Life on Mars
from Winter 1999
by Bill Saporito
There are privately held companies. There are those that are closeted, secretive, even paranoid. And then, farther out yet, there is Mars Inc. We know more about Mars the red planet than we do Mars the confectioner.
Consider how the company handled the news this summer when, at age 95, the corporate patriarch, Forrest E. Mars Sr., reached his expiration date. The Hackettstown, New Jersey-based company merely threw out that fact without further comment. Left it on the curb to be picked up like a discarded candy wrapper and shut the door again. No encomiums from family members or associates about one of the unique businessmen of the century; no memorials. Mars was officially mum.
Yet the death of Forrest Mars set tongues wagging in the industry, and on Wall Street. Would his three children—Forrest Jr., 68, John, 64, and Jacqueline Mars Vogel, 60—continue to own and run the company their father built? Would they pass it along to their 10 children, a half-dozen of whom are active in the business? Or would the Mars family cash in its chips, taking the enormous payout available from a company that, in addition to being a major force in the confectionary business, is also the world’s leading maker of pet food? And—to think the unthinkable—might the obsessively private Mars go public? It may have to in order to get the shares it needs to make acquisitions in these days of stock-backed deals.
Of course, if the company were simply sold, a number of big packaged-food companies, such as Nestlé, Unilever, PepsiCo, Coca-Cola, and perhaps even Cadbury-Schweppes, might be interested. Mars could easily bring a $20 billion to $25 billion valuation. But as with everything related to Mars, it’s tough to know exactly what the company is worth because of the dearth of information. Here’s what we do know: Mars has at least $15 billion in annual sales, and that figure is probably growing by 4% to 5% a year. The company is only modestly profitable, however, largely because it has had to spend big over the past decade to defend its market share, particularly in pet foods. Last year, for instance, its Sheba brand cat food lost six share points, according to Advertising Age. On the plus side, the company has little or no debt.
Mars owns some of the top candy brands in the world, including M&M’s, Mars Bars, Snickers, and 3 Musketeers, as well as Uncle Ben’s, a leading but now flagging rice mix brand. The company is one of the top dogs in pet foods with its Whiskas, Pedigree, and Sheba labels. It also has a food business in Europe and Australia, along with all kinds of food operations in countries as diverse as Argentina and Russia.
Every discussion about Mars and its future orbit must start with its very unusual founding family. If Milton Hershey set a standard as a caring, community-minded candy capitalist, which he did, then the Mars clan sits at the opposite pole. Forrest Mars had one goal: to build a business empire. He cared little about anything else, and if he undertook any charitable work, it remains anonymous. His treatment of his children is out of the Daddy Dearest School of Parenting. He harassed and demeaned Forrest Jr. and John throughout their adult lives—reflecting, perhaps, his own tortured relationship with his father, Frank.
It was Frank C. Mars, a thrice-failed candy maker from Tacoma, Washington, who actually got the ball rolling in the mid-1920s when, at his son Forrest’s suggestion, he created a candy that mimicked a malted milkshake. He called it Milky Way. The product was a smash, but not so the father-son relationship. The two shared limited affection and, in 1932, after Forrest demanded one-third of the business, Frank told him get lost. Forrest did one better. He went to England with $50,000 and the foreign rights to Milky Way. He tweaked the candy for British tastes, renamed it Mars Bar, and within a few years had built a thriving business. He created M&M’s, the story goes, after seeing soldiers eat a similar sweet during a visit he made to Spain during its civil war. Forrest Mars would later sell billions of the candy pellets to U.S. servicemen, who brought their chocolate habit home with them after World War II. Frank died in 1934, at 50. Forrest moved back to the states in 1939 and eventually bought out his father’s business.
Forrest Mars was in some ways a visionary. Long before total quality management became popular, he obsessed over producing perfect candy. Even today, the company rejects products for the tiniest flaws, and holds goods made for both human and pet consumption to equal standards. Managers are expected to personally taste-test Whiskas, Pedigree, and Sheba lines for quality and consistency, for example.
Mars was also an early proponent of open-plan offices, and of pushing responsibility downward. When he finally won control of the company, he proceeded to destroy every perquisite known to management-kind: company cars, executive dining rooms, and private offices among them. Today, if you venture into Mars’ New Jersey headquarters, you’ll see a completely open office with desks arranged in concentric circles. It reflects a hierarchy of job zones that determine pay. Everyone punches a clock. There’s even a 10% bonus for punctuality. Secretaries? Forget it. And, of course, there’s that penchant for secrecy. No pictures of Forrest and John have been published since their college graduations in the fifties. Nor are there any pictures of Mars’ senior executives. And they never, ever, speak to the press about the company.
