Chew on this
A Yankee lawyer has recharged Britain's fusty Cadbury Schweppes - and brought it through a tough crisis.
(Fortune Magazine) -- It's hot enough outside to melt chocolate. But in a cool, windowless room in a building in northern New Jersey, a dozen people dressed in white lab coats are chewing gum. Some are housewives, one is a retired dentist, and all have an uncanny ability to discern flavors, textures, and aromas - earning them one of the sweetest jobs in America, as sensory panelists for Cadbury Schweppes (Charts), the world's biggest confectionery maker.
"This will be a ten-minute chew," says Kathy Leamy, who is in charge of this morning's taste test, as the panelists each reach for sample No. 559, a green slab of sugarless gum. "Begin."
The members of this elite team chew methodically, enter scores into a computer, and make small talk. One woman, who has tasted products as strange as tamarind-flavored lollipops, describes the array of new products that have made their way onto her tongue over the past few years: "Since I've been here, there's been a revolution in gum."
The man who sparked that revolution - new brands, flavors, and regions - is Todd Stitzer, who grew up not too far from where the panel has convened. Today, though, he sits 3,500 miles away, in a fourth-floor office in London's Mayfair district, overlooking leafy Berkeley Square.
Over the past six years, first as chief strategy officer and now as CEO, Stitzer, 54, has transformed this musty, 182-year-old firm into a hard-charging food-industry powerhouse, with $11.8 billion in sales last year. A $10 billion acquisition binge has reduced Cadbury's dependence on chocolate and brought more profitable gum brands like Trident into the fold. Stitzer has rekindled innovation, slashed costs, and replaced a quarter of his top managers. He has also put the fizz back in Cadbury's U.S. drinks business, which has gained market share against Coca-Cola and Pepsi. Those moves have helped its stock outperform the shares of not only the soda superpowers but also confection rivals Wrigley (Charts) and Nestlé (Charts).
Less sweet, however, was a salmonella contamination in England that prompted Stitzer to recall more than a million bars of chocolate in June. The recall will cost $36 million; there could also be lawsuits. Worse, the incident bruised Cadbury's reputation as one of Britain's corporate good guys. When it emerged that the company had learned of the salmonella problem in January but waited five months to disclose it, the British press went wild. Stitzer argued that the contamination levels didn't warrant disclosure, but an independent food-safety committee said that any salmonella in chocolate was unacceptable, and also criticized the company's testing methods. Moreover, 13 people got sick. After announcing the recall, Stitzer stayed up all night planning Cadbury's next moves.
Now that the crisis has abated, Stitzer is refocusing on operations. Cadbury is consolidating its bottling assets, which could allow it to better serve large retail customers like Wal-Mart. Will selling the beverage business be next? Or more acquisitions?
An avid tennis player, Stitzer won't say where his next shot will land, but you can bet it will come with his trademark force-and perhaps some good old American chutzpah: When he was introduced as the company's chief strategy officer, Stitzer entered the room to the strains of Warren Zevon's "Werewolves of London."
Cadbury's primary focus since its founding by Quaker John Cadbury in 1824 had always been chocolate. As recently as 1997, 72 percent of its confection sales came from chocolate brands such as Dairy Milk, while only 2 percent came from gum. That imbalance, Stitzer reasoned, had to change. "The confectionery business is relatively unconsolidated," he recalls thinking in 2000. "So rather than just buying chocolate companies, why don't we look at what's available? We found that sugar-free chewing gum was growing the fastest and had high margins. So we said, 'Hey, maybe there's another route here.' "
The plan Stitzer settled on was to become No. 1 in the global confection market, which, despite the presence of giants like Mars, Nestlé, and Hershey (Charts), was fragmented - no company controlled more than 10 percent. The strategy dovetailed nicely with consumer trends. Sugar-free gum has become one of the hottest segments in the $136 billion confectionery market, with worldwide sales up nearly 8 percent a year over the past decade, double the growth rate of the industry overall, according to Euromonitor, a market research firm.
Stitzer's three-year buying spree focused mainly on gum and sugared candy. His biggest move was the $4.2 billion acquisition of Adams, the former Warner-Lambert confection business, which featured jewels like Trident, Halls, and Dentyne. (He took on a heap of debt to fund the purchase, raising the company's debt-to-capital ratio from 41 percent to 60 percent.) The acquisition, completed in 2003, not only thrust Cadbury to the top of the global confection market but also gave Stitzer an edge over chief operating officer John Brock in the race to succeed John Sunderland as CEO. Stitzer sees parallels between himself and Sunderland, now Cadbury's chairman: "We're both analytical yet also practical. And we both want to win."
