Douglas & McIntyre
Chocolate Wars

Book details:

October 2010
ISBN 978-1-55365-574-9
Hardcover
6" x 9"
384 pages
16 b&w photographs
History
Cooking / Food and Wine
$29.95 CAD

Douglas & McIntyre

Chocolate Wars

The 150-Year Rivalry between the World's Greatest Chocolate Makers

Excerpt / Additional Content

Introduction

When I was a young child, the knowledge that a branch of my family had built a chocolate factory filled me with wonder. What sort of charmed life did such a possibility offer to my relatives? Each Christmas I had an insight when the most enormous case arrived from my uncle, Michael Cadbury, containing a large supply of mouth-watering chocolates. Even more memorable was the trip I made in the early 1960s to see how the chocolate was made. Opening the door to the factory at Bournville in Birmingham, I was greeted by a magical sight.

To a child’s eyes, it was as though I had entered a cavernous interior that belonged to some benign, orderly, and highly productive wizard who had somehow saturated the very air with a chocolate aroma. My uncle and parents raised their voices against the whirr of machinery. But I did not hear them. All I could see was chocolate. It was all around me in every stage of the process. There was molten chocolate bubbling in vats towering above me, vats so huge that they had ladders running up their sides. Chocolate rivers flowed on a number of swiftly moving conveyers through gaps in the wall to mysterious chambers beyond. Solid chocolate shaped in a myriad of exciting confections travelled in neat soldierly processions towards the wrapping department. Such a miracle of clockwork precision and sensual extravagance was hard to take in. Even more puzzling to my young mind: How did this chocolate feast, which brought the idea of greed to a whole new level, fit with religion? For even though I did not yet understand the connection, I did know that the chocolate works were in some inexplicable way intimately connected with a little-known religious movement known as Quakerism. Was all this the hand of God?

My own father had left the Quaker movement just before the Second World War. He wanted, as he put it, to “join the fight against Hitler,” a stance that was not compatible with Quaker pacifism. I was brought up in the Church of England, and as a child, when I joined my cousins for Quaker meetings, I felt as if I were on the outside looking in on a strange, even mystical tradition. Long silences endured in bare rooms, stripped of any sign that might excite the senses, where grown-ups contemplated the surrounding void, were incomprehensible to me. Equally incomprehensible: How did my rich chocolate relatives acquire that admirable restraint, that air of wholesome frugality? Even family picnics had a way of turning into long and chilly route marches, raindrops trickling down your back.

The wealth and austerity seemed oddly incongruous. Did the one contribute to the other? Cheerful homilies from my father along the lines of “Every mickle makes a muckle” and “Look after the pennies and the pounds will look after themselves” did not supply a satisfactory answer. Even a five-year-old knew this was not the key to creating a chocolate factory.

A generation passed before I decided to retrace my steps up Bournville Lane. This time it was personal. I wanted to delve into the Bournville and family archives to uncover the whole story. Turning the corner in the lane in the autumn of 2007, my heart skipped a beat as I was taken back to that day when my father and uncle, both now much missed, had taken me round the factory. To my surprise, the chocolate works seemed even larger than I remembered. Imposing red brick blocks stood beside the neatly mowed lawn of the cricket pitch with Bournville village and green nestled behind. At the time, Cadbury was the largest confectioner in the world and the only independent British chocolate enterprise to survive from the nineteenth century. I wanted to understand the journey that took my deeply religious Quaker forebears from peddling tins of cocoa from a pony and trap around Birmingham to the Titan-like company that reached around the globe.

The story began five generations ago, when a farsighted forbear, Richard Tapper Cadbury, a draper in Birmingham in the early nineteenth century, sent his youngest son, John, to London to study a new tropical commodity that was attracting interest among the colonial brokers of Mincing Lane: cocoa. Was it something to eat or drink? Richard Tapper saw it primarily as a nutritious nonalcoholic drink in a world that relied on gin to wash away its troubles. Never could my abstemiously inclined ancestor have guessed what fortunes were entwined with the humble cocoa bean, although it seemed full of promise: a touch of the exotic.

