questions Mars Inc: The Chocolate Conglomerate by: Annie Gasparro Oct 30, 2014 T
ID: 349953 • Letter: Q
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Mars Inc: The Chocolate Conglomerate
by: Annie Gasparro
Oct 30, 2014
TOPICS: Disclosure, Publically Held Company, Privately Held Company, Conglomerate
SUMMARY: Mars is a privately-held company meaning it is not required to provide the same disclosure as publicly-traded companies. Public companies face scrutiny and pressure private companies don't. Mars is in the candy, pet food and food business. This group might not seem related, but Mars finds synergies in processes and production. Mars is doing well and recently opened a new plant. Hershey is its main rival in the industry. The companies have secretive production processes because they cannot patent recipes. The candy business is thriving despite greater health consciousness in the U.S. because shoppers think of candy as a small indulgence. Hershey's market share is 36% which is up from 35% in 2005 and Mars increased to 28% from 24% over the same period. Mars does not disclose much about its finances and does not have to because it is a private company, but reported its annual revenue is about 50% higher than it was in 2007. The increase is explained by the acquisition of Wrigley. Sales of candy are up in the U.S. for both publically traded Hershey and the privately-held Mars.
CLASSROOM APPLICATION: Mars and Hershey are rivals, but one is publically-traded while the other is privately-held. This is the case for Mars and Hershey which together control about two-thirds of the candy market. Mars has a unique corporate identity and product mix which it can support because of its status as a private company. There is pressure on public companies for spinoffs, more disclosure and cost cutting. Just because it's private doesn't mean Mars isn't aware of costs or efficient. The new plant demonstrates a commitment to avoid waste. Production is highly automated. There is collaboration at Mars between production facilities in the various business segments. Mars' diversification might fare differently if it was publically traded. Mars illustrates some of the differences and strengths between public and private companies. Both illustrate that either business structure can support success. Public companies are required to disclose detail on everything from financial performance to management goals while private companies can more selectively disclose performance.
QUESTIONS:
1. Based on information in this article as well as a web search, explain the differences between a publically held and a privately held company. .
2. What does the term “disclosure” mean in this article and why is it important to investors in publically held companies?
3. Explain what the business term “conglomerate” means (web search time…) and tell me if you think Mars Inc. is a conglomerate. Why or why not?
4. Describe the communication that occurs between the different business segments at Mars.
ARTICLE
Mars Inc: The Chocolate Conglomerate Maker of M+M’s, Snickers, pet food and people food expands without worry about investors or Wall Street (the stock market)
By Annie Gasparro
Oct. 29, 2014 1:11 p.m. ET
TOPEKA, Kan.—While many U.S. food companies are closing factories and cutting staff, Mars Inc. recently opened its first new chocolate factory in the country in 35 years to feed Americans’ seemingly boundless hunger for sweets.
The $270 million plant boasts two production lines that can produce 8 million miniature Snickers candy bars and 39 million peanut M&M’s every day. At one end of the line, a waterfall of milk chocolate covers hundreds of tiny Snickers bars each minute, infusing the air with the smell of candy. The factory’s 500,000 square feet, kept carefully at 68 degrees so the chocolate doesn’t melt, include space for another three production lines so Mars can expand.
The plant—which cranks out the miniature and “fun size” candy bars popular at Halloween—is part of Mars’s effort to battle rival Hershey Co. for a bigger slice of the U.S. chocolate pie. The duo dominate the market, with a combined share of nearly two thirds. Hershey’s share inched up to 36% last year from 35% in 2005, while Mars’s has crept up to 28% from 24%, according to market researcher Euromonitor International.
A peek inside the Topeka factory also offers insight on how the traditionally secretive company tries to manage its huge, and somewhat unwieldy, agglomeration of businesses. Founded by Frank C. Mars, who started making candy in his Tacoma, Wash., kitchen in 1911, it now is also one of the world’s biggest purveyors of dog food and other pet-care products. It also owns the Wm. Wrigley Jr. Co. stable of gums and confections, and produces a pantry-full of other products, from Uncle Ben’s rice to Pamesello grated cheese to Flavia coffee.