When Stitzer says he went to church twice on Sundays as a boy, he's not just embellishing a strict childhood. In the small town of Ridgewood, N.J., he would first attend Catholic mass with his mother, then trudge across the street to sit through Methodist services with his father. When his mother became ill during his first year of college, Stitzer gave tennis lessons to cover tuition.
Hundreds of lessons later, after graduating from Harvard and Columbia Law School, Stitzer found a job at the elite Manhattan firm Lord Day & Lord, which counted Cadbury among its clients. In 1983, when he decided to forgo the firm's frantic pace, Cadbury was a logical place to land. After a stint in the legal department, he took on a series of increasingly prominent roles. "I loved being a lawyer," Stitzer says, "but I wanted to be challenged intellectually."
There's probably no greater marketing challenge than battling both Coke and Pepsi in the trenches, which is where Stitzer found himself in 1997, running the Dr Pepper/ Seven Up beverage business, which Cadbury had acquired in 1995. Stitzer boosted profits and morale with a simple mantra: "Sell more soda, make more money."
His success in Texas caught the eye of Sunderland in London, who created the strategy role for him. Since taking over as CEO in 2003, Stitzer has aggressively cut costs, selling or closing 41 factories. He also plotted to take the No. 1 position "in every confection market we possibly can." Today Cadbury is No. 1 or No. 2 in 23 of the world's top 50 confection markets.
Stitzer plans to build on that position through more acquisitions and innovation. (He sank $40 million into an R&D center in New Jersey, which includes the Global Gum Center for Excellence, where those sensory panelists convene.) Perhaps most interesting, though, is how Stitzer crossbreeds Cadbury's technology and brands to exploit opportunities in emerging markets, a strategy he dubs "smart variety." Take the 2004 meeting between executives from Latin America and India. In India, Cadbury had 75 percent of the chocolate market but not much share in candy or gum. In Latin America, Cadbury had 64 percent of the gum market but didn't really play in chocolate. The result? In Brazil, Cadbury has introduced Chocki, a liquid chocolate perfect for hot climates. And Indians can now buy a pellet gum called Bilkul, which features flavors like cardamom and a texture similar to paan, a popular snack made from betel nuts.
Cadbury has grown its share of the $2 billion U.S. gum market from 24.5 percent to 30.1 percent over the past four years, according to retail-data tracker Information Resources. (Wrigley has 60 percent.) Sales of Trident rose 21 percent last year, and Cadbury is banking that its latest launch, Stride, billed as "ridiculously long-lasting," will take sales away from Wrigley's Extra, the top brand in the U.S. Robert Boutin, a partner at Knechtel, a confection consultancy, sums it up: "Wrigley is struggling, and Cadbury is smelling blood."
While still a distant No. 3 in the U.S. beverage market, with an 11.6 percent share, Cadbury had its best performance in nearly a decade last year, with sales up 5.9 percent. Stitzer has consolidated its far-flung beverage operations into one unit, giving it more leverage when dealing with large retailers. He's also sold off the remnants of Cadbury's European beverage operation and restocked the innovation pipeline. The biggest success: Cherry Vanilla Dr Pepper, which had sales of more than $100 million last year. His boldest move came in April, when he bought out two independent bottlers, giving the company control of the distribution of 40 percent of its U.S. beverage volume. As retailers demand new products and more efficient delivery, Stitzer says, Cadbury can't afford to leave distribution to "a polyglot nation of individual owners." Some analysts foresee a sale of the beverage business. Says Mitchell Corwin of Morningstar: "Cadbury's future is in confection. A divestiture of beverages would be a good move."
Stitzer's main concern now is rebuilding trust with consumers after the salmonella contamination. Though apologetic, he is unbowed. His vision of a bigger, better, more respected Cadbury, which he reiterates to employees in voicemails that are legendary for their length and passion, is intact. That passion was evident at a recent senior management meeting in Thailand. The theme, borrowed from Stitzer's favorite singer, Tim McGraw: "How Bad Do You Want It?"
From the September 4, 2006 issue