His grandsons, George and Richard Cadbury, turned a struggling business into a chocolate empire in one generation. In the process, they took on their Quaker friends and rivals, Joseph Rowntree in York, and Francis Fry and his nephew Joseph in Bristol. The Cadbury, Fry, and Rowntree dynasties were built on values that form a striking contrast with business ethics today. Their approach to the creation of wealth was governed by an entire code of practice developed over generations since the Civil War by their Quaker elders and set out at yearly meetings and in Quaker books of discipline.

This nineteenth-century “Quaker capitalism” was far removed from the excesses of the world’s most recent financial crisis, in which business leaders see no harm in pocketing huge personal profits while their companies collapse.

For the Quaker capitalists of the nineteenth century, the idea that wealth creation was for personal gain only would have been offensive. Wealth creation was for the benefit of the workers, the local community, and society at large, as well as the entrepreneurs themselves. Reckless or irresponsible debt was also seen as shameful. Quaker directives ensured that no man should “launch into trading and worldly business beyond what they can manage honourably . . . so that they can keep their words with all men.” Even advertising was dismissed as dishonest, mere “puffery”: The quality of the product mattered far more than the message. Men like Joseph Rowntree and George Cadbury built chocolate empires at the same time as writing groundbreaking papers on poverty, publishing authoritative studies of the Bible, and campaigning against a multitude of heartrending human rights abuses in a world that seems straight out of Dickens. Puritanical hard work and sober austerity, with the senses in watchful restraint, were the guiding principles. Even art, literature, and theater were dismissed as too great an indulgence.

While it is easy to dismiss such values as antiquated notions that governed business life at a time before Darwin’s ideas had taken root, Quaker capitalism proved extraordinary successful, and its puritanical work ethic generated a staggering amount of worldly wealth. In the early nineteenth century, around 4,000 Quaker families ran 74 Quaker British banks and more than 200 Quaker companies. As they came to grips with making money, these austere men of God helped to shape the course of the Industrial Revolution and the commercial world today.

The chocolate factories of George and Richard Cadbury and Joseph Rowntree inspired men in America such as Milton Hershey, the “King of Caramel,” who took philanthropy to a new, all-American scale with the creation of the utopian town of Hershey in the cornfields of Pennsylvania. But with the growth of global trade, the appearance of international rivals, and the emergence of a tough breed of entrepreneurs in the twentieth century unshackled by religious conviction—men such as Frank and Forrest Mars—the chocolate wars that followed gradually eroded the values that shaped Quaker capitalism. Some Quaker firms did not survive the struggle, and those that did had to sacrifice their Puritan roots. In the process, ownership of the businesses passed from private Quaker dynasties to public shareholders. Little by little the implications of the transition from Quaker capitalism to shareholder capitalism began to take shape in the form of huge confectionery conglomerates that straddle the corporate world today.

The story of four generations of Cadbury brothers and their rivals highlights different phases of this process. The Cadbury chocolate business came of age during the expansion of the British Empire in the Victorian era. It peaked a century later during the post–Cold War era when it became the world’s largest confectionery company—only to be consumed in turn by global forces in the new millennium. The end of an independent Cadbury began with an innocuous voice mail message. In late August 2009, Irene Rosenfeld, chairman of America’s largest food company, Kraft Foods, requested a meeting with the Cadbury chairman, Roger Carr. Kraft Foods made a £10.2 billion ($16.3 billion) bid for the British chocolate company. The bid turned hostile. Five months later, after a long and bitter siege played out in the glare of the media, Kraft won over Cadbury’s shareholders.

Britain’s last big chocolate enterprise fell to the American giant after 186 years of independence in one of the largest acquisitions in British corporate history.

Today the world’s two largest food companies—the Swiss Nestlé and America’s Kraft—circle the globe, feeding humanity’s sweet tooth. The Americans spend £8 billion ($12 billion) on chocolate; the British spend £3.5 billion ($5.25 billion); and more than one in four people in America and Britain are obese. Yet these two behemoths are locked in a race to maintain market share in the developed world, while also selling their Western confections and other processed foods to emerging markets in the developing world.

