(FORTUNE Magazine) – HERSHEY AND MARS are engaged in a brutal, back-and-forth battle to be No. 1 in the $8-billion-a-year U.S. candy market. Mars deposed Hershey as candy king in the early 1970s, and by the end of the decade had pushed its market share 14 percentage points ahead of its rival's. ''It took the Hershey people seven or eight years to realize that Mars was not going to go away,'' says a top industry executive. ''Then it took them another five years to get their act together.'' With successful new products, lots of heavy advertising, and often brilliant marketing, Hershey has come roaring back. Industry analysts say the race between the candy monsters is now neck-and-neck. As they fight for leadership, they bring fresh excitement to a once stale candy market: increased sales, interesting new products aimed at grownups, and even the improbable notion that candy is good food. The principal combatants in the bar wars make all ten of the best-selling candies in the U.S. (five for Hershey, five for Mars), and they share 70% of the candy bar market. Peter Paul Cadbury, maker of Mounds and Almond Joy, sells about 9% of U.S. candy bars. And Nestle, maker of perpetually popular Nestle Crunch, sells only 6%. Mars and Hershey have distinct corporate styles and battle strategies. Hershey earned $109 million on sales of $1.9 billion last year, and its stock recently sold at $45.50 a share, near a ten-year high. Just over 50% of the stock is owned by the orphanage that founder Milton Hershey established when he and his wife could not have children. For years the Hershey company operated mainly to provide funds for the orphanage. But after Mars began eating into Hershey's business, William Dearden, who grew up in the orphanage and was chief executive from 1976 until 1984, decided to make the company more aggressive. He and Richard A. Zimmerman, his chief operating officer and successor, also diversified to lessen the company's vulnerability to wild swings in the prices of cocoa beans and sugar. Because its research shows that candy customers rarely buy the same bar twice in a row, Hershey has become a fearless product innovator. ''When most people walk up to the candy counter, they will choose among six, maybe as many as 12 items that are acceptable,'' says Zimmerman. ''We want to be sure we are on that menu.'' Hershey has 17 of the 60 best-selling candy bars, vs. nine for Mars. Almost 20% of its candy sales came from new products last year, vs. 7% in 1979. Hershey aims many new sweets at adults -- the baby boom grown up. While children under 12 are still voracious candy eaters, people over 18 put away 55% of all candy sold. Hershey figures it gets a double hit by carefully courting mothers. ''We figure that the woman determines the children's early taste in candy,'' says Zimmerman. Because it sells a wide line of miniatures, holiday assortments, and family packs, Hershey has been able to make the food stores, where half the candy dollars are spent, its stronghold. Mars's single bars sell faster than Hershey's, so Mars is No. 1 at newsstands and in vending machines. Hershey still squeezes sales juice from its familiar brands. A national advertising campaign tripled sales of Hershey's Kisses between 1977 and 1984, and a contest on the package kept sales of Reese's Peanut Butter Cups increasing at double-digit rates for the past two years. (Matching two of the right wrappers would win you an Apple II or a Sony color TV.) Hershey's chocolate milk -- produced by local dairies licensed by the company -- is a widely admired marketing coup: the familiar brown and silver labels on the milk cartons double as small advertising billboards for chocolate bars in almost every supermarket in the country. Much less innovative than Hershey lately, Mars concentrates most advertising and marketing efforts on long-successful brands: Snickers, the No. 1 U.S. candy for a decade, which had 1984 retail sales of about $400 million, and the two M&M's candies, plain and peanut, which shared $500 million in sales just about equally. The company's last successful new product was the caramel-and-chocolate Twix bar, introduced in 1976. Forrest Mars Jr., 53, and his brother, John, 50, grandsons of Frank, the founder, control Mars, one of the world's largest private companies. Mars is so secretive that the industry calls it the Kremlin. Insiders say that Forrest Jr. runs the candy operation and John runs most of the rest, which includes Kal Kan pet foods, Uncle Ben's rice, and an electronics division that