Mars Inc. - The Chocolate Story (Audio)

M&M’s, Snickers, Milky Way, Double Mint, Ben’s Rice, Pedigree, Whiskas, VCA, Banfield… all the brands you know, owned by the company you know nothing about: Mars, Incorporated. And Mars itself is 100% owned and deeply intertwined with the Mars family, who are currently the second wealthiest (and perhaps first most secretive!) family in the United States. Tune in for one of the 20th century’s most incredible entrepreneurial stories across candy and pet care, and one that’s all the more incredible because it’s so little-known! *Links:* - Hershey’s M&M response: Hershey-ets: https://shop.hersheys.com/holiday/sweet-treats/032284016385.html - Worldly Partners Multi-Decade Mars Study: https://worldlypartners.com/wp-content/uploads/2024/12/Mars-Inc.pdf - Episode sources: https://www.acquired.fm/episodes/mars-inc-the-chocolate-story#sources *Carve Outs:* - Dandelion Chocolate: https://www.dandelionchocolate.com - The Dandelion Chocolate Advent Calendar: https://www.dandelionchocolate.com/products/2025-advent-calendar-preorder - Tesla Model Y + repair service: https://ts.la/ben11770 - Silo: https://www.imdb.com/title/tt14688458/ - Home Alone: https://www.imdb.com/title/tt0099785/ *More Acquired:* - Get email updates https://www.acquired.fm/email and vote on future episodes! - Join the Slack http://acquired.fm/slack - Check out the latest swag in the ACQ Merch Store https://www.acquired.fm/store! _Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions._

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Okay, David, how many current varieties of M&Ms can you name?

• 0:04David Rosenthal?

  Oh, wow. Okay, well, plain peanut, peanut butter.

• 0:08Ben Gilbert?

  Uh huh. Actually, plain is technically now called milk chocolate.

• 0:11David Rosenthal?

  Oh, interesting. There's dark, right?

• 0:14Ben Gilbert?

  Yep, which I've got right here.

• 0:16David Rosenthal?

  Uh, they had mint for a while. Did they discontinue mint?

• 0:19Ben Gilbert?

  Mint is a holiday-only theme.

• 0:23Ben Gilbert?

  So that's a seasonal one.

• 0:25David Rosenthal?

  Oh, what else? I mean, at the end of the day, it's kind of only plain and peanut that matter, right?

• 0:31Ben Gilbert?

  I think in sales numbers.

• 0:33David Rosenthal?

  Are there pretzel ones?

• 0:35Ben Gilbert?

  There are pretzel ones. There are also almond.

• 0:39David Rosenthal?

  Oh, almond. See, I, yeah, I'm allergic to almonds, so I never think about almonds.

• 0:43Ben Gilbert?

  There's also some weird ones. Caramel?

• 0:46David Rosenthal?

  Yeah.

• 0:47Ben Gilbert?

  I don't want that at all, but they make it. Crunchy cookie, which replaced crispy of our youth. Do you remember the blue packaging crispy M&Ms?

• 0:56David Rosenthal?

  Oh, yeah, I remember the Crispies. Yeah.

• 0:59Ben Gilbert?

  And then there's some specialty ones. Dark chocolate peanut, which I really want. Fudge brownie, campfire smores, and caramel cold brew.

• 1:07David Rosenthal?

  Oh, I don't know about any of these.

• 1:09Ben Gilbert?

  And then there's these really wild limited edition ones. In addition to holiday mint, birthday cake, chili nut, and pumpkin spice latte.

• 1:18David Rosenthal?

  That sounds disgusting.

• 1:19Ben Gilbert?

  I know. But yes, I think you are right. The milk chocolate and the peanut are the sales drivers.

• 1:24David Rosenthal?

  Yep.

• 1:25Ben Gilbert?

  All right, should we do it?

• 1:26David Rosenthal?

  Let's do it.

• 1:44Ben Gilbert?

  Welcome to the fall 2024 season finale of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

• 1:52David Rosenthal?

  I'm David Rosenthal.

• 1:54Ben Gilbert?

  And we are your hosts. Listeners, we were thinking, what episode would be fun to do before the holidays? We picked M&Ms, thinking this will be just some nice, lighthearted fare about the candies and the characters on commercials that remind us all of our childhood. But as we dug into Mars Incorporated, the parent company, we realized that the story is totally thrilling. It's got World War I, World War II, new technologies and inventions, and serious, serious family drama. And their corporate strategy over the years is just as clever as companies like LVMH, Walmart, and Costco. I mean, you don't get to be the second wealthiest family in America without it.

• 2:34David Rosenthal?

  Yeah, seriously. Maybe it's because we just did it, but I feel like there are a lot of echoes of IKEA in this one, too.

• 2:41Ben Gilbert?

  Absolutely. And the Mars family is way more quiet and reclusive than the Comprod family, too.

• 2:48David Rosenthal?

  They're way more quiet and reclusive than anybody.

• 2:51Ben Gilbert?

  Yeah. Mars also owns way more than you think. You may know that they own the world's most popular candy, Snickers, in addition to M&M's. Or perhaps you know they're in the pet food business. But they also own everything from Ben's Original Rice to now Kind Bars. And they have one massive deal in the works that we will talk about later on this episode. David, here's one crazy stat to illustrate their sheer size. Do you know Mars now does more revenue than the Coca-Cola company?

• 3:20David Rosenthal?

  I know. Wild.

• 3:21Ben Gilbert?

  Mars crossed $50 billion in sales last year, and they're still completely privately owned by the Mars family, making it one of the top five largest private companies in America. This really is an incredible American and global story. Well, listeners, after this episode, come listen to ACQ2. We just had one of my favorite conversations ever on the show, in part because I just love talking computer architecture, with Renee Haas, who is the CEO of ARM Holdings, the chip design company that makes the designs and the instruction set architecture of everything inside your smartphone, your car, your laptop, and now even massively in the data centers.

• 4:02David Rosenthal?

  Gosh, between Synopsys and now ARM, we're gonna have to rename ACQ2 into like Acquired Semiconductors.

• 4:08Ben Gilbert?

  Totally. It was a great computer science lesson and history lesson, sort of all rolled into one. So go subscribe to the ACQ2 feed in the podcast player of your choice to check it out. So with that, this show is not investment advice. David and I may have investments in the companies we discuss, although not Mars, obviously. And this show is for informational and entertainment purposes only. David, where do we start our story?

• 4:31David Rosenthal?

  Oh, well, we start in September 1883. There's some debate about whether it's in Pennsylvania or Minnesota. But, you know, there's a lot of legend, shall we say, about the Mars family, which we will get into as we go here. But before really we start, I have to say a thank you to Joelle Glenn Brenner, who wrote the amazing book, Emperors of Chocolate. Mars, as we'll talk about, is an incredibly private company and private family. She's the only journalist that ever got real access to the company, like, ever.

• 5:07Ben Gilbert?

  And it was in 1991, almost a century after founding, that she actually got access for a Washington Post article? And then that turned into the book, is that right?

• 5:16David Rosenthal?

  Yep, she was a young reporter at the Post and called the company like every day for a year and finally got access. And that became a piece in the Washington Post magazine. And then she turned it into the book, Emperors of Chocolate.

• 5:30Ben Gilbert?

  Yep.

• 5:31David Rosenthal?

  Okay, so, back to 1883, and let's just call it Minnesota. One Frank Clarence Mars is born. Now Frank's father is a flour gristmill operator, and his mother, Elva, is a housewife. Both of those trades are going to become very important here. So Frank, sadly, when he's very young and in what I think was also very sadly commonplace at the time, he contracts polio. And he has a mild case, luckily, he survives. But it does affect his legs and he has to wear orthopedic braces all growing up, which means that Frank can't play outside, he can't play sports,

• 6:13David Rosenthal?

  he has to stay home after school with his mother in the home. And so what does he do after school with his mother? Well, his dad would bring home extra bags of flour, and somebody had to put that to use. So Elva and Frank do lots and lots of baking. They're baking bread, they're baking pies, they're baking cakes. And most enjoyably for Frank, they are baking candy.

• 6:37Ben Gilbert?

  And what was candy at this point in time?

• 6:39David Rosenthal?

  Well, I'm glad you asked. It's not chocolate. Chocolate is basically not a thing in America yet. Candy, though, was big, and specifically, we're talking about penny candy, gumdrops, licorice, all sorts of sugar-based sweets. And they were typically unbranded, like there were no big national or really even like local brands of candy at this point in time. And they're sold wholesale by small, regional bakers to local retailers and drugstores who stock them for kids. Like, the main market here is selling sweets to kids. And that's what Frank is doing.

• 7:20Ben Gilbert?

  You can think about the candy industry at this point in time, sort of like the baked goods industry today. You've got some local baker that's making them, distributing to a bunch of coffee shops, and like, you don't really know, except in really bougie ones, who the baker of that particular scone is. It's just, oh, I go to that coffee shop and they have scones there.

• 7:38David Rosenthal?

  Exactly. So this is what Frank and his mom are making in their kitchen. Now, fast forward to high school, and Frank has kind of become the local candy chef extraordinaire. He's mastered all of his mom's recipes. He's experimented with some of his own. People are liking them. And so after high school, he does the natural thing. He becomes one of these candy entrepreneurs. When he's 19 years old in 1902, he establishes his own candy company there in Minneapolis and goes into business, selling his creations and other people's creations wholesale to these local retailers, merchants, drugstores, et cetera, for kids to buy. In that same year, in 1902, he would also briefly marry a woman named Ethel Kizak.

• 8:22David Rosenthal?

  Now, remember this Ethel. She will come up much, much, much later at the end of the story. But for the moment, the two of them have a son named Forrest. Forrest Mars.

• 8:33Ben Gilbert?

  Our real protagonist, this story.

• 8:36David Rosenthal?

  Yes. But put a pin in Forrest. We will come back to him in a few minutes. So his dad, Frank, starts this candy business. You'd think, you're like, yep, this is it. This is the company, you know, Mars, Snickers, M&M's, Milky Way. It's all to come here.

• 8:52Ben Gilbert?

  Out of this one company named Mars.

• 8:54David Rosenthal?

  Yes.

• 8:54Ben Gilbert?

  Not true.

• 8:55David Rosenthal?

  Well, not yet.

• 9:00David Rosenthal?

  So we mentioned a minute ago that chocolate was not a thing yet in America. Now, at this point in time in 1902, that is not technically true. Milton Hershey has started selling his Hershey's chocolate bars in Pennsylvania, which he started in 1900.

• 9:16Ben Gilbert?

  The notorious five cent just chocolate. I don't even think they had made Hershey's with almonds yet. It was just the like, single five cent slab of chocolate bar called the Hershey bar.

• 9:26David Rosenthal?

  Yep, there weren't even any kisses yet, nothing. It was just the very beginnings. Hershey had not yet figured out how to scale production. So it was regional and it wasn't popular around the country and certainly not in Minneapolis.

• 9:39Ben Gilbert?

  Hershey had just figured out by the skin of his pants, production and the recipe at all. He almost built an entire factory to produce milk chocolate without knowing how to produce milk chocolate. That was like a lucky diving save at the last minute, right before they needed to turn everything on.

• 9:54David Rosenthal?

  Totally. So what Frank's selling, this penny candy stuff, it's fine. And like I said, the target market is kids, which is a good market, but you know, kids turn into adults and then they stop eating penny candy. And so the market is not that big. There's also another problem with the penny candy business, a bigger one, which is in those days, it was all pretty highly perishable.

• 10:19Ben Gilbert?

  And there's not air conditioning yet.

• 10:21David Rosenthal?

  Exactly, exactly. And so most candy producers end up having really, really horrible inventory problems. And a lot of them end up going out of business, which after a couple of years is exactly what happens to Frank. So in 1910, Frank's now bankrupt. His wife Ethel divorces him and takes their six year old son Forrest and sends Forrest off to live with her parents in a remote mining town in Saskatchewan, Canada. And Ethel stays in Minneapolis and takes a job as a department store clerk and just hits reset on her life. It's wild.

• 10:57Ben Gilbert?

  Do you know why?

• 10:59David Rosenthal?

  Well, I think because nobody had any money to support him, right?

• 11:01Ben Gilbert?

  And in particular, Frank actually owed her $20 a month for child support for Forrest when he was six years old, but was failing to make payments. And so she just couldn't support him and needed to send him to the grandparents.

• 11:14David Rosenthal?

  I mean, Got to remember, like, we're in the early 1900s here. This kind of stuff happened all the time.

• 11:20Ben Gilbert?

  Yep.

• 11:21David Rosenthal?

  So Frank, undeterred by bankruptcy, divorce, being a deadbeat parent, not paying child support, he marries another woman, also named Ethel.

• 11:32Ben Gilbert?

  Unbelievable.

• 11:33David Rosenthal?

  Specifically, they move to Seattle.

• 11:35Ben Gilbert?

  Ayo.

• 11:36David Rosenthal?

  Where Frank does, what else? He sets up another candy business and starts hawking his candy again. This Seattle candy venture goes about as well as the Minneapolis one. Within one year, Frank is bankrupt again. The creditors are coming after him, so he skips town again, this time just down the road to Tacoma.

• 11:55Ben Gilbert?

  So this is two failed candy companies under his belt.

• 11:58David Rosenthal?

  Yep, we're now on number three. He sets up another candy business in Tacoma in 1914.

• 12:04Ben Gilbert?

  Out of his house.

• 12:05David Rosenthal?

  Yes.

• 12:05Ben Gilbert?

  He's running the business out of his kitchen.

• 12:07David Rosenthal?

  That's right. And that business also fails after a couple of years. So, three down, three strikes. We're now in 1920 and Frank and Ethel, number two, return once again to Minneapolis, figuring that 10 years have gone by, they can now show their face around town again. So Frank sets up, yet again, another candy company. Candy company number four now in total, if you're keeping track at home. And against all odds, this candy company would go on to become the globally famous, $50 billion annual revenue, private family business, Mars Incorporated. Sort of.

• 12:50Ben Gilbert?

  It's not totally Frank that is the reason for its success.

• 12:54David Rosenthal?

  Yes, okay. So what's different now about this fourth candy company that Frank starts? It's chocolate.

• 13:02Ben Gilbert?

  And chocolate is a completely different universe than these penny candies, than caramels. The first thing you have to know is it uses cocoa. I mean, this is a very, at this point in history, scarce and not very common in America. Like, very few people are importing it from South America where it originated. It's a totally different and difficult thing to try and process. And at this point in history, only Europeans really are doing it, except for one American entrepreneur, Milton Hershey.

• 13:34David Rosenthal?

  Yeah. So we got to 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. So Milton Hershey had been also a actually successful candy entrepreneur. He had his own shares of failures, but he started eventually a caramel company that became quite big regionally in the Philadelphia area.

• 14:00Ben Gilbert?

  Yep. He sold it for a million dollars in 1900, which is 36, 37 million today with inflation.

• 14:05David Rosenthal?

  Yep. He is among the most successful of this kind of generation of pre-chocolate candy entrepreneurs. Before he sold the business though, in 1893, Hershey traveled to Chicago where at the Colombian exposition, which I didn't know this was the precursor to the World's Fair. He tries chocolate for the first time and he's smitten in the German pavilion there. There's a German company that is displaying chocolate and chocolate making equipment. And Hershey is so taken by the rich complexity, deliciousness of chocolate that he buys

• 14:47David Rosenthal?

  from this German company, all of the equipment on display there, just like on the spot. And says, I want this shipped back to my production facility in Lancaster, Pennsylvania, out in the Philadelphia countryside, and I am going to set up a chocolate making operation. Now, this is not milk chocolate. This is just plain chocolate.

• 15:06Ben Gilbert?

  And it's worth noting too, this concept of solid chocolate is a pretty new thing, like a chocolate bar. Up until, I don't know, 15, 20 years before this, basically all chocolate was drinking chocolate. And so this notion of a machine that makes chocolate as bars at the Columbia exposition is quite novel.

• 15:29David Rosenthal?

  Yeah. I mean, chocolate is a very rich, very complex food, very difficult to make. And the history goes all the way back to Montezuma and the Aztecs.

• 15:40Ben Gilbert?

  And even before the Aztecs, about 5,300 years ago, around Ecuador.

• 15:45David Rosenthal?

  Wow, I didn't even know that. So we're talking about a 5,000 year old tradition here.

• 15:51Ben Gilbert?

  Yes.

• 15:51David Rosenthal?

  But like you said, until, call it the late 1800s, this is a drinking activity.

• 15:57Ben Gilbert?

  Yes, and it's so different than the chocolate we think of today. There's no milk chocolate. It's not sort of that nice breakable chocolate with a shine. It's a very different and only barely enjoyable flavor. It's better than everything else, but it's not a bar of chocolate like you know today.

• 16:14David Rosenthal?

  Yep. So you said milk chocolate and I said Hershey at this point is not making milk chocolate when he first introduces it to his caramel company. As he gets deeper and deeper into the chocolate world, he travels to Europe and learns about milk chocolate, which had just been invented not too long before in Switzerland by the Swiss company Nestle.

• 16:39Ben Gilbert?

  Sort of Nestle. We're going to talk about how to make chocolate. And then we're going to use that as a basis of understanding for how to make milk chocolate and how the discovery of milk chocolate came about. So first of all, how do you make chocolate? And we have a huge thank you to Todd Masonas at Dandelion Chocolate, which is an excellent, excellent bean to bar chocolate company in San Francisco for walking us through this entire thing, not only giving us all the notes of how to describe it on air, but also taking us through their factory in San Francisco, which is unbelievably cool if anyone has a chance to do it. So where does chocolate come from? There's a cocoa fruit that grows on a tree originally in South America, now very commonly in Africa where they've been transplanted. It's kind of a football looking thing.

• 17:24Ben Gilbert?

  You pick it, you cut open the pod and inside there are the seeds of the fruit. David, you and I sort of ate some of it or sucked on some of it. It's sweet, but it's not chocolate. It has no reflection of a chocolate flavor. That all comes from the seeds or the beans.

• 17:38David Rosenthal?

  Yep. Yeah, the fruit itself is actually quite delicious, but it's like a pulpy sort of milky type thing.

• 17:44Ben Gilbert?

  Yes. So that fruit is actually the thing that people ate for thousands of years, but the seed ends up being the thing that becomes chocolate. You first ferment those beans in wooden boxes. The yeast eats the sugar, that creates alcohol. Then the acid eats the alcohol. There's fermentation that kills the beans. So after this fermentation, you then dry it. All this kind of happens at the site of production or of growth, typically in South America or in Africa. So then after the fermentation, you dry it out. So this could happen sort of in drying beds or in mechanical smoke dryers or on banana leaves. All the different ways that you dry it can affect the flavor. How aggressively you dry it contributes to how much acid is in the beans.

• 18:28Ben Gilbert?

  So there's a lot of fluctuation here in the flavor just based on the way that you are harvesting the bean itself. The beans then go into sacks. They go on boats. They go at this point in history, basically to Europe, because that was the only place that was making chocolate. They then get sorted, sterilized, debacterialized. I suspect not a lot of this was happening in the old days, but it is what happens now. They get roasted. You remove the shell, which is a process called winnowing. So now you have nibs.

• 18:59David Rosenthal?

  So just like the core, like meat of the bean after it's been roasted?

• 19:03Ben Gilbert?

  Yes, you can press those nibs into create two separate things, cocoa powder and cocoa butter. Both of those come from the nib, but there are many reasons why different chocolatiers will first separate them out and recombine them in different ratios later. You grind the nibs down to the right particle size. It then goes through something called conching.

• 19:23David Rosenthal?

  Conching is awesome. It's basically like these big cylinders, right? That like spin around and around and smooth out all these particles.

• 19:30Ben Gilbert?

  Yeah, and there's a great story back in 1879 that Rudolf Lindt, which is another name you may recognize, the Swiss chocolatier, discovered it by accidentally leaving his cocoa in a roller grinder over the weekend instead of shutting the machine off. So it accidentally pressed the beans for three full days, which created this silky, smooth, flowing texture. And then you could do cool stuff like add more cocoa butter in to get that Swiss chocolate texture that we all know of today. If you've had it and you're like, how is this so unbelievably creamy? You know, you Separate the nibs into cocoa powder, cocoa butter, and then you add a bunch more cocoa butter back in, and it's that delicious Swiss chocolate. So 1879 is when conching is sort of first discovered.

• 20:15Ben Gilbert?

  Now there's, David, to your point, specific conching machines that will do this as a part of the chocolate production process.

• 20:21David Rosenthal?

  Still not done yet.

• 20:23Ben Gilbert?

  You now have this great conched, liquidious, wonderful chocolate sitting there. If you just let it dry, it's actually not shelf-stable. It will bloom. For any of you who ever left a chocolate bar in a hot car and it sort of melted and then re-solidified, it gets that sort of white gross stuff on top, and it doesn't have that shine to it. It doesn't snap nicely the way that you're used to with chocolate bar snapping. There's actually some pretty complicated chemistry that happens where you are taking this conched chocolate and you are tempering it. And what tempering it does is you are aligning the crystals in the cocoa butter to make it so that it forms into that shiny, breakable chocolate that you know of today.

• 21:06David Rosenthal?

  And this is an incredible process, right? You take this liquid chocolate after conching, you heat it up to like, kind of super liquefy it, and then you cool it down to like, just the right amount of temperature where the right sort of seed crystals form.

• 21:22Ben Gilbert?

  That's exactly right.

• 21:22David Rosenthal?

  Right, and then you heat it back up again, and then you let it cool. And if you don't do that second step, all the bloom will happen, but you want to get like, just the right seed crystals to set the right crystal in structure for how it'll come together.

• 21:34Ben Gilbert?

  That's exactly right. When you're superheating it, you're eliminating all crystals, so then you can kind of start from scratch with this seed crystal. And then you're trying to let the rest of the chocolate form around that seed crystal, so they're all aligned in that nice shiny break.

• 21:49David Rosenthal?

  Believe me, I appreciated chocolate before doing this episode, but now, like, knowing how it's made, and we haven't even gotten to milk chocolate yet, which is even more complex. This is more complex than wine. This is more complex than coffee.

• 22:01Ben Gilbert?

  Ooh, shots fired on wine and coffee. You're gonna hear something.

• 22:04David Rosenthal?

  Well, at least in terms of like, stages of production, right? Like, let's take coffee. Coffee looks pretty similar until, you know, you get the beans there roasted, but then you grind the beans and you just put the beans in liquid. You're not getting any of these steps here.

• 22:16Ben Gilbert?

  Chocolate is remarkably hard to make. I think that is a huge takeaway. The fact that I'm looking down here at all these bags of M&Ms and the Snickers bar, we sort of just assume, oh, this is an industrial thing that just sort of comes off the line. It's an agricultural product that then has to go through a variety of different processes developed on different continents many decades apart in order to create something very uniform and predictable and desirable out of that pure agricultural product.

• 22:46David Rosenthal?

  Yep.

• 22:47Ben Gilbert?

  Okay, so that's all the way from the fruit through the fermentation, through the processing of the beans, through the conching, through the tempering.

• 22:56David Rosenthal?

  And in those last steps of the process, in the conching and the tempering, you're also adding sugar in, right? So like unless you want to make 100% dark chocolate, which is like very complex, but very bitter.

• 23:08Ben Gilbert?

  No one's gonna eat that. Most people max out at 85% chocolate and the rest, the 15% is sugar. Or you're getting a 70% bar and the 30% is sugar. Or if you're getting a milk chocolate bar, it's more in that 30 to 50% cocoa and the rest is sugar and milk. But in reality, most of the time you're eating chocolate these days, unless it's a bean to bar producer, like a dandelion or something, you're ending up with all sorts of stuff added in that process. You know, more cocoa butter, sugar, soy lecithin. Oftentimes you'll get vanilla that's added in part of this process to kind of create a chocolate taste you know of.

• 23:43David Rosenthal?

  Yep. Okay, so we're still in the dark chocolate world here. Let's talk about Nestle and milk chocolate.

• 23:49Ben Gilbert?

  Which is sort of a funny misnomer, right? Dark chocolate. It's just chocolate. It's chocolate that doesn't have milk, so we needed to retro-nimmet something, like we needed to come up with a name and we're like, oh, it's dark chocolate. Okay, it's chocolate that's chocolate and sugar, but doesn't have milk. Okay, anyway, dark chocolate. So what is milk chocolate then? Well, now we need to flashback 35 years before Milton Hershey sells his first caramel company. This is before he started the Hershey Chocolate Company, 1866. Henri Nestle, David, to give some credence to your comment, is researching infant feeding as a means to solve infant mortality. He invents a new type of food for babies who are unable to breastfeed there in Switzerland.

• 24:31Ben Gilbert?

  And remember, at this point in time, something like one in five babies died before their first birthday. So infant mortality is a massive, massive global problem.

• 24:40Ben Gilbert?

  Now, he's researching this alternative infant feeding methods. Milk would quickly turn rancid, so there was this question of how do you keep milk fresh? He eventually solved it. It is hard to condense milk without burning it, but he figured out this method of using an air pump at low temperatures to concentrate sort of a milk powder. And then he added a bunch of cereal, a proprietary cereal mix he created. And this is effectively the first baby formula. So in 1867, he demonstrated that a baby could drink this formula that he made, rehydrated, and it was effectively a miracle to keep babies alive.

• 25:14David Rosenthal?

  Totally. This is like one of many mind blowing things in the research that I learned. Nestle was a baby formula company. That's how it started.

• 25:22Ben Gilbert?

  Totally. It's great. It's in the same way that Hermes, the Birkin bag was a bag for baby bottles.

• 25:28David Rosenthal?

  Yeah, right. Who knew that baby formula literally leads to the modern chocolate industry?

• 25:35Ben Gilbert?

  Yep. So incredibly, one of his neighbors who desperately needed this formula because his baby was rejecting breast milk happened to be a chocolatier, guy by the name of Daniel Peter. So he had this idea for milk chocolate in 1867 by combining the dehydrated baby formula with cocoa and sugar to create a creamy drink. We're still in the drink era. And people at that time were already pouring milk in with their drinking chocolate, but he sort of said, well, can I create this as a pre-made product?

• 26:07David Rosenthal?

  Yep. And again, to the issues with creating baby formula, and then now here the issues with creating milk chocolate. Milk is not a stable product. Milk goes bad fast. So how are you going to put this in a product?

• 26:21Ben Gilbert?

  Milk chocolate is something that sits on a shelf for six months and you can eat it, and it's not spoiled. It's kind of unique in that way.

• 26:27David Rosenthal?

  Totally.

• 26:28Ben Gilbert?

  So the issue that he kept running into, this is Daniel Peter, was that the mixture was grainy, the water in the milk didn't blend well with the cocoa's bean oils. It was a mess. And when he tried to dry the milk on his own, it was really easy, David, to your point, that it was spoiling and the chocolate would sort of be rancid by the end when he finished it. Eventually, Daniel Peter walked away from Henri Nestle's powdered milk entirely. And instead, he tried condensed milk, which is more like a concentrated syrup, not actually dried powder. And when he tried this, plus then a final step of spreading the milk chocolate mixture on these big trays to slowly dry them and slowly add a little bit more heat to turn it into these milk chocolate flakes, that is the thing that worked, that he finally

• 27:11Ben Gilbert?

  was able to create this marketable milk chocolate flaky stuff that would turn into a drink and then later, especially over at Cadbury and, you know, other European chocolate companies would turn into milk chocolate bars that Milton Hershey would try to emulate.

