From Bournville to Brazil

Cadbury keeps up the philanthropy of its founding fathers even as it pursues painful rationalisation plans for its survival in a globalised economy. Emma De Vita reports.

Last Updated: 09 Oct 2013

The Cadbury Schweppes story is one of an unwieldy, post-colonial giant learning to dance to a 21st-century tune. Unlike other British manufacturers - Rover, Marconi and British Steel, to name but a few - this £11.9bn Brummie confectioner is surviving in dangerous times, and is on the verge of splitting into two: Cadbury plc and NYSE-listed Dr Pepper Snapple Group.

George Cadbury, the second generation of the Quaker family owners, said he wanted the business to be a force for good in a troubled world. But, recently, it is Cadbury's world that has been troubled. The 2006 salmonella crisis cost Cadbury £20m in lost sales and a £1m fine. Add to this the failed private-equity sale of its drinks business in 2007 and this year's U-turn on a promised shareholder dividend following the drinks demerger, and the City is left with a bitter taste in its mouth.

Yet Cadbury is one of Britain's best-loved brands - it's up there with PG Tips, Marmite and Jacob's Cream Crackers. It is adored by consumers and admired by its peers (MT named it Britain's Most Admired Company in 2004). Yet this kind of heritage can be as much a burden to a business as a boon. 'It's a wonderful responsibility,' says CEO Todd Stitzer, 'but a challenging one. The Cadbury family owned the company, so they could do whatever they wanted to further whatever they believed in. I'm afraid it's a little different today.' The last Cadbury to work for the firm was Sir Dominic, who left as chairman in 2000.

There's nothing like staring adversity in the face to concentrate the mind. 'We've had a burst of activity in the last five years around innovation, revenue growth and reconfiguration,' says Stitzer. He took the helm in 2003, when 'it was every man for himself and every market had its own factory, its own product, and as long as you sent money back, that was OK. But in a world of global competitors, you can't do that.'

Stitzer, a quietly spoken American ex-lawyer (complete with a gold Harvard insignia ring), nonetheless grabbed the lackadaisical behemoth by the scruff of its neck and started pushing and pulling it into a shape fit for a competitive, globalised economy. But it hasn't been easy and he's not finished yet.

This particular Cadbury story begins at its Bournville village in Birmingham. The day MT visited, it was a freezing February half-term holiday - families with overexcited children queuing for Cadbury's World theme park, white-overalled factory workers going about their business, and local pensioners ambling towards the Cadbury Club for a cheap plate of fish and chips.

Richard and George Cadbury, sons of the founder (see timeline), started work on their revolutionary factory village in 1879, building housing, baths, gardens, a library, a football pitch (where Aston Villa FC used to practise) and churches - but, being religious, no pubs. They named the place after the Bourn brook, which the revamped old dining block overlooks. Bournville - 'the factory in a garden' - is said to be the oldest UK heritage site still in operation as a mainstream factory, although the company has no control over the village any more.

Easter is just a month away, and production of Cadbury Creme Eggs is cranked up. The British love affair with chocolate (as a nation we consume the most per capita in the world, at 10.5 kilos a year) means that the Bournville factory must produce 1.2 million of them every day to meet demand. Manufacturing manager Dean Tucker, a Cadbury employee for 19 years, leads a small team of workers, whose members are dotted about the five-floor Victorian building; a handful are busy packing Easter eggs, while one or two others make sure the machinery ticks over nicely. It's difficult to believe that there are 300 people on the day shift.

A sweet smell permeates every corner, thousands of Dairy Milk chocolate bars chug past on conveyor belts and Creme Eggs whizz through foil-wrapping machines. In the past decade, Cadbury has invested £150m to update the tired factory buildings and its technology. In the '90s, a workforce of 12,000 produced 50,000 tons of chocolate a year; by the end of this year, just 1,000 workers will be producing 120,000 tons.

The redundancies have left Brummies who witnessed the demise of the local car industry feeling nervous - Cadbury has been a mainstay of this city. 'I've said it before, and I'll say it again,' says Stitzer, 'my hope is that there will always be a purple-and-white flag flying over Bournville. It's our most efficient moulded-block chocolate plant. So as long as Bournville pulls it weight as an efficient producer of great chocolate, it will always be where it is. It's the heart and soul of Cadbury.'

It is factory manager Mark Jones' job to keep Bournville on its toes. He followed his mother into the business in 1972. 'When I started here, people would hand-place marzipan squares on a conveyor, which would go through the chocolate enrober and somebody would put a fork at the top of it to make a mark,' he remembers. 'Now, no people are involved.' These days, Bournville focuses on high-volume, low-cost chocolate manufacture - its labour-intensive Milk Tray hand-packing operation recently moved from Bournville to Poland.

