THE HERSHEY CHOCOLATE COMPANY INTRODUCTION The Hershey Company was originally a purely chocolate manufacturer but extended to wafers and other products, some even non-chocolate. Now, the Hershey Company has grown to become a leader when it comes to dark chocolate and premium chocolate. Hershey’s Mission Statement is “Bringing sweet moments of Hershey happiness to the world every day” (www. thehersheycompany. com).
This means delivering quality confectionary to consumer for all occasion, being a dominant and fun organization for the employees, having good business relationships for growth with customers, suppliers and business partners, creating value for shareholders and philanthropic activities for society as a whole. The company, adhering to its Mission from the founding day till today, strives to continuously create value by developing a number of products to cater to frequently changing consumers’ desire.
Hence by creating a diverse portfolio which transformed customer desires to reality, and by maintaining its quality The Hershey Company has managed to become one of the top chocolate brands in the market. HISTORY Hershey’s derived from a single decision- the decision of candy manufacturer Milton Hershey. In 1894 he decided to produce sweet chocolate which would coat caramels. He started off an enterprise and called it The Hershey Chocolate Company, located in Lancaster, Pennsylvania. In 1900, the Hershey Chocolate Company started the production of milk chocolate bars, chocolate wafers and more.
Hershey was the company which made the once a luxury item affordable to the common public by choosing to produce at a mass level. By using mass production the company had lowered its per unit cost and hence was able to sell it at a lower cost than other chocolates. The success of high sales led to Hershey’s expansion of new chocolate factories, one of them being in south-central Pennsylvania in Derry Township, close to the ports of New York and Philadelphia which supplied the imported sugar and cocoa beans needed, surrounded by dairy farms that provided the milk required, and with a local labor supply of honest, hard-working people.
By 1905 the production of chocolate in this factory was flourishing. Today, the Hershey Company operates all over the world, employs more than 12,000 people and generates revenues of more than $5 billion. (www. thehersheycompany. com) ENVIRONMENTAL ANALYSIS Sales of chocolate depend majorly on the demand of chocolate, and these demands fluctuate heavily. And hence the success of a chocolate industry relies heavily on whether it’s the Easter, Halloween or Christmas season or a plain summer day, sales being lower in the latter.
It has been noted that sales of Hershey’s or any chocolate brand for that matter, increases during the third and fourth quarter of the year, that is, the holiday seasons. For Hershey’s, the difference in the net sales of the first quarter of 2009 and the third quarter of 2009 was $248,087,000. (www. thehersheycomany. com). Judging from this, we can safely deduce that chocolate sales, on a large part, depends on the environment. If we look at the social environment, there are all sorts of consumers with different demands.
Some would prefer cheaper chocolate and would be more than ready to compromise on quality and consider it just a snack while others demand a rich taste making chocolate more of a luxurious item. This requires the industry to produce a variety of products to meet the needs of as many customers to ensure greater sales. But there is also the issue of brand image. If a company produces both rich and cheap quality products, it does not develop a specific image of the brand. Hence the business needs to identify what demographics they want to cater to. The Hershey Company has a number of competitors.
The company itself has an average of 5 billion dollar sales annually, 5132. 8 million dollars in 2008 (thehersheycompany. com) and employs 14,400 employees which is quite a large number but there are other similar brands in the market. Major competitors of Hershey’s are: • Cadbury, with a sale of 7,792. 3 million dollars and 45,000 employees in 2008. • Mars, with sales reaching 30,000 million dollars and a total of 70,000 employees in 2008. • Nestle with sales of 104,060. 9 million dollars and 283,000 employees in 2008. (www. hoovers. com) MARKET ENVIRONMENT ANALYSIS
Porter’s Analysis By using ‘Porters five forces’ we can analyze the industry and subsequently to develop business strategy. These five forces present in the marketing environment will help determine the intensity of competition intensity and hence attractiveness of a market. In the marketing context, attractiveness refers to the overall profitability of the industry. A profitable business is an ‘attractive’ industry wherein the combination of these forces acts to pull up the overall profitability. Bargaining Power of Suppliers: The supply of Cocoa is limited.