• 27:28David Rosenthal?

  Ah, interesting. I didn't actually know that it was condensed milk, not the formula milk that ended up working for Nestle.

• 27:34Ben Gilbert?

  That's my understanding. I got this from, um, there's a descendant of the Cadbury family, Deborah Cadbury, who wrote this book called Chocolate Wars. And two chapters out of 20 or something are about Mars, but it was this great primer on the history of the chocolate industry to learn all this.

• 27:48David Rosenthal?

  Hmm, interesting. Yeah, so you're deeper on this part than me. So you might be asking yourself, why was everybody going through all this trouble to combine milk and chocolate? It's the perfect combination. Chocolate is so wonderful and complex and delicious on its own, but it's heavily bitter. And when you temper it, not tempering in the chocolate process, but sort of temper that flavor with the smoothness and the creaminess of milk, anybody who likes chocolate knows it's just absolutely delicious.

• 28:17Ben Gilbert?

  Yeah, so by 1879, once you have milk chocolate in solid form and then you have conching, you now go from bars that are sort of really gritty and hard to bite to this kind of amazing mouth feel that just massively increased the market 10x. It's hard to get a number on it, but the market for what chocolate would be from 1879 onward is way bigger than before.

• 28:40David Rosenthal?

  Yep, totally. So back to Hershey. He, of course, learns about all of this as he's building his new chocolate company there in Pennsylvania. And he decides that he's going to make milk chocolate, too. Except he's not a chemist. He doesn't employ any chemists. He basically has no idea what he's doing. And for years, he just experiments via trial and error to try and find a way to produce milk chocolate. He builds a huge new factory in what would become Hershey, Pennsylvania, like the town of Hershey, Pennsylvania. He's basically betting it all of, I am going to figure this out and I am going to bring chocolate and milk chocolate to America at scale.

• 29:25David Rosenthal?

  Finally, after a couple of years, he does hit on a method that works for producing milk chocolate. However, you know, it's not quite as scientific as what you were just describing, Ben. And in the process, effectively, the milk does spoil a little bit. 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. I have no idea how all you Americans eat Hershey's chocolate and why it tastes sour if you're not used to it. This is why.

• 30:09David Rosenthal?

  It is sour.

• 30:11Ben Gilbert?

  Yeah, so there are two versions of the story and we don't know which one is true. But either way, David, it leads to this thing that you're talking about, which is there's kind of a little bit of a funk or a little bit of a sourness in Hershey's chocolate. And that is just what Americans are used to. So to Americans, that's chocolate. Okay, account number one, and this is all in the Cadbury book that I just mentioned. After a series of laborious failures, Schmalabach, who was a scientist working with Hershey, seized on the initiative and tried a slow evaporation of nonfat milk over low heat. He succeeded in reducing the water content of the milk and added the sugar to create a sweet, creamy concoction with no hint of a burned flavor. Better yet, they found that the mixture could be blended with the ingredients of the cocoa bean

• 30:56Ben Gilbert?

  without spoiling to produce a smooth milk chocolate. Hershey was thrilled. Slightly sour, but distinctly original. The perfect American chocolate bar. Now, there's a second view, which is that Hershey happened to acquire a large batch of milk powder from Europe, which has slightly soured by the time it crossed the Atlantic. Reluctant to waste such a large amount, he used it to make chocolate and found that it sold well. Company officials have always denied that soured milk powder played any part in the company's formula.

• 31:27David Rosenthal?

  Amazing, amazing.

• 31:28Ben Gilbert?

  Thank you, Deborah Cadbury, for all that.

• 31:29David Rosenthal?

  If written by a member of the Cadbury family, you can imagine why that story is preferred. Regardless, here's the amazing thing, though, that this illustrates. When it comes to candy, and specifically when it comes to chocolate, the most important thing in the business is being first to market and setting the taste of a specific regional area. Because, again, Europeans think that Hershey's chocolate is disgusting, and Americans are like, this is chocolate. When you're a kid and you eat this stuff for the first time, your taste gets associated with, oh, this is what this is. There's also a nostalgia element to this, too.

• 32:11David 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.

• 32:22Ben Gilbert?

  Yep. And actually, today, 75% of candy is eaten by adults. And in fact, it accounts for 90% of total purchases, a complete departure from the pre-chocolate world you were talking about with the penny candies at the checkout counter.

• 32:36David Rosenthal?

  Yep, totally. So Hershey, he was crazy in believing in the potential for all this, but because he invested so much money, he set up the only scale chocolate production facility, period, in America. He was able to set this taste for the country, which basically locked him in as what chocolate was in America.

• 33:00Ben Gilbert?

  Fascinating.

• 33:02David Rosenthal?

  And he's smart about this too, from a business perspective. Like Ben, you mentioned the nickel Hershey bar. He intentionally sets the price at a nickel. He totally could have charged a lot more. This is like this great, delicious, luxurious item. He wants it to be ubiquitous. So he prices the bars at a nickel and he pushes distribution everywhere. Five and dime stores, grocery stores, gas stations, newsstands, Standard Oil stations. He's pushing everywhere. I mean, he basically invents the modern candy industry by doing this.

• 33:36Ben Gilbert?

  Yes, and Hershey's kind of uniquely positioned to do it. Imagine you're walking around today with 40 million bucks from the sale of your previous company. You realize there's something going on in Europe. You know it's going to work in America. You can't get your hands on the formula, but you're going to try and reverse engineer it. Your competitors can't self-fund to the degree that you can. And so he decides, I'm rich, I'm going to go big immediately. And so he builds out this huge factory to start production before he's even finalized the formula. So it's really like a go big or go home strategy where if it works, boom, mass production, mass distribution. I set the flavor profile in America and I set the brand in America for chocolate.

• 34:20Ben Gilbert?

  And if it fails, it fails pretty catastrophically.

• 34:23David Rosenthal?

  Yep. So putting the final pieces on this initial Hershey's success story. Right after Milton Hershey figures out milk chocolate and starts this production and is expanding distribution nationwide. World War I happens 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. So millions and millions of American GIs now get introduced and hooked on the slightly sour Hershey's chocolate.

• 35:02Ben Gilbert?

  And it's great. It's a super dense store of energy. It triggers an emotional response in the brain. I mean, everybody who eats sugar today knows that if you're eating sugar, it is triggering. I don't know if it's dopamine or serotonin, but there's definitely a stimulus of a happiness release, which if you're a soldier in World War I, you could use a little of that.

• 35:21David Rosenthal?

  Yeah, it's got caffeine, totally. So these soldiers then come home and right after the war is prohibition in America. So you can no longer buy alcohol, or at least legally buy alcohol. And all these adults are now like, you need some sort of social lubricant here. Well, what's the natural alternative? It's chocolate, which brings us to the candy bar. So all of these former penny candy entrepreneurs all around the country. They're like, wow, you know, chocolate is amazing. You know, we can market to adults, et cetera. It's expensive. Hershey's selling their own bars.

• 36:02David Rosenthal?

  What if I take just some chocolate and some other stuff and also make a bar? Well, that I could make a lot cheaper because the other ingredients, whether it's nuts or nougat or sugar or whatever are cheaper. And I can develop my own unique taste that people in my region might find appealing. So by the end of the 1920s, there are more than 40,000 different

• 36:27Ben Gilbert?

  Whoa.

• 36:27David Rosenthal?

  candy bars being made in America.

• 36:30Ben Gilbert?

  Oh my God.

• 36:31David Rosenthal?

  Almost all of which are these regional entrepreneurial operations. The most infamous of these is, Ben, do you know the story of the Baby Ruth candy bar?

• 36:40Ben Gilbert?

  No.

• 36:40David Rosenthal?

  So it's still available today, Baby Ruth candy bar, named, I think, for President Grover Cleveland, I think,'s daughter, Ruth, baby daughter Ruth. To introduce the bar, the Curtis Candy Company, which made it, chartered an airplane to fly over the city of Pittsburgh and drop bars down with little paper parachutes over the city. It is like a literal drop. It puts the visa drop to shame.

• 37:06Ben Gilbert?

  Wow.

• 37:07David Rosenthal?

  Amazing.

• 37:08Ben Gilbert?

  We're gonna have to do that for an acquired marketing stunt at some point.

• 37:11David Rosenthal?

  I know, I know. Charter an airplane and drop. I think we would get in a lot of trouble if we did that these days.

• 37:17Ben Gilbert?

  I think so, too.

• 37:18David Rosenthal?

  Oh, man. 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. Well, that's right. And Hershey is freaking loving all of this because they are supplying the chocolate to all of these entrepreneurs. They're like the AWS of the chocolate business.

• 37:39Ben Gilbert?

  They've become the Blue Jeans and Pickaxes company in this gold rush.

• 37:42David Rosenthal?

  Yes. So like, if you've ever wondered, how the heck did Milton Hershey build a town and how did it become like Rockefeller's or Carnegie's or Vanderbilt's? Like, this is how.

• 37:52Ben Gilbert?

  This is when you start to see this separation of the different players in the value chain of chocolate. 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 chocolate from Hershey for their consumer products. And yeah, Hershey also makes a chocolate bar, but in America, this is really the creation of the wholesale business of chocolate.

• 38:20David 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.

• 38:26Ben Gilbert?

  And the US military loves it too, because you can put all these high-energy density ingredients inside of the candy bar and then use the chocolate effectively to seal it in and keep it fresh. And so you put a wrapper around it, you send it off with the troops and, you know, you've got eggs in the nougat, which has protein, you've got nuts, which is protein and fat. I mean, all of this, you're delivering these kind of complete meals, complete in quotes, but it's carbohydrates with sugar and other carbohydrates, it's fat, it's protein, it's not a ton of protein, but they're energy bars and it's all because the chocolate seals up the ingredients inside.

• 39:03David Rosenthal?

  Totally. So this now brings us back to Frank Mars in Minneapolis and the fourth candy company and what is different this time, which is chocolates. So when Frank first gets back to Minneapolis and starts up the fourth company, he had seen out in Seattle and Tacoma that buttercream truffles were like really, really popular. So he brings the buttercream truffles, he steals from the companies out there, brings the concept back to Minneapolis, that's quite successful, he calls them Victorian buttercreams, and I believe started coating them in chocolate, using Hershey's chocolate.

• 39:39Ben Gilbert?

  Hmm.

• 39:40David Rosenthal?

  Which makes sense, given everything that's going on. That becomes pretty successful. He adds another line called Patricia's chocolates, named after his new daughter Patricia that he has had with wife Ethel, number two. And after a couple of years, the business is doing like, call it $100,000 ish in revenue. So like, really, really well. We're not talking Hershey levels of entrepreneurial ambition here, but that's not the ambition that Frank has. And then in 1922, he decides that he's going to get in on this candy bar craze that is sweeping the nation. And he introduces his first combination bar or candy bar called the Morrow bar.

• 40:22Ben Gilbert?

  Yes. And do you know the other name for these types of candy bars that are sort of chocolate wrapped something else?

• 40:29David Rosenthal?

  Combination bars, right?

• 40:31Ben Gilbert?

  The term I read was count lines.

• 40:34David Rosenthal?

  Oh, no. I didn't come across that.

• 40:36Ben Gilbert?

  So this is from the Cadbury book. Interestingly, all chocolate before was measured by weight. And once somebody kind of rolls their first candy bar off the line, you know, what we now know today, the Snickers bar, the Milky Way, all these things, you couldn't really just measure it by weight because it's got a bunch of much cheaper ingredients inside. Treating chocolate as one substance that has weight no longer maps to the consumer product. And so these lines where you'd manufacture these candy bars were measured by count of bars. So they're called count lines. So these manufacturers are spinning up count lines instead of, I don't know, weight lines or whatever they were before.

• 41:13David Rosenthal?

  Amazing. It's like the KD furniture from the IKEA episode. So here we are, the first candy bar, count line bar from the Mars company, 1922, comes out and I don't want to say it's a flop, but it's not a success.

• 41:31Ben Gilbert?

  No one's eaten Morrow bars today.

• 41:33David Rosenthal?

  Correct. Correct indeed. But then the next year, in the summer of 1923, a fateful reunion occurs in Frank's life, which is that his estranged son, Forrest Mars, reappears in highly dramatic fashion. And the two of them team up.

• 41:59David Rosenthal?

  Father and son to introduce a new candy bar, one that will take the nation by storm. It would end up being called the Milky Way. Or at least that's the legend.

• 42:12Ben Gilbert?

  All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 42:31David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT. And your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote "shadow AI" running with no security review at all.

• 42:52Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer. That's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 43:14David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 43:32Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off. And just tell them that Ben and David sent you. All right, David. So Forrest emerges into his father's life and somehow we end up with the Milky Way. How does that happen?

• 44:07David Rosenthal?

  Well, let's tell the legend. So, summer 1923, young Forrest Mars is 19 years old and on summer break from college. We're on college in a minute. He's got a summer job as a traveling salesman selling Camel cigarettes.

• 44:24Ben Gilbert?

  Times sure were different.

• 44:26David Rosenthal?

  Times sure were different. I mean, it's debatable how true any of this is, so we'll roll with it. One night, he's in Chicago in late summer and he gets instructions from his boss that they really got to blow it out. They need to hit big time sales numbers here in Chicago. Forrest, you got to go blitz the whole city with posters marketing Camel cigarettes. So Forrest goes around and he puts billboards up all over downtown Chicago, supposedly like every storefront window on State Street. He's plastering with Camel cigarette posters, which certainly gets attention. It actually makes the Chicago Tribune the next morning that this happened, but also much like if we were to do an acquired marketing

• 45:11David Rosenthal?

  stunt like Baby Ruth and drop stuff from an airplane these days.

• 45:14Ben Gilbert?

  We might go to jail.

• 45:15David Rosenthal?

  It's also illegal, yes. And it lands young Forrest in jail. So, from his Chicago prison cell, Forrest makes his one phone call to the only soul that he knows in the area who could possibly bail him out, his estranged father, Frank Mars.

• 45:36Ben Gilbert?

  Which, this whole thing, I mean, this is the legend and this is the Mars Company's version of the story. This is the journalist's version of the story. This has been in other books, but like, the guy hasn't seen his father since he was six years old and he somehow knows his phone number to call him from jail?

• 45:51David Rosenthal?

  By the way, his dad lives in Minnesota. There's the whole state of Wisconsin between Minneapolis and Chicago.

• 45:59David Rosenthal?

  But we're giving you a flavor of who Forrest is here.

• 46:03Ben Gilbert?

  If Forrest was in charge of coming up with the story of how this all went, this is the story he would have come up with, so.

• 46:10David Rosenthal?

  Yes, exactly. And as we'll see, Forrest is in charge of everything. So Frank shows up at the jail. Father and son are reunited after 13 years, during which, yeah, Ben, like you said, they've had no contact with each other, but Forrest has his phone number to call him. Frank bails out Forrest. By now, it's early afternoon of the next day. And he says, all right, son, let's go out for lunch. And they go to a luncheonette to share a meal, at which young Forrest, who is selling cigarettes, orders a wholesome malted milkshake over this lunch reunion with his father. They get to talking, they're getting reacquainted.

• 46:51David Rosenthal?

  And Forrest learns that his dad is now this middlingly successful candy entrepreneur. And his dad's telling him about this Mauro bar that he's introduced. Forrest says, well, hey, I got an idea for you. What if you take this malted milkshake here? Everybody loves a malted milkshake. What if you take that and put that into a candy bar? And, you know, like, I'm obviously pretty good at, you know, street marketing here. I bet I can go sell that all around the country. So they get to talking, jamming, father and son. And with that, the Milky Way bar was born, with the marketing of a malted milkshake in a candy bar.

• 47:34Ben Gilbert?

  And this is the story. There's so much in between. I have an idea that you should put a malted milkshake in a bar. And actually, what a Milky Way is, it's nougat and caramel inside of chocolate. It's a pretty different ingredient set than a malted milkshake. There had to be quite a bit of R and D experimentation, flavor development, to figure out how to make the inside of your candy bar taste like said malted milkshake.

• 48:00David Rosenthal?

  But here is the exact quote from Forrest, as recorded in the family archives that Joelle got access to as part of her access to the company. He says, quote, "I'll be damned if a short time after our lunch, the old man has a candy bar and it's a chocolate malted drink. He puts some caramel on top of it and some chocolate around it. Not very good chocolate. He was buying cheap chocolate back then, but that damn thing sold. No advertising."

• 48:27David Rosenthal?

  Forrest. Regardless of how all this happens, Frank Mars does release in 1924, the Milky Way Bar, and it does become a big hit. That year alone, the first year that it comes out, it does $800,000 in sales.

• 48:43Ben Gilbert?

  Yes, the Morrow Bar Company went from 73,000 to 793,000 in one year.

• 48:49David Rosenthal?

  And that is all the Milky Way, like, undeniably huge success.

• 48:54Ben Gilbert?

  And effectively, what they were doing was they were the first ones who said, wait a minute, if we're gonna make a count line, we should do it in a mechanical way. And so even though all these other people are selling these one offs locally to different stores and hand making them, they were doing it in factory quantities, all under the same production process and brand.

• 49:12David Rosenthal?

  Yep.

• 49:13Ben Gilbert?

  Now, it was early industrialization, but it was still much more industrial than the rest of the manufacturers at this point.

• 49:18David Rosenthal?

  Totally. Now, first question you should be asking here is, wait, Forrest is in college now? It ends up in jail in Chicago? Like, what the hell happened here? Okay, so when Forrest is six years old, as we said, he gets sent off to live in Saskatchewan in Canada, in like a hard scrabble rural mining community with his grandparents. Unlike, I imagine, most of the folks around him, Forrest is a total outlier there. He's super smart, super entrepreneurial, super ambitious, and he's a super arrogant show off, probably because he's so insecure from his deeply traumatic childhood.

• 50:01Ben Gilbert?

  Deborah Caberry has a good line in her book, Noah's flood wouldn't have deterred Forrest Mars.

• 50:06David Rosenthal?

  Yes. So when Forrest graduates, unlike everybody else there who goes off to work in the mines, he supposedly wins a scholarship to the University of California in Berkeley. Now, how he wins a scholarship to UC Berkeley, which is, you know, the public university of California, when he's living in Canada and he's from Minneapolis is...

• 50:31David Rosenthal?

  Suspect, but we'll go with it. He does show up at Berkeley, though, we know that. And he enrolls in the School of Mining there with the idea that he is going to study to become a mining engineer and go back and run a mine instead of just being a laborer in a mine.

• 50:46Ben Gilbert?

  And this all makes sense. He had an engineer's mind. I mean, he also had a marketing mind, but he ended up building a company that ran an incredible efficiency and thought through it as sort of a systems thinker.

• 50:57David Rosenthal?

  Yes, 100%. So while he's at Berkeley in his first year there, to make money and support himself, he takes a job in the cafeteria. And supposedly, he finagles a deal with the head cook that if Forrest can go source meat and other ingredients for the meals cheaper than budget from local wholesalers, that he and the chef would split the savings and just pocket the difference.

• 51:27David Rosenthal?

  And of course, you might get a sense that Forrest is a good negotiator here. This works like a charm. And supposedly, he's soon taking home like $100 a week, which if you annualize that to, you know, $5,200 a year, that's about double what the average American was earning at that point in time. So he's making bank.

• 51:46Ben Gilbert?

  Which, by the way, is a trend among all these entrepreneurs that we study. You look at Ingvar, you look at Sam Walton, you look at Buffett. I mean, all these guys, it feels like it's a part of their childhood story that as a teenager or college student or something, they were out earning the average head of household.

• 52:05David Rosenthal?

  Totally. And you know what? It is still true these days. Remember the Zuckerberg story of he and Adam D'Angelo are coding up Sid apps and people want to buy it for a million dollars?

• 52:14Ben Gilbert?

  Yep.

• 52:14David Rosenthal?

  Just turns to software instead of candy bars.

• 52:17Ben Gilbert?

  Yeah.

• 52:17David Rosenthal?

  Anyway, this is all during Forrest's freshman year at Berkeley. And then the summer comes, and of course, the cafeteria closes down, so he needs to get a job for the summer. That's when he joins the traveling Camel cigarette sales team. And that probably is when somewhere or another, maybe it was in Chicago, maybe it was in Minneapolis, he reconnects with his dad, Frank, and discovers that Frank had become a wealthy man. And I think regardless of whether Forrest had anything to do with the Milky Way idea or launch or anything like that, meeting his dad, seeing that there is a business in the family, starts recalibrating Forrest's ambitions even higher than just being an engineer who can now go run a mine. He's like, oh.

• 52:59David Rosenthal?

  I should run a business. I should run my family's business. I should run my dad's business.

• 53:05Ben Gilbert?

  And I imagine seeing one of his dad's businesses be successful is sort of a different type of data point for him. He always knew, my dad starts a company and it fails. And just seeing it existence proof of a successful business has got to be a reorientation for him.

• 53:20David Rosenthal?

  Yeah. Even when the candy company before Milky Way was just making $100,000 a year. I mean, $100,000 a year, I mean, I don't know, who knows what the margins are on that. But even if they're 10%, he's making 4X, 5X what the average American is. This is

• 53:36Ben Gilbert?

  Yeah, good point.

• 53:36David Rosenthal?

  eye opening to Forrest. So his literal words about this, when he gets back to Berkeley are, "The hell with running some mines in the backwoods."

• 53:46Ben Gilbert?

  I'm so glad you have these Forrest quotes.

• 53:48David Rosenthal?

  Oh, my God, they're so good. Like supposedly, in the Mars family archives, there's a video of Forrest, of like Forrest chatting with one of his longtime lieutenants from the company after he retired, but before he died. And it's like in the family archives and Joel got access to go watch the video, which is where all these quotes are from. It's amazing. So he does his sophomore year at Berkeley, but he's got his sights set higher now. He, with his father's help and presumably money, for Forrest's junior year, he transfers to Yale. And he's going to Yale with the goal of, I want to learn about business. He's like focused. You know, it's like the Zuckerberg story of going to Harvard. Yeah, Forrest wanted to

• 54:31David Rosenthal?

  go to Yale because it was Yale, but really he wanted to go to Yale to meet all the other people.

• 54:36Ben Gilbert?

  Yep.

• 54:36David Rosenthal?

  So it just so happens that his roommate, his first year when he shows up at Yale, is the nephew of Pierre S. DuPont.

• 54:46Ben Gilbert?

  Wait, really?

• 54:47David Rosenthal?

  Yes, really.

• 54:48Ben Gilbert?

  No way.

• 54:49David Rosenthal?

  That Pierre S. DuPont, his nephew is Forrest's roommate at Yale.

• 54:54Ben Gilbert?

  Whoa.

• 54:55David Rosenthal?

  And Pierre S. DuPont, at this point in time, is not only running DuPont, which is in and of itself, one of the most important and biggest companies in America, Pierre is also running General Motors at this point in time, because DuPont is the largest shareholder in GM.

• 55:12Ben Gilbert?

  And that is a crazy story that we will save for a future episode of Acquired on how that came to be.

• 55:17David Rosenthal?

  Oh, we gotta do DuPont. It's an incredible, incredible story. But back to Mars, Forrest worms his way through his roommate into getting to know Pierre and starts just pumping Pierre for lessons on how he runs his businesses. Like, how does he run DuPont? What is this DuPont planning system that you have?

• 55:38Ben Gilbert?

  How do you run a chemical industrial manufacturing process?

• 55:42David Rosenthal?

  Exactly. How do you do accounting? How do you do planning? Like, I want to know everything about this business. It's freaking unbelievable that here's this kid from the mines in Canada who, in a few short years, in the 1920s, has worked his way up through hook and crook that he's rubbing shoulders with one of the greatest businessmen of that era? Right up there with Rockefeller and Carnegie?

• 56:07Ben Gilbert?

  Yep. Amazing.

• 56:09David Rosenthal?

  So, after a couple of years, when Forrest graduates from Yale, he's ready to go put all this knowledge to work in his dad's candy business. So, the first thing he suggests to his dad Frank is that, hey, we got to get out of Minneapolis. We got to move to Chicago. Chicago is the center of the candy industry at this point, but also, it's just a way bigger city and it has way better freight distribution to the rest of the country.

• 56:37Ben Gilbert?

  Yep. If you want to go national, Chicago is a great place to do it.

• 56:40David Rosenthal?

  Yep.

• 56:40Ben Gilbert?

  And why else, David? You said it's the center of the candy industry. Why else is that true?

• 56:44David Rosenthal?

  Well, I think, yeah, definitely at this point already, the Wrigley Company is there.

• 56:50Ben Gilbert?

  Yep. You bet.

• 56:52David Rosenthal?

  Yeah. If you want to know how good a business gum is, you should just ask yourself, why did the Cubs play in a building called Wrigley Field?

• 57:03Ben Gilbert?

  And why is there an entire neighborhood called Wrigleyville?

• 57:07David Rosenthal?

  Yes. Yes, exactly. It's kind of like Hershey and the chocolate business. Anyway, we will get to that much later in the episode. Spoiler alert, Mars now owns Wrigley. Okay, so Frank goes along with this idea that they're going to move to Chicago. But in his heart of hearts, he's not the same man that Forrest is. Like, he doesn't have anywhere near the same level of ambition. He likes being wealthy now. He likes being comfortable. He's like, I'll go along with you to Chicago, but really, I want to focus on enjoying the fruits of our labor here. So the factory that he builds in Chicago, on the inside, is really state of the art per Forrest's designs.

• 57:49David Rosenthal?

  On the outside, he spends $500,000 in, you know, whatever this is, 1928, 29, buying a tract of land next to a golf course to put a factory in. The outside of the factory is like this beautiful Spanish-style building with stucco and cupolas and like wrought iron ornamentation. It looks like a Hollywood studio building. Dude, you're building a factory.

• 58:15Ben Gilbert?

  Yeah, must have been great margins on those Milky Ways.

• 58:17David Rosenthal?

  Yeah, exactly. Shows you the difference of where Frank's head is at and where Forrest's head is at. And probably its differences over this factory, I would assume.

• 58:27Ben Gilbert?

  Start to chafe the relationship here a little bit.

• 58:29David Rosenthal?

  Chafe the relationship, yeah. He contracts the Austin Company, which had built and designed all the Ford automobile plants and assembly lines to build the lines in the Mars factory. So Forrest is pushing the workforce super hard. He's like, we have this factory, we have these state-of-the-art lines. We need to run these lines 24/7 with multiple shifts. Like, everybody else is just, you know, oh, we run our lines during the day. Like, hell, no. We spent all this money investing in this factory. We need to crank out as many Milky Ways as possible.

• 59:01Ben Gilbert?

  Scale economies, baby.

