It started with the candy, a chocolatey, chewy, toffeelike morsel styled after the pet name of the inventor’s daughter. But nearly 119 years after America’s first bite, the future of Tootsie Roll, one of the world’s most iconic candymakers, suddenly looks cloudier than ever.
The family-run Chicago confectioner’s market share has slid for 10 straight years. Its annual revenue has flatlined or sunk. And with the recent death of its longtime patriarch, the legendary company looks more and more rudderless amid the bitter rivalries of the $31 billion U.S. chocolate and sweets industries.
Candy land is in chaos, shaken by slowing demand from health-conscious buyers and an increasingly global consumer marketplace. Even the cash-register candy purchase, once such a reliable impulse buy, is under assault by online shopping.
The world’s biggest candymakers, grappling with these threats, are rushing to experiment and adapt. Nestlé USA said earlier this year that it would remove artificial flavors and colors from more than 250 chocolate bars, including its Baby Ruth and Butterfinger, to grab ingredient-watching candy consumers.
But Tootsie Roll, which has traded on its name for decades, has remained deeply stuck in the past. Now, with its spiritless sales and slipping profits, the $2 billion confectioner is facing what analysts call a hard truth for the modern sweets industries: Candymakers must evolve or die.
Tootsie Roll’s plateauing demand and changes in leadership have heated up pressure on the candy giant. Investors’ calls for a takeover have mounted into a roar, with some saying the traditionalist firm has failed to adapt to today’s hypercompetitive candy climate.
Within days of chief executive Melvin J. Gordon’s death in late January at age 95, the company’s stock soared 13 percent, one of the sharpest climbs in years.
Yet the long-reclusive candymaker now helmed by Gordon’s 83-year-old widow, Ellen, whose family has owned the company for generations, has kept its next moves secret, leaving analysts to question how long the company will survive.
“For a while the margins were such and the brand name was such . . . that we thought it had to be considered one of the best companies we could find,” said Elliott L. Schlang, the founder of the Great Lakes Review, an investment research firm, and one of the last analysts to cover Tootsie Roll.
“But the company got more lethargic. There was no visibility, no transparency . . . and I don’t know that they kept up with the times. In today’s viciously competitive world, I’m not sure that is adequate.”
Tootsie Roll and the Tootsie Pop — made famous through classic commercials such as the “How many licks?” cartoons — became household names with a place in candy history. The first penny candy to be individually wrapped, the Tootsie Roll proved a popular treat during the Great Depression and was later tucked into rations for American troops in World War II. The company says the 64 million oblong penny candies it makes every day are based on the same 1896 recipe.
Led for more than 50 years by Gordon, who became one of the oldest leaders of a public U.S. company, Tootsie Roll flourished through gobbling up a series of simple, old-fashioned candy brands, including Charms Blow Pop, Charleston Chew, Dubble Bubble and Junior Mints.
Even into his 90s, Gordon waved off retirement to keep leading his burgeoning 2,000-employee empire. Gordon, who married into the business in 1950, personally interviewed every worker from the foreman up and deeply involved himself in Tootsie Roll’s increasingly complicated candy machine.
“We have our own sugar refinery and our own ad agency,” Gordon told the Chicago Tribune in 1990. “We make our own lollipop sticks. We even have our own trucking company, the Tootsie Roll Express.”
But in recent years, analysts said, the candymaker seemed to do less to develop its cash cows. The company made fewer of the acquisitions, investments and strategic moves that marked its early days, and its leadership appeared more stagnant, piloted by a board of directors that averaged older than retirement age. Sales growth slowed and profit margins slipped, from 50 percent in 2000 to 35 percent last year.
Once on equal footing with its rivals, Tootsie Roll gradually became overshadowed. Some candy empires grew explosively, including Hershey, the $22 billion chocolate giant. Others changed the industry through massive consolidations, including Mars’s purchase of gum maker William Wrigley Jr. in 2008, and food giant Kraft’s buy of chocolate giant Cadbury two years later.
But rather than defend the company’s independence, Tootsie Roll leaders remained as quiet and secluded as ever.
“At Tootsie Roll, they won’t grant anyone an audience. They’re not available by telephone, or in person. They don’t appear at conferences, at seminars, even at the door to greet any major fund managers,” Schlang said.
“Ellen is terrific for being in her mid-80s, and Mel was terrific in his early 90s, but they were no longer 20 years old and entrepreneurial . . . and there was a level of complacency and self-satisfaction,” he added. “I don’t know another company like that.”
Meanwhile, demand for candy has flattened in North America, flummoxing many traditional brands. Nearly all the growth in the confectionery business has gone to splashy product launches or rebranded candy lines, leaving classic sweets behind.
Hershey plans this year to launch Kit Kat White Minis, Hershey’s Caramels and Cool Blasts spearmint “chews” for people who don’t want to spit out gum but, as a company executive said, “don’t have the patience to totally work through a mint.”
Mondelez International, maker of Oreo cookies and Cadbury Creme Eggs, said last year it would reduce its snacks’ sodium and saturated fat by 10 percent within five years to win over more label-conscious eaters.
In a letter last year to shareholders, the Gordons noted the “intense competition” in the candy industry but gave little hint of a change in corporate tone. “Our iconic brands evolve in response to these shifting market conditions,” they wrote, “yet remain pure and satisfying to the sweet tooth of the many long term consumers who enjoy them.”
Unlike most public companies, Tootsie Roll releases few financial details, routinely dodges media interviews and ignores the expected niceties of corporate affairs, such as regular calls with investment analysts. The candymaker is also tight-lipped about a plan of succession, which analysts said unnerved institutional investors for whom predictability in leadership is a must.
Ellen Gordon and other executives, through their assistants, declined repeated requests to talk. A Tootsie Roll representative said, “If and when we do interviews, we will keep you in mind.”
But the Gordons have always been clear about their insistence on the company’s independence. “Tootsie Roll is not for sale,” Ellen Gordon, whose family had then owned the company for more than 60 years, told Crain’s Chicago Business in a rare 1995 interview. “We are acquirers, we are not sellers.”
Giant investment funds, including the world’s largest asset manager BlackRock, own large stakes in the company, but their influence has been capped by the candymaker’s fortified power structure.
Although the Gordons own just shy of 50 percent of the company’s shares, a special stock arrangement that gives their shares extra voting power has left them with virtually unassailable corporate control.
Tootsie Roll’s latest disappointing financial results have only intensified takeover talk.
“The buyer who ends up with this,” Nestlé investor Tom Russo told Bloomberg in January, “will end up with an icon that I do believe can be exploited far more broadly and deliver far more delight in far more ways.”
But some are happy to keep Tootsie Roll’s business at a slow, steady pace. Mario Gabelli, Tootsie Roll’s biggest independent shareholder and the billionaire founder behind asset manager Gamco Investors, said he doesn’t expect the brand to be groundbreaking, just stable enough to profit from an occasional American craving.
“I believe in the brand. If she [Gordon] sells it, she sells it. She knows how to count marbles,” Gabelli said. “If she doesn’t, our clients will be content to still get a little more every year.”