Cadbury Schweppes Plc Business Information, Profile, and History

History of Cadbury Schweppes Plc

Cadbury Schweppes PLC is one of the oldest and largest family-run businesses in the world today. Although confectioner Cadbury Limited merged with the carbonated drinks company Schweppes Limited in 1969, Cadbury Schweppes is still run by members of the Cadbury family, which has been represented in Cadbury's top management for more than 170 years. The company is currently one of the world's leading producers of chocolate candy and soft drinks.

The history of Cadbury dates back to 1824, when John Cadbury opened his grocery business in Birmingham. From the start, drinking-cocoa and chocolate were his most popular products, and in 1831 he moved to larger quarters and began manufacturing his own cocoa products. In 1847 he took on his brother Benjamin as a partner. Two years later the Cadbury brothers spun off their retail operations to Richard Cadbury Barrow, a nephew, and concentrated on manufacture and wholesale distribution. In 1853 Cadbury Brothers received a royal warrant as manufacturers to Queen Victoria; the company still holds the distinction of being confectioner to the Crown.

Shortly thereafter, however, business began to decline. The two Cadbury brothers dissolved their partnership in 1860 when Benjamin left the company, and John also retired the very next year. He left the business to his sons Richard and George, who continued to struggle for several years. But in 1866, the new Cadbury brothers introduced an improved process for pressing cocoa butter out of the cocoa bean to produce cocoa essence. This resulted in purer drinking-cocoa and plentiful cocoa butter that could be made into eating chocolate. In 1868, Cadbury Brothers began marketing its own lines of chocolate candy, reviving its fortunes and breaking the stranglehold that French confectioners had on the British market.

Renewed success brought with it renewed expansion. In 1879 Cadbury Brothers began constructing a new factory outside Birmingham. In 1881 the firm received its first export order from a representative in Australia, and by the middle of the decade its overseas business had expanded to New Zealand, South Africa, India, the West Indies, and both North and South America. In 1899 it incorporated as Cadbury Brothers Limited, with George Cadbury as chairman.

In 1906 Cadbury Brothers introduced a new recipe for milk chocolate, marketed under the name Cadbury Dairy Milk, which has remained a mainstay of its product line ever since. After World War I, innovations in industrial technology made the manufacture of chocolate cheap enough to price chocolate candy for a wider market, and the company accordingly retooled its factory for mass production in the late 1920s. Cadbury Brothers opened its first overseas plant in Australia in 1922, and more foreign production ventures followed from its 1919 acquisition of J.S. Fry & Sons. In 1932 Fry's Canadian plant began to manufacture Cadbury products, and the next year Cadbury Fry, now a subsidiary of Cadbury Brothers, opened a factory in Ireland. Cadbury Brothers also began to manufacture in South Africa in 1939 and India in 1947.

Throughout the postwar years, Cadbury maintained its position as the leading chocolate manufacturer in the world's leading per-capita candy-consuming nation. ("They chew through plays and they chew through films and they chew in trains," a theater critic for the London Daily Mail once lamented. "They suck lollies through Macbeth and Hamlet, and they while away Tennessee Williams with the chocolates with the scrumptious centers.") In 1962 Cadbury and Cadbury Fry, along with their competitor Rowntree, accounted for 51% of British candy sales.

In 1964 Cadbury entered the sugar-candy business when it acquired confectioner Pascall Murray. All the while, the company remained a family business. At the time of the merger with Schweppes, its chairman had always been a direct descendent of John Cadbury and the vast majority of its stock belonged to family members or trusts.

The same cannot be said, however, for Schweppes Limited, which has not felt the guiding hand of a Schweppe for almost 200 years. The company bears the name of Jacob Schweppe, a German-born jeweler and amateur chemist who entered into a joint venture in 1790 with pharmacist Henry Gosse, engineer Jacques Paul, and his son Nicholas. Together, they formed Schweppe, Paul & Gosse, which devoted itself to producing artificial mineral water. Schweppe moved to London in 1792 to establish the company's English operations, and when the partnership dissolved the next year he retained the business for himself.

In those days, aerated water was believed to have medicinal value, and Schweppe's brand was popular because it contained a higher degree of carbonation than its competitors. In 1799 Schweppe sold a 75% interest in his business to three men from the island of Jersey and retired. The company, however, continued to use the Schweppe name.

In 1834 Schweppes was bought by William Evill and John Kemp-Welch, whose descendants would remain associated with the company until 1950. In 1836 the company received its first royal warrant, from the Duchess of Kent and Princess Victoria, soon to become Queen Victoria. Schweppes also gained substantial prestige when it was granted a catering concession for the Great Exhibition of 1851.

The company began to introduce new product lines in the second half of the century. Schweppes started marketing ginger ale in the 1870s. Tonic water, now its most famous product, also appeared at about this time in response to a demand from Britons returning from India who had developed a taste for the solution of quinine, sugar, and water they had drunk there as a malaria preventative. And in 1885, Schweppes introduced a carbonated lemonade. Such was the company's success during the Victorian era that it went public in 1897.