• 59:02David Rosenthal?

  Totally. So by 1929, which I think is the first year that the factory is up and running, they're producing 20 million Milky Way bars annually. And Forrest is just like, go, go, go, go, go.

• 59:16Ben Gilbert?

  20 million of anything at this point in history is massive.

• 59:19David Rosenthal?

  Yes. Now, one thing that they are not making in the factory, of course, is chocolate.

• 59:26David 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 ingredients, including chocolate, in.

• 59:38Ben Gilbert?

  Yep.

• 59:39David Rosenthal?

  So very quickly, Mars becomes Hershey's biggest customer. They are buying millions of dollars of chocolate every year from Hershey.

• 59:51Ben Gilbert?

  Which my understanding at this point in history is still that Hershey's like, great, we love being an industrial wholesaler supplier to other candy companies. This is only good for us.

• 1:00:00David Rosenthal?

  Yes. I mean, I think the right way to think about Hershey at this point in time is like Amazon. They are both amazon.com and they are AWS.

• 1:00:09Ben Gilbert?

  Hmm, yeah.

• 1:00:11David Rosenthal?

  They're very happy either way. As long as chocolate is being sold in America, they're taking their tax.

• 1:00:17Ben Gilbert?

  Yep.

• 1:00:17David Rosenthal?

  So once this gets going and money really starts flowing into the company, Frank wants to spend it. So he builds a 20,000 square foot vacation home on a lake in Wisconsin. He buys a $2 million horse ranch in Tennessee that he names the Milky Way Ranch. He buys his own airplane so that he can be flown around to all of these places. Forrest hates all of this.

• 1:00:40Ben Gilbert?

  He's trying to reinvest as much into the business as possible.

• 1:00:44David Rosenthal?

  Exactly. He wants to be DuPont. He doesn't care about a horse ranch or airplanes. But even he, I think, probably would have to admit that he's thankful that Frank does these things. Because in 1930, the next year, Frank creates a new chocolate bar that he wants to introduce to the market and he decides that he wants to name it after his favorite beloved horse at his Tennessee ranch. Ben, you are opening it right now. It's the most popular chocolate bar in America and I think in the world.

• 1:01:15Ben Gilbert?

  Yep.

• 1:01:15David Rosenthal?

  Yes. The Snickers bar, named after the horse in Tennessee.

• 1:01:21Ben Gilbert?

  Thank God they bought the horse ranch. I've been waiting for you to get to this part because I'm just trying to be satisfied, you know? I just needed to grab a Snickers.

• 1:01:30David Rosenthal?

  Oh, amazing.

• 1:01:33Ben Gilbert?

  It really is so good.

• 1:01:34David Rosenthal?

  It's so good.

• 1:01:35Ben Gilbert?

  I massively prefer the bean to bar style chocolate, the deadly lion. You know, I like dark chocolate more than milk chocolate. I might not even be able to finish a whole Snickers bar just because it's so sugary. But oh my God, is that first bite good?

• 1:01:49David Rosenthal?

  I mean, we're talking about two totally different products here of like high end chocolate versus mass market chocolate. But no, like Snickers are so good.

• 1:01:56Ben Gilbert?

  I feel like I go play in the NFL after a bite of this.

• 1:01:59David Rosenthal?

  Totally. Well, so there's another potential story of the origins of Snickers that we heard some wind of rumors in the sort of forest legend canon here. Supposedly Forrest was thinking about what would be like, you know, an incredible product to build on the Milky Way's success and market to all of America and the world.

• 1:02:25Ben Gilbert?

  Because by the way, a Snickers is a Milky Way with peanuts.

• 1:02:27David Rosenthal?

  Exactly. And so supposedly he went to the library. He wanted to know what did the Roman army feed their legionnaires when they were, you know, out marching. And apparently he learned that it was peanuts and eggs and sugar.

• 1:02:46Ben Gilbert?

  It's a lot of energy, super dense.

• 1:02:48David Rosenthal?

  So the other story is that that was the inspiration for Snickers was putting what the Roman army fed their legionnaires into a candy bar.

• 1:02:57Ben Gilbert?

  In practice, it's actually a great energy bar. I was being tongue in cheek about the NFL because they're a partner of the NFL today. But there's a whole industry around Cliff bars and things like that being marketed as energy bars and Snickers being marketed as candy. But really, what's the difference?

• 1:03:12David Rosenthal?

  Snickers launches in 1930. In 1932, they add Three Musketeers to the lineup. Now, Three Musketeers originally was something very different.

• 1:03:21Ben Gilbert?

  Yes. So listeners, you are probably thinking to yourself, a Three Musketeers bar is just that nougat and chocolate. It doesn't have peanuts, it doesn't have caramel. Why would this come after a Snickers? Well, Three Musketeers is actually a misnomer. I see you're eating a Three Musketeers, way to be in theme. It was actually sold as a package containing three separate bars, each with a different flavor, chocolate, vanilla and strawberry. And due to restrictions during World War II, they had to cut production to just the chocolate version. I think part of it was also a spike in strawberry prices. And so they just did away with the vanilla. And so now it's just called Three Musketeers, even though it's only the chocolate variant. One Musketeer doesn't have the same ring to it.

• 1:04:04David Rosenthal?

  No, no, it doesn't. So if you're paying attention here and thinking like, wait a minute, they built this factory in 1928, 1929. Sales are skyrocketing. Frank is living large. 1930, they introduced Snickers. 1932, they introduced Three Musketeers. What else is going on in America and in the world in the early 1930s? The Great Depression.

• 1:04:27Ben Gilbert?

  Yeah.

• 1:04:27David Rosenthal?

  This tells you everything you need to know about the resiliency of the candy business. Mars revenue goes up to $25 million in 1932. They're just growing hugely. I mean, what did we say? Milky Way did 800,000 in its first year in 1924.

• 1:04:43Ben Gilbert?

  Yep.

• 1:04:44David Rosenthal?

  So they go from 800,000 of revenue in 1924 to 25 million in 1932. All amidst the throes of like the worst years of the Great Depression.

• 1:04:55Ben Gilbert?

  Yeah. Candy may not be good for you, but when you really need a dopamine hit, it is there for you. And boy, does it condition a addictive or addictive-like activity where you sort of incorporate it into your habitual everyday life. It's a reoccurring purchase. 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.

• 1:05:20David Rosenthal?

  That's exactly what I was going to say. You know, Forrest, and I think it probably really was Forrest here, was closely studying Hershey and what they did and realized, oh yeah, this is a scale business. If we get to scale, we can make profits while pricing our bars such that they are still accessible, even for Americans that have lost their jobs and are in the middle of the Great Depression. And by the way, they want a sweet treat more than ever because their lives are depressing. Brilliant.

• 1:05:46Ben Gilbert?

  Yep, absolutely. The other interesting thing is nowadays you've got all these variations of candy. I mean, M&M's Peanut, M&M's Almond, Dark M&M's. The Milky Way, The Three Musketeers and the Snickers are all just adding one ingredient to the same thing.

• 1:06:03David Rosenthal?

  Yes.

• 1:06:03Ben Gilbert?

  But they're not labeling them that way. They're building entirely different brands and franchises around each of these three products. I think that's fascinating. They really didn't get into this whole variation thing until way later in their life. That was not the standard practice then. This is a different product, it needs a different name and a whole different personality.

• 1:06:21David Rosenthal?

  Yep. And actually, you know, I think to be fair to Frank, I think that is really like Frank's influence on the business and company there. Forrest, as great as he was at so many things, he was never a product innovator in the way that Frank was.

• 1:06:41Ben Gilbert?

  Hmm, makes sense.

• 1:06:43David Rosenthal?

  As evidenced by the fact that, you know, here we are today, eating the most popular candies in the world that Mars makes, and it's still Snickers, Milky Way, Three Musketeers, M&Ms, which we will get into. That was Forrest's big contribution.

• 1:06:56Ben Gilbert?

  Yep. So Depression, sales are going great.

• 1:07:00David Rosenthal?

  Here we are, 1932, the worst years of the Depression, and Forrest totally recognizes all this, like, we need to invest, invest, invest, pedal to the metal, we are gonna use everything happening here to blow away our competition, we're gonna go compete with Hershey, we're gonna become huge. Frank, though, has no interest. According to Forrest, quote, "My father says we're making enough money. We have an airplane, we've got the fishing place, we've got horses, why do we need any more?" And Forrest's reply to that is, quote, "I want to conquer the whole goddamn world." So he issues his dad an ultimatum. "Look, obviously, you wanna just go enjoy life, let me run things.

• 1:07:44David Rosenthal?

  Give me one-third of the stock of the business, you keep two-thirds, and you relax and I will make you even richer." Frank turns him down.

• 1:07:55Ben Gilbert?

  And I think he turns him down in kind of insulted. Like, I built this business and you came in recently and you're just randomly asking me to give you a third of it? Go to hell.

• 1:08:06David Rosenthal?

  Yeah. And, you know, of course, there's more behind this. Forrest was not liked within the company. He's driving everybody hard. Frank is this-

• 1:08:16Ben Gilbert?

  Kind of a distracted leader.

• 1:08:17David Rosenthal?

  You can imagine, you know, if you're a line worker or even if you're a manager within the company.

• 1:08:21Ben Gilbert?

  That's great.

• 1:08:22David Rosenthal?

  Which boss do you prefer?

• 1:08:23Ben Gilbert?

  Right.

• 1:08:24David Rosenthal?

  Yeah. So the company certainly sided with Frank here. There's also the family element, too. Frank's got a new family now. So he's got his wife, the other Ethel. He's got his daughter Patricia. Frank's like, yeah, hey, I mean, you're my son, too. You've helped me build this business, but I'm not just going to give you a third of the business.

• 1:08:45Ben Gilbert?

  Hmm.

• 1:08:46David Rosenthal?

  Either way, there's quite a bit of animosity around this. And Forrest walks out and in the process tells his dad to, quote, "stick his business up his ass."

• 1:08:56Ben Gilbert?

  There's no missing words in any of these direct quotes. It's crazy.

• 1:08:59David Rosenthal?

  Yeah, literally. I mean, this is what he said he said. So Forrest leaves town, not just Chicago, but leaves America entirely, goes off to a new continent to build his own business, his own way, leave Mars Incorporated totally behind him, leave him in the dust.

• 1:09:16Ben Gilbert?

  Almost. He takes with him a right.

• 1:09:19David Rosenthal?

  Yes.

• 1:09:20Ben Gilbert?

  He has the right to what, David?

• 1:09:22David Rosenthal?

  He takes actually two things with him that his dad sort of gives him as he's heading out the door. One, $50,000. And two, the foreign rights to the Milky Way recipe.

• 1:09:35Ben Gilbert?

  Yes. But I don't think the Milky Way name.

• 1:09:40David Rosenthal?

  No, not the Milky Way name, just the recipe.

• 1:09:42Ben Gilbert?

  You can't market this as Milky Way, but you can sell this recipe internationally.

• 1:09:47David Rosenthal?

  Yep. So Forrest takes these two sort of parting gifts, tells his dad that he'll never hear from him again. Leaves America entirely and super sadly Frank doesn't ever hear from him again.

• 1:10:00Ben Gilbert?

  Yeah, this is the last time that Frank and Forrest would ever speak.

• 1:10:03David Rosenthal?

  Yeah, the next year when Frank is just 50 years old, he collapses in the Chicago factory and dies of kidney failure and Forrest doesn't come back for the funeral.

• 1:10:15Ben Gilbert?

  Yeah.

• 1:10:15David Rosenthal?

  Yep, that was it.

• 1:10:17Ben Gilbert?

  Now granted, in the 30s, much harder to come back from Europe on short notice, but still.

• 1:10:23David Rosenthal?

  Yep.

• 1:10:24Ben Gilbert?

  So Forrest is over in Europe and the set of events of what he does in Europe to build this ridiculous, almost Trojan horse, like the set of skills he acquires, the assets he builds up is crazy before he comes back to the US. All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 1:10:57David Rosenthal?

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• 1:11:11Ben Gilbert?

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• 1:11:21David Rosenthal?

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• 1:11:38Ben Gilbert?

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• 1:11:55David Rosenthal?

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• 1:12:11Ben Gilbert?

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• 1:12:20David Rosenthal?

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• 1:12:31Ben Gilbert?

  All right. Forrest, summer in Europe. A little longer than a summer.

• 1:12:37David Rosenthal?

  Summer or, you know, close to a decade in Europe. So we're here at the end of 1932. Forrest and his young family now, by the way, with his young son Forrest Jr. land first in Paris. And Forrest tries a couple little things, but eventually he decides that if he's really gonna build his own big company and stick it to his dad, he needs to learn the one critical thing that his dad didn't know. He needs to learn how to make chocolate.

• 1:13:10Ben Gilbert?

  Yes. No better place than Europe to learn.

• 1:13:13David Rosenthal?

  Here's his quote on it. "You can hire lawyers, you can hire accountants, you can hire advertising men or financial types, but if you want to get rich, you gotta know how to make a product. And you aren't gonna hire anybody to make a product for you to make you rich. They'll only make it for themselves." True that. Forrest is just like, he's such a freaking G. Like, if it hasn't come across already on this episode, he is Hall of Fame, complete G.

• 1:13:39Ben Gilbert?

  You gotta know how to do the scarce thing.

• 1:13:41David Rosenthal?

  Totally. So important. So in early 1933, Forrest moves his family from Paris to Switzerland to go learn from the chocolate masters. And Forrest goes to work first at Jean Tobler, making Toblerone, and then at the original itself, Nestle.

• 1:14:03Ben Gilbert?

  In the factories without disclosing to anyone who he is.

• 1:14:07David Rosenthal?

  So, yeah, when I say he goes to work there, it's not like he calls them up and is like, "I'm Forrest Mars." He doesn't tell anybody who he is. His quote on this later is like, "Well, they never asked." And he doesn't go get management roles. He goes and gets jobs on the line as a factory worker, learning directly how these machines work, how these chemical processes work, how to make chocolate.

• 1:14:34Ben Gilbert?

  Amazing. Who would do this today? It takes a very specific type of person. If you're sitting there thinking, hmm, only some European company knows how to do this well. And I'm someone who attended an Ivy League college. My family is wealthy.

• 1:14:48David Rosenthal?

  I'm friends with the DuPonts. Not only that, I basically feel like I've already built a $25 million business.

• 1:14:55Ben Gilbert?

  But I'm gonna upend myself, my family and my life, and go and be a line worker in a plant in another country. I mean, in this era, in the 30s, where it's difficult to get over there, I imagine he went by boat. I imagine they didn't speak English in the Swiss factory.

• 1:15:13David Rosenthal?

  Yeah.

• 1:15:14Ben Gilbert?

  Would you ever do this, listener? If you're looking around at a pretty good life that you have and you're saying, I'm gonna go to a different continent, move my family, upend my whole life so I can go and learn this scarce skill that I know is the key to building a world dominating business. It's a big trade off.

• 1:15:30David Rosenthal?

  Big, big trade off. And totally on brand for Forrest.

• 1:15:35Ben Gilbert?

  Because you couldn't learn it in America. That's the other thing. Hershey is super secretive at this point in time. No one knows their formula.

• 1:15:41David Rosenthal?

  Well, I think not only is Hershey super secretive, the sense I get, at least from emperors of chocolate, is they knew how to productionize their recipe, but they didn't actually know the science of how it worked. They kind of got there through trial and error.

• 1:16:01Ben Gilbert?

  Huh.

• 1:16:02David Rosenthal?

  The sense I got is that the European chocolate manufacturers, and probably Nestle in particular, they really knew what they were doing. And Hershey, sort of in an industrial sense, knew what they were doing, but nobody there really knew the science behind it. 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. They can't get the chocolates to taste the same.

• 1:16:26Ben Gilbert?

  Hmm.

• 1:16:27David Rosenthal?

  Because they like, don't exactly know how they get that specific sour note in the taste.

• 1:16:33Ben Gilbert?

  That's so interesting.

• 1:16:34David Rosenthal?

  But anyway, back to Forrest. So for most of the year of 1933,

• 1:16:41David Rosenthal?

  They're just in Switzerland and he's working on the factory lines, learning how to make chocolate. And then toward the end of the year, when he feels like he's learned everything he needs to know, he moves the family to England, where he uses the $50,000 to open up a small factory in Slough, England, which is a small industrial town about 20 miles west of London. It's right near where Heathrow Airport is today. And he installs the family in a one-room apartment above the factory, and they start making a version of the Milky Way adapted to British tastes.

• 1:17:17Ben Gilbert?

  Which basically means more sugar, right?

• 1:17:19David Rosenthal?

  Yep, more sugar and less malt. Malt is not as big in British tastes. So he has the recipe to the Milky Way that he's adapted now for British tastes, but he doesn't have the naming rights, and so he names it the Mars Bar. And this, of course, goes on to become the most popular candy bar in the UK, I think, still to this day.

• 1:17:41Ben Gilbert?

  The funny thing is, the lineage of this weird family split, and this, you have the rights to the recipe, but not the marketing, is the way that the world works today, even though they are, spoiler alert, one company now. If you get a Milky Way in the US and you go and you get a Mars Bar in the UK, they're a little different, the way you just described, but those are effectively the same products. They never unified the brand.

• 1:18:04David Rosenthal?

  Yes. Now, there is also an important difference besides the level of sweetness and level of malt, and that is the type of chocolate that is used in the Mars Bar versus the Milky Way.

• 1:18:17Ben Gilbert?

  Ooh, the Mars Bar is Cadbury, right?

• 1:18:20David Rosenthal?

  Well, in these early days, yes. So Forrest has now learned how to make chocolate, but of course, with $50,000 and a new startup factory, like, there's no way that he's going to make his own chocolate.

• 1:18:29Ben Gilbert?

  Everything we talked about in chocolate making, it's like an insane amount of CapEx, really hard, easy to screw up, potentially low yield.

• 1:18:36David Rosenthal?

  Yep, totally. And like, you know, how are you gonna get the supplier relationships for the beans? And like, that requires a lot of capital, et cetera, et cetera.

• 1:18:44Ben Gilbert?

  And this part of the value chain really wasn't well-established yet, where there are these companies specifically to go buy commodity beans from. It was starting, but it was early.

• 1:18:52David Rosenthal?

  Yeah. Cargill wasn't the like, massive giant with global liquidity for commodities buying and selling that it is today.

• 1:19:00Ben Gilbert?

  Speaking of gigantic US privately held companies.

• 1:19:03David Rosenthal?

  Yes, exactly. We'll have to do that someday.

• 1:19:05Ben Gilbert?

  Yep.

• 1:19:06David 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. This is also important because remember we were saying there are local tastes in each country market for chocolate and Cadbury's chocolate is to the British taste. So it actually is a pretty different bar, even though the core concept is very similar.

• 1:19:29Ben Gilbert?

  Hmm.

• 1:19:30David Rosenthal?

  But it's just a matter of time in Forrest's mind until the operation eventually grows big enough that he can and will make his own chocolate.

• 1:19:37Ben Gilbert?

  David, there is a Milky Way that you can buy today in the UK. Do you know what that is?

• 1:19:45David Rosenthal?

  Oh, I do, but I'm not remembering.

• 1:19:48Ben Gilbert?

  Three Musketeers.

• 1:19:49David Rosenthal?

  That's right. I knew it was one of them. I was like, it's not Snickers.

• 1:19:51Ben Gilbert?

  That is the brand that they decided to use for Three Musketeers overseas.

• 1:19:56David Rosenthal?

  And Snickers originally was Marathon, I believe, in the UK?

• 1:20:01Ben Gilbert?

  Yes, but now globally, Snickers is Snickers.

• 1:20:04David Rosenthal?

  So yes, Forrest not making his own chocolate just yet, but of course, his goal is that he will. He has a great saying that he repeats often, and I think this is maybe around the first time it starts coming up. I'm not a candy maker, I'm empire minded. And that's like his mantra.

• 1:20:21David Rosenthal?

  So once they start producing the Mars Bar, pretty quickly it becomes a hit and starts going really well. So by 1939, five years ish after they get production up and running, Mars UK has become the third largest candy company in Britain behind Cadbury and Round Trees. So like they go from nobody to third largest player, big industrial scale, pretty quick.

• 1:20:47Ben Gilbert?

  And in part, I mean, this is American capitalist coming in to an industry. I don't know if you know this or not, both of those families were Quakers.

• 1:20:57David Rosenthal?

  Oh, I didn't know that. Interesting.

• 1:20:59Ben Gilbert?

  And so there was a pretty intense spirit behind the company of looking after your community.

• 1:21:07David Rosenthal?

  Yep. This is Cadbury's and Roundtree, right?

• 1:21:10Ben Gilbert?

  Yeah, in particular Cadbury built their factory outside the city in sort of this almost attempt at a utopia.

• 1:21:17David Rosenthal?

  Ah, very Hershey like.

• 1:21:19Ben Gilbert?

  In the same way that actually Milton Hershey was inspired by when he built Hershey PA. So there's this very like devout.

• 1:21:27Ben Gilbert?

  Duty-bound religiosity to the existing UK chocolate companies. And in comes Brash Forrest, who's like, "We're gonna do things the most efficient we possibly can. We're gonna make the most profit we possibly can, and we're gonna distribute as broadly as we can, as fast as we can." In many ways, it feels Bernard Arnault-esque, like, "You guys, look what I learned in America."

• 1:21:48David Rosenthal?

  Yeah, yes, very, very much so. It's funny. I wasn't even gonna tell this story because, A, I don't know how true it is, it's just ridiculous. But we'll tell it, because I didn't realize the religious element of the competitors. So Forrest...

• 1:22:04Ben Gilbert?

  Oh, yeah.

• 1:22:05David Rosenthal?

  Oh, man. Eventually, flash forward, he will come back and he will retake over Mars Inc. in America. And when he does, his first thing he does is he goes in the boardroom.

• 1:22:16Ben Gilbert?

  It's a management meeting. It's to his executives.

• 1:22:19David Rosenthal?

  And he falls down on his knees and says, "I'm a religious man." And he clasps his hands together and starts to pray.

• 1:22:26Ben Gilbert?

  "I pray for Milky Way."

• 1:22:28David Rosenthal?

  "I pray for Snickers. I pray for M&M's."

• 1:22:34David Rosenthal?

  What a freaking character. Yeah. If he was religious at all, he was religious about Milky Way and Snickers and M&M's.

• 1:22:40Ben Gilbert?

  Yep.

• 1:22:41David Rosenthal?

  And dog food. So, to this empire thing. So in 1934, just one year after he started the whole thing and started making Mars bars, he comes across this small British company called Chapel Brothers, which had started making "Chappies" brand canned dog food. And this is crazy. At the time, nobody fed their pets pet food.

• 1:23:09Ben Gilbert?

  Oh, really?

• 1:23:10David Rosenthal?

  Pets, dogs, cats, they just ate table scraps. This whole idea that you feed specific pet food to pets, this all started in the 30s. Like, before that, you know, it was like, I don't know, imagine going back to medieval times, like, the dogs and cats, they just eat...

• 1:23:26Ben Gilbert?

  Right. Throw them a ham.

• 1:23:28David Rosenthal?

  That's the way you clean the table.

• 1:23:29Ben Gilbert?

  Right.

• 1:23:30David Rosenthal?

  So I have no idea how or why.

• 1:23:34Ben Gilbert?

  I couldn't find it either. I looked all over the place. I was like, why of all the things to buy, did he buy a pet food company?

• 1:23:40David Rosenthal?

  Totally. And why did the Chappell Brothers start making pet food? I don't know. There is like, as little information as there is about the company and the family, what we do have, we have about the chocolate business. We have almost no information about the pet business.

• 1:23:55Ben Gilbert?

  And who are you going to ask? The Chappell Brothers are long dead. Mars isn't going to tell you. But I'm so curious, how did Forrest get the idea, hey, I should go buy a dog food company when the market for dog food is new and unclear and?

• 1:24:10David Rosenthal?

  Yeah. Well, I think, you know, look, he was visionary and he got so many things. And I think he probably thought, or maybe the Chappell Brothers thought and convinced Forrest, that, you know, in the post-depression era, you know, the coming modern world, people's relationship with their pets would change and that they would start feeding them dedicated pet food. I mean, and obviously, that was a huge, huge trend.

• 1:24:39Ben Gilbert?

  And there's kind of economies of scale to the manufacturing of this. Making canned dog food isn't that different than making snacks?

• 1:24:45David Rosenthal?

  Yeah, it's a manufacturing process, so.

• 1:24:47Ben Gilbert?

  Yeah. Interestingly enough, like, I learned this, and the fact that this happened in 1935 completely blew my mind. Because I knew that Mars was in the pet food business, much like Nestle, Purina is in the pet food business. I thought this was like a recent diversification hedge. But here it is, effectively at the founding of Mars, or at least Forrest's modern Mars, and he's in the first, second year of business, buying and diversifying to pet food. And it was immediately a good idea, because it became profitable after just a couple of years, and started generating enough cash flow to fund the expansion of Mars bars.

• 1:25:27David Rosenthal?

  Yeah, it's good margins in the pet food business.

• 1:25:31Ben Gilbert?

  Apparently, even in 1935.

• 1:25:33David Rosenthal?

  Yeah. So that's a huge success. So as this company is getting set up, I mean, would you expect any less of Forrest, I guess? You know, he's hitting it out of the park with Mars Bar on the candy side. He's building a whole new industry on the pet food side. And this here in Slough in England is really where the principles, literally the principles, Mars calls them the five principles of the company today, but just the culture of Mars gets set.

• 1:26:01Ben Gilbert?

  Oh yeah, you found the original ones, right?

• 1:26:03David Rosenthal?

  Yes. So if you talk to anybody who works or worked at Mars, they will quote the principles at you religiously.

• 1:26:09Ben Gilbert?

  It's like the Amazon leadership principles.

• 1:26:10David Rosenthal?

  Totally. It's like, oh, that's principle number five, freedom, or oh, that's principle number three, mutuality, et cetera, et cetera. I think how these started, maybe even back in England, Forrest started a document called The Mars Way, where he was like codifying all this. And I think then after he retired and the business passed to his sons and the next generation, I think that's when they sort of adapted that document into The Mars Principles.

• 1:26:37Ben Gilbert?

  Hmm.

• 1:26:38David Rosenthal?

  But it's really interesting. It's worth going through them all. So number one, the first principle is quality. Forrest was completely obsessed with quality on every dimension, you know, the ingredients that are going into the candy bars, the candy bars themselves, the wrappers, the shelf placement displays. He was way ahead of the curve on all this stuff. He knew the candy was an impulse purchase and like the way the product actually looks, how it's displayed, what the packaging is, what the placement is in the shelf in the retailer.

• 1:27:09Ben Gilbert?

  How consistent it is.

• 1:27:10David Rosenthal?

  How consistent it is. These were like big, big drivers of purchases.

• 1:27:14Ben Gilbert?

  And there's of course, the famous story about he, you know, finds a defect in a wrapper and then he calls his executives into a room and he hurls at the glass and says, you know, yeah, it's his temper and his obsession with quality all combined into one.