'It was great to hear Todd Stitzer say there will always be a purple flag over Bournville,' says Jones, 'but I can't let the workforce think that we can relax. We have to compete, and the only reason that we compete here is because we pack bars with robots. Our factory is like an oil refinery - it never stops. The Quaker Cadbury brothers would turn in their graves to see us working on a Sunday,' he says with raised eyebrows.

Dragging Cadbury's production into the 21st century is a difficult task and Stitzer's cost-cutting and efficiency drive has meant that a quarter of Cadbury's factories have been closed down or sold off, and 10% of its workforce made redundant. Over the next four years, it will close or sell another 15% of its plants and shed another 10% of its staff. Says Stitzer: 'Over time, if 80% of the people are still securely and productively employed, that's better than a model that ultimately destroys the business.'

Cadbury, with its historical need for local sourcing and the restriction of local country tariffs, had saddled itself with too many plants and technologies. Now, new technology allows for global sourcing, enabling Cadbury to create predictable recipes that can be made on one side of the world and eaten on the other. It is only through consolidation that the company can make the efficiencies of scale its life depends on.

At a local level, this means small factories like Cadbury's Somerdale plant near Bristol will close. In December, the bishop of Bath and Wells, the Rt Rev Peter Price, joined other locals (including film-maker Ken Loach) to protest against the imminent loss of 500 jobs. Said the bishop: 'Decisions made on the basis of seeing human beings simply as units of production are destructive to the human condition and fly in the face of the Quaker principles of the founders of the Cadbury Schweppes empire.'

It's the kind of emotive clash between old and new Cadbury that Stitzer must dread. But the company can't afford to live in its glorious past (as even the original Cadburys, astute businessmen, would probably have realised), especially when it has the likes of Norman Peltz, shareholder activist par excellence, on its tail. Peltz, with backing from the Qatar Investment Authority, is using his Trian Fund Management investment vehicle to turn the screws. He warned the board at Christmas that if the firm failed to achieve 'meaningful' progress on margins this year, Trian would become 'significantly more active in evaluating all our alternatives as a large shareholder'. In other words, heads might roll.

Indeed, some have. Over the past four years, about a third of the group's 150 top leaders and two-thirds of its senior management were, in Stitzer's words, 'changed out'. They were replaced with outsiders, including 41-year-old marketing director Phil Rumbol, who came from InBev and helped bring about the phenomenally successful gorilla ad campaign of 2007. The process 'brought in new ideas', says Stitzer, 'an openness and a willingness to communicate in different styles.'

The cost-cutting, the new blood, the open communication and a galvanising focus on delivering shareholder value add up to a new dynamic and simplicity in a stuffy and over-complex company. Its life depends on swift innovation and a vital spirit. Stitzer likes to think of all this as unlocking Cadbury's potential, the only way to meeting his stated aims of growing revenue by 4% to 6% and reaching a trading margin in the mid-teens by 2011. 'You've gotta have a clear strategy,' he insists. 'You have to communicate that strategy, and resource people to deliver on it. It's a simple dynamic, and if you stick to the simple, you get a lot of results.'

But surely Cadbury Schweppes' biggest life-saver was its £2.05bn acquisition of Pfizer's gum and candy business, Adams, in 2003 (a move many were nervous about at the time). 'The Adams transaction was transformational for Cadbury Schweppes,' admits Stitzer. 'It brought us Latin America, and Asian markets we previously didn't have. It brought a category-focused, semi-centralised way of thinking about innovation and product transfer, and so those things are being transmitted across Cadbury Schweppes right now.'

The vehicle of transmission is a strategy called 'Fewer, Faster, Bigger, Better', one of the intentions of which is to take the best five or 10 innovation ideas in each of Cadbury's three categories - chocolate, gum and candy - from one market and apply them to the others. 'The goal is to innovate on the big brands so that we get the efficiency of scale and the consistency of thought,' says Stitzer. So, take one gum from one market and launch it in others - he calls it 'stealing with pride'. The recipe for future success is simple: crack all three categories in every market where Cadbury has a presence. It's known internally as 'going purple'.

Emerging markets like Brazil, Russia, India and Mexico now play a key role in Cadbury's strategy for growth, and the Brazilian business is held up as a poster child for the group. The global confectionery market is worth $141bn - developed markets are growing at 3%, developing markets at 10%. Four years ago, Adams was a business with negative margins and weak top-line growth; now, revenues are up by around 70% and margins have reached the high teens.

