Sunday, January 6, 2008

Chocolate Wars

One of the special rights of passage for many children is a visit to Hershey, Pennsylvania, and, in particular, Hersheypark. The sweet smell of chocolate hangs over the entire town. The park itself is clean, affordable, and scaled perfectly to its young clientele. And, not far away is a store and presentation center which tells the history of Hershey chocolate, including playing some of those great, old nostalgic ads (like “the Great American Chocolate Bar”).

It takes some doing to hold onto that warm and fuzzy feeling as you make your way through Joel Glenn Brenner’s The Emperors of Chocolate. A look behind the scenes at the manufacture and sale of chocolate products reveals the same down-and-dirty competitive world that exists in every other industry around the globe.

A reporter for the Washington Post, Brenner was assigned in 1989 to write a feature about Mars, Inc., detailing the company’s response to Hershey’s emergence as the nation’s No. 1 candy maker. When she checked the files on Mars, Brenner found exactly one press interview, in 1966, ever granted by Forrest Mars, Sr. (sometimes called the Howard Hughes of Candy). It took Brenner more than a year of weekly calls and cajoling to convince Mars to cooperate.
Over the next two years, I was given full access to the company’s operations around the world . . . I was given access to the Mars family’s personal archives and the company library, and allowed to interview—for the first time ever—John and Forrest Jr., who run the company today.  I found a world as peculiar as that depicted in the Roald Dahl fantasy Charlie and the Chocolate Factory. The company bears the indelible mark of its patriarch, Forrest Mars, Sr., whose idiosyncratic management philosophy has helped Mars become one of the most productive and profitable privately owned companies in the world. The resulting story in The Washington Post Magazine attracted national attention and won several awards. It also outraged the Mars family, who promptly closed their doors to me and haven’t spoken to a reporter since.
Brenner went on to discover through her research that one of the “M’s” in Mars’ “M&M” candy stood for R. Bruce Murrie, the son of Hershey’s longtime president. “I knew that somewhere in the tangled relationships between Mars and Hershey lay the true story of both companies.” So, she spent two years in Hershey, Pennsylvania, with the resulting book being a detailed focus around the careers of Milton Hershey and Forrest Mars, Sr.—the so-called Emperors of Chocolate.

The story of these two giants, and many of the lesser but still impressive players like Tootsie Roll and Henry Heide, is fascinating—a world of cutthroat competition, corporate espionage, and commodity purchases that can make or break the economies of certain small countries. But, as someone who grew up on the Great American Chocolate Bar, the single most startling fact in the book—and there are many--is the repugnance with which most of the world outside the United States views milk chocolate. To a European, milk chocolate is a slightly sour, barnyard variety chocolate not really fit for human consumption.

In the November 7 issue of Conde Nast Portfolio, Alexandra Wolfe reports on "Chocolate Wars," which introduces into the mix a modern-day giant—Warren Buffett, whose company owns See’s chocolates of San Francisco—and a proposal before the F.D.A. to redefine what is and what is not chocolate.

The competition turns out to be just as bruising as ever, and the stakes just as high in this $16 billion dollar industry. Here are a handful of take-aways from the Conde Nast article:
1. For as long as chocolate has been made, it’s been smoothed out with the elixir called cocoa butter, an emulsified form of cacao that gives the finished product its silky texture. In the United States, the F.D.A. mandates that a product can’t legally be labeled as chocolate unless cocoa butter is part of the formula. But because of a drought and political violence in Ivory Coast, a major source for cacao beans, the price of cocoa butter has skyrocketed. This has prompted some of the major chocolate makers, Hershey among them, to lobby the F.D.A. by way of a trade-group petition for a change that would let them substitute such cheaper ingredients as vegetable oil and dried milk for cocoa butter and still call their products chocolate.

2. The cocoa-butter controversy began in October 2006 at a Washington board meeting of the Chocolate Manufacturers Association, a trade group dominated by the biggest names in chocolate: Hershey, NestlĂ©, Mars, and Archer Daniels Midland. The board was considering whether to support the Grocery Manufacturers Association, which includes some chocolate makers, in petitioning the F.D.A. to update U.S. food standards. The grocery manufacturers group, which happens to be chaired by former Hershey C.E.O. Richard Lenny, routinely submits such petitions when changes in food science demand it. But deep within the fine print of the document—in the last section of a 12-page appendix—lurked the clause allowing the cocoa-butter substitution. Most small chocolate makers were absent from the meeting, and there was no vote on the petition.

Premium-chocolate makers and their allies. . .soon banded together and created a website, They denounced the proposed change as a “mockolate conspiracy” and bombarded the F.D.A. with protest letters and emails. As a result, the F.D.A. extended the public comment period and said it wouldn’t be deciding anytime soon.

3. Complicating matters is a dramatic shift in the chocolate market. Since 2001, sales of premium chocolate have climbed 129 percent, while at some large manufacturers, sales of mass-produced chocolate have declined. During the first six months of 2007, Hershey’s earnings dropped to $97 million, compared with $220.4 million in the same period of 2006. Mix in the sharp spike in cocoa-butter prices, and big chocolate makers have found themselves in a jam. Earlier this year, Hershey announced plans to shut down at least three of its 17 plants in the U.S. and lay off thousands of workers.

4. But many of the smaller chocolate makers see the effort to replace cocoa butter as a ploy that would allow the major companies to cut costs without risking their reputation—or sales. And that, the smaller companies argue, would not only mislead consumers but also give mass chocolate makers an unfair advantage.

5. To detractors of the proposed change, what’s at stake is the very future of the nation’s chocolate industry and its $16.3 billion in annual sales. Buffett’s interest is certainly pecuniary. His holding company, Berkshire Hathaway, got into the chocolate business when it bought See’s, an old-line San Francisco Bay Area chocolate maker, for $25 million in 1972. Given that See’s sales, these days more than $300 million annually, depend largely on the company’s reputation for quality, there are no plans to mess with any formulas, Buffett says. “If you’ve got recipes that people like, you don’t change them.”

6. The potential savings are substantial. By substituting other vegetable fats, chocolate makers could shave at least 50 cents a pound off the cost of producing their candy, estimates Fabrizio Parini, vice president of marketing for Ghirardelli Chocolate, which opposes the change.

Furthermore, premium-chocolate makers fret that the change could spark a consumer revolt against all chocolate. “It would be like saying margarine spreads could be called butter,” says Brad Kinstler, See’s chief executive.