• 1:27:29David Rosenthal?

  Yeah, I'm laughing. You say famous story. I'm like, which one?

• 1:27:32Ben Gilbert?

  Right.

• 1:27:32David Rosenthal?

  I think there are a million of these stories. But even here in the 30s in the UK. He basically implements the Toyota production system in the Mars factory. This is long before the Toyota production system exists. Any employee in the factory could stop the line for any reason at any time.

• 1:27:54Ben Gilbert?

  Hmm.

• 1:27:54David Rosenthal?

  If there's anything that's out of place, anything that could impact quality, you know, anything is dirty, anything is not perfect. Every single worker in the entire facility can stop the whole line.

• 1:28:06Ben Gilbert?

  And he also, if something had a defect, he would throw out the whole batch, right?

• 1:28:10David Rosenthal?

  Yes.

• 1:28:10Ben Gilbert?

  As like a, let's scorch the earth around the defect.

• 1:28:14David Rosenthal?

  Yep. I'm sure he wasn't thinking about it in these terms, but he really wants to instill this as a cultural norm in the company. So anytime if there was a mistake that Forrest then found that hadn't been caught on the line, he would just berate whoever should have stopped the line and be like, you needed to have stopped and fixed this. So like, you cannot let this get into the finished product. The other aspect of the quality principle, though, much like IKEA, it's not just quality for quality's sake. It's quality for money. It's quality at a given price, value for money. You know, we've already been talking about how this is like the ultimate scale business and scale economies business in candies.

• 1:28:55David Rosenthal?

  Forrest knows that if you can offer a higher quality for a given price than your competitors, you're just going to build a lead and compound forever and ever and ever in this business.

• 1:29:04Ben Gilbert?

  Interesting.

• 1:29:05David Rosenthal?

  So quality principle, number one, most important. Two, this is awesome. Responsibility is the second principle. And you might be like, oh, responsibility, like, okay, whatever. For all of his crazy intensity, Forrest was not a micromanager. He wanted to like, know how to do everything in the business, including making chocolate. But he knew that if he was going to scale, like, he wants to be DuPont here, you know? He wants to be General Motors. He needs the best people working the hardest in charge of everything. Like, he can't be around telling them how to do their jobs. So the question then is, when you're starting up in a new country, tiny factory, how do you get the best people? How do you incentivize them? He's like, well, just pay them. I'll just pay them a lot.

• 1:29:49David Rosenthal?

  So for years and years, the standard within Mars was that you should make three to four times the normal salary for your job.

• 1:29:58Ben Gilbert?

  That's so insane.

• 1:30:00David Rosenthal?

  And I think that's come down over the years. It's now like 2X, but it's still true.

• 1:30:04Ben Gilbert?

  I even saw numbers that say they try to pay their employees a minimum of 10% higher than other companies in the industry.

• 1:30:11David Rosenthal?

  Ah, interesting. But definitely in those early days, it's like, no, we're going to pay you three or four times the amount that you would make elsewhere.

• 1:30:18Ben Gilbert?

  I also know they try to tie pay aggressively to the performance of the company, so high bonuses rather than high salaries, which also means in tough years, they would just cut. It's not quite having equity in the company, but it's much more akin to being a partner in a business than it is to being an employee.

• 1:30:33David Rosenthal?

  Exactly. Okay, so, you know, I said salaries. It's not salaries, it's bonuses. This is what your take home pay should be. Everyone's salary in the company, again, starting in the earliest days there in Slough, tied to overall company performance and hitting overall company metrics. There is no, at least in the early days, individual performance element to your bonus, except for one thing. Do you know what the one thing is? The one individual performance metric?

• 1:31:01Ben Gilbert?

  Did you show up on time?

• 1:31:03David Rosenthal?

  You get a 10% bonus if you are never late in the entire year. And it's everybody, from Forrest himself on down. Everybody has a time card. You punch the time card when you go in.

• 1:31:15Ben Gilbert?

  I'm pretty sure this is still true, that the CEO of Mars today has a time card and they punch in and out every day. And a 10% bonus is contingent on not being late.

• 1:31:24David Rosenthal?

  So even more, I don't think this terminology starts until they get back to America, but everybody in the company is an associate. Obviously, people are in charge of different things and have different external titles. But internally, everybody is an associate. There are no perks for anyone, so there are no executive parking spaces. There's no executive offices.

• 1:31:46Ben Gilbert?

  Boy, Forrest really wants to rebel against his father.

• 1:31:49David Rosenthal?

  There are no offices, period, to this day at Mars.

• 1:31:54Ben Gilbert?

  Is this the first open office company?

• 1:31:56David Rosenthal?

  So we said on the Meta episode that we thought Facebook was the first open office. No, Mars was the first open office, starting in the 1930s. So every building, entirely open floor plan. You get a black metal desk. Get this, this is how crazy it is. Again, even still to this day, there are just a small number of conference rooms in any given Mars office.

• 1:32:19Ben Gilbert?

  Oh, yeah, because they hate presentations, right?

• 1:32:21David Rosenthal?

  They hate presentations, they hate meetings, but like, sometimes you have to have a meeting. The conference rooms do not have doors.

• 1:32:29David Rosenthal?

  There is no privacy allowed anywhere. Which is the craziest thing, given that the company itself externally is incredibly private. But no, internally, the culture is, everything is open, everyone is equal. There are no perks here whatsoever. And Forrest is doing this in the 30s. This is crazy.

• 1:32:48Ben Gilbert?

  I was gonna save this for later, but this is a fun time. I Google mapped the recent factory that they built to make M&Ms. And it's like a corporate headquarters and manufacturing facility. And there's a bunch of pictures on Google Maps of the exterior and interior, just like you would expect from anything that's on Google Maps. And it's pretty dated. It's just a very boring, drop ceiling, fluorescent lit, cheap office. And the real estate that it's on is like near an Amazon fulfillment center. I mean, it's like, kind of off the highway in the middle of nowhere, inexpensive. But there are two big M&Ms waving at you out of the parking lot.

• 1:33:27David Rosenthal?

  I think that's the standard decoration. Yeah, you can tell how pissed Forrest was at his dad about the Chicago factory specifically, but also just like how deep seated this is.

• 1:33:39Ben Gilbert?

  Yep.

• 1:33:40David Rosenthal?

  Okay, so then principle number three is mutuality. So Forrest obviously is like hyper competitive, but he also knows that this is an ecosystem that he's in, and the retailers are super important. The suppliers are super important. Distributors are critical.

• 1:33:56Ben Gilbert?

  Everyone needs to make money and everyone needs to be incentivized for the long term.

• 1:34:00David Rosenthal?

  And as long as his partners are making money and making more money selling Mars products or supplying Mars than they are any of Mars' competitors, that's going to be a compelling advantage.

• 1:34:11Ben Gilbert?

  Yep.

• 1:34:11David Rosenthal?

  So that's three. Four is efficiency. Okay, this is a really, really interesting one. Probably back to his whole mindset and time at Yale and studying DuPont. Forrest is crazy about studying business and management literature. Like, I don't think anybody was reading business management literature in the 1930s and 1940s.

• 1:34:36Ben Gilbert?

  It's a good point. It's true both for management and for investing. If you think about the way that people were even investing back then, it was like stocks were gambles. You know, Buffett was one of the first people to believe the intelligent investor. Oh, you can tell something about the quality of revenue and this intrinsic way to build to a value of a business. The investment mindset of quality and a discounted cash flow and the management mindset of there's a science to building an organization, these were pretty new ideas.

• 1:35:05David Rosenthal?

  Totally. I mean Buffett had to go study with Ben Graham to learn this stuff.

• 1:35:10Ben Gilbert?

  Yep.

• 1:35:11David Rosenthal?

  So while he's in England, Forrest reads a textbook called Higher Control in Management by T.G. Rose, and the subtitle of this book is "A Method of Producing the Facts and Figures of Industrial and Commercial Undertakings So That They Can Be Used for the Purpose of Management."

• 1:35:32Ben Gilbert?

  It's quite academic.

• 1:35:33David Rosenthal?

  Yeah. Business academia had not yet learned marketing about itself.

• 1:35:39David Rosenthal?

  So in the book, though, Rose argues that the primary focus of management should not be on revenue or profit or growth, but instead on a metric called return on total assets, or RODA. And again, if you talk to anybody in Mars today, RODA, RODA, RODA, RODA, everything is about RODA.

• 1:35:57Ben Gilbert?

  It's funny, I came across this researching. I had to look up the term. We've never studied it on an episode before.

• 1:36:03David Rosenthal?

  All right. So what is return on total assets? It is net profit dollars divided by the total dollar value of the company's fixed assets.

• 1:36:13Ben Gilbert?

  So it's effectively an efficiency metric of your profits divided by your fixed cost of your assets.

• 1:36:20David Rosenthal?

  Yep. Now, the textbook way to do it is by the cost of your assets as measured on your balance sheet. The way Forrest does it, though, and the way the company still does it today is, no, that's insane. Like, whatever this is valued at on our balance sheet, whatever it cost us to build this factory 10 years ago, doesn't matter. What matters is, what is the value of it today?

• 1:36:41Ben Gilbert?

  Oh, interesting.

• 1:36:42David Rosenthal?

  So they are constantly revaluing what the replacement cost is of all their fixed assets, all their factories, et cetera. Like, okay, if this factory disappeared.

• 1:36:53Ben Gilbert?

  What's the market value if we were to sell this thing and get rid of it?

• 1:36:56David Rosenthal?

  Exactly. And so that way, they're always making sure that they're like, hey, we're really efficiently using our assets. We're not just artificially being efficient based on what we paid for them 10, 20 years ago.

• 1:37:09Ben Gilbert?

  Fascinating. So for you and I, it'd be like, the profit dollars of the business from sponsorship divided by the cost of our microphones and, you know, the very modest tangible assets that we have in this business.

• 1:37:20David Rosenthal?

  Actually, I think if we were to use this, we would divide our profit dollars by the value of the acquired brand, and we would value the acquired brand sort of as highly as possible.

• 1:37:32Ben Gilbert?

  So you're basically wanting to say, per unit of fixed investment I've made, how much yield in terms of profit am I getting out of the fixed investment I've made?

• 1:37:41David Rosenthal?

  Exactly.

• 1:37:42Ben Gilbert?

  I'd argue, David, that for acquired, we'd actually want to use our time valued at some certain amount as the denominator. What's our profitability per unit of time, which is our fixed resource?

• 1:37:53David Rosenthal?

  Well, it depends, I think, what you think is more valuable, our time or the acquired brand. We should probably do both, actually.

• 1:38:00Ben Gilbert?

  Who knew this would turn into an actual holiday special?

• 1:38:03David Rosenthal?

  Yeah. So, anyway, supposedly, Forest had, and Mars has, or at least used to have, a specific target of 18% return on total assets for every division and every factory, which means essentially that every investment needs to pay for itself in less than five years. So if you're making 18% of your value back every year, you know, that would be like five, six-ish years if you're using the textbook definition, but they're always increasing the value of their assets. So it's like, in effect, anytime Forest is making a decision to invest in something, he's like, I want like four-year payback on this, four to five-year payback.

• 1:38:46Ben Gilbert?

  And they don't want to be higher or lower than the 18%, right? Because if you're lower than 18%, you're not using your resources enough to generate enough profit. If you're higher-

• 1:38:57David Rosenthal?

  Then you're taking too much profit.

• 1:38:58Ben Gilbert?

  You're taking too much profit, which is bad for your customers, or you're not reinvesting aggressively enough.

• 1:39:04David Rosenthal?

  Yeah. You should be spending more on advertising and marketing, et cetera, et cetera.

• 1:39:08Ben Gilbert?

  Right. It's totally fascinating. I have a couple other things on efficiency that I was going to say for playbook, but since we're here, we should bring them up.

• 1:39:16David Rosenthal?

  Yeah, let's do it.

• 1:39:16Ben Gilbert?

  So this one comes from a friend of the show, Arvind Navarathnam at Worldly Partners, who writes this great research that we link to for every episode now. He pointed out that despite operating with 30% fewer employees than its closest competitor, so today this is Mars versus Hershey, Mars generated more output per worker than any other in the industry. So in 1990, for example, Mars' revenue averaged 429,000 for employee compared to 228,000 at Hershey. So they're just doing more with less.

• 1:39:49David Rosenthal?

  Yeah, miles ahead.

• 1:39:51Ben Gilbert?

  And I think- Part of this comes from the fact that they're just amazing at the industrialization of production. David, you've raised that point that the factories run 24 hours a day and at that Chicago plant, you know, I think today the fun size Milky Way bars are produced at over 5,500 bars per minute. It was a stat that I saw. They just run at incredible efficiency in production. But they also then do effectively share this increase in efficiency with employees by doing the higher pay and the bonus based pay. So if the revenue per employee is way higher than their competitors like Hershey, they should pass some of that efficiency benefit along to their employees in terms

• 1:40:32Ben Gilbert?

  of higher compensation, which in turns retains people for longer, you know, which keeps tribal knowledge around, which decreases recruiting costs. I mean, it's very Costco like in that way.

• 1:40:42David Rosenthal?

  It is. It's totally a flywheel type reinforcing structure where it all fits together.

• 1:40:47Ben Gilbert?

  The other thing that they do is they aggressively try to reinvest profit dollars back into the business, doing things like R and D on new types of manufacturing equipment that they can build for their plants. That's the primary benefit. The second benefit is they don't pay as many taxes since they're reinvesting before those dollars fall all the way to the bottom line as income.

• 1:41:07David Rosenthal?

  Yep, totally.

• 1:41:08Ben Gilbert?

  It's very John Malone-esque. They want to keep as much capital in the business as possible and not recognize a lot of it as income.

• 1:41:15David Rosenthal?

  Yep. Malone and Buffett, too.

• 1:41:17Ben Gilbert?

  Yep.

• 1:41:18David Rosenthal?

  So then that brings us to the last principle, which is freedom, which, you know, I think in the early days here, to the extent Forrest thought about this as a principle, like, I think it was just like, he wants to build his own business, be free from his dad, be his own person, prove himself. Over time, this comes to mean family ownership and not going public, being a private company, not taking on debt. And then in the next generation after Forrest and beyond, it means being incredibly private. We've alluded to the privacy of the family. Like, for years, the family refused to have any photographs taken of them for fear that they might get published. They really, really mean it about being private.

• 1:41:57Ben Gilbert?

  In fact, when Joel wrote the Washington Post article, do you know the thing about the photographs?

• 1:42:03David Rosenthal?

  I think it was the first time that John and Forrest Jr. Had ever been photographed in public.

• 1:42:09Ben Gilbert?

  It was, but then Mars didn't like the Washington Post article, like didn't like the way it came out. So not only did they then fire their PR consultant, they went and found the newspaper's freelance photographer and paid off $20,000 for the rights to the photos to be sure they couldn't be reused.

• 1:42:26David Rosenthal?

  Yeah. Wild. Just wild.

• 1:42:29Ben Gilbert?

  But as we've talked about, from IKEA to our business here at acquired, complete ownership, or at least board control in Meta's case, is freedom. You can do things like invest for 10 years from now, when it's going to be a super lumpy period between now and 10 years from now. If you believe in the long-term vision, you can sub-optimize the short term. And for Mars, that means private ownership.

• 1:42:52David Rosenthal?

  Yep. And I think it means things like you can operate with Rota as your primary operating metric instead of profitability.

• 1:43:00Ben Gilbert?

  Good point.

• 1:43:01David Rosenthal?

  So, back to the Forrest Mars story in progress. Starting up in the 30s, amazing success story. Within a couple of years, by the end of the decade, they're the third biggest candy company in the country. Incredible achievement. Riding high. And then the end of the 30s brings something else, which of course is World War II.

• 1:43:24Ben Gilbert?

  Yep.

• 1:43:25David Rosenthal?

  Now, to hear Forrest tell it, the UK government decides that in order to help fund the war effort, they're going to impose a very heavy tax on all foreign residents living within the country, which of course would include Forrest and the Mars family.

• 1:43:44Ben Gilbert?

  Which is kind of an interesting philosophical tax. We need to go to war. How are we going to finance the war? Well, who's riding the coattails of us being an awesome place to live, but isn't actually a citizen? Let's tax them to pay for the war.

• 1:43:55David Rosenthal?

  Right. And so he would also claim that he believed that it was Cadbury's and Roundtree's that actually lobbied Parliament to implement this tax expressly to run him and Mars out of town because they were threatening their business.

• 1:44:12Ben Gilbert?

  Chocolate was a big national business. They were among the biggest companies in the country.

• 1:44:16David Rosenthal?

  Totally. It's not unreasonable to think that. On the other hand, I suspect Forrest also had his ambitions always on coming back to America anyway, and now seemed like a pretty good time to do it. In fact, it was a very, very good time to do it. So in 1939, he leaves all of his businesses running in the UK, and he moves with his family back to the US.

• 1:44:46Ben Gilbert?

  Also, that's crazy. The fact that you can trust someone in the UK as World War II is breaking out, hey, you run these businesses that I own, and I can trust that I continue to own them while I move across the ocean. I wouldn't be confident that when all the dust settled, I would continue to own those businesses.

• 1:45:04David Rosenthal?

  Totally right, which if Cadbury's and Roundtree's was actually behind trying to run Forrest out of town, clearly, they didn't know the loyalty of his employee base well enough.

• 1:45:15Ben Gilbert?

  Yeah.

• 1:45:15David Rosenthal?

  Yeah, totally wild in 1939 that Forrest could do that. So he moves back to America, and of course, he has his sights set back on Chicago and Chicago Mars.

• 1:45:26Ben Gilbert?

  Honey, I'm home.

• 1:45:28David Rosenthal?

  Yeah. Remember, Frank had died a few years before, and at this point, Chicago Mars is being run by Forrest's widowed stepmother, the other Ethel, and her half-brother, who is the president and CEO of the business. And they, of course, detest Forrest, and they won't let him anywhere near the company.

• 1:45:52Ben Gilbert?

  And who owns the company at this point?

• 1:45:54David Rosenthal?

  So Forrest has some shares after his dad has died, but he's by far a minority shareholder. The biggest shareholder, I believe, is the other Ethel, the second wife, and then Forrest's half-sister Patricia, her daughter, also holds a large stake. And then I think the employees of the business owned equity at this point. So Forrest... I don't know, I'm guessing he probably owns maybe 10, maybe 20% of the business, not enough to be a controlling shareholder.

• 1:46:23Ben Gilbert?

  Okay.

• 1:46:24David Rosenthal?

  So Forrest does what Forrest does. He says, "The hell with you. I started from scratch once to prove you all wrong. I can start from scratch and do it again back here in America."

• 1:46:34Ben Gilbert?

  Which is the final gauntlet, right? It's one thing to go across the ocean and start from scratch in a smaller market where no one knows your name. You can kind of sneak around and do these deals. Now he's here in America. Can he start a from scratch candy company on the world's greatest stage?

• 1:46:49David Rosenthal?

  Which on the one hand, he has more connection here and more resources. On the other hand, he's battling the old Mars at every step of the way.

• 1:46:58Ben Gilbert?

  Right. And he hasn't lived here in close to a decade.

• 1:47:01David Rosenthal?

  Right. But he's confident in his chances because he has brought back a secret weapon. Before Forrest leaves Europe, he had spied a new, to him at least, type of chocolate candy that had become popular with soldiers in the Spanish Civil War called dragé. And I think it's called dragé because I believe it was originally a French style of candy intended for French noble ladies who wanted to eat chocolate but not have the chocolate melt on their white gloved hands.

• 1:47:40Ben Gilbert?

  Oh, interesting.

• 1:47:42David Rosenthal?

  And so what is dragé? Well, dragé is small, round pieces of chocolate coated with a candy shell to prevent them from melting in your hand or in hot weather.

• 1:47:56Ben Gilbert?

  And confectioners call this hard panning, the colored candy shell, which is effectively hardened sugar syrup.

• 1:48:02David Rosenthal?

  Yes. And so Forrest, as he's heading back to the US, thinks, you know, I think there might be some global appeal here in this Drage product.

• 1:48:12Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:48:25David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:48:42Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:48:57David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:49:21Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:49:40David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:50:10Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 1:50:35Ben Gilbert?

  All right, David, M&Ms. Let's do it.

• 1:50:37David Rosenthal?

  Hell, yeah. Let's do it.

• 1:50:39Ben Gilbert?

  I'm gonna eat some dark chocolate and some almond M&Ms to celebrate.

• 1:50:42David Rosenthal?

  Oh, nice. I think I'm gonna pop a peanut butter. Okay, so the legend is that the reason peanut butter M&Ms are not as big as what you would think their market potential is in the US is because Forrest Jr. and John Mars, the sons of Forrest Senior, who would take over and then launch peanut butter M&Ms, they grew up in England. So they didn't get the peanut butter and chocolate thing.

• 1:51:06Ben Gilbert?

  Hmm. Is that like a uniquely American?

• 1:51:09David Rosenthal?

  Yeah, it's an American thing.

• 1:51:11Ben Gilbert?

  Fascinating.

• 1:51:12David Rosenthal?

  Reese's kind of invented it. And there's a whole great Reese's story. Reese's was a separate company from Hershey that was built down the road.

• 1:51:19Ben Gilbert?

  And I think it was a former Hershey employee.

• 1:51:21David Rosenthal?

  Former Hershey employee started it, and then Hershey's later acquired the company. Great story.

• 1:51:26Ben Gilbert?

  Yep.

• 1:51:27David Rosenthal?

  Anyway, here we are in August of 1939. Forrest and the family have moved back to America. He's ready to hatch his plan, his revenge campaign. And he goes and pays a visit to Hershey, Pennsylvania. And by pays a visit, in typical Forrest fashion, I mean that he shows up there anonymously and unannounced, and he signs up and does the public factory tour.

• 1:51:56Ben Gilbert?

  So awesome.

• 1:51:57David Rosenthal?

  So Forrest. So freaking awesome. After the tour is over, however, he asks the tour guide if he could please go see Mr. William Murray. 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. Milton, by this point, is like very much focused on the town and the orphanage and the Hershey Trust and all that.

• 1:52:26Ben Gilbert?

  And the gist here is, I need to buy some chocolate.

• 1:52:29David Rosenthal?

  Well, let's keep telling the story. So the guide's like, uh, excuse me? Who are you? And why do you want to see Mr. Murray? To which Forrest replies, just tell him Mars is here. That's all he needs to know.

• 1:52:42Ben Gilbert?

  Because at this point, while Hershey was still a supplier to Chicago Mars, they were really starting to be a competitor. They're starting to wake up to this idea that, yeah, we're selling these other people chocolate, but they could just go eat all of our market share.

• 1:52:56David Rosenthal?

  Yes, they're starting to wake up to that. But if this story is true, Forrest is saying, tell Murray that Mars is here. Obviously, the implication being Chicago Mars is here, which is totally not true.

• 1:53:08Ben Gilbert?

  Right, because his father's passed at this point. So the Mars that it probably is is whoever is running the Mars company.

• 1:53:13David Rosenthal?

  Right, it's Ethel number two's half brother, who is installed running the company. Either way, Forrest does get in to see William Murray, and Murray has never met Forrest before, but of course knows who he is once Forrest introduces himself. And Murray's like, um, great, okay. You're back in the US. What can I do for you? Forrest then proceeds to theatrically remove a handkerchief from his pocket and place it down on Murray's desk. And he opens up the handkerchief, and there inside are Drage candy coated chocolates.

• 1:53:51Ben Gilbert?

  This is so Steve Jobs.

• 1:53:53David Rosenthal?

  So Steve Jobs.

• 1:53:53Ben Gilbert?

  The showmanship.

• 1:53:54David Rosenthal?

  It's amazing.

• 1:53:55Ben Gilbert?

  Drama.

• 1:53:55David Rosenthal?

  It's amazing. Forrest is like, try one. So Murray does, and he's like, yeah, it's pretty good. Forrest says, what if I told you that I have had these candies in my pocket all the way on the trip here from New York? The whole train ride, all the time outside in this hot, muggy August weather, all through the factory tour, and not once did they ever melt. In fact, how do they taste? Do they taste melted? They don't taste melted, do they? And Murray's like, oh, all right, you've got my attention. So Forrest and William Murray work out a deal to start a new joint venture candy

• 1:54:37David Rosenthal?

  company that will be 80% owned by Forrest and 20% owned by Murray's son Bruce. And Forrest says, I've even got the name for it. We're going to call it Mars and Murray, M and M's.

• 1:54:52Ben Gilbert?

  And it's a new company. That's what's worth noting here.

• 1:54:55David Rosenthal?

  Well, several things are worth noting. Obviously Forrest is totally brilliant. This is probably his most brilliant scheme on so many levels. He knows that if he's going to build a new candy company, come back to the US, take on and defeat his father's old company in Mars, he's going to need resources. He's going to need chocolate, which means he's going to need Hershey's chocolate.

• 1:55:22Ben Gilbert?

  Yep.

• 1:55:23David Rosenthal?

  And he's also going to need capital and money. He just can't get that much capital out of his UK businesses, remember the tax. So there's a reason, though, that he specifically goes to Murray to make this proposal, not to Milton Hershey. A, Murray is kind of the COO type. He's actually running the place and can marshal resources. But even more important, Murray doesn't own Hershey. He's just an employee. The Hershey Trust owns Hershey. Murray has no inheritance to give his family. He's now, at this point, I think Murray is 66 years old.

• 1:55:57Ben Gilbert?

  So Mars is dangling something he wants.

• 1:55:59David Rosenthal?

  Forrest is offering Murray the chance to have wealth and a legacy and a business to pass on to his son.

• 1:56:09Ben Gilbert?

  Do you know what else Bruce Murray had access to?

• 1:56:12David Rosenthal?

  The military.

• 1:56:13Ben Gilbert?

  Yep.

• 1:56:13David Rosenthal?

  Purchasing division? Yes, okay, we will get into that. It's so brilliant.

• 1:56:18Ben Gilbert?

  So this deal is nuts because Hershey has an exclusive arrangement to supply chocolate to the US military. The exclusive agreement. And Forrest Mars has this thing that, God, if you think the military liked count lines, they're going to love these non-melt candy coated chocolates. And so he is going to the person who has the sole ability to provide the military with chocolate and saying, let's start a new company together with your chocolate that is rationed for the war in World War II for the military. We're only going to sell this to the government. I'm gonna own 80% of it. Your son's gonna own only 20% of it.

• 1:57:00David Rosenthal?

  I'm showing up with just the idea.

• 1:57:02Ben Gilbert?

  And Hershey's gonna provide the chocolate, the sugar, and the technical expertise, and capital.

• 1:57:07David Rosenthal?

  Yep.

• 1:57:08Ben Gilbert?

  And it's gonna be an 80/20 deal? I don't understand how this deal got done.

• 1:57:12David Rosenthal?

  Well, what else is Murray gonna do if he wants a legacy to pass on to his son? Murray's not gonna go off and do this himself. That would be disloyalty to Hershey.

• 1:57:23Ben Gilbert?

