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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. NOTE: Scroll Down to Continue Reading…

ENLARGE

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.