Mars Inc. is one of the most productive and profitable privately owned companies operating in the food sector with an estimated revenue of US$33 billion in 2013 (“Mars Inc. Company Profile,” 2014). With a history of over a hundred years of being a highly successful business, Mars is a very special example for a sustainable but distinct company strategy.
Mars owns its initial success to the candy making skill of Frank Mars and the entrepreneurial skills of his son Forrest E. Mars, Sr. The father started his candy business from home in the early 1910s. After one of his confectioneries, the Milky Way® bar, became an instant success in the United States, his son, driven by economic rationality and instincts, went from his home country to Europe where he used the father’s recipe to manufacture and sell it under the name of Mars®. From there on the business flourished and after his father’s death Forrest E. Mars, Sr. united the two separate companies to what is now one of the biggest food businesses that operates in six global business segments (Chocolate, Petcare, Wrigley Gum, Food, Drinks and Symbioscience) and is still entirely owned by the Mars Family (“Mars Inc. History,” n.d.). Mars Inc. made it to the very top of the Candy Industries Top 100 of the World’s Leading Confectionery Companies just this year (Scully, 2014) and owns 11 brands worth more than US$ 1 billion (incl. Pedigree®, M&M’s®, Extra® and Uncle Ben’s®).
Although these iconic products rank amongst the most well known, little is leaking about the company itself, its owners and practices. It is a struggle to find out about the size of the Board of Directors or who the family members are that form it, for instance. And the information that is available to the public is well positioned and sophisticated to show a company image of a responsible and sustainable business with the highest quality at interest to attract consumers and talented new associates (how Mars calls its employees) (Kaplan, 2013).
It was Forrest E. Mars, Sr., who clearly defined the company’s mission in 1947 as the “manufacture and distribution of food products in such manner as to promote a mutuality of services and benefits among all stakeholders”(Mars Inc., 2014, p. 4). The business’ culture and its decisions are therefore guided by its Five Principles of Quality, Responsibility, Mutuality, Efficiency and Freedom, which are based on this aim. In a brochure Mars explains that the Principles “set us apart from others, requiring that we think and act differently towards our associates, our brands and our business” (Mars Inc, 2003, p. 3).
If describing Mars’ strategic process as introduced by Hambrick and Frederickson (2001) Forrest E. Mars’ statement equals to the mission und the Five Principles depict the objectives, as they set specific targets. Different to other companies is the certainty and consistency with which the Five Principles are actively applied to the daily work of every associate in all 73 countries (Mars Inc., 2014).
Strategic management allows a business to conduct a environmental analysis that then enables the company to meet various business challenges in order to meet customer and stakeholder demands to gain a competitive advantage in its market (Dawson & Andriopoulos, 2014).
Mars’ strategy, which is a combination of an innovative management philosophy and familial eccentricity, will be further described in this paper. Therefore external and internal influences on the company will be shown as comprehensive as possible, since a lot internal matters are kept a strict secret by Mars.
The paper will roughly outline the external influences by covering a PESTEL analysis and Porter’s Five Forces, show how Mars positions itself on the market, sketch the company’s internal HR practices, define its core competencies and conclude with Hambrick and Fredrickson’s Major Elements of Strategy. Some more detailed analysis (a longer version of the PESTEL evaluation) can be found in the appendix. As already mentioned Mars acts in a few different markets including chocolates and pet food, which all have their very own power balances and specialties. This paper, however, will give an overview of the company’s general market position in the food processing industry and will not specify on one business segment in particular.
The analysis of the company’s industry environment is an important component in the strategic thinking process that helps the senior management of an organization to develop strategic directions and options that focus on long-term success and include all relevant aspects. In order to do this evaluation, the PESTEL analysis and Porter’s Fiver Forces Model are used.
The PESTEL analysis is a strategic management tool to evaluate the effects of the following six external effects or influences on the operations and performance of a company: political, economical, social, technological, environmental and legal (Cambridge Dictionary, 2015). The most important factors that influence Mars are shown now, more can be found in the appendix. The first is the social trend towards a more balanced diet and health consciousness that is vigorously supported by governments, which affects four of the company’s six segments (chocolate, Wrigley Gum, food and drinks). People prefer products that are lower in calories, fat and/or sugar (Mars Inc., 2014; Sheridan, 2004) which Mars needs to take into consideration to keep up to the consumers’ demands.
Secondly, there is a big environmental threat as Mars relies on several resources that might struggle to meet the future demands. The best example of this is cocoa, as Mars predicts that demands will exceed supply by 2020 by over 1m metric tons (Mars Inc., 2014). Therefore the company is eager to ensure and promote sustainability in all their supply chain and in-house operations in order to preserve the environment for future generations.
Finally, there are various legal premises that must be met in terms of allowed ingredients, labelling, packaging, pricing and marketing that are different in every country or trading union. Additionally, the company, together with it’s competitors must not breach competition law by for example price fixing, which Mars has currently been accused of (BBC, 2013).
Michael Porter’s Fife Forces framework serves as one (if not the) most important and powerful model to gain a holistic overview of the competitive setting of a company in its industry. It shows a businesses competitive advantages and strengths as well as its positioning. The model includes the analysis of five concurrent forces that influence a company’s ability to compete on the market and shows its attractiveness for the existing players. Customers, suppliers, potential substitutes and new entrants shape this market as well as the existing competitors (Porter, 1997).
