What do you do when you think cigarette smoke is disgusting and you are a bit of a germaphobe? Create a collectable candy empire, of course.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
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Dave Young:
Welcome back to the Empire Builders Podcast. And I’m Dave Young, alongside Stephen Semple, where we’re talking about empires. And Stephen whispered the subject of today’s episode into my ear, and immediately, immediately my thoughts went not to my childhood as usually happens.
Stephen Semple:
Well, this is a variation. Can I guess where your brain went?
Dave Young:
Go ahead.
Stephen Semple:
Seinfeld?
Dave Young:
No, not even se Seinfeld.
Stephen Semple:
Okay. All right.
Dave Young:
I think it’s on Apple, the current, maybe it’s not on Apple. Maybe it’s Prime. I’m not sure. But it’s a current series, sci-fi series going on called Silo.
Stephen Semple:
Oh, yes, yes. I’ve started watching it. Yes.
Dave Young:
And they have these artifacts and somebody has a Pez dispenser, this Silo, futuristic, that mankind’s been living in these silos for 350 years. They can’t come out, but there’s some people have these trinkets from the past and there’s a Pez dispenser amongst them.
Stephen Semple:
That’s right.
Dave Young:
They have no idea what it is.
Stephen Semple:
Right, yeah. And then there’s that famous Seinfeld episode with the Pez dispenser in it as well. That was super popular one, where Jerry basically is being pain in the neck with this Pez dispenser. Yeah, but they’re huge. They sell about 75 million Pez dispensers a year, still, across 80 countries, as well as five billion individual Pez candies. There’s like 900 employees working for Pez.
Dave Young:
Wow. Okay. And the candy’s nothing special, other than it’s all uniform, like little bricks. It’s almost like eating a Lego and almost as flavorful.
Stephen Semple:
Yeah, there you go. Well, I can’t comment, because I’ve never eaten a Lego, but…
Dave Young:
Well, you didn’t have my childhood, Stephen.
Stephen Semple:
So, the Pez company starts in 1927. I didn’t realize how old it was. And it was started by Edward Haas III, and he lived in Vienna, and he couldn’t stand the smell of smoke. And he’s running this family, this successful family business, making a special kind of baking powder that was invented by his grandfather. So he was already a business person making this baking powder. And Edwin took the business in a new direction when he created the world’s first ready mix cake mixture during World War I.
Dave Young:
Oh, wow. Okay.
Stephen Semple:
Yeah. And so, by the late 1920s, they have a number of factories in Europe, and at this time, smoking booms with the invention of the rolling machine, the automated rolling machine, which suddenly makes cigarettes cheap and plentiful. And if you want to learn more about this trend, go back to episode 85 for American tobacco. So first, Dave, can you believe that was like a year and a half ago that we recorded that?
Dave Young:
No kidding, yeah, the automatic rolling machines.
Stephen Semple:
Yeah. So there’s a whole episode really on that. Go back and check it out. It’s actually quite a fascinating story.
Dave Young:
But this guy, he doesn’t like smoke.
Stephen Semple:
He does not like it. And one of the other things that happened is during World War I, soldiers are provided cigarettes as rations. And it’s really interesting. My grandfather served in World War I, he never talked much about it, but there’s a couple of things that he kept. And one of them was there was this little metal case that they were given at Christmastime that had special rations in it, and it had the royal seal and everything on it, and it was actually for putting cigarettes in.
Dave Young:
Wow. Okay.
Stephen Semple:
So the interesting thing, it was one of the few things that he kept his entire life, was this little metal ration case that cigarettes came in.
Dave Young:
That’s cool. Yeah.
Stephen Semple:
So suddenly, you had this additional explosion to smoking, not only because cigarettes are cheap and plentiful, people were being given it as a ration in the war. So they came back smoking. And Edward thinks this is a filthy, stinky habit, and he wants to reduce it. So he launches peppermint lozenges, and he’s hoping that reaching for a peppermint mint will reduce the desire for smoking, that whole mechanical thing. Plus, it’s going to improve the smell of breath, because thinks it’s a stinking, disgusting habit. But the big challenge is, in his day, peppermint is super expensive, because at the time, making peppermint flavoring involved boiling the peppermint down. And so, most of the peppermint was lost to evaporation. So he hires a chemist, Dr. Ortner, to solve the problem, and they develop a process for cold pressing peppermint into nice tablets, and it cuts the cost of peppermint in half.
