The Delicious
History of
Hershey Chocolate
PART I
Have you ever wondered how Hershey chocolate came to be so
popular? Professor Nancy Koehn discusses the life and vision of Milton Hershey,
the entrepreneur and philanthropist behind the Hershey chocolate bar, the town
of Hershey, Pennsylvania, and the Milton Hershey School.
Brian Kenny: According to the National Confectioner's
Association, 80 percent of Americans giving gifts to their sweetheart on
Valentine's Day plan to share chocolate and candy. And if there was any doubt
about whether that's a good choice, 94 percent agree, that's exactly the gift
they want most. For those who don't have a sweetheart, 43 percent plan to buy a
box of chocolate for themselves. All those sweets will add up to about $1.7
billion in sales in the United States alone. The tradition of expressing one's
love on February 14th dates back centuries, but the romance between chocolate
and Valentine's Day appears to have begun in England in 1868, when Cadbury introduced
a gift box of chocolates in the shape of a heart and a new tradition was born.
Today we'll hear from Professor Nancy Koehn about her case entitled, Candy Land, the Utopian
Vision of Milton Hershey. I'm your host, Brian Kenny, and you're listening to Cold
Call.
Nancy Koehn is a business historian whose research focuses on
effective leadership and how leaders past and present craft lives of purpose,
worth, and impact. Her most recent book, Forged in Crisis, the Power of Courageous Leadership
and Turbulent Times, spotlights how five of history's greatest leaders managed
crisis and what we can learn from their experiences. And Milton Hershey didn't
even make the cut. Nancy, thanks for joining me today.
Koehn: It's my sincere pleasure, Brian.
Kenny: What inspired you to write this case?
Koehn: I love Hershey's chocolate. My mother loved
Hershey's almond chocolate bars and I grew up with them... I'd learned that
[Milton Hershey] had gone bankrupt a number of times, and we don't write about
failures a great deal at the Harvard Business School. People who fail really
don't want to tell their story, more often than not. So, I started digging into
the failures and the more I learned, the more fascinated I became by him and
what he created.
He was a candymaker at heart. He was an entrepreneur. He was a
restless spirit. He was an experimenter. He loved nothing more than sleeves
rolled up, jumping onto the factory floor, and throwing Rice Krispies, for
example, into a pot of chocolate and creating the Krackel bar. He was always
mixing and matching, and experimenting. Most of his life is about candy, and I
love candy. I just said, "We’ve got to write this up." And once you
get to a man creating a town, the Utopian vision of Milton Hershey, it's good
enough to be a movie.
Kenny: What was his childhood like?
Koehn: Very interesting and tumultuous. He was born to
Mennonite parents in 1857, in Pennsylvania, not far from Lancaster, in a county
called Derry. His father was another restless spirit who, [but] everything he
touched turned to mud. So he had seven or eight different kinds of careers,
from opening a bookstore, to making cough drops, to trying his hand at oil
refining. And he basically went belly up at each instance. His wife, Fanny
Snavely, got tired of all this after a while and eventually moved quietly away
from him because in the Mennonite church you didn't divorce. She settled in
Lancaster. Milton stayed with his mother. His dad, Henry, kept rolling in with
the latest get rich quick schemes that ultimately went nowhere. When his son
got old enough, he dragged Milton through a bunch of failed ventures.
So, it was tumultuous. We can see the effects of this on Milton
because early in his life, he's not much older than five or six, they're in
southern central Pennsylvania and Robert E. Lee is marching up towards
Gettysburg. The child gets very nervous that his family is going to be
attacked, so he gathers all his pennies, 17 cents, and buries them in the
ground. Here's a young person that already experienced lots of commotion in his
life and he's saying, “I'm going to put a little stake in the ground.” So, I
think his childhood was difficult. Early on his mother apprenticed him out to a
printer; that did not work. He was, I think, 11 or 12. Then she quickly finds
him a job at a candymaker outside of Lancaster.
Kenny: There it is.
Koehn: And there's the beginning, and he never looks back.
Kenny: It sounds like it was a pretty unsettled time for
him … and a feeling that he needed to protect the family and his mother.