makes money-changers for vending machines, among other things. These businesses, plus a large international candy operation, make Mars, with sales estimated at more than $6 billion in 1984, three times as big as Hershey. Although M&M/ Mars, the candy division, is in Hackettstown, New Jersey, the brothers both work at Mars World Headquarters in McLean, Virginia. Forrest and John strike some as a good-guy, bad-guy act, with Forrest being smaller and more easygoing, and John described as big, brusque, and sometimes nasty. Mars seems to be melting under the heat from Hershey. Those who have worked at Hackettstown say that things get ragged quickly when all is not well. ''These are people devoted to the company and under a lot of pressure to perform,'' says a former man from Mars. ''When market share is growing healthily, everything is okay, but when sales flatten out or even when goals are not quite met, guys can start tearing each other's throats out.'' Last year the brothers forced the resignation of President Alun Jones, a 20- year veteran, after one year in office. His replacement: Howard Walker, who had been president from 1978 to the end of 1982 and is said to be more cautious and less imaginative than Jones. At the same time, Mars reassigned its vice presidents for marketing and sales and filled the sales job with an executive from the Armour-Dial division of Greyhound -- a move almost unheard of at a company that prides itself on promoting from within. ''I think Mars has realized that it is not so invincible these days,'' says an insider. ''The company is not quite as buttoned down as it might be.'' Mars does not explain the executive upheaval. But pricing policy almost certainly had something to do with it. Mars had scored a marketing coup in late 1980 when it increased the size of the bar without raising its price. But in December 1983 Hershey took the lead, raising wholesale prices enough to push up the retail price of a standard Hershey bar from 30 cents to 35 cents. Jones tried to hold the 30-cent line at Mars, hoping to sell more by being cheaper. That never happened; retailers charged 35 cents for both companies' bars, pocketing an extra nickel on every Mars product -- about $5 million a month. Just after Jones left, Mars raised its wholesale price. THE COMPANY has had other problems. It failed to anticipate demand for M&M's for Christmas 1983 and couldn't produce enough to keep distributors merry. And the sales growth of old standbys -- 3 Musketeers, Mars, and Milky Way -- has been disappointing. ''We didn't really promote them as well as we might,'' says company spokesman William Deeter. ''We thought the bigger products would pull the others along, and in fact they did, but that is not the way to promote and push maximum sales.'' Other insiders and some who do business with Mars say the company suffers from bloated bureaucracy. The Mars boys, they say, have moved away from the whippet-lean management structure that their father, Forrest Sr., now 81 and running his own boutique candy company in Las Vegas, insisted on when he was in charge. ''Mars was always a company where line managers could make a decision,'' says a competitor. ''Now there are more committees, more memos, and too many meetings.'' But as a former executive says, ''Mars is no wimp.'' The company has an extremely loyal non-union work force and keeps good executives by paying well above the industry average. Mars watchers say the candy division has always tried to maintain rigid cost and profit formulas. At one time, for instance, raw materials could be no more than 40% to 44% of a product's wholesale price, advertising could be only 12% of that price, and packaging was to carry the lowest possible cost consistent with protecting the product and keeping it fresh. (''They don't eat the package,'' Forrest Sr. used to say.) Industry analysts figure the candy division's pretax profits may still run as high as 20% of sales. The company fields an imaginative sales force that knows how to work the stores. Recognizing that some 70% of all candy is bought on impulse, Mars was first to persuade merchants to put a candy display near their cash registers in 1979. Mars's sales racks, unlike those of competitors, usually include space for products other than its own. Mars sales representatives typically show their clients not only how to sell Snickers, but also how to squeeze more profit out of the entire candy section. Mars's latest marketing offensive is to create a new image for candy -- one aimed at convincing