Marcos Grasso is the young, charismatic golden-boy CEO of Cadbury Adams South America. His division is based in Sao Paulo, a city of 19 million people and 10 million cars, where crumbling neoclassical buildings sit cheek-by-jowl with brash modern glass architecture. It's home to some of the wealthiest people in South America - and to some of the poorest. It's the kind of place where the haves are ferried by private helicopter through azure skies, while the have-nots eke out a life in the tin shacks that run alongside the motorways. The Cadbury Adams office sits on Avenida Paulista, the prestigious road that cuts through the centre of the world's second-biggest city. The office is a haven of cool air and light. The familiar Cadbury purple lettering is everywhere, and the office walls are adorned with photos of the smiling faces of employees' children. The huge windows look out on a Manhattan-like cityscape snarled up with traffic.

Brazil is a place of energy and opportunity. President Luiz Inacio 'Lula' da Silva's government is working on implementing policies of low inflation, strong foreign direct investment and growing consumer credit. Says Grasso: 'We have never lived in such a favourable moment.' Cadbury Adams owns five of the 10 biggest confectionery brands in the market: Trident, Halls, Chiclets, Bubbaloo and Clorets. It has grown its market share by 10%. 'But more important is our profitability level,' explains Grasso. 'We have significantly improved profitability through innovation, through greater focus behind the brands, greater focus behind distribution and merchandising, and consumer insight research.'

Cadbury Adams' Bauru factory, an hour's flight from Sao Paulo, in the sweltering Brazilian hinterland, employs 1,065 workers. Since its acquisition by Cadbury, Adams' two other Brazilian plants on the edge of the city - Cumbica and Avenida - were closed, with the loss of 230 jobs. Production line worker Mauricio Jose dos Santos, a 48-year-old father of two, has worked for Adams for 25 years, moving to Bauru after the closure of the Avenida factory. Cadbury found him a home, a job for his wife and schools for his children. 'The company helped me a lot,' he says.

It's the biggest business in Bauru, churning out Halls candies, Trident and Bubbaloo bubble gum at a rate of knots. As at Bournville, there are 300 people on the day shift, but it's the eye-watering smell of eucalyptus that greets you here, not chocolate. Unlike Bournville, Bauru is only 30 years old, so production is efficiently placed all on one level and the technology is cutting-edge. This really is the modern face of Cadbury.

Down the road, in Bauru's slum district, is Cadbury Adams' Bate Bola community project, providing a haven for more than 300 local children. It's a place where they can play, eat and learn. They also get to play football in the factory grounds, where employees give up their time to help coach them. It's a 21st-century example of the 19th-century altruism of Cadbury's Quaker origins - a history that outgoing chairman Sir John Sunderland says 'is much more to us than just a sequence of past events; it is an integral part of who we are and how we operate as a company'.

The fact that the firm has been able to keep the philanthropic blood pumping through its arteries is testament to the spirit and dedication of its managers and workers. To keep 'doing the right thing' is an essential part of the Cadbury ethos. 'The good things that we'd like to do are in a sense separate from the business but a very important part of the culture of the business,' elaborates Stitzer. 'The challenge for any modern corporation is to be able to both please the shareowners by delivering the right level of earnings and value creation, while at the same time earning enough to be able to afford to do the social investments we make.'

Ghana, where Cadbury sources 70% of its cocoa, is a good case in point. It's a country with a long association with the confectioner. Around Bournville and the Cadbury HQ are posters commending employees for their fundraising to establish wells there. Cadbury has just launched its Cadbury Cocoa partnership. Over the next decade, it will invest up to £50m in cocoa-growing villages, families and NGOs in Ghana, Indonesia, India and the Dominican Republic to encourage sustainable cocoa farming, as fewer and fewer families choose to go into such a difficult life. 'You could argue that we don't need to spend that £50m,' says Stitzer, 'that we only engage in the global cocoa markets and there will always be cocoa to buy. And yet if we take that attitude and there is no cocoa to buy, there's no chocolate business and therefore no shareowner returns.'

So what does Stitzer think the founders would make of the Cadbury of 2008? 'I think they would recognise the products, the spirit of the place, the tough decisions that have to be made,' he says. 'That the business makes a profit, is strong and vibrant means that it can be a good neighbour. That was part and parcel of the ethos of the Cadbury family when they founded the business, and it's the way that we would want it to be.'

