The impact of Kraft on Cadbury’s Quakerly good intentions

Deborah Cadbury

Deborah Cadbury is author of ‘Chocolate Wars’ published by Harper Collins

Kraft’s multi-billion-dollar bid for Cadbury brought a decisive end to an era when Britain’s iconic confectionery firms – created as family businesses in the 19th century – were the largest chocolatiers in the world.

Today, Rowntree of York and Mackintosh of Halifax are part of Nestlé, the world’s biggest food company, while Fry of Bristol, Terry of York and, finally, Cadbury of Birmingham have been swallowed by Kraft, the world’s second largest food company.

The scale of these behemoths is staggering. The Swiss Nestlé has annual sales of more than $104 billion, providing income that exceeds the GNP of many small countries, and sells one billion products a day worldwide. Although Cadbury had annual sales of £6 billion in 2009, it was still a mere minnow compared with Kraft, which was five times larger.

The British press was hostile to the takeover, pointing to the fate of the much loved chocolate firm Terry under Kraft’s leadership. Chocolate production has moved to Eastern Europe and the historic factory in York, created in the 1860s by Joseph Terry, closed in 2005. Cadbury’s managers wept when they told staff that Kraft’s bid was successful. That sense of loss is still palpable today among former employees and the fear remains that Cadbury’s fate might mirror that of Terry. What will be sacrificed next to meet shareholders needs for short-term returns and to service Kraft’s gargantuan debt? Will Kraft’s managers see Cadbury’s workforce as a disposable liability, swelling the red column of some balance sheet on a different continent? The jury is still out. Kraft have promised investment but the closure of the Somerdale factory and recent announcement that jobs will be lost at three Cadbury plants will do nothing to quell these fears.

“That sense of loss is still palpable today among former employees and the fear remains that Cadbury’s fate might mirror that of Terry.”

Easily overlooked in the furore is that the fate of Cadbury was influenced by decisions taken years earlier when Nestlé made a bid for Cadbury’s long standing rival, another former family firm: Rowntree. In 1988 Dominic Cadbury, the last family chairman, approached the Department of Trade with a potential solution. Cadbury could keep Rowntree British, but only if local competition rules could be relaxed. He pointed out that the two companies shared a common Quaker heritage and combined would become a British confectionary giant. Civil servants in the 1980s, not thinking of global market share, gave permission for Nestlé, not Cadbury, to buy Rowntree. It was a fork in the road that sealed the fate of both Rowntree and Cadbury. In the fast-growing globalised economy, Cadbury did not have the scale to take on the Swiss giant that overnight acquired a large foothold in the British market.

So have the British been – well, just a little too British – about sharing their famous former family businesses? Through their rules of share ownership, the Swiss have traditionally protected Nestlé, allowing their food business to flourish. In many other countries too, the demise of such famous family companies would be unthinkable. What is lost is not just the value of these companies to Britain, but also that sense of identity and the spirit of the business that has evolved historically over the generations.

Photo by Food Photographer | Jennifer Pallian on Unsplash

The Cadbury family business began with Quakerly good intentions in the early 19th century when a far-sighted forebear, Richard Tapper Cadbury, sent his youngest son, John, to find out about the new commodity, the cocoa bean, that was on sale in London’s bustling colonial market. Was there a future in the unpromising black bean? John, a dedicated advocate of Temperance, worked hard to help Birmingham’s undernourished poor who all too often saw the oblivion of drink as a solution to their troubles. John was convinced a chocolate drink was a nutritious alternative.

In Georgian Birmingham, his shop in Bull Street was a great novelty, the rich aroma of chocolate pervading the air. So confident was he of the success of his new drink that within a few years he took a leap into manufacturing.

A journalist, Walter White, who visited his chocolate works in 1852 was evidently charmed and described a scene that could have come straight from Charlie and the Chocolate Factory. There were four vast rotating ovens for roasting the beans, he wrote, and much ‘pressing and pounding’ in a room where ‘shafts, wheels and straps kept a number of strange-looking machines in busy movement.’ The resulting chocolate river owed ‘leisurely like a stream of half-frozen treacle.’ Even the polite factory girls in their clean white pinafores meet his approval: they were ‘a veritable school of morality and industry.’

