Rosenthal Okay, this now brings us to Forrest's final conquest, which is making his own chocolate in America and fully ditching Hershey's.
- ▶ 2:31:44 David Rosenthal His first act of business, once he becomes CEO of Mars America, is he calls Hershey up, and he's like, hello, remember me?
- ▶ 2:32:00 Ben Gilbert And the way Hershey reacts to this is, what?
- ▶ 2:32:23 David Rosenthal So, the Hershey's team estimates that it'll be at least 10 years before Mars turns profitable on this decision to make their own chocolate.
- ▶ 2:32:40 Ben Gilbert It's been 60 years since they made that decision, so I am sure they have reaped plenty of benefits in operating leverage on having their own plant versus needing to pay all those extra little margin dollars here and there to Hershey's.
- ▶ 2:35:44 David Rosenthal And so being the scale player, being able to have the muscle with retailers to push Hershey's and other candy to the back of the aisle or bottom of the shelf makes all the difference in the world here.
- ▶ 2:37:22 David Rosenthal And what's so, frankly, just kind of sad is, with the exception of advertising, Hershey had been benefiting from this for its entire life as a company.
- ▶ 2:37:52 David Rosenthal The company basically became brain dead for like three decades.
- ▶ 2:37:57 David Rosenthal They don't do advertising.
- ▶ 2:37:59 David Rosenthal They don't have a marketing department at all.
- ▶ 2:38:04 David Rosenthal Like Hershey really didn't have a marketing department.
- ▶ 2:38:31 David Rosenthal You know, we haven't talked yet about Hershey's ownership structure, so it was and is a public company, but-
- ▶ 2:39:52 David Rosenthal So, now that Forrest finally has his own chocolate-making means of production, how do they finally knock off Hershey's?
- ▶ 2:40:13 David Rosenthal The problem, as we've been talking about, Hershey's decades-long brain deadness here, they kept the price at a nickel from 1900 until November, 1969.
- ▶ 2:40:26 David Rosenthal They never changed the price.
- ▶ 2:40:31 David Rosenthal Almost 70 years, a hair's width from 70 years, they not once changed the price of the chocolate bar.
- ▶ 2:40:47 David Rosenthal So what did they do?
- ▶ 2:40:48 David Rosenthal How did they manage inflation?
- ▶ 2:40:51 David Rosenthal They just kept shrinking the bar size.
- ▶ 2:40:59 Ben Gilbert So it's a four and a half X that they sorta have to figure out how to handle.
- ▶ 2:41:05 David Rosenthal So what do they do?
- ▶ 2:41:06 David Rosenthal Rather than changing the price, they change the quantity.
- ▶ 2:41:11 David Rosenthal They just keep shrinking and shrinking and shrinking the size of the bar.
- ▶ 2:42:11 David Rosenthal So, finally in 1969, Hershey can hold out no longer, commodity prices spike, and they make the historic decision to raise the price of the bar
- ▶ 2:42:24 David Rosenthal And they think that the way they can make this palatable to consumers is they will also boost the size of the bar back up to the original one and a quarter ounces.
- ▶ 2:42:35 David Rosenthal So actually, economically, they're still at a wash here.
- ▶ 2:42:39 Ben Gilbert Okay, so it doesn't solve their problem.
- ▶ 2:44:16 David Rosenthal And he starts a price and size war with Hershey.
- ▶ 2:44:22 David Rosenthal Now, interestingly, in response to this, Hershey counters by actually
- ▶ 2:44:32 David Rosenthal The first time in the company's history that they advertise and surprise, it works great.
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