From: Susan’s Award-Winning Book “Sweet as Sin” 

The story of milk chocolate started in Switzerland with Daniel Peter, who fell in love with Fanny Cailler and married her in 1863. Her father happened to be the renowned Francois Louis Cailler, a confectioner who mechanized the process of grinding cacao beans making him Switzerland’s first chocolate manufacturer.

With Fanny’s father as inspiration, Fanny as support, and his drive and intelligence as fuel, Peter established his own chocolate company using an empty section of the candle factory. He worked by day and studied everything from chocolate manufacturing to methods of harvesting and transporting the cacao bean by night.

Then, tragedy struck. Daniel and Fanny’s newborn baby, Rose, was unable to accept mother’s milk. In short, she was dying. At this time, the mortality rate was one in five for babies under a year old and plenty of solutions were in the works. Up the road, a German-born pharmacist was trying one of them. In addition to his work with medicines, he manufactured liquid gas as well as fertilizer and had a developing interest in the new food manufacturing business.

When Daniel showed up at his door with a malnourished baby Rose, the pharmacist had recently developed a milk formula mixed with cereal, still in the trial stage. With some apprehension, he agreed to give Peter the formula. The baby took the nourishment and survived. The name of the neighbor was Henri Nestlé.

At this time, Peter’s business was floundering. The chocolate industry was dominated by a few families, the Colliers being one of them, and Peter couldn’t

compete. According to his grandson, Francois Auguste Peter, Sr., Peter had said: "It did not take me long to convince myself that if I wanted to place myself and my product within the already existing factories, I must try for a specialty. Therefore, it appeared that if I could unite the milk and the chocolate in a state which would assure conservation and satisfactory transportation, I would make useful work for many, while being sure at the same time that the ownership of this industry would be difficult to exploit by anyone.”

Once Peter got hold of Nestlé’s formula, the lightning bolt of inspiration hit him and hit him hard. He became consumed with a drive to achieve something entirely new--mix milk with chocolate for a smooth instant drink. Even better, why not turn the chocolate into a milky, melt- in-your-mouth sweet. But here was the glitch: the water in the milk and the cacao bean fat wouldn’t blend.

Peter spent the next five or so years working out a solution. He tried numerous methods of perfecting his chocolate, including evaporating the milk. Then, at last, he achieved success. Well, that’s what he thought. Here’s how he explained it:

"My first tests did not give or produce the milk chocolate as we know it today. Much work took place and after having found the proper mixture of cocoa and milk - a mixture I was told was impossible to obtain - my tests, I thought, were successful. I was happy, but a few weeks later, as I examined the contents, an odor of bad cheese or rancid butter came to my nose. I was desperate, but what was I do? Go back and try a different procedure? Being as it was, I did not lose courage, but I continued to work as long as circumstances allowed."

Peter prevailed using condensed milk. This effort paid off…for about a week. When he sold the candy to vendors, he promised: “If you don’t like my chocolate, I will buy it back.” Soon unhappy customers were lining up to return the product with highly uncomplimentary comments. It seemed the chocolate had gone rancid.

Later that same year, Daniel Peter had a brainstorm. He made what he called a “drying room,” where he turned the chocolate and milk mixture into flakes, spread it on trays, then further heated it to ensure the moisture had properly evaporated. He called it “Gala Peter”: “Gala” for the Greek word meaning “milk.” Finally and for real, Peter reached his goal: he created milk chocolate.

Around that time, Peter’s neighbor, friend, and advisor, Henri Nestlé, was building an empire. His infant formula was wildly successful, but also demanded packing, shipping, selling, and relentless managing: requiring more effort than Nestlé cared to give. By 1875, he sold the business to a Swiss businessman and with it, the rights to his name. The company was called Nestlé Chocolate.