consumers that it's a ''sweet snack,'' not a fattening, tooth-rotting, pimple- producing junk food. The campaign reached its peak when Mars paid $5 million to have Snickers and M&M's named ''the official snack foods of the 1984 Olympic Games,'' and commercials followed in which athletes chomped candy bars as an energy-producing snack. Mars wanted shoppers to think of candy as an alternative to potato chips, pretzels, and cookies -- not just as a treat, a reward, or a sin. In addition, the $25-billion-a-year snack food market is three times as big as the confectionary business. ''With the Olympics we saw a chance to enhance our nutritional message and tell people they didn't have to be closet eaters of our products,'' says spokesman Deeter. ''And we wanted to play in the bigger arena of snack foods.'' Industry analysts say that while the campaign has kept Snickers and M&M's sales healthy, it has helped Hershey too. HERSHEY'S PITCH to adults seems to be a winner. In the past four years the company has introduced two new 35-cent bars that contain less chocolate and are less sweet than the usual kiddie confections: Take Five, a chocolate- covered wafer and peanut-cream bar, has done well enough in test markets to be nationally distributed this year; and Skor, a chocolate-covered toffee bar, has moved ahead of Heath bars, a similar product made by L.S. Heath & Sons of Robinson, Illinois. In 1980 Hershey brought out the Big Block line, thick 50-cent versions of such standards as Hershey Milk Chocolate and Hershey Almond. At 2.2 ounces, Big Blocks are 50% bigger than the ordinary bars. ''Because it's thicker, there's more to bite into and more to chew,'' says James Echeandia, publisher of the Confectioner, an Orlando, Florida, trade journal. ''It appeals to adult males.'' Hershey has also introduced so-called premium candies -- Golden Almond and Golden Pecan bars, for example -- that weigh 3.2 ounces, cost about $1.19 at retail, and consist of a smoother blend of chocolate and whole rather than chopped nuts. ''Hershey figured out that people would pay more for a perceptibly higher-quality product,'' says Echeandia. He figures that the Big Block and the premium bars have been highly profitable for Hershey. So undoubtedly has New Trail, Hershey's entry into the $440- million-a-year granola bar market, where it is doing well but behind granola goodies from Quaker Oats and General Mills. Together the new products are bringing in $100 million in annual sales -- and they have moved Hershey into categories that Mars has neglected up to now. Candy provides 68% of Hershey's sales and 81% of its operating profit, vs. 88% and 94% as recently as 1978. Says Zimmerman, ''Hershey Foods is a very different company than it once was, and we are proud of our ability to take ^ new directions.'' To move away from the capricious ups and downs in chocolate and sugar prices, the company acquired Friendly Ice Cream Corp., a Northeast and Midwest chain of 714 family restaurants and ice cream shops in 1979. Friendly's now accounts for 22.5% of Hershey sales and 17.2% of operating profits. Hershey is also big in the pasta business, with five strong regional brands in 40 states. Its only money loser: Cory Food Services Inc., a coffee company that provides ground beans, pots, and brewers to businesses. Hershey continues to look for acquisitions, and Zimmerman has told security analysts that the company will launch at least one more new product this year. The betting is that it will be a chocolate-covered granola bar to compete with Quaker's successful Granola Dipps. Industry analysts also expect a granola bar from Mars as well as a premium candy bar. It would make sense -- and money -- for Hackettstown to follow Hershey's lead into both markets. The company is already testmarketing small boxes of Royals -- bite-size chocolate mints -- intended to appeal to adults. Its King Size Snickers, introduced last year, is taking a chunk of sales from Hershey's Big Block. Mars is getting ready for the next round: it is whipping its product line into shape and working its management back into the old lean and scrappy mold. And remember, Mars is no wimp. BOX: INVESTOR'S SNAPSHOT HERSHEY FOODS SALES (LATEST FOUR QUARTERS) $1.9 BILLION CHANGE FROM YEAR EARLIER UP 13% NET PROFIT $111.9 MILLION CHANGE UP 17% RETURN ON COMMON STOCKHOLDERS' EQUITY 17% FIVE-YEAR AVERAGE 17% RECENT SHARE PRICE $45.50 PRICE/EARNINGS MULTIPLE 13 TOTAL RETURN TO INVESTORS (12 MONTHS TO 6/7) 57% PRINCIPAL MARKET NYSE Explanatory notes: page 154