Somewhere along the way the four hundred-year-old English Puritanical ideal of self-denial and the Quaker vision of creating wholesome nourishment for a hungry and impoverished workforce have disappeared. Also vanished is a myriad of independent chocolate confectionery firms. In Britain alone: Mackintosh of Halifax and Rowntree of York are now owned by Nestlé, while Terry of York, Fry of Bristol, and Cadbury have become a division of Kraft. My search was to explore how this happened. I wanted to unearth the true story of the original Quaker chocolate pioneers and the religious beliefs that shaped their business decisions and to discern how their values differ from today’s corporate CEOs. At first sight, globalization has been profitable for all. It is hard to dispute economists who claim that the process has lifted billions of people across the world out of the poverty that was on the doorstep of the cocoa magnates of the nineteenth century. But the “process” has also come at a significant cost.

Bournville on a bitterly cold January day in 2010 provided a stark contrast to the peaceful charm of earlier visits. Outside the factory, staff members were parading with banners. “Kraft go to hell,” said one. In a symbolic gesture, another protester set fire to a huge Kraft Toblerone bar. Unite, Britain’s biggest trade union, had warned that thousands of jobs could be eliminated if Kraft merged with Cadbury.

“Our members feel very angry and very betrayed,” said Jennie Formby, Unite’s national officer for food and drink industries. Kraft was borrowing an estimated £7 billion ($10.5 billion) to fund the takeover, and many feared Cadbury could become “nothing more than a workhorse used to pay off this debt,” with assets stripped and jobs removed. The anger in the streets was palpable. My taxi driver, whose family was originally from Kashmir, spelled out the crisis. “The chocolate works are British,” he told me firmly. It belongs to the workers and the local people—not just management and shareholders.

“The factory should not be moved or closed,” he said. He captured the mood of alienation and powerlessness in the local community, where Birmingham Members of Parliament spearheaded resistance to the takeover in Westminster.

The growing powerlessness of national governments in these international global deals is highlighted by the statements of British politicians during the Kraft takeover. Assurances from business secretary Lord Mandelson that Kraft “would face huge opposition” melted away. Prime Minister Gordon Brown, speaking at a press conference at Downing Street, declared, “We are determined that . . . jobs in Cadbury can be secure.” But he had no powers to guarantee that security.

The British government’s belief in an open-door policy on such foreign takeovers has been called into question as many British companies have recently slipped into foreign ownership, creating uncertainties about the British economy. The Swiss have always protected Nestlé, allowing their food and chocolate business to flourish. “In France, the loss of a ‘Cadbury’ would have been out of the question,” says former Cadbury chairman Roger Carr. “Germany believes that strength at home is the first step to success abroad. In Japan selling a company over the heads of management is unthinkable. And in the United States, regulations exist to protect strategic assets.” It is ironic that when Cadbury tried to buy the British firm of Rowntree in 1988—at the time one of the five largest confectionery firms in the world—it was stopped by the British government—which permitted the Swiss giant, Nestlé, to step in and buy it. “In Westminster they did not understand the global picture,” says Sir Dominic Cadbury, the last family chairman.

Leaving aside the social and national issues, there are wider concerns raised by the Kraft takeover that bring the contrast between the Quaker values of the chocolate pioneers and today’s shareholder capitalism sharply into focus. For the nineteenth-century Quaker, ownership of a business came with a deep sense of responsibility and accountability to all those involved. “The problem with the way we have developed our system of shareholder capitalism is that the share holder is being divorced from his role in ownership,” explains Dominic Cadbury.

The problem is highlighted most clearly by the role of hedge funds. By the end of Kraft’s takeover battle in January 2010, 31 percent of Cadbury was owned by hedge funds. Although these funds held decision-making power that could affect the company’s very survival, “They are not even pretending to operate as owners,” continues Dominic. “They have no sense of obligation or responsibility for the company whatsoever. They are there purely for short-term gain. Their whole motivation was that the company did not survive. You try equating ownership with getting rid of a company! It is completely destructive.” Apart from the short-term gains that flowed to the hedge funds, some £400 million ($600 million) was made from the deal in fees in the City of London. When the financial sector is motivated by such sizeable and immediate returns, what has happened to the goal of building long-term value?