Forrest retired to Las Vegas in 1973 to set up his own fine chocolate business and his two sons took over the company. But that did not mean they would be spared his vicious temper. Former Mars managers say the old man would call to upbraid the pair from a distance, telling them in so many words that they weren’t good enough to bag M&M’s, never mind run the company.
For all their Yale educations, the brothers’ interpersonal skills are boorish and have shocked some outsiders who have been exposed to them. Forrest Jr., for example, was known to belch, pick his nose, and take off his shoes and socks during meetings. John is known for his impatience and insularity.
The pair are also legendarily tight with a dollar, flying coach and driving compact cars when traveling on business. Some Mars managers in England have learned to dress down when the boys are in town. Determined to protect the family business, the brothers have focused more on asset utilization than product innovation. “Neither of these guys is equipped to run a multibillion-dollar company,” one of their former executives told Fortune in 1988.
When the world was a much larger place, and the competition less consolidated, Mars enjoyed years of unchallenged growth. Forrest Sr. clearly foresaw the globalization trend and made territorial expansion a prime goal. One of Mars’ core competencies, in fact, has been its ability to get up and running quickly in new markets. Mars was so successful in establishing its Snickers brand in Russia in 1991 that nationalist critics began to talk about the “Snickers economy” and “Snickerization.” This came only after investing hundreds of millions in food and confectionary plants in Russia, however, and the country’s economic crisis has thrown the investment back into Mars’ face. “They bet the ranch on Russia,” says Prudential Securities food analyst John McMillin. They lost, or have for now.
Meanwhile, back in the western world, Mars has been left somewhat behind in the industry merger boom of the past 15 years. Nestlé has spent more than $5 billion on acquisitions that include Rowntree in the United Kingdom and the Butterfinger and Baby Ruth brands in the United States. The latter “enrobed chocolate” products would have been perfect fits for Mars’ production expertise. Philip Morris, meanwhile, spent $1.5 billion to acquire Jacob Suchard (maker of Toblerone, among other chocolates), while Hershey, never mistaken for a superbly managed company, blew by its bigger rival by assembling market share through acquisition (Cadbury’s North American business) and innovation (Hugs and Reese’s Pieces). Hershey now has twice Mars’ share in non-chocolate candy and leads Mars 42% to 27% in chocolate. Other than buying the high-end Dove chocolate line, Mars has been unable or unwilling to sign a big deal. Furthermore, a rising stock market has left it without a currency with which to shop.
In pet foods, Nestlé is again an issue. The Swiss swallowed Carnation in the ’80s and, more recently, the Spillers brand in the United Kingdom. And then there’s Ralston Purina, the U.S. powerhouse, which has restructured itself into a leaner competitor. As of last spring, Mars also has had to deal with Procter & Gamble. P&G paid $2.3 billion for Iams, which makes “scientific” pet food—in other words, pet food designed for the health-conscious pet owner. Although Mars doesn’t compete in this high-margin segment (its own attempt at high-priced Fido food failed), don’t expect P&G to stay up-market forever.
The power of its competitors to entice human and animal palates means continued tough sledding for Mars. Says Prudential’s McMillin: “You try to make some assumptions about Mars, and my assumption is that they don’t have enough executive talent, and they’re trying to juggle too many balls in the air.”
During the last decade, Mars has been a company marked by constant upheaval, particularly at the upper reaches of its executives. Once, it could recruit managers by offering premium pay packets. But in a world where stock options are now the compensation of choice, Mars’ fat salaries are less attractive.
Credit must be given to its professional managers, a group that often has been collaterally burned by the friction within the family. At least one heat source is gone, though: Forrest Jr. retired this year, leaving the operation in the hands of younger brother, John.
John Mars may be feeling the urge to show what he can do running the company solo. In the last year, it has begun to act far more innovative, introducing line extensions such as crispy M&M’s and Starburst Hard Candies, for instance.
But Mars is navigating in a changing universe. There are rumors afoot that Philip Morris, which owns a $4 billion dollar a year chocolate business led by its Suchard operation, wants to get out of the category. Is Mars the logical buyer? Suchard’s assets, which include higher quality European chocolate brands and a modest U.S. business, would be a perfect fit for Mars. But in these days of stock swap acquisitions, where would Mars find the estimated $10 billion it might need for such a purchase? As a private company, Mars has proven unable to pull off such a transforming acquisition. By putting itself on the market first, such acquisitions would be easy. A public company could issue Mars shares like so many M&M’s, and make some yummy deals. How about it, kids?