  And in fact, I would guess it's to avoid a conflict of interest for Murray himself to say, my partner is actually your son, not you.

• 1:57:32David Rosenthal?

  Yeah.

• 1:57:32Ben Gilbert?

  So his employment contract isn't in violation.

• 1:57:34David Rosenthal?

  And he's only a 20% owner, blah, blah, blah. Yeah, when you think about if Forrest were to go to William Murray and say, hey, you and me enter into a partnership, that's at least gonna be 50/50, if not 80/20 Murray to Mars. But by saying, no, your son, yeah, he's just so freaking brilliant. What a G.

• 1:57:53Ben Gilbert?

  Yeah.

• 1:57:54David Rosenthal?

  So Murray agrees to this. And in the spring of 1940, Forrest and Bruce Murray, the son, set up Eminem Limited as a partnership. They build a factory in Newark, New Jersey, and they start production in 1941. Ben, as you say, build a factory with Hershey Capital and resources and chocolate and sugar and everything else.

• 1:58:17Ben Gilbert?

  Yeah. And there's a great quote in the Cadbury book about how amazing it is that this is how Forrest makes his return to the US. The line is, "Without the support of his own family, but with the support of his leading rival, Hershey."

• 1:58:30David Rosenthal?

  Yep.

• 1:58:30Ben Gilbert?

  It is spooky.

• 1:58:32David Rosenthal?

  It's like, you wanna say diabolical, but like, I don't think Forrest is diabolical, per se. It's just truly genius.

• 1:58:38Ben Gilbert?

  It's just strategic.

• 1:58:40David Rosenthal?

  Yeah. So of course, now, what else happens in 1941, right as they set up the factory and start production? The US enters World War II, which means significant chocolate rationing for all the consumers in America and significant chocolate consumption by the military. So all of a sudden, the US military becomes Hershey's biggest customer, just like during World War I, which means-

• 1:59:09Ben Gilbert?

  And Hershey's is the only one with a chocolate contract.

• 1:59:11David Rosenthal?

  And the only one producing milk chocolate at significant scale in America, which means that they start severely limiting their wholesale chocolate supply to all of their enterprise customers, like Chicago Mars. Or actually, they limit their chocolate supply to all of their wholesale enterprise customers, except for one M&M limited partnership, because of course, it's Bruce Murray's company.

• 1:59:39Ben Gilbert?

  Yep, sort of, in minority.

• 1:59:42David Rosenthal?

  Yes, 20% of it is Bruce Murray's company. Now, of course, just like Hershey, the vast majority of young M&M limited partnerships production is also going to the military. So the Air Force was the biggest customer of M&M's during World War II. The Army was number two. I presume the Navy was probably also a large customer. And like we've been talking about, who has the chocolate sales relationship with the purchasing officers in the Pentagon? It's William Murray at Hershey's, and Bruce gets to tag right along. And as head of sales in the new M&M limited partnership, he is perfectly positioned to do that.

• 2:00:24Ben Gilbert?

  It's so funny, head of sales, there's one customer.

• 2:00:26David Rosenthal?

  Yes.

• 2:00:27Ben Gilbert?

  They're not selling it to the public yet.

• 2:00:28David Rosenthal?

  No, there's three customers. There's the Army and the Air Force and the Navy.

• 2:00:32Ben Gilbert?

  Okay.

• 2:00:32David Rosenthal?

  Yeah, they're not selling it to the public yet, or in any sort of real volume. Now, there's an interesting little sidebar to the M&M's story here. And I suspect many of our British friends are listening to all of this and saying like, hey, guys, what about Smarties? Forrest, of course, was not the only one to spot the potential of Draze chocolates for military use and then eventually for public consumption. Well- Like all things with Forrest's history, it's a little bit hard to untangle truth from fiction. But one thing that is undeniably true is that Roundtree's introduced Smarties to the British market in 1937. So three to four years before M&M's

• 2:01:17David Rosenthal?

  startup in the US and two years before Forrest even leaves the UK.

• 2:01:21Ben Gilbert?

  Right, so he's saying it's this Spanish-American war thing, but very plausibly, he just saw Smarties in the UK and was like, I gotta go back to America and launch this quick.

• 2:01:31David Rosenthal?

  There is no way that Forrest did not see Smarties in the UK before he left. And the early M&M's came in tube packaging, just like Smarties. Suspicious.

• 2:01:45Ben Gilbert?

  Also, for the American listeners, you're probably like, Smarties? Those are a non-chocolate candy. What are you talking about? Those are different Smarties that are in the US market.

• 2:01:52David Rosenthal?

  Yes, British Smarties are delicious. I loved eating them growing up with my British family when I would go visit them in the summers. Well, as best as I think anyone can tell, apparently there is some documentation about this in the Nestle archives. Apparently Forrest and George Harris of Roundtree had both learned about Dragees around the same time. So during the Spanish Civil War. And supposedly, they negotiated a gentleman's agreement that Roundtree could have the British market for Dragee candies. And Forrest, who was at this point in time, starting to plan to go back to

• 2:02:37David Rosenthal?

  the US anyway, he could have the American market. And in return, Forrest supposedly gave Roundtree the rights to manufacture and market Mars bars in other British Commonwealth countries like Canada and South Africa.

• 2:02:55David Rosenthal?

  So supposedly, there's evidence to this effect in the Nestle archives, but we can't know for sure. Regardless, none of this really matters, at least for a few years, because basically, all of the world's chocolate production is going to sovereign militaries around the world that are all fighting in World War II. Okay. Meanwhile, during the war, as M&M's is starting up and the US military is a big customer, and Forrest is sort of rebuilding his empire in America, he's on the lookout for his Chappie's equivalent to bring into the US.

• 2:03:31Ben Gilbert?

  You're talking about rice?

• 2:03:33David Rosenthal?

  Time to talk about rice. Another business that can provide diversification and cash and resources to build up the candy business.

• 2:03:41Ben Gilbert?

  This is so crazy. He owns a British company that makes Mars bars. He bought the Chappell Brothers. He started a new partnership in the US, a third business called M&M Limited. And now he's looking to start a fourth company that makes rice.

• 2:03:54David Rosenthal?

  Yes, in Houston, Texas. So there are also, as always, a couple of versions of this story. But I think the one that is closest to the truth is that back when Forrest was in England, he had gotten to know a chemist who had invented a new method for milling rice that was called parboiling. And when you parboil rice through this new method, it results in more nutritious and importantly, faster cooking rice for when you ultimately prepare it for eating. And in 1942, this chemist and Forrest form another joint venture company in Houston, Texas.

• 2:04:33David Rosenthal?

  And they patent the method in America and start producing rice to sell, just like M&M's, to the military. Because what's the military need a lot of?

• 2:04:43Ben Gilbert?

  Cheap calories.

• 2:04:44David Rosenthal?

  Rice. And hey, this is more nutritious. It cooks faster. Like, great. Great customer. And this becomes Uncle Ben's Rice. Today, Ben's Original. The idea of launching a branded rice product in America was crazy. I mean, it's not as crazy as like the pet food business, but there were no brands in the rice category before Uncle Ben's.

• 2:05:08Ben Gilbert?

  You just bought rice. It's a commodity.

• 2:05:10David Rosenthal?

  So this is the first brand, at least in rice, ever launched in America. Fast forward, today, Ben's Original does over a billion dollars in revenue annually. Crazy.

• 2:05:23Ben Gilbert?

  Listeners, you can tell, all these did become one company at some point, but at first they weren't.

• 2:05:28David Rosenthal?

  Right. It was all these puzzle pieces that Forrest was assembling. So back to M&M's. After the war, Forrest and Bruce Murray, of course, now need to find new customers for M&Ms. They're gonna relaunch it as a consumer candy. Like, obviously, that was the plan. Use the military, bootstrap up the production, Hershey's resources. But like, obviously, this is gonna be a consumer candy.

• 2:05:52Ben Gilbert?

  So yeah, it's crazy. Basically, five years elapsed between when they founded the company and when they are able to actually do the consumer launch because of World War II.

• 2:06:00David Rosenthal?

  Yep. And you would think, great, what potential for the consumer market? All the soldiers and pilots have been eating these all war. It's gonna be the same story as Hershey's bars all over again. It's gonna make M&Ms be Forrest's big success coming back to America. Nope. Consumer launch, pretty tepid. Doesn't get a lot of pickup back with consumers in America.

• 2:06:26Ben Gilbert?

  For years.

• 2:06:27David Rosenthal?

  For years. This, of course, as you would imagine, creates quite a lot of tension between Forrest and Bruce, especially because Bruce was in charge of sales. And Bruce had been great at sales when he's selling to the military. Selling to consumers, not so much. So did you hear about what supposedly Forrest did to Bruce here?

• 2:06:48Ben Gilbert?

  No.

• 2:06:49David Rosenthal?

  Oh, my gosh. So the story is, as sales are not going well, Forrest orders Bruce to produce a daily report of the past day's sales of M&Ms in a written form to him every morning in the office. And every morning where the previous day's sales did not hit Forrest's target, he would write in big letters in red ink, "failed" on the paper. And then he would go tape it up in the men's bathroom.

• 2:07:20Ben Gilbert?

  Oh.

• 2:07:21David Rosenthal?

  In the company. We've obviously been very laudatory of Forrest, and he was incredible, incredible genius. The dude also had a temper to match his genius.

• 2:07:31Ben Gilbert?

  Is he trying to get Bruce to leave the company at this point, or is he just trying to motivate him?

• 2:07:37David Rosenthal?

  Well, yes. So here's the thing. You know, you read about lots of people who worked for Forrest and lots of accounts in Emperors of Chocolate and elsewhere about his temper and how awful he was, and he clearly was awful. He's also doing things for a reason. He's trying to get Bruce to leave the company. He's trying to push him out because he wants to own M&Ms 100%. So in 1949, four years after the end of the war and middling sales at best of E and M's, Forrest finally succeeds in pushing Bruce out. And supposedly it comes down to a confrontation one day where Bruce is like, I can't take it anymore with Forrest, how you're treating me, you know, posting these reports in the men's bathroom.

• 2:08:19David Rosenthal?

  Supposedly they get into a literal fistfight in the office in New Jersey. Forrest kicks Bruce out of the plant as, you know, security or whatever, come and take him out.

• 2:08:30Ben Gilbert?

  And Forrest is his boss. I mean, this guy owns 20%, but Forrest is the CEO. It's not like you can take his shares, but he can fire him.

• 2:08:36David Rosenthal?

  Exactly. So Bruce resigns. And then once Bruce resigns after this, this starts the negotiations of Forrest buying out his 20% stake. They settle on $1 million for the 20% stake. So they're valuing the E and M's business at $5 million, which, you know, this is 1949. So if you adjust for inflation in $2024, that would be like valuing the business at 65 million and buying Bruce out for 13 million. So, meh, you know, $13 million payout, you know, in today's dollars for Bruce to walk away.

• 2:09:13Ben Gilbert?

  For a company that like, it's not clear it's going to catch with consumers.

• 2:09:17David Rosenthal?

  Right. Exactly.

• 2:09:18Ben Gilbert?

  Okay. You worked on it for, well, it's nine years of work.

• 2:09:22David Rosenthal?

  Yeah, it's nine years of work. So like, you know, I think you could really debate.

• 2:09:27Ben Gilbert?

  Yeah.

• 2:09:27David Rosenthal?

  The valuation there in both sides. Certainly E and M's were not yet E and M's, but.

• 2:09:36Ben Gilbert?

  In fact, they hadn't even started having the M's printed on them yet.

• 2:09:40David Rosenthal?

  No, they hadn't. As soon as Forrest completes the purchase and kicks Bruce out of the company, takes 100% ownership, he goes in 1950 and hires the ad agency Ted Bates and Company to perform a comprehensive market study for the product. This is also another genius innovation on Forrest's part. So other big diversified CPG companies like Procter and Gamble, they were starting to do the sophisticated kind of market research here, like we're talking about, you know, the legendary Procter and Gamble product management function. This was starting to happen. But nobody in the candy industry did this. Like, the candy industry still operated.

• 2:10:23David Rosenthal?

  Seat of the Pants, Frank Mars-type entrepreneurial stuff. This is emblematic of the industry. Hershey had a strict policy of not advertising at all. No advertising whatsoever. They did not do any advertising until 1970.

• 2:10:43Ben Gilbert?

  That's so insane.

• 2:10:44David Rosenthal?

  Which is absolutely freaking insane.

• 2:10:46Ben Gilbert?

  They didn't have sales targets either, right?

• 2:10:48David 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, "Grow sales 4% every year." And that was the plan. That was Hershey's annual plan, was grow sales 4%.

• 2:11:06Ben Gilbert?

  Yeah. I will say, it is pretty incredible how much, from here on out, the story is a story of ad campaigns. We are getting from a place where, before this, it was all product innovation. And from here on out, it's marketing innovation. Like, who won chocolate between 1950 and 2024 is a story of marketing and distribution?

• 2:11:29David Rosenthal?

  Yes, 100% marketing and distribution. And you say ad agencies. I don't want listeners to get the sense that, "Oh, it's just ad agencies that are doing this, and it's advertising." It really is the discipline of marketing, of which ad agencies, I think, were a lot more consultative in this function back in the day than today. They're much more execution-oriented. Really, this is like the creation of the modern marketing discipline.

• 2:11:56Ben Gilbert?

  Yeah.

• 2:11:56David Rosenthal?

  So, the Ted Bates Agency goes off. They do this product study, market study, of who do M&M's appeal to? And they find that, actually, M&M's are super appealing to kids. Now, this is interesting. The candy industry had obviously started as a kids' market, but by this point in time, it's an adults' market. Everybody's marketing to adults. That's where everybody thinks the market is. And M&M's and Smarties, et cetera. This had started as food for soldiers. So, they were focusing on the adult market. Turns out, kids love the little pieces and the bright colors, et cetera, et cetera. Here's the problem, though. Kids don't buy the candy. The parents buy the candy.

• 2:12:40Ben Gilbert?

  So, you gotta market to the parents to buy them for the kids?

• 2:12:45David Rosenthal?

  Exactly. So they need to come up with some way to get that message across to the parents. And this is where frankly, I'm going to think just like one of the most brilliant slogans and ad campaigns of all time is born.

• 2:13:03Ben Gilbert?

  The milk chocolate that melts in your mouth, not in your hand.

• 2:13:07David Rosenthal?

  And it's become like water these days. Everybody knows that slogan. What makes it so effective, I think, is it just so gets at the very, very, very core of the psychology of being a parent of candy age eating children.

• 2:13:28David Rosenthal?

  And the core truth that it gets at is, yeah, you want your kids to be happy. But really what you want is for your kids not to cause chaos in your home.

• 2:13:44Ben Gilbert?

  David, how do you know all this information?

• 2:13:47David Rosenthal?

  I'm just reading about this and thinking of like, oh my God. Imagining myself as a parent in, you know, 1950, 1951, when this comes out. The last thing in the world I want is my snotty nodes kids running around the house, smearing chocolate all over the furniture, all over the walls, all over everything. Which also is the last thing that I want as a parent in 2024.

• 2:14:09Ben Gilbert?

  Yep.

• 2:14:10David Rosenthal?

  And now here is this message being delivered to me of make your kids happy, get them to stop whining, give them the chocolate that they so desire, and it will not ruin your furniture and your house. It's perfect.

• 2:14:25Ben Gilbert?

  Yep.

• 2:14:26David Rosenthal?

  They of course back up the parent marketing with also sponsoring the most popular kids television shows of the day, the Mickey Mouse Club and the Howdy Doody television shows.

• 2:14:41David Rosenthal?

  Boy, does it work. By 1956, so they start this campaign and call it 5051. So five years later, M&Ms have become the biggest selling candy in all of America, doing over $40 million in annual sales and growing super fast. Bigger than Snickers, bigger than Milky Way, bigger than the Hershey's bar. Incredible.

• 2:15:07Ben Gilbert?

  Wow.

• 2:15:08David Rosenthal?

  Five years from basically zero to $40 million in sales. They're just crushing it.

• 2:15:13Ben Gilbert?

  And they're starting to get worried about copycats. They start adding the little M's. Actually, they were black at first, and then in 1954, they transitioned it to white. And they ran a second ad campaign telling consumers, look for the M on every piece to verify the authenticity. So they're saying that we're building IP here. We're not just making candy. We are building a frame of mind and a nostalgia point and a trust with consumers.

• 2:15:40David Rosenthal?

  Yep. And of course, today, I say as I pop some M&Ms into my mouth. M&Ms are not just kids candy. Kids still love them, but adults love them too. But it's back to this nostalgia thing. Like, everybody today who is an adult eating M&Ms grew up eating them as kids.

• 2:15:56Ben Gilbert?

  Yep. 1954, there's the first TV commercial featuring the animated M&Ms characters. Obviously different than the ones you know today, which are computer animated, but very cute, hand drawn. Actually, a few different versions of them, but pretty consistent concept all the way from then until now. The personalities changed a little bit, but these personified M&Ms that have witty stuff to say is there pretty early.

• 2:16:20David Rosenthal?

  Yep, totally.

• 2:16:22Ben Gilbert?

  Speaking of copycats, M&Ms were so successful that Hershey's really was getting worried. David, as you said, it became the better selling candy than Hershey's bars. So Hershey's launched something called Hersheyettes, and we'll link to it in the show notes. It's fun looking at the old marketing for this failed product. The biggest issue with marketing Hersheyettes is people would say, what is it? And in order to say what it is, you had to say they're like M&Ms, which that's a tough marketing position to be in. I mean, you nailed it earlier when you said being first to market is really important. And in markets where it is important to be first to market, getting scale quickly. So you become the product of record or of reference when people are trying to describe the category.

• 2:17:05Ben Gilbert?

  M&Ms was that to a T.

• 2:17:08David Rosenthal?

  Totally, totally was.

• 2:17:10Ben Gilbert?

  Hershey's would then later, as a part of the Reese's franchise, try to do Reese's Pieces. Actually, there's a fun story around that that we will talk about a little bit later. But here in 1954 land, there's just a lot of fun dialing in happening of all the marketing. The peanut M&Ms launched, but first only in tan. They then realized, what are we doing? That we need to change this. So in 1960, they added yellow, red and green. Right around the same time in 1955, TV started becoming a real factor in Americans' homes. And it was just perfect timing. I mean, it was a match made in heaven for these candy companies to utilize and create demand for their products after the war. If you wanted a brief moment of emotion for your brand with a quick tagline,

• 2:17:55Ben Gilbert?

  a TV commercial is just custom made for that. And Deborah Cadbury puts it really well. She says, "One great TV campaign could shift decades of customer loyalty in a matter of weeks."

• 2:18:05David Rosenthal?

  Especially in a new category like candy coated chocolates.

• 2:18:09Ben Gilbert?

  Yep. 1955, Mars also gets into the vending machine business. Interestingly, over in England, they start this business called Vendpac, which created the earliest vending machines. They eventually sold this off in 2006, but they had built coin mechanisms and bill validators. I think they were like the market share leader in how to read bills in vending machines all across the world.

• 2:18:32David Rosenthal?

  Yeah, they also got into change makers. Like you put bills in and you get coins out.

• 2:18:37Ben Gilbert?

  Oh, interesting.

• 2:18:38David Rosenthal?

  Yeah. So, speaking of empire-minded, at this point, Forrest's empire is pretty much complete. He's got the most popular candy bar in the UK with the Mars Bar. Mars's European operations have become very, very large in and of themselves.

• 2:18:55Ben Gilbert?

  I think they had started making their own chocolate instead of buying from Cadbury by this point.

• 2:19:00David Rosenthal?

  I think that's right. I think they had transitioned or were transitioning to making their own chocolate. In the US, obviously, he's got M&M's, which are now the number one candy in the US. He's crushing it there. He's got the biggest and pretty much the only pet food business in the entire world. He's also got the biggest and only branded rice business. All told, all of his sets of companies, I believe, here now in the, call it, mid to late 1950s are doing like 200 million-ish in revenue.

• 2:19:32Ben Gilbert?

  Wow.

• 2:19:32David Rosenthal?

  So, a big empire. However, there are two things that he still doesn't have. One, of course, is his father's company, Mars Inc., Chicago Mars.

• 2:19:44Ben Gilbert?

  And he owns, what, 10-ish percent around this point?

• 2:19:47David Rosenthal?

  But he doesn't control the company. 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.

• 2:20:01Ben Gilbert?

  Right, because if Hershey's cut him off, M&M's would be screwed. He has a big liability there. Now, of course, Hershey's doesn't want to do that because then they'd lose a whole lot of business.

• 2:20:10David Rosenthal?

  They'd lose their biggest customer. Yeah, exactly. 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. It would be like Forrest to plan all that out to a T.

• 2:20:30Ben Gilbert?

  Yeah.

• 2:20:31David Rosenthal?

  Anyway, like I said, at this point, Forrest's empire is doing, call it 200 million-ish of revenue annually around the world. And Chicago Mars had about 50 million of revenue. So Forrest is, call it, four times the size of Chicago Mars. Now, when Frank Mars, his dad, had died, the majority of the company went to his second wife, Ethel.

• 2:20:54Ben Gilbert?

  It's about two-thirds, I think, that she gets. And then there was one-third that had gone to random other shareholders over time, many of which were employees, I think.

• 2:21:02David Rosenthal?

  Yep, I think that's right. And I think maybe Forrest and Patricia got like some small stakes at that point in time.

• 2:21:08Ben Gilbert?

  Okay.

• 2:21:09David Rosenthal?

  And Ethel, like we said, installed her half-brother, William, running the company. Ethel dies in 1945, and when that happens, her stock gets split 50/50 between Patricia and Forrest, per Frank's original will. Ethel had two-thirds, one-third goes to Patricia, one-third goes to Forrest. As we get on into the 1950s, and Forrest has now turned M&M's into a big success, he starts turning his attention to Chicago Mars. So he goes to the board, and he says, "Hey, I own a third of this business. I think I should have an office at the company and the right to come in and inspect the operations whenever I want."

• 2:21:54David Rosenthal?

  I think they were like, "Sure, this seems like an easy demand to give this guy. Like, whatever, we'll make an office for him."

• 2:22:01Ben Gilbert?

  There's a fox that wants to hang out in our hen house. Is there anything anybody sees that's an issue here? Nah, just build him an office.

• 2:22:08David Rosenthal?

  Clearly, they did not know Forrest very well, because he shows up. I think he basically relocates to Chicago and is like coming in every day. He's spending a ton of time. He's criticizing everywhere. He starts writing memos to the board about everything that is wrong at the company, all the big mistakes that William is making as CEO, and why William should be fired and Forrest should take over.

• 2:22:32Ben Gilbert?

  This is not so different than how Elon ended up owning Twitter.

• 2:22:36David Rosenthal?

  Yeah, yeah. It actually is very similar.

• 2:22:40Ben Gilbert?

  Oh, I'm just a 5% position. Oh, I should be on the board. Oh, I have recommendations.

• 2:22:45David Rosenthal?

  Yeah.

• 2:22:45Ben Gilbert?

  Before you know it.

• 2:22:47David Rosenthal?

  This is exactly the same way. Oh, boy. Still, though, William and Patricia and the rest of the management isn't going to get on board with selling to Forrest or letting him take over. And in fact, in 1959, William retires as CEO. Forrest figures like, okay, great. This is my chance. He starts lobbying Patricia. He's lobbying everyone else who owns the company, all the management, saying like, great, sell to me. Let me take over. Let me run this business. Instead, Patricia decides to install her husband, James, who had been working in the business as CEO.

• 2:23:28David Rosenthal?

  Whether he was a good employee or not, he is a totally, totally terrible CEO of Mars Chicago. So, once he takes over in 1959, revenue drops from about 50 million, like we said, to by 1963, it's down to about 40 million. So, on the one hand, okay, a 20% decline. On the other hand, this is a very, very high fixed cost business.

• 2:23:53Ben Gilbert?

  Yeah.

• 2:23:54David Rosenthal?

  So, a 20% decline in revenue on a significant fixed cost base is catastrophic.

• 2:24:01Ben Gilbert?

  That would be a huge, huge change in the negative direction on your return on total assets.

• 2:24:06David Rosenthal?

  Yeah. It is a disaster for the company. Now, it's also a very convenient disaster for Forrest, who wants to pressure everybody else into selling and being able to take things over. So, finally, as this is happening in 1963, Forrest flies to San Diego, where Patricia lives. Again, to give you a sense of James, the husband here, he's commuting from San Diego to run this business.

• 2:24:34Ben Gilbert?

  And they didn't have Zoom then?

• 2:24:36David Rosenthal?

  No, they didn't. And it's a manufacturing business, so, yeah. Anyway, Forrest finally convinces Patricia to sell. He says like, look, if we don't do something here, this company is going to go bankrupt. I can save it. I will take it over. I will run it. She says, okay. I will finally agree on two conditions. One, you have to promise me that you will not fire James, my husband. He can remain as CEO. Forrest is like, okay.

• 2:25:03Ben Gilbert?

  Are we putting that in writing or for how long?

• 2:25:06David Rosenthal?

  And condition number two, you need to promise me that you will make this company, our father's company, Mars Incorporated, the new parent company of all of your businesses and preserve our father's legacy. And he says, sure, done, which is probably what he wanted anyway.

• 2:25:24Ben Gilbert?

  Totally. It's also his name. And so is it that different if left absorbs right or right absorbs left? And if you're the controlling shareholder of both? No, it doesn't matter.

• 2:25:33David Rosenthal?

  Yes, not yet CEO. So Patty sells out in 1963. Forrest now owns two thirds of the business. He spends the next few months going around to all the other shareholders of the business, again, mostly current and former management and buying out their shares. And by mid 1964, he has full control of Mars Incorporated.

• 2:25:57Ben Gilbert?

  Which, by the way, is 20 years after Ethel dies. That's how long he has been on this quest to get full control of the business.

• 2:26:04David Rosenthal?

  Right. Well, and really, I mean, going back to him leaving for Europe, like you have to imagine that this was on his mind the whole time.

• 2:26:12Ben Gilbert?

  And just as a like a side note here, it's pretty insane that Forrest is able to, out of his pocket, without external financing, go and buy up two thirds of a business that is doing 40 million a year in revenue. I mean, it's just because he owns M and M's and Uncle Ben's Rice and the UK businesses. This is not a strategy that most people could run if they're like, oh, I wish I was a larger shareholder of this business that is large and dominant.

• 2:26:42David Rosenthal?

  Right. You need some other way to get the money.

• 2:26:44Ben Gilbert?

  Yes.

• 2:26:45David Rosenthal?

  Now, it was a distressed business at this point, but like, yeah, still.

• 2:26:49Ben Gilbert?

  I'm going to guess it's still valued north of 40 million.

• 2:26:52David Rosenthal?

  Seems reasonable.

• 2:26:54Ben Gilbert?

  He needs to come up with 25 plus million in cash to pull this all off.

• 2:26:58David Rosenthal?

  Yeah, amazing.

• 2:27:00David Rosenthal?