Since it is produced in areas with tropical weather, a lot of chocholate manufacturers have to import the cocoa. Suppliers have more bargaining power over the chocolate industry since cocoa suppliers are limited (www. bpi. cam. ac. uk). Bargaining Power of Customers: Bargaining power of customers of Hershey is moderately high. From Hershey’s annual reports, we can see that sales volume is high for The Hershey Company and whenever consumers buy in large volumes, their bargaining power increases. This is specifically applicable to retailers, more specifically to retailers like Wal-Mart.
Wal-Mart and other retailers who purchase large volumes of chocolate can bargain for lower prices and the industry’s profits can decrease. Threat of New Entrants: Threat of new entrants is not a major concern for The Hershey Company as Hershey’s uses the technique of mass production (Evan Carmichael) that is, produces on a mass level and has achieved economies of scale. A new entrant would therefore have to be a mass level manufacturer. Also, there are factors such as capital requirements and channels of distribution which make it harder for business to be set up on a large level and to get the sales going.
And, of course, there has to be something that sets apart the new entrant’s products from the existing businesses’ products. Threat of Substitute Products: Since chocolate is not a need-based product and a number of people consider in just a snack, they look to towards other products such as chips, ice-cream, other flavored products such as vanilla, orange etcetera as well. Also there are many people who deem chocolate as unhealthy and fattening and are ready to substitute it with other products. Competitive Rivalry within n Industry: Hershey is not the only chocolate company around. There are a lot more chocolate brands which are as established as Hershey. Consumers have a choice of buying Hershey or Cadbury or Mars or other more generic chocolates, and this provides a significant amount of competition. Hershey’s has to compete against other chocolate brands and watch out for substitute products which makes competition intense. However, this analysis looks at the forces closely affecting the business i. e. the micro environment.
Hence the Porter’s Analysis is not a hundred percent useful on its own. For most marketing experts, porters five forces analysis is only a starting point or sort of a “checklist” and therefore the benefit of this analysis can be taken only when used in conjunction with other analysis techniques. SWOT Analysis STRENGTHS: • Rich history full of tradition, originality and philanthropic service: The Hershey Company produced Hershey’s Tropical Chocolate bars and Field Ration D bars for the troops at war giving it points for both originality and patriotism.
Milton Hershey has also opened the Hershey Park in 1907 (www. hersheypa. com) • Strong Brand Name and Image: Hershey has been in the market since 1894 and since then it has created a strong brand name and image. • Diverse Product Portfolio: Hershey’s Chocolate Bar, Almond Joy, Kit Kat, Hershey’s Kisses, Mounds, Reese’s, Payday, York Peppermint Pattie, Milk Duds, Mr. Goodbar, Rolo, Skor, Whatchamacallit, Whoppers and Krackle Bar are only a few of Hershey’s products amongst many more. Having a huge variety of products increases chances of high sales for the company. Strong Alliances: Apart from acquiring a number of popular chocolate/candy manufacturing companies and has acquired licenses for producing and selling Cadbury and Nestle products, it has also, recently allied with Starbucks, which lead to a 30% increase in profits for Hershey. (MarketWatch) OPPORTUNITIES: • A number of consumers desire and demand richer products and this gives Hershey to gain more of the upper strata of society • The Hershey Company joined up with Starbucks, which was a wise move as it contributed to a 30% growth in Hershey’s profit (MarketWatch).
