The year 1862 isn’t just a historic year for The Grocer. It also marked the birth of Bacardi and Rowntree’s, among the biggest and most successful suppliers to the grocery trade over the past 150 years. And there are some notable parallels between the two.
The son of a grocer, Henry Rowntree bought a chocolate, cocoa and chicory business from a family of Quakers. Together with his brother, Joseph, who joined in 1869, Rowntree’s became not only one of the most recognised names in confectionery it helped shape social reform in the UK, with initiatives including one of the earliest pension schemes for its employees, and an educational legacy that lives on through the Joseph Rowntree Foundation.
As a Catalan wine merchant, who had moved to Cuba, Facundo Bacardi was meanwhile ‘taming’ rum, filtering the liquor through charcoal and ageing it in oak vats, to mellow the notorious ‘grog’. Setting up in business with his brother, the distillery was to become a focal point in Havana, in much the same way as the Rowntree’s factory in York. And similarly the family was heavily embroiled in politics, first in support of the Cuban War of Independence, and then fleeing to Bermuda during the Marxist revolution of Fidel Castro. Yet the rich and colourful history of these companies was ultimately to take very different turns. Critically, the Bacardi family retained control of the business during this upheaval, and is now a global giant with sales of over £5bn, and brands including Martini, Bombay Sapphire, Dewar’s Scotch, Drambuie, Grey Goose and Eristoff.
Rowntree’s, on the other hand, was the subject of a bitter hostile takeover battle in 1988, snapped up by Nestlé, the world’s largest food supplier.
As an important mover in Britain’s proud industrial and political past, it was a sad ending - though, of course, its brands still live on, and early fears it would be starved of investment have proved baseless as Nestlé has invested substantially. This is, however, part of the pattern among food and drink manufacturers over the past 150 years to eat or be eaten, as the supply base has expanded globally to meet consumer demand, while the number of players has consolidated to lower costs.
In fact, the origins of Nestlé are no different. In 1866, Henri Nestlé identified an opportunity to sell an infant formula made of milk, wheat flour and sugar to Swiss mothers who were unable to breast feed their children. But in 1905 it merged with arch rival the Anglo Swiss Condensed Milk Company. And the while the world’s largest food and nutrition supplier has unquestionably benefited from Swiss takeover laws, throughout its 146-year history, Nestlé has crucially responded to opportunities (never more so than with its development of Nescafé) and moved with the times, most recently rebranding itself as a health and wellness company.
Over the years, there have been many landmarks in the creation of today’s food and drink giants. It wasn’t until the late 19th century that ‘brands’ really came to the fore, as industrialisation and the development of packaged goods required manufacturers to ‘brand’ items for shipment to other parts of the country and the world.
And if the rise of low-cost, high-volume agriculture around the turn of the 20th century marked the birth of the modern food economy, the Second World War was a seminal moment in the evolution of the supplier. By this stage, companies such as Nestlé, Procter & Gamble and Unilever were already operating on a global stage. Unilever itself was formed in 1929 by the amalgamation of the operations of British soapmaker Lever Brothers and Dutch producer Margarine Unie, both heavy users of palm - rather than conclude negotiations to prevent each other diversifying into their respective markets, they agreed to merge their operations.
The war presented significant logistical challenges for these global companies. Unilever, which had operations in numerous territories, was effectively broken up, with businesses in German and Japanese-occupied territory cut off from London and Rotterdam. This led to the development of a corporate structure in which local Unilever businesses acted with a high level of independence and focused on the needs of local markets.
The really important post-war developments were social. The economic boom of the 1950s drew more women out of their houses and into factories. With families having less time to cook meals from scratch, demand for new processed foods - such as Birds Eye fish fingers and Nescafé instant coffee - boomed. The convenience offered by these innovative processed foods meant consumers were willing to pay a premium for them, while the scale of operations meant suppliers could make a considerable profit. When competitors replicated their products, large suppliers simply bought them out. The more volume they produced, the cheaper they could produce each unit and the more they could plough back into developing new products and funding new acquisitions.
For suppliers such as Nestlé, being in just one or two categories wasn’t enough. As the world economy expanded, major consumer goods players began to consolidate aggressively. In 1947, Nestlé merged with Alimentana S.A., the manufacturer of Maggi seasonings and soups, becoming Nestlé Alimentana Company. The acquisition of Crosse & Blackwell followed in 1960 as did the purchase of Findus frozen foods (1963), Libby’s fruit juices (1971) and Stouffer’s frozen foods (1973).
The consolidation of hundreds of brands within a handful of companies inevitably brought large suppliers into conflict. The likes of Unilever and P&G went head to head in multiple categories, creating rivalries that continue to this day.
Increasingly, suppliers became not just manufacturers, but brand builders. They bought ready-made brands, developed them, while leveraging their reach, and then divested them when more attractive opportunities presented themselves. For all its current ‘power brands’ - Flora, PG Tips, Persil - it’s easy to forget that Unilever has acquired and disposed of household names such as Birds Eye, Batchelors and Elizabeth Arden. It’s part of the ebb and flow in the rise of these global giants.
With even greater consolidation on the retail side, a lot of coverage in The Grocer has been given to the gradual shift in the balance of power. A recent study by IRI showed that 80% of new grocery brands end in failure, and even brands that make it through the early years are no longer guaranteed sustained success. But the market capitalisation of the giant suppliers - the Nestlés, Unilevers, Diageos and Coca-Colas - is currently greater than even international retail giants such as Tesco - suggesting the boot may be returning to the other foot, as suppliers appear better positioned to leverage their brands in developing markets, while also possessing the brand muscle power to stand up to retailers in home markets.
And another example of how the market is turning full circle is through the advent of so-called corporate social responsibility. The fact that smaller suppliers such as Innocent have shown they can create a premium out of ethical responsibility seems like a new idea, after years of rapacious growth and ruthless acquisition by cold-hearted giants. The scandal over Nestlé’s infant formula marketing to African women, or its palm oil sourcing, demonstrate how consumer power, in the age of mass media, can not only alter supplier behaviour. It means that responsible selling, sourcing and charitable giving are woven into the fabric of modern multinational suppliers.
Henry and Joseph Rowntree would surely be pleased.