  So once he takes control, he comes to Chicago, he immediately rips out all the office walls in the building, open floor plan for everybody. He demolishes the executive dining room. He sells the company art collection and the company helicopter. And he hands everybody, including James, a time card.

• 2:27:23Ben Gilbert?

  He may as well have walked in with a sink.

• 2:27:25David Rosenthal?

  He may as well have walked in with a sink. Seriously, oh my God. Tragically, later that year, Patty dies of cancer, super young. I don't think she was even 50 years old yet. And once that happens, Forrest fires James and makes himself CEO of the entire empire, all united, finally, under Mars Incorporated.

• 2:27:48Ben Gilbert?

  You know, I read this story and I thought of the Darth Vader quote, "I am altering the deal. Pray I don't alter it any further."

• 2:27:56David Rosenthal?

  Yes, yes.

• 2:28:01David Rosenthal?

  Now, I'm not 100% sure. He may have kept James still employed in the business or something. But yeah, he was out as CEO.

• 2:28:11Ben Gilbert?

  Forrest is the captain now.

• 2:28:12David Rosenthal?

  Yeah.

• 2:28:16David Rosenthal?

  "I am altering the deal. Pray I don't alter it any further." So, so, so great. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 2:28:29Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 2:28:40David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 2:29:00Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system. So teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 2:29:13David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 2:29:24David Rosenthal?

  Okay, this now brings us to Forrest's final conquest, which is making his own chocolate in America and fully ditching Hershey's.

• 2:29:32Ben Gilbert?

  And we should say too, at this point, he has completely overhauled the Chicago factory. They're all in on mass productions. These count lines are moving at, they used to make a Snickers bar in a day and now they can do it in under an hour. I mean, he's just going.

• 2:29:48David Rosenthal?

  He's going. So his first act of business, once he becomes CEO of Mars America, is he calls Hershey up and he's like, hello, remember me? I'm the new CEO of Mars. I just want to let you know that we are going to start phasing out our chocolate purchases from you all.

• 2:30:06Ben Gilbert?

  And the way Hershey reacts to this is, what? You would be stupid to do that. Imagine how long it would take you to pay back the investment necessary to spin up your own chocolate factory. You would have to be nuts to take on all that fixed cost.

• 2:30:21David Rosenthal?

  We have literally an entire town here that is dedicated to making chocolate, and we are supplying it to you at a competitive price.

• 2:30:29Ben Gilbert?

  Yep.

• 2:30:30David 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.

• 2:30:40Ben Gilbert?

  And, okay, so let's say he just did it for control and he didn't think the math would pencil, which I don't think is right, but let's assume that. 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.

• 2:31:00David Rosenthal?

  Totally. So Forrest gives his Chicago plant managers a deadline of six months to start making their own chocolate in the factory. And I suspect they turn profitable on this decision a lot faster than 10 years out. But-

• 2:31:16David Rosenthal?

  There are obviously other reasons that Forrest is doing this, too. One is the quality principle, which, you know, I really do think the quality principle is number one in Mars for a reason. And if you really are serious about wanting to produce the highest quality products at a given price, you kind of need to control all the means of production yourself.

• 2:31:36Ben Gilbert?

  Anyone who's serious about software should make their own hardware.

• 2:31:39David Rosenthal?

  Yes, yes. Alan Kay for the win. The other reason that I think Forrest always had the dream of making his own chocolate is to be able to scale as large as possible. Like we've been saying all episode. This man so deeply knew in his bones how to operate in a scale economies market. And by controlling all the production himself, that was just another step that enabled him to scale as big as possible. I think in any CPG business, it's a scale economies business. But here, we haven't talked directly yet about how important shelf space is for candy.

• 2:32:25Ben Gilbert?

  Yes, I was about to bring up supermarkets.

• 2:32:27David Rosenthal?

  Yes. So for candy especially, it really is a zero sum game. 90%, 9-0, of all candy purchases are impulse purchases. Only 10% of candy purchases are planned purchases.

• 2:32:44Ben Gilbert?

  So I found that it was 70%. And the place that I found it was from, this is flashing forward a little bit, some 1979 consumer market research that Mars commissioned. And what they did with that information was they launched an all out initiative to lobby merchants to put candy displays near the cash registers, which didn't happen until that point in history and is now ubiquitous.

• 2:33:07David Rosenthal?

  Ah, interesting. So it may indeed be 90% now, in part because of those efforts by Mars.

• 2:33:14Ben Gilbert?

  Yes. They were like, how do we lean into the idea that 70% in 1979 of our candy is purchased on an impulse basis?

• 2:33:22David Rosenthal?

  Wow. I didn't realize that. I thought that candy had always been by the cash registers. It wasn't until this Mars initiative in 1979?

• 2:33:30Ben Gilbert?

  Maybe in smaller shops, but that's, I think, especially with supermarkets, when that changed.

• 2:33:35David Rosenthal?

  Interesting, interesting. Well, so, given the impulse nature of purchases here.

• 2:33:42David Rosenthal?

  I mean, it really is whatever candy is right in front of your face, tempting you to buy is what you're gonna buy. 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.

• 2:34:06Ben Gilbert?

  There's another interaction with supermarkets where the power actually flows the opposite direction. It's sort of an aggregation theory thing. If you think about the way that merchants used to work, no one owned a lot of stores. The power was sort of diffuse among retailers. And so if you were a candy maker and you went to the local store in your town and you said, you want to buy my bar? And they'd say, sure. And they didn't really have an ability to push back or bargain. They didn't have a lot of leverage. Supermarkets, and especially chain supermarkets, made it so there was a power concentration where the supermarkets could go to the candy manufacturers and say, here's what we want.

• 2:34:49Ben Gilbert?

  We want to market a uniform set of candy and a small number of SKUs that don't overwhelm us with inventory. And we want you to put a lot of marketing behind those things that we're selling. And we're only going to stock them in the store if you're really doing marketing campaigns. Because television's blowing up and we know that that moves product in our stores. So tell us whatever you're going to do big campaigns on, and that's the shelf space that's going to get allotted.

• 2:35:18David Rosenthal?

  Yeah, you're totally right.

• 2:35:20Ben Gilbert?

  It's a shift in technology with TV. It's a shift in consumer behavior with the supermarkets. And what it results in is massive returns to the scale player.

• 2:35:28David 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. I mean, this really was Milton Hershey's strategy from the get go. Lower prices, get distribution, go nationwide, get shelf space, get placement, build a big company.

• 2:35:51Ben Gilbert?

  He just didn't put his foot on the gas.

• 2:35:53David Rosenthal?

  Exactly. Well, and then after his tenure and after Murray's tenure. The company basically became brain dead for like three decades. They don't do advertising. They don't have a marketing department at all. And it's not like, you know, I mean, Hermes doesn't have a marketing department. Like Hershey really didn't have a marketing department.

• 2:36:14Ben Gilbert?

  I think it was one of these things where a company internalizes a behavior because it's always been that way. And they say, well, there's a rule and the rule is we don't do advertising. But that rule was developed in a different time, in a different environment where the rule made sense. And now you're sort of senselessly following a religion that is no longer relevant in the new world.

• 2:36:37David Rosenthal?

  Yep. You know, we haven't talked yet about Hershey's ownership structure. So it was and is a public company, but-

• 2:36:44Ben Gilbert?

  The controlling interest is owned by the trust.

• 2:36:47David Rosenthal?

  The management of the trust became super, super removed from the realities of the business and the market. And I think that's how this happened.

• 2:36:58Ben Gilbert?

  Makes sense. Reflecting back on this period of time, thinking about Forrest Mars, this sort of was the moment in world history for the global scale economies founder to rise. If you think about the early 1910s, you couldn't take advantage of economies of scale in the way that you sort of can now with the rise of globalization. There are things that would have been non-economic before in addressing these small regional markets, but now that you're distributing everywhere and America is a huge market on its own, finally, and beyond that internationally, you sort of have the potential for this personality type that Forrest Mars was to really succeed.

• 2:37:43David Rosenthal?

  And you can advertise and market and brand nationally for the first time via television. And then in the coming decades internationally.

• 2:37:52Ben Gilbert?

  Yeah, it's the rise of the scale economies entrepreneur, I think is sort of the way to summarize it.

• 2:37:56David Rosenthal?

  Yep, totally. So now that Forrest finally has his own chocolate making means of production, how do they finally knock off Hershey's? Well- When Milton introduced the Hershey chocolate bar in 1900, as we've talked about all episode, he priced it at a nickel so that everybody, even in 1900, could afford it. 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.

• 2:38:31Ben Gilbert?

  What?

• 2:38:32David Rosenthal?

  They never changed the price.

• 2:38:35Ben Gilbert?

  I didn't realize it was that long.

• 2:38:38David Rosenthal?

  Almost 70 years, a hair's width from 70 years, they not once changed the price of the chocolate bar. And which, you know, it was sacrosanct. It was like, it's the nickel chocolate bar. It's Milton Hershey's legacy. We can't change the price. So what did they do? How did they manage inflation? They just kept shrinking the bar size.

• 2:38:59Ben Gilbert?

  I gotta say, by the way, that five cents in 1900, just so people get a sense, is 23 cents in 1970. So it's a four and a half X that they sort of have to figure out how to handle.

• 2:39:10David Rosenthal?

  Yep. So what did they do? Rather than changing the price, they changed the quantity. They just keep shrinking and shrinking and shrinking the size of the bar.

• 2:39:23Ben Gilbert?

  Consumers are gonna love that.

• 2:39:24David Rosenthal?

  Oh, yeah, they're gonna love that. So the original Hershey's bar was 1.25 ounces, one and a quarter ounces in 1900. By the time 1969 rolls around, it is half of the original weight.

• 2:39:38Ben Gilbert?

  Hmm.

• 2:39:39David Rosenthal?

  Ben, I see you're looking at a Snickers there. How much is a Snickers today?

• 2:39:42Ben Gilbert?

  1.86.

• 2:39:43David Rosenthal?

  1.86. Now, that's not all chocolate. A lot of the mass of that is cheaper stuff, like peanuts. But you can see, in the consumer's mind, you're like, wait, I've got this paper-thin Hershey's bar that like, yeah, it's a nickel, but compare that to the big, meaty, satisfying...

• 2:40:01David Rosenthal?

  Snickers, this looks ridiculous.

• 2:40:04Ben Gilbert?

  Consumers don't care that the new gets cheaper. Consumers care about, I mean, truly, that is why Snickers is the satisfied slogan. Consumers care about how much value does it seem like when I bite into this thing and eat it?

• 2:40:17David Rosenthal?

  Yep. 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 to 10 cents.

• 2:40:29Ben Gilbert?

  Da na na.

• 2:40:30David 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. So actually, economically, they're still at a wash here. Both were about double.

• 2:40:46Ben Gilbert?

  Okay, so it doesn't solve their problem.

• 2:40:48David Rosenthal?

  It's just totally brain dead. The problem is inflation. And I think the thought process probably was, okay, consumers are going to be outraged when we double the price of the bar after 70 years.

• 2:40:59Ben Gilbert?

  Oh, the first time we raise the price of the bar, we should give them some value. So in the second time.

• 2:41:05David Rosenthal?

  Well, this is where not having a marketing department or doing consumer surveys or anything.

• 2:41:11Ben Gilbert?

  A way to communicate with customers at all.

• 2:41:13David Rosenthal?

  Yeah, turns out to be a really big problem. Consumers are just like, what the hell? A, you just raised the price, you doubled the price. But B, you have just totally exposed that you have been gaming us for 70 years.

• 2:41:26Ben Gilbert?

  I mean, this is literally still a big deal today. So much so that, do you remember the commercial that aired? I think it was during the Super Bowl from Joe Biden talking about shrinkflation?

• 2:41:38David Rosenthal?

  Oh, no.

• 2:41:40Ben Gilbert?

  This is like a presidential thing in our country today where the president is railing against shrinkflation by keeping prices the same and making CPG food smaller.

• 2:41:51David Rosenthal?

  Amazing, amazing.

• 2:41:53Ben Gilbert?

  So, yeah, I believe that people were outraged by it.

• 2:41:56David Rosenthal?

  People were pissed. So Forrest is like, oh, man. Boy, am I ever glad that I started my own chocolate baking process here.

• 2:42:07David Rosenthal?

  Because he now decides that in response, he is not only going to increase his advertising and blitz the nation with M&Ms and Mars products, he's also going to increase the size of his bars while keeping price the same. And he starts a price and size war with Hershey. Now, interestingly, in response to this, Hershey counters by actually finally starting to advertise for the first time here in 1970s, the first time in the company's history that they advertise. And surprise, it works great. But because commodity prices are staying high and it's putting pressure on profits,

• 2:42:49David Rosenthal?

  the board pulls the plug on their advertising. Because they say like, oh, profits are down, we can't be spending. So we need to stop advertising. So they do two years of advertising. It works great, but profits are down. So they say, nope, we got to stop that.

• 2:43:09Ben Gilbert?

  Unbelievable.

• 2:43:11David Rosenthal?

  And as a result, in 1973, the combined Mars, which is all of the legacy Mars Inc. products, Snickers, Milky Way, Three Musketeers, et cetera, plus M&Ms, passes all of Hershey to become the number one candy company in America.

• 2:43:29Ben Gilbert?

  There it is. I don't think they ever looked back.

• 2:43:32David Rosenthal?

  Well, Hershey did eventually retake the lead in America from Mars much later. But Mars is by far the largest candy company globally. Like Hershey is basically just in America.

• 2:43:45Ben Gilbert?

  And I think Mars's American candy business is about the size of Hershey's American candy business today. I think they're kind of neck and neck, but Mars has everything else too.

• 2:43:55David Rosenthal?

  Yep.

• 2:43:56Ben Gilbert?

  This game that you're talking about, David, of the cat and mouse price war game would continue. And Mars would basically have the advantage every time because Hershey's primary thing they're marketing is the chocolate bar, which is made of the densest, most expensive thing in the whole process. And Mars just has a durable competitive advantage in that they're selling something to consumers that they value at the same price, but the cost of goods sold is way lower. I mean, it has nougat and peanuts. And so what they basically do, there's another time, I think this happens in the early 80s, where Mars knows that the commodity prices are on the uptick for cocoa. And so it's going to squeeze everyone's margins, but it's going to hurt Hershey the most.

• 2:44:41Ben Gilbert?

  So what does Mars do? They announce bigger bars at cheaper prices. And what can Hershey do? They're just getting boxed in from all angles. And so this is a sustainable competitive advantage that Mars has selling something that has just lower cost of goods for a equal perception of value to customers.

• 2:45:00David Rosenthal?

  Yep. The other thing that Mars builds up through this, maybe even starting in the 60s, but definitely in the 70s and 80s, is a very, very sophisticated commodities trading department that Hershey doesn't have.

• 2:45:14Ben Gilbert?

  Oh, really? Of course they do, hedging and...

• 2:45:17David Rosenthal?

  Of course. It's this very Mars style to do this. Now, obviously, it's a private company. They never report any of this, but rumors are, these are rumors, but I've heard it from multiple places, Mars has actually made many billions of dollars of profit from commodity trading over the years. So whereas for competitors like Hershey's, commodity spikes and prices are like a big risk and impact to the business.

• 2:45:46Ben Gilbert?

  I'm sure Hershey's hedging also.

• 2:45:48David Rosenthal?

  These days they are, but like back in the 70s, 80s, no, no, they weren't. Mars is actually profiting hugely from market swings in commodity prices.

• 2:45:56Ben Gilbert?

  Wow.

• 2:45:57David Rosenthal?

  Total G, total G. So speaking of, this is incredible. Here we are, 1973. Mars passes Hershey to become the number one candy company in America. And a pretty surprising twist happens here in Forrest's story. Which is the end.

• 2:46:17Ben Gilbert?

  He retires.

• 2:46:18David Rosenthal?

  He hangs it up. He walks away.

• 2:46:20Ben Gilbert?

  And concurrently with him deciding that's it, this is basically when the company stops communicating with the outside world. So everything we're about to share from here on out is short, is basically just headlines that happen from news articles. And the company gets way, way, way more private after this.

• 2:46:38David Rosenthal?

  Yeah. End of 1973, he's built up this whole empire, gone to Europe, built the Europe business, built the pet business, come back to America, built M and M's, retaken over Mars Inc., battled Hershey, beat them at their own game. He gives the company to his three children, a third each to Forrest Jr., John Mars and Jackie Mars, and totally walks away and retires. At this point, the empire is doing about 800 million in annual revenue. And he's just done. He no longer owns any part of it for the moment.

• 2:47:20David Rosenthal?

  So Forrest spends the rest of the decade of the seventies in retirement. His mother, the original Ethel, is actually still alive. And I think he spends a lot of it with her and taking care of her. And then after, you know, call it six, seven years, he's starting to get a little feisty. Uh, you know, he can't keep an old horse out to pasture here. So in 1980, when Forrest is 76 years old, he decides he's getting back in the game.

• 2:47:54Ben Gilbert?

  He is his father's son. What's he gonna do? He's gonna start a candy company.

• 2:47:58David Rosenthal?

  He's gonna start another candy company, which he names Ethel M. Chocolates, after his dear mother Ethel, who of course he considers the real Ethel Mars and matriarch of the family.

• 2:48:15Ben Gilbert?

  By the way, I ate some Ethel M. Chocolates last night. I ordered some to prep for this episode. They're great. Delicious.

• 2:48:20David Rosenthal?

  I have never tried any. I need to get my hands on some.

• 2:48:23Ben Gilbert?

  It's extremely different than the rest of Mars products. It's like a specialty chocolate.

• 2:48:28David Rosenthal?

  Yes. Well, so Forrest's business plan in starting FLM is basically to build a competitor to Sees.

• 2:48:35Ben Gilbert?

  Oh, that makes sense.

• 2:48:37David Rosenthal?

  He sees, just like Warren and Charlie did back in the day, that Sees and high-end chocolate is actually a really, really good business. And the plan is, the way they're going to compete with Sees is they are going to specialize in liquor-filled chocolates. So they'll make regular, non-alcoholic chocolates, you know, high-end chocolates, just like Sees, truffles and the like. But they also will specialize in alcohol-filled chocolates, which were going through a moment of popularity here in the go-go 1980s. So Forrest, as always, decides he's all in on this.

• 2:49:17David Rosenthal?

  Liquor-filled chocolates are not legal in every state, and Nevada is the epicenter of them. So he moves to Nevada.

• 2:49:26Ben Gilbert?

  I did not realize that's why FLM is in Nevada. That's so funny.

• 2:49:30David Rosenthal?

  That is why FLM is located in Henderson, Nevada, which is a suburb just outside of Las Vegas. And Forrest, by God, builds a factory there outside of Las Vegas, builds an apartment directly above the factory, and lives in the apartment above the factory, from which he runs the business.

• 2:49:53Ben Gilbert?

  Guy has one speed and one playbook.

• 2:49:55David Rosenthal?

  And this dude is like in his late 70s. It's a success. Within a couple of years, FLM is doing $150 million in revenue.

• 2:50:05Ben Gilbert?

  Unbelievable.

• 2:50:06David Rosenthal?

  Like, get out of here. Unbelievable. Now, as you said, Ben, it's not competing with Mars in any way. It's competing with Sees. But the business gets so big and Mars and Forrest's children.

• 2:50:20David Rosenthal?

  Decide that they want to own this business. So in 1988, after Forrest has been running it for seven, eight years, Mars acquires Ethel M for an undisclosed amount. I would love to have been a fly on the wall for those negotiations between Forrest and his children.

• 2:50:39Ben Gilbert?

  I mean, what's the point of even negotiating? He's already given all of Mars to the kids. So what's he gonna do after the sale completes? Give the new stake to the kids too?

• 2:50:49David Rosenthal?

  Unbelievable. It is like the best coda ever to the story. So shortly after the Ethel M acquisition is when Forrest Jr. And John Mars, the brothers who are running Mars now as co-CEOs. This is when they give Joel Brenner access and the Washington Post access to write the piece about the company. But yeah, Ben, as you say, they weren't happy with it and they never gave anyone access again.

• 2:51:17Ben Gilbert?

  And today their CEO does speak publicly, like does give quotes and statements. They do release press releases. They have a website. They, as a company, have recognized that times have changed, that consumers are not willing to go buy a product off the shelf when they know nothing about the company. In this era of people wondering about what is Mars doing with sustainability? And we live in an America and a world right now where diabetes is a massive epidemic. And obviously they make a lot of products that contribute to that. They want to have a voice in that conversation too. And so they do say more now than they used to because they've kind of realized we can't be a $50 billion company that doesn't ever say anything ever.

• 2:52:00David Rosenthal?

  True. But what they don't do is allow books to be written about them or any sort of in-depth piece.

• 2:52:08Ben Gilbert?

  No one knows what their balance sheet looks like, including their bankers. They don't produce financial statements for their bankers.

• 2:52:15David Rosenthal?

  Yep.

• 2:52:15Ben Gilbert?

  And some product stuff that happens in this time in 1974, they start producing Skittles in the United States after it becomes a success in the UK.

• 2:52:23David Rosenthal?

  They bring Twix over from the UK. They bring Starburst over, which was opal fruits in the UK.

• 2:52:28Ben Gilbert?

  Yep. 1986, Mars acquires Calcan Foods in Los Angeles and begins its association in America with dogs, cats and their owners. They've had the British business for a long time. Calcan Dog becomes Pedigree, Calcan Cat becomes Whiskas or Whiskas.

• 2:52:46David Rosenthal?

  Also in 1986, they acquired Dove, Dove Bars and Dove Chocolate.

• 2:52:51Ben Gilbert?

  Yes, they enter the frozen snack business.

• 2:52:55David Rosenthal?

  And then later launched Dove Promises and Dove Chocolate Bars on the brand. So Dove was an ice cream bar company when they bought it. And then they launched the chocolate bars and chocolate pieces after having acquired the company.

• 2:53:09Ben Gilbert?

  Which I think works reasonably well.

• 2:53:11David Rosenthal?

  Yeah, I think so.

• 2:53:12Ben Gilbert?

  It's not a huge business for them, but.

• 2:53:14David Rosenthal?

  It's their direct Hershey bar competitor now of like a direct competitor to Kisses and to the chocolate bar.

• 2:53:20Ben Gilbert?

  Yep.

• 2:53:21David Rosenthal?

  The really big story, though, I think of the brothers tenure and Jackie too, as a third owner of the business. And eventually later, she does also work in the business herself, is globalization. So during their tenure, by the time they hand the business over to professional management in 2001, they've grown it from, you know, that 800 million when Forrest left to 20 billion in revenue. And yes, there were all those acquisitions and product launches we just talked about, but the big, big thing is going global. The brothers take them to Japan, China, Russia, the Middle East, South America. This is really fun. In 1984, they start sponsoring the Olympics and they totally run the Visa playbook. This is when they start unifying all the product brands globally. Snickers is Snickers

• 2:54:05David Rosenthal?

  everywhere and we can market globally. They really do an amazing job.

• 2:54:10Ben Gilbert?

  Yeah. And so the brothers took it from 800 million to 20 billion?

• 2:54:14David Rosenthal?

  Yes, over 28 years, I believe, was their tenure.

• 2:54:18Ben Gilbert?

  A 25x in 28 years. It's almost like the Tim Cook story too, where it's the out years of compounding and the globalization end up making the more recent story numerically far more interesting than the early story. But the early story is where the maverick is. I mean, we told this whole story about Forrest Senior, we're going to spend 10 minutes here on the next generation. And the next generation took it from hundreds of millions to $20 billion.

• 2:54:45David Rosenthal?

  Yes.

• 2:54:46Ben Gilbert?

  A year.

• 2:54:46David Rosenthal?

  Incredible. Now that said. While globalization was, I'm sure, a Herculean task and required a lot of vision and commitment to it from the brothers, it really was, outside of the M and A, was about globalizing all the successful brands that Forest had built.

• 2:55:04Ben Gilbert?

  Yeah.

• 2:55:05David Rosenthal?

  So, speaking of M and A, and we were also talking about Seas and Warren and Charlie a minute ago, in 2008, Mars buys Wrigley with the help of Uncle Warren and Uncle Charlie.

• 2:55:18Ben Gilbert?

  I love that they come into this story. It's the best.

• 2:55:21David Rosenthal?

  I know. There's some amazing quotes from Warren at the time of the deal. One of them's like, "I've been conducting a 70-year taste test on both Mars and Wrigley, and they both passed the test."

• 2:55:34Ben Gilbert?

  Oh, it's so good. Because you know the analysis is actually far deeper than that, but that also totally sells. It's Warren's personality.

• 2:55:41David Rosenthal?

  Yeah. He actually has a really insightful quote in the 2011 Berkshire shareholder letter while they were still a shareholder in Wrigley as a Mars subsidiary. He says, quote, "Buy commodities, sell brands has long been a formula for business success. It has produced enormous and sustained profits for Coca-Cola since 1886 and Wrigley since 1891." And he doesn't say this, but like, obviously, this is the Mars formula, too.

• 2:56:08Ben Gilbert?

  Sell commodities, buy brands.

• 2:56:12David Rosenthal?

  Buy commodities, sell brands.

• 2:56:13Ben Gilbert?

  Oh, not as an investor.

• 2:56:15David Rosenthal?

  Yeah, not as an investor. Companies that buy raw products and then sell them as a branded product.

• 2:56:20Ben Gilbert?

  Basically, you're allowed to create margin.

• 2:56:23David Rosenthal?

  Yes.

• 2:56:24Ben Gilbert?

  The market is giving you the right. Consumers are giving you the right to do that.

• 2:56:28David Rosenthal?

  Yes.

• 2:56:28Ben Gilbert?

  It's funny, if you flip it and you say, "Sell commodities, buy brands," that's a good mentality for an investment portfolio.

• 2:56:34David Rosenthal?

  Yes, definitely.

• 2:56:36Ben Gilbert?

  In fact, I thought that's what he meant. "I want to buy this because it's a durable brand," or "house of brands." Interesting.

• 2:56:42David Rosenthal?

  Yeah, no, no. It's the operating paradigm for a company of purchasing raw commodities and selling them as branded products.

• 2:56:49Ben Gilbert?

  Right. If you have cocoa beans backed up to one side of your factory and then Snickers bars coming out the other, it's a good business.

• 2:56:55David Rosenthal?

  Yeah, you're gonna do good.

• 2:56:56Ben Gilbert?

  Interesting.

• 2:56:57David Rosenthal?

  So it goes down in the middle of the financial crisis. They announce the deal in April 2008, but it closes in October 2008, like right after Lehman collapses. Mars buys the Wrigley Company for $23 billion.

• 2:57:16Ben Gilbert?

  Which is a 28% premium to where it was trading that day.

• 2:57:19David Rosenthal?

  Yep. And even Mars, at this point in time, doesn't have 23 billion of cash on hand.

• 2:57:25Ben Gilbert?

  Well, they may have, but they didn't want to use it. I'm always trying to guess how much through all these points in history. I think Mars piles up a lot of cash, but I think they're really conservative in how they decide to deploy it.

• 2:57:35David Rosenthal?