Koehn: Very much so. He had a sister who died when she was
relatively young. That was really, I think the ostensible reason that Fanny
finally said, "Enough" with her ne'er do well husband. He had a great
sense of “I need to prove myself and prove myself for my mother”—he's very
close to his mother. She never left him, even after he married. Fanny Snavely
could be seen on the factory floor, well into her 60s, wrapping kisses in foil
with a little flag.
Kenny: You mentioned General Lee. What was the backdrop in
the United States at the time?
Koehn: Milton's born in 1857. By the time the Civil War
ends, he's what, eight years old. Then the American economy really takes off.
The railroads, the transcontinental railroad route is completed at the end of
the 1860s. What Alfred Chandler, the great business historian, would call the
second industrial revolution arrives in terms of the coming of managerial
capitalism, the rise of large businesses, first railroad, steel, eventually
automobiles, mass retailing, cigarette manufacture, food manufacture. Henry
Heinz will get his start here along with some of the great meat packers like
Swift and Armour. It is a moment of great economic and social advancement and
corresponding increases in income inequality. But overall, at a grand GDP
level, that was not the language Milton Hershey or any of the American
presidents would have used in the late 19th century. But at that level,
American incomes were rising. Being able to afford something like candy and
eventually chocolate, which was largely nonexistent until the 1870s in America,
not very popular at all until the turn of the century, was now becoming
something that more and more Americans could do. They could afford candy.
Kenny: What was the state of the candy industry at the
time?
Koehn: Just imagine Little House on the Prairie or Little
House in the Big Woods, and pa goes to the general store. It was lemon drops,
candy ginger, peppermint and candy canes. It was what today we would call
pralines, but small, like maple sugar candies. We had nothing like M&M's,
nothing like Twizzlers, nothing like malted milk balls, nothing like gummy
bears. It looked nothing like, in variety or the spectrum of possible taste,
the candy aisle in any store.
Kenny: There's a recurring reference to cough drops
throughout the case. Cough drops seemed to have been very popular at the time.
Koehn: Very popular. They were like today, partly a candy.
Milton and his father Henry get into a couple of different cough drop making
and selling ventures that don't work, but cough drops were popular. These were
sold in small stores largely in bulk. So you didn't say, "I'll have a roll
of lifesavers or a bar of sugared maple." The shopkeeper scooped up a
little bit of lemon drops from the barrel and put them in a paper bag for you.
The way we can think about this relative to our times is that in about 1870,
the average American consumed 25 pounds of sugar a year. That's mom's apple
pies, that's muffins, that's whatever you could sprinkle over your fruit in the
summer. And today the average American consumes close to 150 pounds of sugar,
six times as much. We just didn't have the supply of sugar and we didn't have
many other kinds of inputs like effective, efficient, tasty, and non-perishable
ways of making chocolate. Because chocolate is by far and away, and still is
today, America's favorite candy ingredient. And it just didn't exist in
anything like its form or quantity then.
Kenny: In these early entrepreneurial attempts that Milton
made, chocolate was nowhere in the picture and he failed. What did he set out
to do and what did he learn from it?
Koehn: By the time he's 30, he's failed in two different
kinds of candy businesses. He's not yet making chocolate and he's not yet
making caramel, which will be the runway, interestingly enough, to chocolate
for him. He learned about a couple of things and there are lessons that lots of
entrepreneurs from Josiah Wedgwood to Steve Jobs [have learned]. And that is,
how to grow palpably, viably, without growing so fast that you run out of cash
and hit the wall. It's a very classic problem in all kinds of case studies that
students study here. You want to grow, but you can't necessarily collect the
money fast enough to pay what you owe in terms of for inputs.
He learns how to grow at a viable pace. A second thing he
learns, and this is really important, is not to get out too far ahead. Both
bankruptcies help him develop something that I studied a great deal in my first
decade at the Harvard Business School, which is, how do entrepreneurs
anticipate what consumers want before they know that they want something?
How did (Starbucks founder) Howard Schultz say, "You can't
start your day without a flat white" when no one in America had ever heard
of a flat white? Or how did Henry Heinz say "You're going to put a bottle
of ketchup on every hamburger you eat" when most Americans had never heard
of ketchup?
I'm fascinated by the demand side. That's innovating, that's
creative imagination and then innovation on the demand side. Both of Milton
Hershey's bankruptcies help him develop that. And that's going to turn out to
be very important in how he, more than any other single individual, breaks open
the American market for chocolate.
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