More joint ventures with, for instance, Dunkin Donuts would boost sales of Hershey. • In today’s day and age, people have started giving more importance to holidays as noted in the Quarterly reports of Hershey sales were higher in the holiday seasons. Hershey can use this to focus more on chocolates as gifts. • Price decline of sugar • Outsourcing of labor to cheaper areas WEAKNESSES: • Hershey is North America’s largest chocolate producer (The Hershey Company) but the same cannot be said when it comes to the international market. Currently, the company’s presence is limited to Brazil, Canada, Mexico, and the United States. www. investopedia. com) • A key weakness of Hershey is that it does not have much sales in the Asian markets and since Asia is the largest continent and a huge population, it is missing out on a lot. • Price inflation is also an issue. As prices are relentlessly increasing, consumers think twice before purchasing a lot of things and Hershey products are no longer item that once can buy with the loose change in their pocket. Less people are willing to buy chocolates frequently. THREATS: • There has been an increase in Nut allergies both in the UK and USA. ut allergies. (AAIR). A lot of Hershey products uses nuts and it has to consider this fact. • Obesity is also on the rise and according to Centers for Disease Control and Prevention, there has been a massive increase in obesity. “In 2008, only one state in the United States of America (Colorado) had a prevalence of obesity less than 20%”. Though there is no proof that chocolate equals obesity but that is the general conception and heatlh conscious people tend to buy little or no chocolate. If the health trend rises chocolate sales will gradually decrease. Technology is becoming more and more advanced every day, and in order to be retain its economies of scale and to remain competent, Hershey has to keep up with technological progress in manufacturing and this will automatically increase cost.. • A recent issue has been minimum wage for labourers. “Effective July 24, 2009, the federal minimum wage increases to $7. 25 per hour”. (Labour Law Center) • Price of milk has been on a steady rise. Milk prices reached its peak in July 2007 and consumers paid “.. an average $3. 80 a gallon, compared with $3. 29 in January…” (Vandore, 2007).
If this trend continues in the future, Hershey will have to increase prices due to increased costs of production hence sales could plummet really low. • There has also been a steady price increase in gasoline. In the Clayton News Daily, “The annual average price of regular unleaded gas is expected to increase from $2. 35 per gallon in 2009, to $2. 83 in 2010, with similar price hikes on heating oil and diesel fuel”. In this case production costs of running the heavy machinery in factories will increase significantly, making it difficult for Hershey to maintain reasonable price of its products. SWOT of Competitors
Amongst Hershey’s competitors, Cadbury is one of the major ones. Below is a brief SWOT analysis for Cadbury. |STRENGTHS |WEAKNESSES | |Has been in the market for 200 years- well established brand name &image. |Small product portfolio. There’s not much variety. | |Products sold in over 200 countries. |Very few new products are created by own group. | |High profits | | |Has been awarded Royalty. | |OPPORTUNITIES |THREATS | |Can expand into new markets |Other established brands in the market | |Should produce new products |Diversification of other brands into the market | MARKETING STRATEGY PRODUCT:
The Hershey Company has a number of products, the main categories being as follows: 1. Chocolate Candy: This includes Hershey’s Kisses, Hershey’s Bliss, and Hershey’s Milk Chocolate amongst a lot of others. 2. Pantry Items: This category includes Hershey Syrup, Hershey Toppings and Hershey’s Hot Cocoa mix etcetera. 3. Snacks: Some products of this category are Canola Bars, Snacksters, 100 Calorie Bars and SnackBarz. 4. Gum and Mint: BreathSavers mints, Bubble Yum bubble gum and Ice Breakers are the products of this category 5.
Sugar Confectionary: To capture the market who is sugar conscious or health conscious, Hershey’s developed Hershey’s Sugar Free Candy The Hershey Company has, in addition, acquired licenses to manufacture and sell chocolate and non-chocolate products of other brands such as Nestle Kit Kats, Rolos, and Cadbury. It also acquired a number of companies and now Jolly Rancher, Bubble Yum, Mauna Loa, Reeses, Whoppers, Twizzlers and Young & Smylie products are officially a part of the Hershey Company. PRICE: Hershey’s chocolates are priced at a moderate level.