  I mean, this is the trade off with efficiency, freedom, return on total assets as the way that you're going to manage. Is you're just going to be very conservative in how you run the company.

• 2:57:46Ben Gilbert?

  Yeah.

• 2:57:47David Rosenthal?

  But yeah, so Mars pays $11 billion itself. They get $5.7 billion in bank debt from Goldman Sachs. And then Berkshire comes in with the rest of the financing, about $6.5 billion total.

• 2:58:01Ben Gilbert?

  And 4.4 billion of that was a loan. And then 2.1 billion is an investment into the newly created Wrigley subsidiary. Over time, Wrigley will use the profits from all their businesses to buy out Berkshire. And so it must have been negotiated in that Mars had the right over some period of time to buy out that $2.1 billion equity investment.

• 2:58:24David Rosenthal?

  Indeed, that is correct. So what happens five years later in 2013? Mars repurchases the debt portion of Berkshire's financing. And man, this debt got in the financial crisis. Like Warren was so good to be investing in such high quality companies at the interest rates that he got.

• 2:58:46Ben Gilbert?

  Hmm.

• 2:58:46David Rosenthal?

  So the 4.4 billion in debt that Berkshire invested had an 11.45% interest rate.

• 2:58:55Ben Gilbert?

  Oh, my God.

• 2:58:56David Rosenthal?

  So during the five years that it was outstanding, Berkshire earned $2.5 billion just in interest.

• 2:59:05David Rosenthal?

  Now, when Mars bought it back in 2013, that was before the debt matured. So they had to pay Warren a premium to buy it back early. They paid a $680 million premium. So all told, for the $4.5 billion debt investment, Berkshire gets its money back, plus another, call it 3.1, 3.2 billion, just on the debt.

• 2:59:30Ben Gilbert?

  Over five years.

• 2:59:31David Rosenthal?

  Over five years. Now, the equity portion, the 2.1 billion, in 2016, Mars buys out Berkshire. So Buffett sells Mars his entire stake back for $4.6 billion versus the 2.1 that he originally invested.

• 2:59:51Ben Gilbert?

  He more than doubled the money in five years on that, in addition to almost doubling the money on the debt.

• 2:59:57David Rosenthal?

  Even better for Warren, because that equity that he held was preferred equity, it also had a dividend associated with it, of which they likely made another billion dollars in dividends on the preferred equity.

• 3:00:14Ben Gilbert?

  It's interesting that they did the bank debt from Goldman Sachs and this dual instrument from Berkshire.

• 3:00:20David Rosenthal?

  Yeah.

• 3:00:21Ben Gilbert?

  Why not go all one or all the other? Because you would think they would have the option to.

• 3:00:25David Rosenthal?

  Well, I think this gets back to the value that Warren and Berkshire always provide, but were especially providing during the financial crisis, which is just the reputational guarantee and solidity.

• 3:00:41Ben Gilbert?

  Oh, you think getting Berkshire was what they used to be able to pull in the bank debt?

• 3:00:48David Rosenthal?

  I bet it helped pull in the bank debt, because I doubt Mars had significant banking relationships going into this, because they didn't have any debt.

• 3:00:55Ben Gilbert?

  No, in fact, they classically never do acquisitions with outside banks. They're obsessed with using only their own cash.

• 3:01:03David Rosenthal?

  Yep, and Goldman was Berkshire's preferred bank, so probably pulled Goldman in.

• 3:01:11David Rosenthal?

  The other aspect to this is the Wrigley shareholders. You had to give confidence to the Wrigley shareholders to vote for the deal to get it done. And so having Buffett come in, you know, put his stamp of approval, calm everybody down, even in the midst of all the craziness with Lehman. I suspect there's no way the deal gets done if Berkshire doesn't get involved.

• 3:01:35Ben Gilbert?

  That's really interesting.

• 3:01:36David Rosenthal?

  Given what was happening in October 2008.

• 3:01:39Ben Gilbert?

  Wow.

• 3:01:40David Rosenthal?

  All told, Berkshire puts in six and a half billion and about doubles its money in the whole eight years. So five years on the debt and then another few years on the equity. How much did Goldman make on the deal? I doubt that much.

• 3:01:56Ben Gilbert?

  Right. Definitely Berkshire got some sort of premium for using their reputation in this deal.

• 3:02:02David Rosenthal?

  Yep. Now, interestingly, we didn't dive super deep on Wrigley as a company, but it's a very good business. Probably, I'm guessing, even better than the candy business because gum, I believe, is mostly a petroleum byproduct.

• 3:02:20Ben Gilbert?

  Is it really?

• 3:02:21David Rosenthal?

  Yeah. So for a long time, I don't know if this is still true. Goodyear, the tire company.

• 3:02:26Ben Gilbert?

  Yeah.

• 3:02:26David Rosenthal?

  Was one of Wrigley's major suppliers.

• 3:02:28Ben Gilbert?

  Oh.

• 3:02:29David Rosenthal?

  And it was like unused byproducts from petroleum.

• 3:02:32Ben Gilbert?

  Gross.

• 3:02:34David Rosenthal?

  That if you can brand that and sell it to consumers, you're gonna have pretty good margins. So Wrigley, I went back and looked at their old 10Ks before Mars acquired them. They had about 50% gross margins and 20% net income margins in the last, you know, sort of decade of the company. Pretty good for a business like that.

• 3:02:53Ben Gilbert?

  Not bad.

• 3:02:54David Rosenthal?

  Not bad at all. They also owned mints like Altoids and Lifesavers. That's the other big part of the business.

• 3:03:01Ben Gilbert?

  Right.

• 3:03:02David Rosenthal?

  If chocolate is a expensive product to make, gum is a not expensive product to make.

• 3:03:10Ben Gilbert?

  Yep. Okay. Other things that happened in the 2000s, they bought a significant stake in the Banfield Pet Hospital chain, which is the largest chain of pet hospitals in America.

• 3:03:23David Rosenthal?

  And was started in partnership with PetSmart.

• 3:03:25Ben Gilbert?

  That's right, because most of them are actually in PetSmart's.

• 3:03:28David Rosenthal?

  Yes, that partnership is now ended and Mars now owns Banfield outright 100%. And I believe in 2007, they took a large stake and then in 2015, they fully bought out PetSmart for 100% ownership.

• 3:03:43Ben Gilbert?

  That's interesting. It is worth noting, we did some sleight of hand there. That's a completely different business, pet hospitals than dog food. Related, in pet care, you can use the pet hospitals as channel for your dog food, but very different type of operation that needs to be performed.

• 3:04:04David Rosenthal?

  Yeah, this really is the big story about Mars of the last 10 years. So after they fully acquired Banfield, in 2017, they acquired VCA.

• 3:04:15Ben Gilbert?

  Which is even bigger, right?

• 3:04:16David Rosenthal?

  Yes, they were the largest independent vet hospital operator in America for $9 billion. So like a large acquisition. And Ben, like you say, you know, there's two interesting things about getting into this business. One, it's a super different business. We're talking about a services business, like this is not manufacturing.

• 3:04:38Ben Gilbert?

  Yep.

• 3:04:38David Rosenthal?

  So very, very, very different DNA. I think a big part of the strategy, though, like you said about distribution of pet food, in 2002, Mars had bought a French pet food company called Royal Canin, or I've also heard it pronounced Royal Canin. And Royal Canin makes prescription pet food, like especially for like an aging dog or a mobility challenged dog. And as dogs became more and more family members and people started caring for them more and more like humans, prescription pet food became a really, really big business.

• 3:05:20David Rosenthal?

  So I think Royal Canin was like a grand slay acquisition for the company. And I think that's partially what led them to then get involved with Banfield and VCA of like, oh, well. Let's consolidate a lot of the distribution and value chain here in this prescription pet food business.

• 3:05:39Ben Gilbert?

  Pretty interesting. I mean, it's a very different business, but they run so decentralized that it's probably okay that it's a services business and you're not having people who are making candy trying to run a veterinary clinic. It's a pretty small head office and it's a very decentralized operation. I think the decision-making authority really rests with the board still, but these independent operating groups are independent operating groups.

• 3:06:06David Rosenthal?

  Yep.

• 3:06:07Ben Gilbert?

  I'll pull a playbook theme forward, which is that this company obviously grows through inorganic acquisitions. So in buying Wrigley, Royal Canin, VCA, all these-

• 3:06:18David Rosenthal?

  Mars itself.

• 3:06:19Ben Gilbert?

  Mars itself. They've kind of overpaid on a price to earnings basis. I mean, Wrigley was a 35X and a 27% premium over the public valuation. Royal Canin was a 39X. But if you kind of think about, especially with Banfield Pets Hospitals, they really understood what they were buying. So they were able to underwrite better than anyone else. And I think this is very similar to the idea that Honam shared with us way back in our 2021 episode, which is multiples are kind of a blunt instrument used for valuation when you don't actually deeply know and understand the business. And when you do, you can just underwrite better than everyone else and you have more margin of safety in the price that you are willing

• 3:07:02Ben Gilbert?

  to pay than the rest of the market does. So when they want to come in over the top at a 35X for Wrigley, maybe they know more about Wrigley than other bidders do.

• 3:07:12David Rosenthal?

  Interesting. Yep.

• 3:07:13Ben Gilbert?

  Or at least the case on Banfield was we've owned pieces of this business over and over. And so now that we've amassed a minority share, we feel good about buying a majority share.

• 3:07:22David Rosenthal?

  Yep. I totally buy it.

• 3:07:23Ben Gilbert?

  Arvin from Worldly Partners had a good comment to me about this, that they shoot bullets, not cannonballs. And when you sort of see that in an acquisition strategy, you should be careful not to judge too harshly when people overpay for things because they're taking these little baby steps to try and understand first and maybe they know something you don't.

• 3:07:41David Rosenthal?

  Yep. Speaking of, they ran this playbook again with their most recently completed big acquisition of Kindbar.

• 3:07:53Ben Gilbert?

  Yes, $5 billion in 2020 after buying a small piece of it a few years earlier and then buying the rest of it in 2020.

• 3:08:00David Rosenthal?

  I didn't realize how big Kind was. Kind was doing 1.5 billion in revenue. I believe almost completely domestically in America.

• 3:08:10Ben Gilbert?

  Yeah, and Mars took it global.

• 3:08:12David Rosenthal?

  And Mars took it global. Yeah, so I think that has been a big success for the company as well.

• 3:08:15Ben Gilbert?

  Do you know how they grew so big domestically?

• 3:08:17David Rosenthal?

  Oh, I don't.

• 3:08:18Ben Gilbert?

  Starbucks.

• 3:08:19David Rosenthal?

  Ah, makes sense.

• 3:08:21Ben Gilbert?

  Checkout counters at Starbucks, impulse purchase.

• 3:08:24David Rosenthal?

  There you go. There you go.

• 3:08:25Ben Gilbert?

  And it fits with Starbucks brand ethos. It's like healthy. Honestly, I eat them all the time. It's a five gram of sugar bar that's super satisfying. That doesn't leave my teeth feeling gross or make me feel like I ate something with a bunch of unnatural ingredients. I know it's still a candy bar, but it's a five gram of sugar candy bar. So I think as far as Mars thinking about, geez, we want some sort of diversification hedge if people stop eating candy bars, they're on a good trend there.

• 3:08:51David Rosenthal?

  Which leads us to the final piece of the story, maybe, which is the biggest deal that the company has ever done?

• 3:09:01Ben Gilbert?

  Yep.

• 3:09:01David Rosenthal?

  Or is attempting to do.

• 3:09:03Ben Gilbert?

  So in August, Mars announced that they have entered a definitive agreement with Kelenova to purchase the company for $35.9 billion. So what is Kelenova?

• 3:09:15David Rosenthal?

  Right. Yeah, as we were researching this and getting into this, I was like, Mars is paying $36 billion. What is Kelenova?

• 3:09:22Ben Gilbert?

  It's like Mondelez. You're like, ooh, what's Mondelez? That sounds interesting and foreign. And you're like, oh, it's Kraft. It's like a weird corner of Kraft.

• 3:09:29David Rosenthal?

  Yeah. So Kelenova, do I have this right, is Kellogg's minus the American cereal business?

• 3:09:36Ben Gilbert?

  That is correct. So it's all the snack businesses and international cereal. So the snacks are like Rice Krispie Treats, Pringles, Eggs, Pop Tarts, RX Bar, which is gonna be interesting if they'll own RX Bar and Kindbar. It is the largest CPG transaction since the merger between Kraft and Heinz in 2015. And so.

• 3:09:57David Rosenthal?

  Another Berkshire Hathaway special.

• 3:09:59Ben Gilbert?

  I mean, if you think about it. The family is worth 117 billion today, which essentially means the company's worth 117 billion, which is kind of interesting. It's a $50 billion company that at least Forbes, I think it's Forbes, pegs it at 117 billion of enterprise value. Of course, there's no market to buy these shares. So who knows how to value it, really?

• 3:10:20David Rosenthal?

  Right. And when you say $50 billion company, that's their annual revenue?

• 3:10:24Ben Gilbert?

  Annual revenue, yeah.

• 3:10:25David Rosenthal?

  So they have started reporting in recent years, or at least alluding to what the top line revenue number is.

• 3:10:31Ben Gilbert?

  Yes, that's correct. They're going to get a lot bigger, I guess, is the takeaway from this. If they're worth 117 billion now and they're using a bunch of their cash and presumably some outside leverage, we'll have to see, for a $35.9 billion acquisition. That's a big size up.

• 3:10:49David Rosenthal?

  That is transformative, yes. It also basically makes them look like Nestle.

• 3:10:56Ben Gilbert?

  Yeah.

• 3:10:56David Rosenthal?

  Which Nestle has been the real competition for years now.

• 3:11:01Ben Gilbert?

  And Nestle's huge. They're over $100 billion in revenue and they're extremely diversified.

• 3:11:06David Rosenthal?

  Extremely diversified, yes. Which, obviously, again, Mars has always been diversified, but nowhere near the extent that Nestle is. And now with the Kelanova acquisition, they're going to look a lot more like Nestle.

• 3:11:19Ben Gilbert?

  And Mars is going to be selling, I just looked it up, investment-grade bonds to help with its planned sale of Kelanova. So they are raising some outside capital for that, not just using their cash.

• 3:11:30David Rosenthal?

  Interesting, interesting.

• 3:11:32Ben Gilbert?

  So that brings us to today. David, we were just talking about it. In 2021, they did 45 billion in revenue. 2022 was 47, 2023 was 50. And to your point, they're now saying over 50. Here's the interesting thing that we have been hiding from listeners the whole episode, and I know you've been dying to say, Mars Snacking did $18 billion in revenue. That is a segment of their business that includes all the candy.

• 3:11:57David Rosenthal?

  So we've told this whole story all about...

• 3:12:02David Rosenthal?

  The smaller piece of the business.

• 3:12:04Ben Gilbert?

  You'll notice 18 is not only a smaller number than 50, it's less than half of 50.

• 3:12:09David Rosenthal?

  Yeah.

• 3:12:10Ben Gilbert?

  Pet care is actually the bigger business. 59% of revenue comes from the pet care segment. And of their 140,000 employees, almost 100,000 work in pet care.

• 3:12:22David Rosenthal?

  Yeah, of course. Services business. They own thousands of hospitals.

• 3:12:26Ben Gilbert?

  Yep. So we don't know the margin of the pet hospitals versus the dog food versus the candy. Specifically about Mars, we can probably look at industry comparables to try to understand that. But at least on a top line basis and an employee basis, pet care is the dominant component of this business. If you want a little bit of a hint, the new CEO in 2022 came from their pet care division. In many ways, they are a pet food company that also makes candy and always has been. I mean, if you look back, it was the year after Forest Mars founded the UK division is when they bought the first dog food, which was almost immediately cash generative.

• 3:13:07David Rosenthal?

  Totally.

• 3:13:08Ben Gilbert?

  That's like the biggest aha moment to me is they've been doing this the whole time. Other than the veterinary services, that is again new. So you might be wondering, well, how significant of the market of vets do they own? Mars owns 3,000 locations out of 35 to 40,000 vets in the US. So that's like 8% of vets. They're not just exploring vets. They're, I don't know, the largest or one of the few largest player in vets in the entire country.

• 3:13:38David Rosenthal?

  I think they are the largest. There are other vet roll up plays. It's been a darling of search funds and private equity in the last decade is veterinary roll ups, dental roll ups, you know, stuff like that.

• 3:13:50Ben Gilbert?

  Yeah. Looking at the market, at least in the US, Mars and Hershey each have about 24% market share of candy and confections and no one else even comes close. It's the Hershey and Mars show here domestically. Internationally, it's kind of a different story. It is a very fragmented industry. Mars is the whale with 11%, but the next highest are 7% and 5%. And only a third of the market is made up by the top five companies. Mars, Mondelez, Ferrero, Hershey and Nestle. So 2/3 of international candy and confections is made up by smaller companies. And that is even after all these mergers from the last few decades. So there's still this huge international long tail of candy companies.

• 3:14:35David Rosenthal?

  Wow, because there's already been huge consolidation.

• 3:14:39Ben Gilbert?

  Yeah, so that is the shape of the business today. You've got a pet business masquerading as a candy business. And we continued to perpetrate that narrative.

• 3:14:52David Rosenthal?

  Yes. Now, obviously, the pet business, huge, bigger in revenue, and I'm sure very, very large in profits as well. I don't know, I'm just purely speculating, but I suspect profit contribution wise, they're at least equal, if not bigger, on the candy side.

• 3:15:08Ben Gilbert?

  Oh, man.

• 3:15:09David Rosenthal?

  I could be totally wrong. I don't know. I don't know the economics of pet hospitals.

• 3:15:14Ben Gilbert?

  Yeah. I would love to know that. If your last name is Mars, please reach out or join us in the Slack. acquired.fm/slash Slack. We'd love to hear from you.

• 3:15:22David Rosenthal?

  Yeah.

• 3:15:23Ben Gilbert?

  Power?

• 3:15:24David Rosenthal?

  Power. So this is a segment we do in analysis in every episode, based on Hamilton Helmer's excellent Seven Powers book and framework. And the idea is that there are seven ways that a business can sustainably generate significantly more profit than its closest competitors. And those seven ways are through counter positioning, scale economies, network economies, switching costs, process power, branding and cornered resources. We have spent a lot of this episode talking about the biggest and most obvious one here in scale economies.

• 3:16:01Ben Gilbert?

  Actually, like a lot of the businesses we study on this show, scale economies is the biggest deal.

• 3:16:05David Rosenthal?

  It is actually kind of crazy. It's almost always scale economies is a big part of it.

• 3:16:09Ben Gilbert?

  I think for the biggest businesses in the world, it's these businesses that operate at high gross margin in very large markets, where you basically can build out a massive, massive fixed cost base and then have great operating leverage. Can you amortize your high margin sales?

• 3:16:30Ben Gilbert?

  In huge volume across a comparatively small fixed cost base. Manufacturing businesses are like that. Software businesses are like that.

• 3:16:38David Rosenthal?

  Cloud computing is like that.

• 3:16:40Ben Gilbert?

  Exactly. And the businesses that get the biggest tend to benefit from this principle.

• 3:16:45David Rosenthal?

  Totally. Okay. Scale economies, check.

• 3:16:47Ben Gilbert?

  Done. So there's a thing I want to bring up with you, and this has been a debate in the acquired Slack. I don't know if you've seen it at all, around branding.

• 3:16:55David Rosenthal?

  Hmm.

• 3:16:56Ben Gilbert?

  So the classic definition of branding, and I need to reread seven powers to refresh myself on this. But the idea is if I show you two products side by side that are identical, but one is branded, will you pay me more money for the one with the better brand? You know, the Tiffany ring versus the unbranded ring?

• 3:17:16David Rosenthal?

  Yep.

• 3:17:17Ben Gilbert?

  I think there's another way that branding shows up.

• 3:17:20David Rosenthal?

  Hmm. Okay.

• 3:17:21Ben Gilbert?

  We said that IKEA doesn't have brand power last episode. That's obviously not true. It might be technically true in that they don't take margin because of their, but they have to deploy their brand power in another way. In the same way that Mars, I don't think, charges more for a Snickers than a different candy bar. Mars doesn't take price in the form of brand, but they do something else. There's brand power here for sure. Consumers pick Snickers over unbranded, random, unsafe, untrusted candy bar.

• 3:17:54David Rosenthal?

  Definitely. I think it's got to be a version of our Costco episode. Scale economies shared, brand power shared.

• 3:18:01Ben Gilbert?

  There was someone in the Slack that pointed out that this brand power could translate to volume. Essentially, if you trust the brand more and the prices are the same, you just buy more of it over time. So you give more absolute margin dollars to that company over time, especially in a reoccurring purchase business like this. That's the way that brand power accrues. It's not in margin percentage, it's in total lifetime margin dollars.

• 3:18:28David Rosenthal?

  I totally buy that.

• 3:18:29Ben Gilbert?

  So by that definition, they absolutely have branding.

• 3:18:32David Rosenthal?

  Yep. I've got one I want to talk about. I'm curious if any of the others set jump off the page to you.

• 3:18:39Ben Gilbert?

  Hmm. I think the candy industry used to have cornered resources. I don't really think it does anymore. Same with process power. I'm not convinced that anyone's actually developed a superior way to make something that is not known by others in the industry.

• 3:18:55David Rosenthal?

  I think Mars has always had the best technology and the best equipment and the best resources. There's actually great stories about Forrest, perhaps both himself, but also through employees and outside firms he'd hire, would come up with all these technical improvements to the manufacturing equipment, but they would never patent it because he didn't want to tip off any competitors.

• 3:19:14Ben Gilbert?

  Makes total sense. Keep it a trade secret.

• 3:19:16David Rosenthal?

  Yep, totally.

• 3:19:17Ben Gilbert?

  No, none of the others jump off the page to me.

• 3:19:19David Rosenthal?

  So, obviously, we did not do a deep dive on the pet business, despite it being the larger business. I think, though, the main power in the pet business is switching costs.

• 3:19:31Ben Gilbert?

  Oh, if your dog doesn't have problems with its current food, you're never changing to another food.

• 3:19:37David Rosenthal?

  Yes. Well, there's a couple of dimensions. One, you're never going to change to another food because it's going to cause digestive issues for a while. Like, imagine if you only ate one food for years and years of your life, and then all of a sudden, you started eating...

• 3:19:51Ben Gilbert?

  What are we doing? We should be feeding him table scraps so they get a well-rounded diet.

• 3:19:54David Rosenthal?

  Just like the 30s. Exactly, exactly. I mean, it happens. Dogs switch food all the time, but it's not like humans choosing to eat something else. It's a process.

• 3:20:04Ben Gilbert?

  Right.

• 3:20:05David Rosenthal?

  But then, pet hospitals, like, that's like, huge, huge switching costs. So I actually think this is like the primary power in the business on the pet side.

• 3:20:14Ben Gilbert?

  Yeah, I think that's right.

• 3:20:16David Rosenthal?

  Okay, that's power. Should we do playbook?

• 3:20:18Ben Gilbert?

  Yes. The first one that I have is that you actually can build a durable, sustainable business through great marketing, not just great product. And this makes me uncomfortable as someone who kind of doesn't want to believe that, who always believes the best product wins. I mean, on the meta episode, the takeaway was their growth came from product and not from marketing. On this episode, I kind of feel like it's the opposite. The whole thing is the story of marketing campaigns and how whoever had the better message for America at that moment, I mean, at least post 1960, was able to lean on that.

• 3:20:59David Rosenthal?

  After the advent of television.

• 3:21:01Ben Gilbert?

  Yeah. And of course, paired with distribution, paired with grocery stores, paired with, actually, let's talk about the ET thing.

• 3:21:10David Rosenthal?

  Yes, let's talk about the ET thing. This is really fun. So in the late 1970s, early 1980s, when Spielberg is making ET, the movie ET, he's written into the script that ET is going to be lured into the house by a trail of M&Ms. And anybody who remembers the details of the movie remembers that it is not M&Ms.

• 3:21:36Ben Gilbert?

  And M&Ms passed on the opportunity because it had to come with a guaranteed million dollars of co-marketing, consumer promotion, trade promotions, displays, featuring ET. Mars was not down to do that with the M&Ms characters and passed on the opportunity. If you saw the movie, there's a pretty memorable moment where it's Reese's Pieces.

• 3:21:59David Rosenthal?

  Yep. This was relatively early in the Brothers' tenure. So I wonder, A, if Forrest would have made a different decision, and also B, if the Brothers would have made a different decision had they had a little more confidence in their own security and their own place as CEOs. So I think there was a timing element to this.

• 3:22:21Ben Gilbert?

  Hershey almost passed, too. Someone had to basically go bang down the door and say, I'll actually pledge a million dollars from my budget that I was going to use for other stuff to use for this instead. So the Hershey leadership was also going to pass on it.

• 3:22:33David Rosenthal?

  Yeah, I mean, this was one of, if not the biggest, deal up until this point for product placement.

• 3:22:39Ben Gilbert?

  Yeah.

• 3:22:40David Rosenthal?

  It was a paradigm-setting deal.

• 3:22:42Ben Gilbert?

  And it worked in a huge way. Multiple sources cite that it 3Xed the sales of Reese's Pieces when this came out. And Reese's Pieces, they'd launched it a year before. It had done well initially. It kind of fell off. And then they were trying to use this to, hey, maybe we can galvanize sales. And I think it tripled Reese's Pieces' sales for a while. And then it ultimately, everyone knows Reese's Pieces are not M&Ms. They're good, but they're never going to be competitive with M&Ms.

• 3:23:09David Rosenthal?

  At least in my experience, I haven't been to a movie theater much lately, but I believe there is a lasting legacy of this, which is Reese's Pieces are a mainstay at movie theater concession stands, and it's all because of this.

• 3:23:21Ben Gilbert?

  Totally. So maybe the takeaway is actually M&Ms are a better product and Reese's Pieces are sort of this specialty niche product, and that's why they don't have the market share. And maybe that this whole postulate is wrong, that marketing can create durable brands. And the reason why all these Snickers and Milky Way and M&Ms are victorious is because they're just better products.

• 3:23:45David Rosenthal?

  Well, I think they're good products, but I think it's like the nostalgia element is just so huge.

• 3:23:49Ben Gilbert?

  Right. They're somewhat commodity products, or it could have been either product. And then it was about who could create a better lifetime story over the story of your life about the associations you have with that product.

• 3:23:59David Rosenthal?

  Yep. I think the candy industry is much like the luxury industry in that, once you have an established product and product brand, it is impossible to kill it. You just can't. I mean, all the fumbles that Hershey had for decades and decades, still today, what is a chocolate bar in America? It's a Hershey bar. You just can't kill it.

• 3:24:22Ben Gilbert?

  That's so true. And let's flip back to the Mars side of the world. The associations that they have leaned into with the brands that people love, it's a very Disney-like playbook that M&Ms has run. In fact, they operate a M&Ms store in Disney World or in Disneyland, I can't remember which one. But they associate with the holidays. They've got that commercial where the two M&Ms characters come in the house, Santa's just come down the chimney, they run into them at the Christmas tree. They do exist.