One of two tanks at the factory with 60,000 kilograms, or 132,000 pounds, of chocolate. Amy Stroth for The Wall Street Journal
Still owned by its founder’s descendants, Mars is one of the largest closely held companies in the U.S. That helps insulate it from the short-term pressures that publicly traded rivals face to slash costs and split off pieces of the business that don’t fit well.
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Mars says its businesses fit together just fine.
“You’d be surprised how similar pet-food and chocolate factories are,” said Bret Spangler, director of the Topeka plant, a 27-year veteran of Mars whose last job was running a pet-food plant. “Pet-food ones have to be just as clean—you could eat off the floor—and the kibbles have to have the right density and look.”
One difference: daily quality-assurance meetings at the pet-food plants don’t involve tastings by management, as happens in Topeka.
‘You’d be surprised how similar pet food and chocolate factories are.’
—Bret Spangler, Topeka plant director
Hank Izzo, head of research and development for Mars chocolate North America, said he meets regularly with R&D leaders from the pet food and Wrigley segments, discussing things like packaging materials, production processes, and mixing and pumping technology that they can share. “There’s a massive amount of collaboration” between businesses, he said. With one product he’s developing, the chocolate team realized that their pet-care colleagues have a lot of experience in a specific manufacturing process that he needed to use. Talking to them “helped us to accelerate the launch,” Mr. Izzo said.
Mars’ pet-care brands include Pedigree, Greenies, Sheba and Whiskas.
Mars’s first chocolate blockbuster was the Milky Way candy bar in 1923. While the business flourished in the U.S., the founder’s son, Forrest E. Mars Sr., set off in 1932 to build his own company in the U.K., where he acquired a dog-food maker and came up with the idea for M&M’s. He returned to the U.S. in 1940, and the two branches reunited in the 1960s.
Mars discloses little about its finances, except to say that its annual revenue last year topped $33 billion—about 50% higher than in 2007, thanks largely to the 2008 acquisition of Wrigley.
Hershey on Wednesday reported a 5.8% increase in sales to $1.96 billion for the latest quarter, while profit fell slightly to $223.7 million, partly due to a trademark impairment charge. The candy maker warned its sales in some international markets and U.S. grocery stores have been pressured lately, but said Halloween and holiday candy sales are doing well.
Both Mars and Hershey are enjoying the spoils of a market that has outpaced sales growth for other food products. Chocolate sales in the U.S. rose 3.2% last year compared with a 2.7% increase for total packaged food, according to Euromonitor—despite Americans’ growing interest in eating healthier.
“Consumers really enjoy their small indulgences,” said Mike Wittman, vice president of supply for Mars Chocolate North America.
Nicholas Fereday, food analyst at Rabobank, said that since people don’t eat candy that often they aren’t as concerned about it. “In a world where health and wellness is meant to be a priority, chocolate seems to get a free pass,” he said.
Mars and Hershey are constantly competing to come out with the next novel candy idea, like birthday cake M&M’s or Hershey’s Lancaster caramel chews. But the Topeka plant, which opened in March, makes the classics.
The process starts with mixing the cocoa, lactose, high fructose corn syrup, vanillin and other ingredients to make the chocolate in 60,000 kilogram vats. That is then pumped into separate rooms for each candy’s production.
Chocolate is a secretive business. It is difficult to patent recipes, so they are guarded closely by the companies. Mars wouldn’t allow a visiting reporter into the three-story kitchen where workers make the nougat and caramel-nut mixture for Snickers. Nor is the M&M’s secret candy-shell-making station open to the public.
Among the factory’s innovations are skylights that save money on lighting and a roof that harvests rain water. Waste is avoided: When plant managers inspect the previous day’s batches for problems like crooked wrappers and misprinted “M”s, the botched M&M’s go into the M&M Rework station, where they are ground up and reused.
The plant employs about 200 people, although it takes only two to monitor each production line. Mr. Spangler says the basic process of making chocolate candy hasn’t changed much over the decades, but it has become much more automated: “What would take a 50-year-old factory 15 tools and two hours to fix, it could take us the touch of a screen,” he said.