The bargaining power of the suppliers on the market is relatively low, as companies, especially the largest ones like Mars, have an immense buying power. Therefore they can dictate the quality and partially the prices of the raw goods. As ‘mutual benefit’ is one of Mars’ key values, the company is promoting a healthy and close economic relationship to its suppliers to ensure quality and sustainable practices (Mars Inc., 2014).
The bargaining power of the customers on the other hand is high, both if ‘customer’ is equated with ‘consumer’ and ‘retailer’. The consumers decide if the like a certain taste or if they are willing to pay a certain price. As there is a great variety of different products from various manufacturers, the consumers are not restricted in their choices. The power of the retailers, especially chains like Wal-Mart or Tesco, is big as well, as they can decide on what to put on their shelves and on the prices of shelve space. However, Mars was able to built a well know reputation of beloved quality brands that most retailers can’t afford to not offer in their shops.
The threat of new entrants is low because of the dependence on the economies of scale. In the food processing industry, it takes a significant market share to attain a certain level of efficiency in both producing and selling the right amounts of products to cover the costs. Furthermore, a lot of small businesses were already acquired by the big organisations, especially in the chocolate sector.
The threat of substitute products depends a lot on the business sector, as for some it is higher than for others. For pet food for example, consumers could prepare home made food, this is, however, a lot more cost and time intensive, which makes customers very unlikely to change feeding habits. The chocolate, on the other hand, could easily be replaced by crisps, pralines, cookies, other confectionery or even magazines, as it mostly is an impulse purchase. Therefore, the threats of substitutes are low to medium depending on the sector.
The food processing market it subject to intense competitive rivalry. Companies preserve market share through brand loyalty and diversification. As the switching costs are minimal for consumers, brand loyalty can’t be guaranteed. Therefore, businesses must maintain constant quality at an affordable price. Due to this intense competition, customers will consistently enjoy product improvement and quality. Additionally, this is one of the reasons for Mars’ reticence and secrecy. Competitors should not get the slightest idea of any procedures or developments that are kept behind the company gates.
Overall, Mars holds a considerable position in a market with significant competition and external demands. Due to its size and private ownership, Mars is in a good position to bargain with its suppliers and it also has the capability to raise entry barriers through its brand- recognition.
According to Porter (1996), strategy is not about being better, but about being different from the other competitors. The three major ways for a competitive advantage are differentiation, niche focus and cost leadership. If the first is chosen, the company’s products are meant to be perceived as more valuable to the customer. In the latter, the organisation is able to produce the product more cost efficient and can therefore either charge lower prices or earn and reinvest a greater margin.
Mars’ positioned itself early as a cost leader. In developing a range of chocolate bars, that can all be produced on the same high-speed production line and using ingredients that are less expensive then the competition’s, Mars was able to heavily decrease its costs. This extra profit was used to buy the best shelf space in every grocery store in the U.S. (Lafley & Martin, 2013) and with this Mars became one of the biggest players on the market. In the 1980s, the company had implemented the same strategy not only in terms of production but also to their marketing actions: most dog and cat food products are each marketed under one umbrella brand, for example. This one-size-fits-all policy was a great success, especially in the U.S. This strategy involves selling the exact same brands and products in various regions (Brenner, 1992; Russel, 2010).
However, tastes are very different around the world, especially chocolate preferences. Due to that, it is not surprising that Mars has announced a global restructuring of its chocolate sector in 2010 to focus more on the consumer demands and the different competitors in various regions separately, as just-food reported. This reorganisation might even include the closure of several older plants (Russel, 2010). The article, however, already is four years old and there is very few follow-up information about what actually did happen. Therefore the significance of these plans is questionable.
Mars’ one-size-fits-all policy links well to the company’s HR strategy, as the standardized production might be necessary due to exceptionally high wages that are paid to the associates (Russel, 2010). Their employees are one of the company’s most valuable resources and their work is highly rewarded: the bonuses that associates get range from 10% to 100% of their wages if the team performance was financially worth while (Kaplan, 2013). They are encouraged to experiment, thrive, enhance their individual performance level and take full responsibility from their first day on. With the Mars Academy, the organisation has a “globally unified driver of learning that fulfils the role of a key enabler of strategy” (Rademakers, 2014, p. 54). Despite its success, Mars doesn’t promote any exclusive perks. The open offices as well as the flat hierarchy are structured to create an open-minded atmosphere and direct communication where every associate, manager and owner is worth the same. The focus lies on empowering them to give their best and Mars emphasises the appreciation of every single associate by promoting an environment where both group and individual achievements are recognized and rewarded. This might be the reason why Mars’ employee turnover is as low as 5% (in the U.S.) and associates work more effective than in any competitors’ environment as they produce more chocolates per employee than any other business. Next to outstanding knowledge and skills, acting according to the Five Principles, are the core competencies Mars is looking for in their employees (Brenner, 1992; Kaplan, 2013). This very much sums up the companies HR strategy, which can be referred to by Resource-Based View as the core competency.