• 3:24:52David Rosenthal?

  So great.

• 3:24:53Ben Gilbert?

  I mean, it's a classic. They've run it every year for 20 years or something.

• 3:24:58David Rosenthal?

  I think it started in the 90s.

• 3:24:59Ben Gilbert?

  Yeah. The Rolling Stones they've associated with for Snickers, they had the I can't get no satisfaction ad. Obviously, the Olympics. I mean, I'm looking at my Snickers bar right now. The only other logo on it that is not Snickers is the NFL. I mean, they find ways to associate with national or global premier brands that everyone loves, that you have nostalgia for. In fact, NASA, they went up on, I think it was the space shuttle. NASA can't obviously endorse because it's a government agency, but- It's on the menu and it's a part of all the astronaut videos you watch where they're popping M&Ms up and having fun trying to chase them around the cabin in zero gravity.

• 3:25:40Ben Gilbert?

  It's been a strategy for Mars to chase known, loved, universal brands.

• 3:25:48David Rosenthal?

  Well, it sounds like we've learned a lot here and acquired from the Mars playbook.

• 3:25:53Ben Gilbert?

  Yep. Another one, just like the innovation on commercials. Think about how long they've had those computer generated M&Ms characters. I looked it up. The first one I could find was in 1994. Jurassic Park was in 93 and that was effectively the first use of computer generated 3D modeling in cinema.

• 3:26:13David Rosenthal?

  That's right.

• 3:26:14Ben Gilbert?

  Within one year, they were running commercials with those characters.

• 3:26:17David Rosenthal?

  Yeah. Wow.

• 3:26:19Ben Gilbert?

  They know how to create these durable marketing franchises and moments. In some ways, it's actually shocking that they missed ET, given how good they've been in all these other facets. And ultimately, the ET thing's a fun story, but did missing it really hurt them? Not really, not in the long run. No. My last one around this is in this sort of marketing world. Do you remember in 1995 when they said they were going to do away with the tan M&Ms?

• 3:26:48David Rosenthal?

  Yes.

• 3:26:49Ben Gilbert?

  Do you remember anything about that?

• 3:26:51David Rosenthal?

  Is that when they were replacing it, when there was a vote, right?

• 3:26:54Ben Gilbert?

  Yes.

• 3:26:54David Rosenthal?

  Of which color to replace it with and blue won.

• 3:26:57Ben Gilbert?

  Absolutely. Genius.

• 3:27:00David Rosenthal?

  Total genius.

• 3:27:01Ben Gilbert?

  They needed to spice it up because basically it was boring. And does it cost them anything or does it have any impact on their business if they change the color of one to something else? No. Do they actually care what it is? No. But they got millions and millions of Americans to call 1-800-FUNCOLOR, which by the way, I called yesterday.

• 3:27:20David Rosenthal?

  Oh, amazing.

• 3:27:21Ben Gilbert?

  Is no longer in service. You call 1-800-FUN-COLOR to vote. So they're giving everyone this vested interest in what the new color is. Blue wins. Blue replaces tan. They lit up the Empire State Building after announcing it was blue with blue. Genius.

• 3:27:39David Rosenthal?

  So great. This is like the Facebook internationalization where they have local people in each market translate and then they feel ownership over the product.

• 3:27:49Ben Gilbert?

  Yeah, yes.

• 3:27:50David Rosenthal?

  Totally.

• 3:27:51Ben Gilbert?

  All right. That's all I got on their consumer marketing.

• 3:27:53David Rosenthal?

  I'm sure you read too. Mars is constantly rebalancing the ratios of colors in M&M bags to suit current tastes.

• 3:28:02Ben Gilbert?

  Yes. It's amazing. Yeah, it's not even. I was shocked. I was like looking at the bag trying to, I'm not going to go count, but apparently it's a secret what the ratios are.

• 3:28:11David Rosenthal?

  But I think they're adjusting it constantly.

• 3:28:14Ben Gilbert?

  Interesting. I believe that. Okay. Next one I've got is be a recession proof business. I thought candy was the one I was talking about. And the deeper I got into the research, I realized, nope.

• 3:28:26David Rosenthal?

  Pet.

• 3:28:26Ben Gilbert?

  Pet food is one too. People don't stop buying candy when times are bad and they certainly don't stop feeding their pets, especially now in this era where we consider pets part of our families. And I think the data shows it. If you look back at 2008, neither of their businesses took a hit from being in that recession. And that's an awesome business to be in if you can get it.

• 3:28:44David Rosenthal?

  Yep.

• 3:28:45Ben Gilbert?

  A corollary to being recession proof is being universal. A survey done by the Food Institute says that 98% of households buy candy every year. And of those, 97% are reoccurring purchases at an average of 35 times a year.

• 3:29:03David Rosenthal?

  Wow.

• 3:29:04Ben Gilbert?

  Again, good, good business if you can get it. It's just like our Starbucks episode too. Sugar is an addictive habit. So all the research, I don't know, it seems like sugar is way worse for our bodies than coffee. I'm not at all worried that I'm addicted to coffee. I'm pretty worried that I am addicted to sugar. In fact, I feel pretty crappy after eating all these M&Ms and Snickers. I probably ate more than a recommended amount because we've been sitting here for five and a half hours doing this. But that's probably the most concerning thing about the whole business is they're extremely participatory in the increase of sugar consumption among Americans and around the world, and that it's very good for their business, at least their original core business, if we eat more sugar. So I can see why they're diversifying away from those core franchises.

• 3:29:47David Rosenthal?

  Into Kind and Calanova, et cetera, et cetera. Yep.

• 3:29:51Ben Gilbert?

  More Kind bars are in my future, maybe some detox tomorrow.

• 3:29:55David Rosenthal?

  All that said, no matter what happens, I don't think M&Ms and Snickers, they're not going anywhere.

• 3:30:02Ben Gilbert?

  Even if everyone starts taking Ozempic, I don't actually think chocolate sales are going to fall. In fact, all the numbers show to this point, everybody who's been saying, oh, people are trying to eat healthier and they're doing their very best and they're changing their habits, chocolate revenues are still at an all time high.

• 3:30:17David Rosenthal?

  Yep. I think this is a good place here in playbook. There are a couple of things about chocolate that I want to talk about that are more general than specific to Mars. One is just that chocolate, I'm sort of biased here because I love chocolate.

• 3:30:30Ben Gilbert?

  Me too, same. I loved doing this episode because I love learning about chocolate.

• 3:30:33David Rosenthal?

  It really is a food. Part of that is marketing and part of that is 100 years of Mars marketing and Hershey's marketing and all that. But really, really, when you were describing the production process of chocolate earlier in the episode, like it is one of the most complex, rich foods on the planet.

• 3:30:51Ben Gilbert?

  When Milton Hershey shut down and got out of the caramels business, he thought caramels is a fad, but chocolate is a complete food.

• 3:30:58David Rosenthal?

  Chocolate is a food, exactly. And like, he was totally right. I don't think chocolate is going anywhere and the Ozempic risk for chocolate is way lower.

• 3:31:09Ben Gilbert?

  Far lower than like gummy candies.

• 3:31:11David Rosenthal?

  The other aspect about chocolate, though, and I think here is the right place to talk about it, is the industry and what chocolate is, is changing hugely. I think most people have no idea about this, but both the first and second order effects of climate change are like massively, massively changing the chocolate industry. The cacao tree is a very, very sensitive tree. It's this bizarre plant. I don't think we talked about this earlier, but the pods, the fruit that have the seeds and beans in them, it grows directly on the trunk of the tree. There's no like branches. It's the weirdest thing to look at. It's like these football sized pods that just go right off the trunk of the tree.

• 3:31:54Ben Gilbert?

  Yeah. And it's something like only 25 years of their full 100 and something year life, they actually can produce the fruit in a way where you can use it to make chocolate.

• 3:32:05David Rosenthal?

  Yeah. So it's this super, super long lead time to get a tree to the point where it's productive. And it's a really narrow temperature and climate band that they can be grown in. So as both world consumption and thus production of chocolate has increased hugely over the past decades and climate change is happening, these trees are so sensitive to it, like it's really impacted production. That's the first order effect on the industry. The arguably as big or bigger is the second order effect of how the industry has responded. So there's been huge efforts over the last couple decades in genetic engineering and hybridization and breeding

• 3:32:50David Rosenthal?

  of cacao trees to optimize for resiliency and output and production, all of which is good, you know, ensuring continued production of chocolate.

• 3:33:00Ben Gilbert?

  As long as it doesn't come at the expense of taste.

• 3:33:02David Rosenthal?

  Right. So that's the downside. It has not been optimizing for taste, either preservation of the current tastes or just good taste in general. So like actually, the taste of chocolate has changed a lot in the last few years as the plants themselves have been engineered and changed a lot.

• 3:33:22Ben Gilbert?

  To be more resilient and productive.

• 3:33:24David Rosenthal?

  Yep, exactly. So a lot of the real, real richness and complexity that has for thousands of years made chocolate like a super attractive food for humans is sort of in danger of being lost or being watered down. I will say the industry is very focused on this. This is like a existential, super, super important focus of Mars in the entire chocolate industry.

• 3:33:52Ben Gilbert?

  Yeah, that is the correct takeaway. Whenever you talk to people in the industry, this is what they're talking about.

• 3:33:56David Rosenthal?

  Yep.

• 3:33:57Ben Gilbert?

  All right. I have got a couple more. The first one is conglomeration and doing it well. They very early on learned how to acquire and conglomerate, how to do acquisitions, which parts to centralize, spoiler alert, very few, which parts to decentralize, actually most of them. When you are running two completely different businesses and running two completely different geographies from the first five years of your company's existence, you end up actually developing the muscle to do this well. And so I think it's very different than these companies that later in life are like, we're going to get into XYZ. Mars always has been a diversified conglomerate and they actually look a lot like LVMH in that they aren't a private equity firm, they're a buy and hold.

• 3:34:42David Rosenthal?

  Yeah.

• 3:34:43Ben Gilbert?

  I think they've made 30 acquisitions since the 90s and they've only sold two things since 2015. It's very Bernard Arnault style.

• 3:34:53David Rosenthal?

  They also don't rebrand things. They keep the original brands, even in the pet hospital business.

• 3:35:00Ben Gilbert?

  Yeah, that's super interesting.

• 3:35:01David Rosenthal?

  You think of anywhere where you would want to centralize the brand, it's like, no, VCA, Banfield, they're separate.

• 3:35:07Ben Gilbert?

  Yeah, that's super true. And then my last one is duration. If you look at them over the last 100 years, they have grown revenue at a compound annual growth rate of 14% for a century.

• 3:35:19David Rosenthal?

  Pretty good.

• 3:35:20Ben Gilbert?

  The question sort of comes back to what conditions enable a business to grow like that for that long? It's global applicability, it's the margin structure you're talking about, where you can take in commodities and spit out brands, it's the operational efficiency of doing it, it's the reoccurring purchase that has habitual, if not addictive, component to it.

• 3:35:45David Rosenthal?

  It's the scale economies of being able to achieve and maintain number one dominant market share over many decade-long periods.

• 3:35:55Ben Gilbert?

  Yep. It's pretty amazing that those things come together in a way that make it possible to grow at 14% for a century, if executed well.

• 3:36:02David Rosenthal?

  Wild.

• 3:36:04Ben Gilbert?

  All right, David, we are into the quintessence.

• 3:36:06David Rosenthal?

  Quintessence.

• 3:36:08Ben Gilbert?

  Listeners, this is a new thing that we added as we tried to figure out, how do we land the plane? What is the big takeaway that we can't stop thinking about after talking through the whole story of the episode?

• 3:36:19David Rosenthal?

  Great. I'll go first. Couple of things about this company. One, Man, Forrest Senior was such a freaking G. And because the company is so private, like, nobody knows about him. But he should be right up there with Sam Walton, Henry Ford, with the very, very greatest American entrepreneurs of all time. He was truly a genius. I think probably had a lot of complications and faults in his personal life.

• 3:36:47Ben Gilbert?

  Which is the same thing as basically everyone we cover on this show.

• 3:36:50David Rosenthal?

  Rockefeller, all of them, yes. But when it comes to business and entrepreneurial leaders, he's one of the greatest.

• 3:36:59Ben Gilbert?

  Yep.

• 3:37:00David Rosenthal?

  For sure. Okay, so that's one. That's not necessarily the quintessence of the company. But I feel like we need to say that just because it's not like a widely accepted fact.

• 3:37:09Ben Gilbert?

  Totally.

• 3:37:09David Rosenthal?

  Two, though, you know, we have not yet studied Coca-Cola. We haven't studied Procter and Gamble. So with the caveat that those companies and ones like them probably also fit this bill, I think Mars is one of the first modern companies.

• 3:37:25Ben Gilbert?

  Hmm, that's interesting.

• 3:37:26David Rosenthal?

  You know, everything that Forrest was doing back in the 30s, when he was starting, were like radical and now are just completely widely accepted.

• 3:37:37Ben Gilbert?

  Yeah.

• 3:37:38David Rosenthal?

  Everything from open office structures to diversification, to getting into pet food, to seeing that dogs and cats were going to become part of families.

• 3:37:47Ben Gilbert?

  Maximizing yield on equipment for efficiency.

• 3:37:49David Rosenthal?

  Maximizing yield, operating, managing companies in a scientific way, getting into television advertising, you know, all of it. He was like really, really visionary on this stuff. In an era where none of his competitors were doing this. I mean, God, the market research and the positioning that they did with M&Ms, taking what essentially was a failed product and then doing the research to understand who the target consumers were and who the target buyers were and how that was different, and then tailoring marketing messages appropriately for that. Way, way, way ahead of its time.

• 3:38:26Ben Gilbert?

  Yep, you're so right. It's funny, that leads me all to my quintessence of this episode is how path-dependent the outcome was.

• 3:38:38David Rosenthal?

  Hmm.

• 3:38:39Ben Gilbert?

  And what I mean by that is, could you do all of the things that Forrest Mars did to create a company like this today? No, you could not. It required being in that place in that time with that technology and that competitive set. And this is probably true across all episodes, but it just strikes me in the face right now that he needed to have the chip on his shoulder from the relationship with his dad. He needed the assets that he got from his dad when he went to Europe.

• 3:39:09David Rosenthal?

  Yeah. Oh, even before that. I mean, he wouldn't have gone to Yale if it weren't for his dad finally becoming somewhat wealthy. And if he hadn't gone to Yale, he wouldn't have gotten exposed to the DuPonts. Yes, so many path dependencies here.

• 3:39:23Ben Gilbert?

  Right. He happened to be a American capitalist competing against British Quaker and British Quaker inspired competitors. Industrialization and mechanization, the timing of television and commercials and grocery stores when it did. All of these were brilliant decisions executed within the context of his time. But you needed to be in that time, in that place, in that specific situation in order to pull any of this off. So the question is, how do you do this today with a completely different playbook?

• 3:39:54David Rosenthal?

  Yep. You don't. You build your own company. Because all of the great companies that we study are their own companies.

• 3:40:00Ben Gilbert?

  Yep. Exactly right.

• 3:40:01David Rosenthal?

  Love it.

• 3:40:02Ben Gilbert?

  All right. Before we get to carve outs, I have one piece of trivia for you.

• 3:40:06David Rosenthal?

  Oh, I love trivia.

• 3:40:08Ben Gilbert?

  So you mentioned that the Hershey Trust is responsible for maintaining the Milton Hershey School, which started as a school for orphans and now is a school for students that come from low income families or sort of need a home or, you know, just need a benefit from what the school provides. David, how big is the endowment of the Milton Hershey School?

• 3:40:30David Rosenthal?

  I think it is by far the largest endowment of a secondary school in America and assuredly the world.

• 3:40:37Ben Gilbert?

  Yes.

• 3:40:38David Rosenthal?

  I want to say it's like 10 or 15 billion.

• 3:40:41Ben Gilbert?

  Yep, $17.4 billion.

• 3:40:44David Rosenthal?

  Yeah, for a high school.

• 3:40:46Ben Gilbert?

  Well, it's some younger than that, but the enrollment of the school is 2,200 students. And so the endowment dollars per student, I assume, are the absolute highest anywhere in the world.

• 3:40:59David Rosenthal?

  It is totally incredible. I mean, we debated when we first set out to do this episode, whether it should be about Mars or Hershey. We ultimately decided Mars because these days it's the bigger and more important company. But the Hershey story is freaking wild.

• 3:41:13Ben Gilbert?

  Milton Hershey gave the whole company to the Hershey Trust.

• 3:41:16David Rosenthal?

  Yeah, which operated a school for orphans, like a high school for orphans that owns the company.

• 3:41:22Ben Gilbert?

  The primary shareholder has a primary purpose that is maintain the school.

• 3:41:26David Rosenthal?

  Right. It is a very specific mission to support this school.

• 3:41:31Ben Gilbert?

  They have a hard time spending all the money. I mean, they're never going to get close to actually spending the endowment dollars or have any risk of spending the endowment dollars. Just think about what 4% of $17 billion is a year and think about what the required budget is to run a 2,200-person school.

• 3:41:44David Rosenthal?

  Yeah, totally wild. Love it. Okay, carve-outs.

• 3:41:48Ben Gilbert?

  I got three. One, we've already talked about Dandelion Chocolate. These people are the best. The factory is so freaking cool and the chocolate is absolutely amazing. They are a part of the Bean-to-Bar Movement. So they source beans that are not commodity beans. They specifically source single-origin beans. They go the extra mile to, you know, remove any imperfections. And then in a very craft way, they make some of the best chocolate you've ever tasted.

• 3:42:17David Rosenthal?

  It really is like the wine industry.

• 3:42:20Ben Gilbert?

  Yeah, I think I speak for you too. We're both very grateful to Todd, Elaine, and the team there for just kind of taking us through it all and explaining how chocolate is made. It was very cool. So if you're looking for any late holiday gifts or just any good chocolate, I can't recommend Dandelion enough.

• 3:42:36David Rosenthal?

  Well, you stole one of my carve-outs. Dandelion was one of my carve-outs. But specifically, the Dandelion Advent Calendar.

• 3:42:43Ben Gilbert?

  Didn't you buy that for Jenny?

• 3:42:44David Rosenthal?

  Which, thanks to our relationship with the company, yes, I got the opportunity to buy. I bought the double so that Jenny and I can both enjoy every night.

• 3:42:51Ben Gilbert?

  Ooh.

• 3:42:52David Rosenthal?

  Oh, my God. This is the single greatest advent calendar that has ever been created in the history of mankind. The artwork, the design, the presentation, it's like, this is if Hermes made an advent calendar with all of the presentation and the objectness. So like every day is an ornament that can go on the tree. It's so great. And then the chocolate inside. They partnered with chocolatiers all over the country, I think maybe even internationally, all over the world to just highlight some of the very best talent in the chocolate making industry globally. Anyway, amazing. Dandelion, they're so great.

• 3:43:29Ben Gilbert?

  All right. My second one, I think a while ago, I mentioned I got a Tesla Model Y, which is just an awesome car. It's just great. Went out the other day, noticed that there was a bolt sticking through the tire that we had driven over and the tire was flat. I opened up the app and within 90 minutes, there was somebody at my house that was taking off the wheel, throwing it in a truck, putting on a temporary wheel. So I was good to go immediately, you know, within 90 minutes. And then two days later, it showed back up at my house. They had repaired the issue with the tire, pumped it back up, gave me my wheel back, took the other wheel. I didn't have to do anything. I'm just standing there. And the whole thing cost me like 120 bucks.

• 3:44:14David Rosenthal?

  Wow.

• 3:44:15Ben Gilbert?

  It was like the best car service experience I've ever had in my life.

• 3:44:19David Rosenthal?

  That's pretty awesome. It is wild how different Tesla is from other car companies. The Model Y is the best family vehicle ever created by mankind. It's like the Model T of our generation.

• 3:44:33Ben Gilbert?

  Yeah, it totally is.

• 3:44:34David Rosenthal?

  So great. Okay, that's number two. You got one more?

• 3:44:37Ben Gilbert?

  Last one. I think last year I carved out Silo. Silo season two is here on Apple TV, and it is excellent.

• 3:44:45David Rosenthal?

  Ah, yeah. Per usual, par for the course for me, I have not watched any of it, but I did read the book and the book is excellent.

• 3:44:52Ben Gilbert?

  You read Wool?

• 3:44:53David Rosenthal?

  I read Wool, yep.

• 3:44:54Ben Gilbert?

  It's great, though. I mean, a lot of times, shows, I think, have a hard time maintaining their season one into momentum into two and two into three, and there's no problem with that here.

• 3:45:02David Rosenthal?

  Didn't you get to meet the author a while back?

• 3:45:05Ben Gilbert?

  Hugh, yeah, he's great. He's really great.

• 3:45:08David Rosenthal?

  All right, I had one other besides the dandelion advent calendar, which is the movie Home Alone. This is sort of a humorous one, but since this is a nostalgic episode about our childhood and the holidays, Home Alone was my very, very, very favorite movie growing up as a kid. I saw it in theaters when it came out. I was the perfect age. I think Macaulay Culkin and I are roughly the same age, give or take a year. Loved it so much. After Thanksgiving holiday travel this year, I have a whole new appreciation for that movie, which is the perspective of the parents.

• 3:45:45Ben Gilbert?

  Did you leave one at home?

• 3:45:47David Rosenthal?

  No, but I almost-

• 3:45:48Ben Gilbert?

  Did you come close?

• 3:45:49David Rosenthal?

  I now understand exactly how it could happen. And I am excited to watch it again at the holidays this year through the lens of mom and dad.

• 3:46:03Ben Gilbert?

  Nice.

• 3:46:04David Rosenthal?

  Yeah, Thanksgiving travel was pretty wild this year. We went back to Pennsylvania to visit my parents and it was exciting on the plane ride there, I'll put it that way. And the most awesome moment, though, I mean, it was, this was one of those plane trips as a parent where, oh, man, like, the lowest of the lows, shall we say.

• 3:46:25Ben Gilbert?

  You're sorry for everyone around you.

• 3:46:26David Rosenthal?

  Sorry for everyone around you, but the most amazing thing happened. We landed after the five and a half hour flight and a very kind gentleman, sitting in the seat directly ahead of my three-year-old daughter, who was causing ruckus the whole time and kicking his seat, etc., he turned around, he said- Are you David from Acquired? I was like, yes, I'm sorry.

• 3:46:48Ben Gilbert?

  You're like, oh, no, I've been identified.

• 3:46:50David Rosenthal?

  Oh, no, oh, no. And he's like, I've been listening to you the whole flight. And then some other people in the rows started popping up, be like, oh, I've been listening. It was a-

• 3:46:58Ben Gilbert?

  Wait, multiple people were popping up and saying?

• 3:47:01David Rosenthal?

  Yeah, that they listened to Acquired and either had been listening on the flight or these are their favorite episodes or it turned what was like a truly one of the lowest lows of my parenting journey into a wonderful memory. So, thank you to you all on that flight from SFO to Philadelphia, the day before Thanksgiving.

• 3:47:19Ben Gilbert?

  After watching your daughter kick someone's seat for five hours, you have to be like, I really hope that guy doesn't ever know who I am.

• 3:47:24David Rosenthal?

  Yeah, yeah, yeah. Yeah, that was my first reaction too of like, oh, no. But, but no, it turned into the most wonderful turnaround of the day.

• 3:47:35Ben Gilbert?

  Wow, wow, wow. All right, listeners, well, with that, special shout outs to Arvind Navarotnam at Worldly Partners for his awesome, awesome write up on Mars. There's way more data in that than we were able to describe on air. So if you want to see some great charts, industry stats on chocolate over the years, on sugar consumption, on Hershey, on Mars, on the whole competitive set, it's linked in the show notes. I can't recommend reading through his whole PDF enough.

• 3:48:03David Rosenthal?

  Arvind is so great.

• 3:48:04Ben Gilbert?

  So great. To Todd at Dandelion Chocolate, as we mentioned.

• 3:48:08David Rosenthal?

  Yes, and also Clara Shen, who works at Dandelion as well and chatted with me and had a lot of great insights also on the industry and on Mars.

• 3:48:16Ben Gilbert?

  Yeah. To Gary Gittard, who I'm sure many of you have eaten Gittard chocolate, either directly by knowing it or indirectly by not knowing it, as they are the chocolate supplier to many excellent chocolate companies around the world.

• 3:48:28David Rosenthal?

  Including the world famous Sees Candies.

• 3:48:32Ben Gilbert?

  Yes, which I didn't know how much I enjoyed Gittard chocolate until, well, I realized how much of it I'd eaten through Sees.

• 3:48:41David Rosenthal?

  Yes. Speaking of trivia, I've got one for you related to Gittard. Before Milton Hershey started making chocolate in 1900, there were three chocolate producers in America who predated him, and I believe all of which are still operating, making dark chocolate, not milk chocolate, obviously, at the time. One of which- Was Guitarr here in San Francisco. Do you know who the two others were? I don't think you will get the one on the East Coast, but the third was also located here in San Francisco.

• 3:49:15Ben Gilbert?

  Ghirardelli.

• 3:49:15David Rosenthal?

  Ghirardelli, yep.

• 3:49:16Ben Gilbert?

  Yes.

• 3:49:17David Rosenthal?

  And then the

• 3:49:18Ben Gilbert?

  East Coast, I don't know.

• 3:49:19David Rosenthal?

  The one on the East Coast was Walter Bakers in Massachusetts, I think.

• 3:49:22Ben Gilbert?

  Oh, shoot, I did know that, yeah. Yeah, Baker is sort of like the godfather of chocolate in the US, right?

• 3:49:28David Rosenthal?

  I think that's right. I think that's right. But it's super interesting how two manufacturers popped up here in San Francisco in the 1800s.

• 3:49:36Ben Gilbert?

  Nice climate for it, before air conditioning at least.

• 3:49:39David Rosenthal?

  And then one more big thank you to say on multiple fronts to Joelle Glenn Brenner, the author of Emperors of Chocolate and the only journalist ever to get access to Mars. One for just reading the book. We read a lot of business books, business histories here on Acquired, and Emperors of Chocolate is one of the greats. It's a total Paige Turner. And then also thank you to her for chatting with me as we were preparing. She was very, very helpful in clarifying a few points and getting the story behind the stories. Can't recommend the book enough. Go check it out.

• 3:50:13Ben Gilbert?

  Great. Well, if you liked this episode, go check out our other episodes on LVMH, Sony, or Berkshire Hathaway, if conglomerates are your thing, or for more complex manufacturing, Novo Nordisk, the makers of Ozempic. Or if you want something more recent, check out ACQ2. We just had that awesome conversation with the CEO of Arm Holdings, Renee Haas, if you're looking for more semiconductors in your life. And if you want to discuss it, please come join us at acquired.fm/slash/Slack with the other smart, respectful, kind folks there. With that, listeners, happy holidays, and we will see you next time.

• 3:50:49David Rosenthal?

  We'll see you next time.