There is speculation that Cadbury plc, once demerged from its drinks business (a separate story in itself), could make a ripe takeover target for a trade rival or a financial buyer. Stitzer won't be drawn on whether Hershey, which manufactures and distributes Cadbury's products in North America, might be a likely assailant. There are other issues that Cadbury must face too: increasing commodity prices, social reactions to rising obesity rates, and impatient shareholders. One thing, however, is for sure: the purple reign is far from over.

1824: Teetotaller John Cadbury opens his shop in Birmingham, selling tea, coffee and cocoa. Six years later, he rents a small factory to manufacture drinking chocolate and cocoa.

1847: John takes his brother Benjamin into partnership and the family business becomes Cadbury Brothers of Birmingham. A larger factory is rented on Bridge Street. Three years later, John's son Richard joins the business.

1856: Richard's brother George joins the firm. Five years later, Richard and George become the second pair of Cadbury brothers to run the business, when their father retires owing to failing health.

1879: Having outgrown the Bridge Street factory, Cadbury Brothers moves its manufacturing operations to establish the ground-breaking Bournville factory and village, about four miles south of Birmingham.

1897: Cadbury manufactures its first milk chocolate. In 1899, Cadbury Brothers becomes a limited company. Bournville now has 2,600 workers. Cadbury's Dairy Milk is introduced, using fresh milk, in 1905.

1914-20: The first overseas Cadbury factory opens, in Australia. Cadbury's Milk Tray is introduced in 1915. In 1919, Cadbury Brothers merges with JS Fry & Sons. A year later, Cadbury's Flake appears.

1930s: Cadbury opens factories in New Zealand, Canada and Ireland to complement its manufacturing strength in Malaysia, Africa, Jamaica, France, Spain, Latin America and Germany. Cadbury's Roses chocolates launched in 1938.

1940s: During the war years, cocoa and chocolate products are regarded as essential foods for the forces and civilian population. Cadbury opens a factory in India in 1947. Sweet rationing continues until 1949.

1969: Cadbury Group Ltd merges with Schweppes Ltd to create Cadbury Schweppes plc, a company with a £250m turnover. Schweppes started in Switzerland in 1783 and owned such brands as Ty-Phoo Tea.

1987: Joint-venture Coca-Cola & Schweppes Beverages is created in Britain. In 1988, the manufacture of Cadbury confectionery brands is licensed in the US to Hershey. In the following year, Cadbury acquires Bassett and Trebor in the UK.

1995: Cadbury Schweppes acquires Dr Pepper/Seven-Up. It becomes the world's fourth-largest supplier of chocolate and sugar confectionery, with manufacturing plants in 25 countries and sales in a further 165.

1997: Cadbury Schweppes sells its 51% interest in Coca-Cola & Schweppes Beverages. The acquisition of Bim Bim, Egypt's largest confectionery company, gives it market leadership in the Middle East and North Africa.

1998: In partnership with Carlyle Company, Cadbury Schweppes acquires two leading independent bottlers in the US to form The American Bottling Company. The group also acquires Poland's leading chocolate company, Wedel.

1999: With Carlyle Group, Cadbury Schweppes buys the Dr Pepper Bottling Company of Texas. Combined with The American Bottling Company, this makes the company the largest independent soft drinks bottler in the US.

2000: The Snapple Beverage Group is acquired, as are Hollywood, Kraft Foods' chewing-gum and confectionery business in France, and Wuxi Leaf Confectionery in China. Sir Dominic Cadbury steps down as chairman.

2001: Pernod Ricard's soft-drinks brands and businesses in continental Europe, North America and Australia (which include Orangina, Pampryl and Champomy), are acquired. Cadbury Schweppes also buys Slush Puppie.

2002: The group acquires 43% of Cadbury India, taking its holding to 94%. It gains a 51% interest (now 65%) in Kent, Turkey's leading sugar confectioner, and buys Danish chewing-gum manufacturer Dandy, maker of Stimorol.

2003: Cadbury Schweppes acquires Adams Confectionery from US Pfizer for £2.7bn. Key brands include Halls, Trident, Dentyne and the Bubbas bubblegum range. This turns Cadbury Schweppes into a worldwide confectionery company.

2006: The Europe Beverages business is sold. The company suffers a salmonella contamination in the UK and has to recall one million chocolate bars, losing £20m in sales. It is later fined £1m.

2008: After the failed sale of its drinks business in 2007 (the year of the Dairy Milk gorilla ad), Cadbury Schweppes is due to demerge into Dr Pepper Snapple Group and Cadbury plc.

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