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Part I
THE RISE TO PROMINENCE
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Chapter 1
GETTING ESTABLISHED: BACK FROM THE BRINK
In 1831, John Cadbury, a retailer of tea and coffee with a small sideline in cocoa, took a momentous step; one which would eventually lead to the creation of a global brand with sales counted in the billions. He switched to being a manufacturer of cocoa products.
Career Shift
This was not an obvious move for him to make. Cocoa was not in the same league as tea and coffee in terms of sales potential because it was many times more expensive. The Government had slapped on a hefty tax of 2 shillings and three pence duty per pound so, as a consequence, the UK market for cocoa remained miniscule with little more than 100 tons per annum of cocoa beans being imported. Cocoa was not a drink for the masses, but the wealthy elite, of whom Birmingham had more than its fair share.
In the early 19th-century, Birmingham was booming and John’s customer base consisted largely of successful men of industry — James Watt, son of the famous inventor, was a customer — people who thought big and acted bigger. John Cadbury cannot have failed to notice that being in the business of making rather than selling had its advantages. Being in retail meant remaining local and small whereas the potential in manufacturing seemed limitless. His confidence in making the switch was bolstered by his success in retailing his own cocoa products, painstakingly ground in a mortar and pestle, versus those bought in from the likes of Fry. Even in his first year, before he had a chance to establish much of a reputation, well over half of the cocoa takings came from the sale of his own cocoa nibs; not a bad start against the more established players.
However, the challenges of being an early manufacturer were daunting, and very different to those in retailing. As a retailer, John would have known most, if not all of his customers personally, where his rhetorical skills would have made many a sale. He was also something of a showman. To get his shop off the ground, an investment in Birmingham’s first plate glass window had drawn crowds from miles around — Birmingham’s boom had clearly not yet encompassed much in the line of entertainment options. When John employed a Chinaman to serve behind the counter, it must have seemed like Barnum & Bailey had rolled into town. But as a manufacturer, he was in the business of selling to remote customers at the end of what could be a long and convoluted supply chain. He would need more than plate glass windows and an oriental greeter if he was to succeed.
John was to have a major stroke of luck almost immediately when, in 1832, the Government slashed import duties on cocoa. This allowed products to be priced at levels more attainable to the wage-earning classes. As a consequence, the national market was to grow more than five-fold in the next eight years, a growth that John Cadbury was much more able to tap into as a manufacturer than if he had remained a simple shopkeeper. Within another fifteen years the duty would be down to a penny a pound, further fuelling the market and John Cadbury’s sales.
Perhaps the buoyant market seduced John into believing that being in the manufacturing business was a walk in the park. In truth, there was little to distinguish his goods from those of many other firms, not to mention the massive Fry company. His earlier price lists consisted mainly of generically named items such as Spanish Chocolate, Rock Cocoa, Trinidad Cocoa and the like, all of which could be expected to appear on the price lists of any reputable cocoa firm. But his product quality was ahead of the rest, which was recognised on February 4th, 1854, when he was awarded Queen Victoria’s royal warrant, ahead of any other cocoa manufacturer. He wasted little time in exploiting the opportunity it offered, quickly rolling out a new line called ‘Queen’s Own chocolate’ which complimented his existing ‘British Chocolate’, featuring the likenesses of Queen Victoria and Prince Albert.
But royal warrants and undifferentiated products were not enough to compete in a crowded marketplace where one company, Fry, had all the benefits of longevity, scale, retailer trust and consumer awareness. When Cadbury first opened an office in London in 1853, Fry already had men calling on the fifty largest cities and towns in the country. It was an unequal struggle. Compounded by John Cadbury having been struck two grievous blows with the death of his second wife, followed by a severe bout of rheumatic fever, the business went into decline. Without his firm hand on the tiller, product quality suffered and sales fell away. Staff levels by 1859 were half those of seven years previously, and the business had sunk into making a loss. In 1861, John handed over the reins to his sons, Richard and George, and it seemed only a matter of time before the business would be wound up.
To the Brink
Richard and George Cadbury certainly had their work cut out. Such had been the decline in the Cadbury cocoa business that three-quarters of the company turnover was coming from tea and coffee dealing, of which they had little experience. Of the thirty other cocoa manufacturers that the brothers were aware of, Cadbury Bros. was the smallest. They could see others of the thirty already closing their doors, and there was a huge rate of attrition in the retail trade, with many of Cadbury’s customers going bust, leaving bills unpaid. Their diminishing numbers of workers could see unsold cocoa stocks piled up in the warehouse, and were expecting to hear the worst any day.