A plain Hershey bar of 1. 55 oz is priced at $0. 99 and a Toblerone, 1. 7 oz bar, is priced at $1. 49. Toblerone is 50% more expensive than Hershey, as we can see below. Following is a list of the general pricing of Hershey Products: • Hershey’s Milk Chocolate (1. 55 oz) priced at $0. 99. • Mr. GoodBar (1. 75 oz) priced at $0. 99 • Almond Joy 8 Pack (0. 6 oz x 8 pieces) priced at $2. 45 • Almond Joy Eggs (1. 1 oz) priced at $0. 99 • Cadbury Caramel Eggs (1. 2 oz) priced at $0. 99 • Black Licorice from Y (8 oz bag, containing 55 pieces) priced at $4. 5 • Bubble Yum (o. 17 oz oz x 5 pieces) priced at $0. 99 We can see the general pricing trend of Hershey, as almost all 1. 5 to 2 oz bars are priced at 0. 99 dollars PLACE: Hershey sells its products at a wide array of places. It sells to wholesale distributors, wholesale clubs, mass merchandisers, grocery stores, drug stores, vending companies, convenience stores, department stores, dollar stores and natural food stores. Then these customers of Hershey sell to end consumers in approximately 2 million outlets all over North America and worldwide. (The Hershey Company)
One of the largest distributors of Hershey products is the Mc Lane Company Inc. , which in turn sells to other stores. It is the main distributor for Wal-Mart which is one of the few places which sells products of the Hershey Company. (The Hershey Company) PROMOTION: The Hershey Company uses a variety of mediums and techniques for advertising and promotion. Apart from regular mediums such as Billboard advertisement, Newspaper and magazine advertisements and Television commercials, it uses other techniques like using movies and Box Office to promote their company.
For instance, in Hershey’s “Hulked-Up” promotion, you “enter to win” a Hulk Hummer and get a free T-Shirt by checking out featured products (ComicBookMovie. com). Other promotions include HERSHEY’S Camaro Sweepstakes to win a 2010 Chevy Camaro, HERSHEY’S KISSES Cookie and HERSHEY’S and the Young Survival Coalition which was used to create breast cancer awareness along with promoting Hershey. (The Hershey Company) ADVERTISEMENT CRITIQUE FINANCIAL ANALYSIS Looking at the financial statement of the last five years (www. thehersheycompany. om) has given the following results: • Net Profit 10. 1% of Sales in 2005. • Net Profit 11. 3% of Sales in 2006. • Net Profit 4. 32% of Sales in 2007. • Net Profit 6. 06% of Sales in 2008. • Net Profit 7. 94% of Sales in 2009. These profitability ratios show that while Hershey has performed better in 2009 than two of its preceding years, its profits have decreased considerably compared to 2006. 2006: By taking a closer look at the quarterly reports of Hershey for these years it is noted that the first half had strong but the second half of 2006 saw a slow-down in sales.
The Hershey Company’s long-term strategies seek to attain net sales growth of 3% to 4% annually (The Hershey Company) but results for 2006 did not meet their goals. Net sales growth was 2. 58% for 2006. There was a decline in market share during the second half, mainly in North American. Hershey tried to gain momentum again and succeeded with time but at a price. Apart from the increased interest costs for that year there were increased spending on advertising starting from the fourth quarter and continuing well into 2007, affecting the net profit for 2007 drastically. From a net profit percent of 11. % in 2006, it went down to 4. 32% in 2007. 2007: 2007 was also a difficult year. Net sales growth in this year was 0. 05% which is not even close to the company’s goal of 3%-4% per year, even with the increased sales from international business and sales from the Joint Venture formed with Godrej Beverages & Foods Limited formed that year (Wikipedia). Sales in North America was low, costs incurred were much higher than the previous year and the company saw a much lower profit in 2007. Business realignment and impairment costs rose from 14,576,000 to a whopping 276,868,000.
The difference in net income percentage was -61. 7%. Increased investment spending for advertising and expansion of our international infrastructure also contributed to the lower income in 2007. 2008: Net sales growth increased from 0. 05% to 3. 8% in this year. The net income percentage which was negative in the previous year turned into a positive 45. 4%. Needless to say, Hershey gained momentum in the market again. Results for the 2008 up to mark and met the Hershey Company’s goals and expectations. FUTURE TRENDS Health Awareness: Many people don’t use chocolate for fear of become fat, getting acne or other health reasons such as cholesterol. This may reduce sales. • Allergies: some children and adults have allergies, most commonly peanut allergies and other nut allergies. This, also, may decrease sales. • High Class society gatherings/increased importance to holidays such as Halloween, Easter, Christmas which use a lot of chocolate and chocolate products. This could increase sales in the future. • Price of cocoa and Price of fuel: The price of these two commodities will effect sales negatively if they continue to rise.