For Timothy Phillips, chairman of The Quakers and Business Group, which aims to promote Quaker principles in business, there is another issue that comes with increasing size to create giants like Nestlé and Kraft. “What one is doing by supporting the argument that bigger is better all the time,” he explains, “is creating essentially a global network of asset ownership on a vast scale.” Nestlé, for example, has almost 500 factories in over 80 countries and sells a billion products worldwide every day. It has 250,000 employees and had annual sales in 2009 of over $100 billion providing income that exceeds the GNP of many small countries. It is also one of the world’s most boycotted companies as a result of ethical questions raised over the marketing and promotion of a number of its brands. The sheer size of such global institutions presents a number of problems. “Wealth and power are concentrated into fewer and less accountable hands,” says Phillips. The people running these institutions have extraordinary budgets and staff at their disposal and decision-making powers that transcend national barriers, yet they are accountable only to a narrow group of shareholders. “Is this process truly democratic?” asks Phillips. He argues that the global village of the twenty-first century requires tighter international regulation and accountability not just to shareholding owners but to all their stakeholders, including the workers, the customers, and the wider community.

For Sir Adrian Cadbury, whose life spans the period from family Quaker leadership to the Kraft takeover, there is another key issue. “The danger of Kraft taking over is that it is very easy for a larger firm effectively to destroy the spirit of the firm they take over.” The indefinable qualities that make up the character and identity of a company, he argues, are built up over many years, and depend on history, reputation, international brands, and the quality of people who work for the company. “It is something that I believe has a life of its own and creates a very strong feeling about the company and the people that work in it. . . . A business should not get so big that you lose the sense of identity and belonging.” From his years of practical experience as one of Cadbury’s longest serving chairmen, he adds, “Speaking as an economist, I would say the limits of size are human; they are not economic. What is sadly only too likely to happen is that by becoming a subsidiary, losing its identity and spirit as a business—the orders come from head office which might even be in a different country—the danger is that people no longer see the reason for giving of their best. A business which in economic terms is doing very well can lose the drive of the very people that are in it.”

That spirit of a business—so crucial to the motivation of its staff—is hard to define and measure. It is not to be found in the buildings or the balance sheet but is reflected in the myriad of different decisions taken by those at the helm of the business. The Quaker pioneers believed that “your own soul lived or perished according to its use of the gift of life.” For them, spiritual wealth rather than the accumulation of possessions was the “enlarging force” that informed business decisions. But gone now, lost in another century, is that omnipotent all-seeing eye in the boardroom, reminding those Quaker patriarchs of the fleeting position of power. And what is there to replace it? Until the Kraft takeover, Cadbury had not quite severed its link with the vision of its founding pioneers. Sadly for some, the umbilical cord has been cut, and there is recognition that some of the indefinable guiding spirit of the founders appears to have been discarded as effortlessly as a candy wrapper. It is perhaps for this reason that so many in Britain spoke out against the loss of a cultural icon. Irene Rosenfeld, commenting just before this book went to press, wrote, “Cadbury is a fantastic business, with a proud heritage and a long and distinguished history. This is something we respect and want to build on.”

This book is a modest challenge to Rosenfeld and to Kraft. If her words are to be taken as anything more than platitudes, and if Kraft is truly to respect the values of Cadbury, it must understand its particular traditions and history. The story of Cadbury, in a way, is the story of a different kind of capitalism.

Irene Rosenfeld suggested that “the companies have very similar values. In fact I think if John Cadbury had met James Kraft, they could well have been friends.” To be sure, Kraft was an inventive entrepreneur who, like Cadbury, began in a modest way. But as this book shows, the outcomes for the two firms are very different. In setting out the history of the chocolate family dynasties, I have endeavored to be as objective as possible in exploring the gains and losses along the way and highlighting the steps that have taken us from the Quaker values of the nineteenth century to today’s global village. Could the companies’ founders have been friends? Are the goals of John Cadbury and his sons reflected in the modern global powerhouse?

I leave that to the reader to decide.