Despite this, when John’s sons, 21-year-old George and 25-year-old Richard took over in 1861, the little factory was still struggling. Under their leadership, the business was transformed into the world’s largest chocolate company. Even more surprising, the most austere religious principles informed the brothers’ business ethics from the outset, leading to counter intuitive solutions unfamiliar to a company chairman today. When they had no orders and money was tight, did they sack their staff? No – they took them on outings to the country to improve their health. When faced with tough decisions, did they exclude the workforce? No – they invited their staff into their office to pray with them for guidance.

“Even more surprising, the most austere religious principles informed the brothers’ business ethics from the outset, leading to counter intuitive solutions unfamiliar to a company chairman today.”

As Quakers, George and Richard Cadbury, as well as their fellow Friends and rivals, Joseph Rowntree in York and Joseph Fry in Bristol, were part of a remarkable business culture fashioned in England’s Civil War. For them, the idea that wealth creation was for personal gain only was offensive. Wealth creation was to benefit everyone involved: the workforce, the local community, and society at large, as well as the entrepreneurs themselves. Reckless or irresponsible debt was seen as shameful and harshly punished within Quaker circles as a form of thievery, which placed an obligation on someone else to pay for your mistakes. Even advertising was dismissed; the quality of the product mattered far more than the message.

If the rules seem a little stringent for any aspiring entrepreneur, I was surprised to learn when researching my book, Chocolate Wars, of the great success of this form of benevolent capitalism in the 19th century when around 4,000 Quaker families ran 75 Quaker banks and more than 200 Quaker companies. Many of these enterprises are familiar names to this day: Darby’s iron works, Barclays and Lloyds banks, Clarks and K shoes, Huntley and Palmer, Bryant and May, not to mention the chocolatiers: Cadbury, Rowntree and Fry.

“I was surprised to learn when researching my book, Chocolate Wars, of the great success of this form of benevolent capitalism in the 19th century when around 4,000 Quaker families ran 75 Quaker banks and more than 200 Quaker companies.”

In true Quaker spirit, as the business expanded in the late 19th century, George and Richard Cadbury built a ‘factory in the garden’ at Bournville, to remove their workforce from the slums of the inner city. This expanded into a model village, with cottages for staff nestled around the chocolate factory. In time came schools, churches, hospitals and men and womens’ recreation grounds. A pension scheme was introduced for staff, along with unemployment benefit, sick pay and a free dentist and doctor – all well before this was a legal requirement. Joseph Rowntree, inspired by Bournville, consulted George over his plans to repeat the experiment in York. The charming village of New Earswick was the result.

A third generation of Cadbury cousins in the 1920s and 30s faced increasingly powerful and savvy global competitors. The small home market in Switzerland had encouraged Swiss bankers to back a series of mergers of family chocolatiers under one umbrella, Nestlé – that had the resources to reach into foreign markets. Meanwhile, in America, a family rift in the Mars family, prompted Forrest Mars to leave his father’s factory in Chicago and come to Slough in England, equipped with the foreign rights to Milky Way. He created the Mars Bar and within a year had sold two million bars.

Photo by Kristiana Pinne on Unsplash

The far reaching changes brought by global competition are well illustrated through the chocolate wars. One feature of the Kraft takeover highlights a particularly crucial point: the changing notion of ownership inherent in today’s shareholder capitalism. At the start of the bidding process, hedge funds owned just five per cent of Cadbury, but as the takeover deadline approached this had increased to more than 30 per cent. Most of these hedge fund managers were happy to sell for a mere 20 pence profit. Effectively, people who had not owned the company a few weeks earlier and had no intention of owning the company a few weeks later, had a critical say over its very survival. The shareholders are meant to be the owners of the business, but in our globalised economy, they are not acting as the ‘owners’ – not in the sense understood by those stalwart 19th century Quaker stewards, those watchful champions of the long-term future of their company and the local community.

The Quaker pioneers firmly believed that your soul ‘lived or perished according to its use of the gift of life’ and acted accordingly. It is hard to detect any trace of this thinking in today’s boardrooms. While few would mourn the separation of religion and business, have we also lost touch with business morality as those highly successful family firms have been absorbed into today’s corporate culture of self-interest?

It seems that as I look at the photographs of those early entrepreneurs, their serious faces chiselled by hard lives, not forgetting the powerful heavenly requirement of keeping the tally, they knew how to build a business – but not at the loss of their humanity.