RECOMMENDATIONS FOR FUTURE: Keeping in mind the factors and trends that may increase or decrease sales in the future, Hershey can take a number of steps to improve their chances of turning unfavorable situations into ones that will actually benefit the company. A lot of people think of chocolate and think of one of these words: “junk food”, unhealthy”, “fattening” and so on. But the fact is that chocolate can actually promote good health. Especially dark chocolate, which has anti-oxidant effects and generates antithrombotic mechanisms, can lead to better cardiovascular health (The Pediatric Infectious Disease Journal).
In layman terms this means it prevents the blood in the heart from clotting up. Hershey’s can use this knowledge for a different spin on their advertisements and removing the concept of unhealthy chocolate. Also many people and children have nut allergies, and since a lot of Hershey’s products include hazel nut and peanuts, this can pose a problem But with careful and well defined market research Hershey’s can overcome the problem of its chocolate bars containing nut not being sold, by finding out approximately what population of chocolate lovers is allergic to nuts and other ingredients which prevent them from buying chocolate.
Another trend which poses a problem is the economy. Prices are constantly on the rise and cocoa and fuel are the two major concerns. Increase in fuel prices may lead to closure of a few plants to save on costs, or if the plants are not closed, prices of products may have to be raised to cover up the costs. Prices of cocoa are also on the rise, and an increase in this raw material may lead to an increase in price of the end-products. Since cocoa is produced in a few countries with tropical climate, chocolate manufacturers in colder climates have to import cocoa. Hershey has to pay mport taxes on top of the increased prices due to the global deficit of 145,000 tonnes of cocoa in the 2007-2008 season (confectionarynews. com). To reduce this cost, Hershey has two options. Either to buy as much cocoa in bulk as possible when prices are low and to buy as minimum as possible when the prices are high, or to outsource their manufacturing to places like Indonesia or Ghana where cocoa production is the largest (BBC News). CONCLUSION Hershey is a company which is already popular, but with a few well planned strategic decisions has the potential to be much more successful.
They can do this by a reducing their costs, starting up new subsidiaries, perhaps even starting up production of their own cocoa beans instead of importing from Indonesia, Ghana and other cocoa manufacturers. The next thing they have to do is increase their advertising to countries Asia, as Asia has a large number of potential consumers.. APPENDIX REFERENCES About The Hershey Company. (www. thehersheycompany. com) < http://www. thehersheycompany. com/about/> Asthma and Allergy Information and Research. Nut Allergy- The Basics < http://www. sers. globalnet. co. uk/~aair/nuts. htm> BBC News. Peanut allergy on the increase < http://news. bbc. co. uk/2/hi/2487769. stm> BBC News. BBC News. Cocoa price hits 14-year-high Clayton News Daily. Confectionerynews. com. Future of cocoa prices uncertain, says ICCO. ComicBookMovie. com. Centers for Disease Control and Prevention Emma Vandore. Got Milk? More People Want It Now. Contra Costa Times. Evan Carmichael. His Secret Recipe: How Hershey Achieved Success Groovy Candies. Hoovers. Labour Law Center.
Federal Minimum Wage Increase for 2007, 2008, & 2009 Lundell, Dean “Capitalizing on Our Candy Cravings (NSRGY, CSG, HSY). ” Investopedia. com. August 1st, 2007. November 13th, 2007. Investopedia website: Investor Relations: Annual and Quarterly Reports (www. thehersheycompany. com) MarketWatch. Hershey’s 3rd-quarter profit rises 30% ; http://www. marketwatch. com/story/hersheys-third-quarter-profit-rises-30-2009-10-22; Products (www. hersheys. com) The Pediatric Infectious Disease Journal. Plasma antioxidants from chocolate Oct, 2003 . Volume 22 Issue 10. p A7