Dave Young:
And so, they’re pressing them into uniform little tablets, okay.
Stephen Semple:
At this point, yeah, little tablets. And he names the product, and it’s really unbelievably hard to say. So it’s Pfefferminz.
Dave Young:
Okay.
Stephen Semple:
And it’s so hard to say, and it’s even hard to say in German, he creates an acronym using the first letter, the middle letter, and the last letter, which is P-E-Z, Pez.
Dave Young:
Or Z. Yeah, Pez. Pez. Pfefferminz.
Stephen Semple:
Yeah, exactly. So that’s how the name Pez comes about. It’s just an acronym from a terrible name, but they’re not yet brick shaped. They’re tablets, they’re round, they come in a little tin or foil roll, but they’re a huge hit. Edwin buys an old belt factory in the Czech Republic and turns it into a Pez factory. And Edwin leans hard into this whole anti-smoking angle. He even creates a verb called Pezzing. He runs ads playing up the fresh breath angle, hires young women to hand out samples, like game as old as ever, right? Handing out samples-
Dave Young:
Yeah, Pezzing.
Stephen Semple:
… and Pez is taking off. But I love this whole idea that he creates a verb, because we all know how powerful verbs are. Now, as Edwin looks to increase production, he finds that the round shape is hard to make in the volume that they want. So he changes the shape to little bricks. You can make a big slab and cut them. So now-
Dave Young:
And then wrap them and yeah, they’re all packed tight and uniform, no wasted space with air in between.
Stephen Semple:
Right. So that’s how they end up becoming the little bricks, it’s about production. Now, Hitler invades, annexes everything, production stops. But by 1948, after the war, he gets the factory back, and he’s up and running again. Edwin is a bit of a clean freak and a germaphobe. And this whole reaching into a tin to share mints sort of freaks him out a little bit. And he looks at how cigarette packets work. So if you look at a cigarette packet, you turn it over, you give it a tap, and one cigarette comes out at a time, no touching. So he decides to hire an engineer to create a new package. The engineer he hires as the guy who invented the one-handed self-closing lighter.
Dave Young:
The Zippo? Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Empire Builders Ad]
Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
The engineer he hires is the guy who invented the one-handed self-closing lighter.
Dave Young:
The Zippo?
Stephen Semple:
I don’t know.
Dave Young:
I don’t know if it was Zippo, but yeah. Wow. I mean, you can see-
Stephen Semple:
Oscar Uxa. Yeah, yeah.
Dave Young:
You can see the similarities if you think about both products.
Stephen Semple:
Yes. So he designs a mint dispenser that looks like the lighter, flip top and a spring that pushes out one at a time.
Dave Young:
Wow.
Stephen Semple:
Right?
Dave Young:
Okay. This is exciting. This is so cool. Yeah.
Stephen Semple:
Now Dave’s all engaged.
Dave Young:
Oh yeah.
Stephen Semple:
And they name it the regular, that’s what they name this dispenser.
Dave Young:
The regular. Okay. Not a Pez dispenser yet. It’s just the regular.
Stephen Semple:
Now he introduces it to the market in 1949 in the Vienna Trade Show, and it takes off, and he ends up building this second factory. Pezes are selling so well, he even builds a Pez specific vending machine. They’re moving like 40,000 of these vending machines a year.
Dave Young:
Wow, okay.
Stephen Semple:
It’s huge. Now, let’s go to the US. It’s 1955, and smoking is huge in the US. 45% of the adult population smokes. It’s massive. Now, Pez is killing it in 34 countries around the world, but not selling well in the US. Pez is being run by this fellow Austrian in the US, whose name is Curtis Allina, and he realizes the smoking angle? Not working in the US. So he decides to lean into the candy angle. And at this time, Pez is being offered in three flavors, peppermint, lemon, and chlorophyll mint. No joking. That was the name. And he decides they need new flavors, orange, strawberry, and wild cherry.
Now, it’s the 1950s, and there’s lots of new candy, so it’s hard to break into the candy business. And he decides the differentiator needs to be the dispenser. And what he wants to do is make them look like toys. Now, here’s the interesting thing, and this is where when we do see innovation come from people inside the industry, it is often from somebody who’s running a division somewhere that’s not doing well. So you’re running the US, it’s not doing well, and you say, “Hey, let’s do this thing. Nothing else is working. So what the heck? Let’s do that thing.” So basically they decide, “Let’s do something different. Let’s try this whole dispenser thing. Might as well give it a whirl, right?”