In 1923 Schweppes consolidated its overseas operations into a single British-based subsidiary. This move was intended to facilitate further international expansion. During the interwar years and through World War II, however, the company's fortunes began to wane as sales went soft. It wasn't until Sir Frederick Hooper took over as managing director in 1948 that Schweppes regained its strength through shrewd marketing and a renewed focus on its overseas business. An integral part of that campaign for two decades was the use of Commander Edward Whitehead, who became chairman of Schweppes USA in 1952, as the company's American advertising spokesman. From the early 1950s through the early 1970s, Commander Whitehead, whom Time once described as an "engaging walrus," ingratiated himself with Americans as he espoused his products' unique "Schweppervescence." By 1962, foreign operations accounted for one-fifth of the company's net sales.

Schweppes was also forced to diversify as the demand for soft drinks and mixers at home leveled off. In 1960 it acquired three makers of jams and jellies: Hartley's, Moorhouse, and Chivers. These acquisitions required substantial reorganization, however, and did not work out very well; by 1964 only Hartley's was turning a profit for its parent company. Nonetheless, Schweppes prospered under Sir Frederick Hooper's guidance. Its annual profits increased nearly sevenfold between 1953 and 1962, from $756,000 to $4.8 million. Hooper retired in 1964 and was succeeded by Harold Watkinson, a former Conservative defense minister.

In 1968 Schweppes acquired Typhoo Tea to further diversify its product line and strengthen its ties to grocery retailers. But with no growth in its domestic markets, Lord Watkinson realized that overseas expansion was the key to Schweppes's future. Unfortunately, its capital base was tiny compared to that of the American conglomerates with which it would have to compete. That fall, Watkinson met with Cadbury Chairman Adrian Cadbury at a trade show and found that Cadbury had similar concerns about his own company. Schweppes and Cadbury began merger talks soon thereafter and reached an agreement in January, 1969.

Technically, Schweppes came out of the merger as the surviving company. It bought out Cadbury stockholders by replacing their shares with $290 million worth of its own stock. Watkinson became chairman in the new chain of command, with Adrian Cadbury assuming the titles of deputy chairman and co-managing director. But the new company bore the Cadbury name in front of Schweppes's, and the candy business was clearly not to be neglected. Although the two companies consolidated some of their operations, they maintained autonomy in the matter of distribution, since bottling franchisees control local distribution in the soft drink business.

The 1970s were marked by further diversification and attempts to capture international markets. In 1973 Cadbury Schweppes ventured into alcoholic beverages when it acquired Courtney Wines International from LRL International. Also in 1973, Schweppes South Africa merged with Groovy Beverages. A year later, it acquired Pepsi Cola South Africa. But most of Cadbury Schweppes's moves in the early 1970s were small in scale and generally unsuccessful. It also spread itself thin at home by introducing a large number of unprofitable new products.

Adrian Cadbury succeeded Watkinson as chairman in 1974, and under his direction Cadbury Schweppes focused its efforts on gaining a greater share of the lucrative American market. In 1978, aided by a strong pound, it acquired Peter Paul, a Connecticut-based confectioner, for $58 million. This gave Cadbury Schweppes a 10% share of the American candy market in one swoop. In 1982 it bought Duffy-Mott, a producer of fruit juices and other fruit products, from American Brands for $60 million.

Cadbury Schweppes made several other overseas acquisitions in the early 1980s. In 1980 it increased it stake in its French subsidiary, Schweppes France, to 100%. In 1982 it purchased a two-thirds interest in Rioblanco, a Spanish soft drink company that owned the Schweppes franchise in Spain. And in 1984 it acquired Cottees General Foods, General Foods's Australian subsidiary and a producer of coffee products, jams, jellies, and fruit juice cordials. In Britain it ended its 32-year-old franchising agreement with PepsiCo in 1985 to become Coca-Cola's British franchisee, noting Coke's dominant position in the British market.

But Cadbury Schweppes remained focused on the American market throughout the 1980s. In 1985 it acquired Sodastream Holdings, a British company that produced equipment for making carbonated drinks at home, as a way of trying to capture American customers without competing head-on with Coke and Pepsi--Cadbury Schweppes held only 1% of the American market in 1986, while the two native giants controlled roughly three-quarters between them.

But Cadbury Schweppes began to take on Coke and Pepsi with increasing vigor. In 1986 it bought the Canada Dry and Sunk ist soft drink lines from RJR Nabisco for $230 million. RJR Nabisco was anxious to leave the soft drink business in the face of increased competition from Coca-Cola and Pepsi, which were growing ever larger. Pepsi had just acquired Seven-Up, and Coca-Cola had agreed to buy Dr. Pepper, a deal which would later fall apart. Sunkist was in danger of losing market share to Coca-Cola's new Minute Maid line and Pepsi's Slice. But while RJR Nabisco was ready to get out, Cadbury Schweppes was desperate to get into the market. Buying Canada Dry and Sunkist increased its share of U.S. soft drink sales to 5.3%, making it the fourth-largest soft drink company in the nation.