To be thrust into such a dire situation was a severe test for two young men — Richard being twenty-five and George twenty-two. But while business was grim, the brothers had a lifeline. They had each received legacies on the passing of their mother of
5,000 each – a major fortune in those days, being together worth over
600,000 at today’s prices. The brothers resolved to invest
4,000 each to see if they could weather the storm, insisting that they would not seek to borrow beyond that sum from their father or anyone else. Sales in 1860 had amounted to
27,800, so the brothers must have been reasonably confident that their combined
8,000 would provide a decent safety net for any losses.
But any possible feelings of complacency were soon swept away as a disastrous year’s trading in 1861 made a severe hole in their capital, and 1862 was even worse. Every penny of expense, both business and personal, was scrutinised. George Cadbury stopped his morning paper, and then even went without coffee and tea, despite having a warehouse full of the stuff. Fourteen hour workdays were the norm. Richard declared that if the business ever made a profit of a thousand pounds a year, he would retire a happy man.
In the meantime though, things were kept going by the brothers rapidly expanding their range with a host of new products, hoping that one would find a way through the competitive minefield. The slew of innovations helped to stem the losses. The 1863 deficit had been reduced to one tenth of the previous year, and by 1865 the business was back in profit and growing, albeit not dramatically. But it had been a close run matter. Of the brothers’ original investments of
4,000, Richard was down to his last
450, while George had managed to hold onto
1,500. George attributed the difference to his not having yet married, which perhaps infers that Richard’s wife had not been subject to the same spending constraints that the brothers’ had endured in the workplace.
Differentiate or Die
With the crisis averted at least for the time being, contingency career plans of George decamping to the Himalayas to grow tea and Richard become a draughtsman were put on hold. But, while financial implosion seemed to have been staved off, it was clear that the underlying business problem confronting them had not yet been addressed. They had no product sufficiently different to, or better than, those of the competition. The mighty Fry firm were still outselling Cadbury many times over.
Cocoa at the time was sold to be drunk: mixed with boiling water or on special occasions, milk. The basic problem was that the cocoa bean, once removed of its hard shell, consists of slightly over 50% fat. Notwithstanding the fact that fat doesn’t mix well with water or milk, the absolute quantity of fat could cause gastric distress to all but the hardiest of digestive systems. Manufacturers had recognised this brake on demand, and had tried to mitigate it by mixing the cocoa with a range of substances to absorb the fat and/or mask its flavour. As a result, the only real point of difference in the products became who mixed in the least obnoxious ingredients. While Cadbury avoided the worst excesses of the adulterers — brick dust and even red lead were not uncommon additions —
Cadbury’s range of cocoas left a lot to be desired. Consisting of only one part in five of cocoa, the rest being potato flour, sago and treacle, it was not something to excite the taste buds.
The breakthrough would not come from an earth-shattering innovation, but from what would become a long-term Cadbury habit of being proud and quick to borrow ideas. George Cadbury in particular was not afraid to latch onto a good idea when he saw one,
‘I never looked at the small people, or people who had failed. I fixed my eye on those who had won the greatest success. It was no use studying failure. I wanted to know how men succeeded, and it was their methods I examined and, if I thought them good, applied.’
George didn’t fix his eye on Fry as his role model. Although the market leader, they were also keen product adulterers and their cocoa was nothing to write home about. If the Cadbury firm was to thrive, it had to outflank Fry, not emulate them. Looking further afield, George heard about a successful cocoa brand in Europe: van Houten’s.
Coenraad Johannes van Houten had opened his first cocoa factory in Amsterdam as early as 1815, and from the start had been experimenting with ways of reducing cocoa’s high fat content. Not content with the practice of boiling, skimming and adding fillers, he leveraged the burgeoning engineering knowledge of the Industrial Revolution to invent a hand-operated hydraulic press, which he patented in 1828. The vast pressures generated in the press squeezed out half of the cocoa fat, reducing the fat content from around 53% down to 27%. This dramatically improved the drinking characteristics of the mixed final product and removed the need to add anything to make the drink more digestible.
George travelled to Holland and did a deal for a press, despite having only sign language and a dictionary with which to negotiate. This was the last throw of the dice for Cadbury Bros., even though their business was now making a small profit. The press was expensive, and would have consumed most of George’s remaining capital. It also required mass production to be of benefit, so the need would be to create a level of sustained demand far above any of their existing products. No British manufacturer, including the dominant Fry firm, had gone down this route. ...