Mars Inc: The Chocolate Conglomerate by: Annie Gasparro Od 30, 2014 TOPICS: Disclosure, Publically Held Company, Privately Held Company, Conglomerate SUMMARY: Mars is a privately held company meaning i is not required to provide the same disclosure as publicly traded companies. Public companies face scrutiny and pressure private companies don't Mars is in the candy, pet food and food business This group might not seem related, but Mars finds synergies in processes and production. Mars is doing well and recently opened a new plant Hershey is its main rival in the industry. The companieshave secretive production processes because they cannot patent recipes. The candy consciousness in the U.S. because shoppers think of candy as a small indulgence Hershey's market share is 36% which s up from 35% in 2005 and Mars increased to 28% from 24% over the same period. Mars does not disclose much about ts finances and does not have to because it is a private is about 50% higher than t was in 2007 The increase is explained by the acquisition of Wrigley Sales of candy are up in the U.S for both publically traded Hershey and the privately-held Mars büsiness is thriving despite greater health company, but reported its annual revenue CLASSROOM APPLICATION: Mars and Hershey are rivals, but one is publically traded while the other is privately-held. This is the case for Mars and Hershey which together control about two-thirds of the candy market Mars has a unique corporate identity and product mix which it can support because of its status as a private company There is pressure on public companies for spinoffs, more disclosure and cost cutting Just because it's private doesn't mean Mars isn't aware of costs or efficient The new plant demonstrates a commitment to avoid waste. Production is highly automated There is collaboration at Mars between production facilities in the various business segments Mars' diversification might fare differently if it was publically traded. Mars illustrates some of the differences and strengths between public and private companies Both illustrate that either business structure can support success. Public companies are required to disclose detail on everything from financial performance to management goals while private companies can more selectively disclose performance QUESTIONS: 1. Based on information in this article as well as a web search, explain the differences between a publically held and a privately held company 2. What does the term "disclosure" mean in this article and why is it important to investors in publically held companies? 3. Explain what the business term "conglomerate means (web search time.) and tell me if you think Mars Inc is a conglomerate Why or why not? 4 Describe the communication that occurs between the different business segments at Mars ENDExplanation / Answer
1. Publically held companies have publically traded shares on the stock market. A privately held company becomes a publically held company by conducting an IPO.
Publically held companies are run by board of directors and the company is compelled to focus on raising its shareholder value. To achieve this, publically held companies focus their efforts on raising the shareholder value both in the short and long term (10 years).
Privately held companies are run by business owners or investors, and they do not have a myopic focus on increasing shareholder value. Hence, they have higher flexibility in their short and long term business decisions.
Publically held companies are legally required to fully disclose their corporate financial information on a quarterly basis. Privately owned companies, on the other hand, are not required by law to do so.
The valuation of publically owned companies depends upon the value of its shares in the stock market, which also allows these companies to easily trade shares, avoiding a lot of fluctuation in their valuation in short terms. Privately owned firms, by contrast, find it difficult to find buyers/investors and thus their valuation might be more prone to fluctuations that the publically owned ones.
2. The term disclosure in the article refers to the obligation of publically owned companies to publically release their financial health reports. Mars being a privately-held company does not require doing so, by the law. Hence, Mars refrains from disclosing much about its finances.
3. A conglomerate is a group or combination of 2 or more business entities (corporations) engaged in completely different businesses, but fall under on parent company or corporate group that has multiple subsidiaries. So, basically conglomerate is a multi-industry company, and Mars is a conglomerate because Mars is into candy, pet food and food business, which are entirely different businesses.
4. The different segments in Mars interact/communicate with each other regularly to find similarities between their processes and use experience from one segment for the benefit for the other. The communication between the segments allows Mars to work as a single conglomerate, where the focus is not on growing individual businesses but to grow the whole conglomerate as one unit. For example: the chocolate R&D , pet food R&D and Wrigley’s R&D segments meet and communicate on a regular basis, to discuss packaging, production processes, and missing and pumping technologies these segments can share.
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