Dave Young:
Yeah.
Stephen Semple:
Make it look like a toy.
Dave Young:
And put candy in it instead of alternatives to smoking. Yeah.
Stephen Semple:
Correct. Correct. So they start with Santa Claus and a robot. That’s where they start. Now, it didn’t actually sell well, the price was pretty high, because basically the price of the dispenser at the time was about five times the price of what a candy bar was. And the challenge was the dispenser was hard to make, right? That dispenser, it looked kind of looked like the lighter?
Dave Young:
Yeah.
Stephen Semple:
Yeah. So they go back to the original dispenser. Instead of making a completely new dispenser, they go back to the original dispenser and they decide, “Why don’t we just add a cartoon character on top? Instead of this whole character thing, let’s just put a cartoon character on the top.”
Dave Young:
Just put a head on it instead of rebuild the whole thing. Yeah.
Stephen Semple:
Correct. Correct. And this drops the price in half. So in 1957, they launched the new design just before Halloween, which was a witch. It takes off. Next one they do is Popeye, because Popeye is huge at the time. It goes crazy. Next they decide to partner with Disney, and then Looney Tunes, and they make tons of these things. Then they give the Pez little feet. And when they add the little feet, you can now stand it up and display your Pez.
Dave Young:
Okay, like a little base on the bottom. Yeah.
Stephen Semple:
Yes, yes. And look, one of my favorite ones is season three Seinfeld. When it appeared in season three of Seinfeld, there was an $18 million spike in Pez sales following that episode.
Dave Young:
Amazing. Amazing.
Stephen Semple:
And the secondary collectibles market takes off. These Pez dispensers end up becoming a thing that people collect.
Dave Young:
I Googled it while we’re talking. And there are 1961 political Pez dispensers that have recent sales of 20 to $25,000 for one.
Stephen Semple:
Yeah.
Dave Young:
Crazy.
Stephen Semple:
These people who collect, they call themselves Pezheads.
Dave Young:
Okay. And it stood the test of time, right? It’s not like those damn Beanie Babies. There’s no bubble.
Stephen Semple:
Yeah, there’s not been a bubble. But what I found interesting is, there’s two interesting things to learn at this point about Pez. And one is, again, it was the solving of a problem. It started off as being, there’s this smoking problem and the breath, and everything else. And so, we wanted to be able to create the solution to this problem. And then, the next thing was, “I want it to be dispensed in a more hygienic manner.”
And what was really interesting was who he went to. He didn’t look at other people in the food business or the candy business. He looked at, “Well, there’s this guy who created this lighter that you can do this thing with one hand, and there’s these cigarette packets that are like this. I bet he could create a solution.”
Looked outside of his industry to something that had the same shape. This problem had the same shape. And I thought that that was really amazing. And then, we go to the United States and it’s, “Well, it’s not selling. Let’s package this in a different way. Let’s look at it as being a candy, but if it’s a candy, how can we make the dispenser a toy? So now it’s more appealing as a candy.” I thought those were kind of a couple of interesting lessons there.
Dave Young:
They really are ways to pivot your product into an area that it wasn’t necessarily designed for. Especially if you’re in, like you said, a market that’s maybe geographically distant or just different enough, that the impetus for the original purpose of it isn’t quite there.
Stephen Semple:
And it’s a great place to innovate, because again, what have you got to lose? The American market wasn’t selling. Why not? And it’s interesting how we’ve seen that even in a couple of other podcasts, where it’s been a person who’s in a small division, like look at Wonka bars, right? He’s in a division not doing well. It’s like, “Well, what the heck? I’m going to do this innovative thing,” right? It’s like innovation happens, in big companies innovation happens easier in places where it’s actually struggling.
Dave Young:
Yeah, there’s nothing to lose.
Stephen Semple:
Yeah, but there’s a whole sidebar. So we’re going to end this episode right here, and we’re going to do a second episode on Pez, where all we’re going to talk about is the collectibles, because there’s a complete-
Dave Young:
Oh man, yeah.
Stephen Semple:
… crazy story on the collectibles. So we’re going to end this one here, and they’re going to restart a next episode just on Pez Collectibles.
Dave Young:
Oh, I can’t wait. Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big fat juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.