Cadbury Schweppes then spun off Canada Dry's Canadian operations to Coca-Cola for $90 million. It needed the cash to acquire 30% of Dr. Pepper as part of a consortium that included the brokerage house Shearson Lehman Brothers and Dallas-based investment group Hicks & Haas. This group bought the soft drink company from Forstmann Little & Company for $416 million.

Cadbury Schweppes became the subject of takeover speculation in 1987 after General Cinema announced that it had acquired an 8.3% interest in the company. General Cinema, a soft drink bottler which also owns the Neiman Marcus department stores and operates a large movie theater chain, said that it had bought the Cadbury Schweppes shares purely as an investment. But speculation increased later that year when General Cinema raised its stake to 18.2%. And the next year, rumors circulated that Swiss giant Nestlé would try to acquire Cadbury Schweppes. With stock prices depressed in the wake of the October, 1987 stock market crash and Cadbury Schweppes's strong financial performance, it was an attractive takeover candidate.

Amid all this uncertainty, however, Cadbury Schweppes continued to go about its business. In 1987 it acquired Chocolat Poulait, a French confectioner, from Midial for $173.1 million. In 1988 it sold its American confectionery operations to Hershey Foods as a franchise, deciding that its products would benefit from Hershey's superior distribution network in the United States. In 1989 it bought out the British confectioner Bassett Foods to rescue it from a hostile takeover by the Swedish consumer-products concern Procordia. It also continued its pursuit of the American soft drink market by acquiring Crush International from Proctor & Gamble for $220 million. At that point, Cadbury Schweppes controlled a 4.7% market share in the United States and a 15.1% share in Canada.

In a sense, the takeover speculation surrounding Cadbury Schweppes is a tribute to its success over the last decade. In 1979 the company announced that it would refocus on its core businesses and devote itself to cracking the American marketplace. In 1986 it sold off its domestic beverage and foods division, which included the tea and jam businesses that Schweppes had acquired in the 1960s and Cadbury's popular Smash instant-mashed-potato product. All of its other important actions in the 1980s have related to confectionery and soft drinks. These moves have paid off. Cadbury Schweppes has increased its share of American soft drink sales almost fivefold and improved its financial situation significantly.

But perhaps the most interesting aspect of Cadbury Schweppes is the fact that it remains a family-run business even though it has also become a major corporation. Sir Adrian Cadbury (he was knighted in 1977), the great-grandson of John Cadbury, is still chairman. His brother Dominic was appointed CEO in 1983. Many successful companies that pass from generation to generation eventually lose their character and sense of family tradition as they grow older and larger, but after more than 170 years, there seems to be reason to believe that in the years to come Cadbury scions will still be making Cadbury Dairy Milk--and Schweppes tonic water too.

Principal Subsidiaries: Cadbury Schweppes Investment (Jersey) Ltd.; Cadbury Schweppes Investments B.V. (Netherlands); Cadbury Schweppes U.S.A. Inc.: Cadbury Ltd.; Schweppes International Ltd.; Canada Dry Corporation Ltd. (Ireland); Schweppes Ltd.; Cadbury Schweppes Research Ltd.; Cadbury Schweppes Export Ltd.; Cadbury Schweppes Finance Ltd.; Cadbury Schweppes Overseas Ltd.; Cadbury Ireland Ltd.; Cadbury Schweppes GmbH (West Germany); Sodastream Deutschland G.M.B.H. (West Germany); Sodastream Ltd.; Schweppes AG (Austria); Schweppes France S.A.; Cadbury Schweppes de Espana SA (Spain); Schweppes S.A. (Spain) (66%); Cadbury Schweppes Holdings Inc. (U.S.A.); Canada Dry Limited (Canada); Canada Dry Corporation Holdings Inc. (U.S.A.); Sunkist Soft Drinks Inc. (U.S.A.); Cadbury Schweppes (Canada) Inc.; Cadbury Schweppes Australia Ltd. (70%); Cadbury Schweppes (Pty) Ltd. (Australia) (70%); Cottee's General Foods Ltd. (Australia) (70%); Cadbury Schweppes Hudson Ltd. (New Zealand) (70%); Allied Foods Ltd. (Ghana); Cadbury Schweppes Holdings Ltd. (Kenya); Cadbury Schweppes Kenya Ltd.; Cadbury Schweppes (Zambia) Ltd.; Schweppes (Central Africa) Ltd. (Zimbabwe) (69%); Cadbury Schweppes holdings (Pty) Ltd. (South Africa); Cadbury Schweppes (South Africa) Ltd. (53%); Cadbury Confectionery Malaysia S.B.