Monthly Archives: April 2013
In 2010, fair trade organizations Green America, Global Exchange and the International Labor Rights Forum (ILRF) challenged Hershey, claiming the company sourced its cocoa from farms using child labor. The groups published a report, “Time to Raise the Bar: The Real Corporate Social Responsibility Report for the Hershey Company.” The report was released around the same time as Hershey’s first Corporate Social Responsibility Report (Smith). In 2011, these same groups published an update: “Still Time to Raise the Bar: The Real Corporate Social Responsibility Report for the Hershey Company.”
September 19th, 2011 marked the “10-year anniversary of the signing of the Harkin-Engel Protocol – an agreement made by the country’s largest chocolate companies, including Hershey – to put an end to forced child labor in chocolate by 2005” (Smith). The above mentioned fair trade groups in their update report, claimed that Hershey had not lived up to the agreement as child labor was still an issue in their supply chain. They criticized Hershey’s actions as being superficial attempts to fix the problem, while its competitors (namely Nestle and Mars) have made commitments to only use independently certified cocoa.
The child labor crisis Hershey faces is focused on West Africa – where the cocoa beans are sourced.
– 70% of world’s cocoa is from West Africa, the largest producer.
– About 40% is produced in Ivory Coast with 600,000 cocoa farmers (figure 1).
– Ghana produces about 20% of world’s cocoa with 700,000 cocoa farmers (figure 2).
– At least half a million from Ivory Coast and Ghana are child workers.
– The US department of Labor has identified 5 West African cocoa producing nations as harvested by child/forced labor (figure 3). 3 out of the 5 are Hershey’s major sourcing countries (figure 4).
Figure 1 & 2:
Hershey’s 2012 CSR Scorecard
Smith, Sandy. “Groups Claim Hershey Chocolate is Not so Sweet for Child Laborers.” EHS Today (2011)ProQuest. Web. 25 Apr. 2013. <http://remote.baruch.cuny.edu/login?url=http://search.proquest.com/docview/889365231?accountid=8500>
The problem of using cocoa suppliers that involve in forced, child, and trafficked labor is an ongoing issue in the chocolate industry. As the company that provided 43.2% of the chocolates in the U.S, Hershey’s reputation could be damaged if they do not carefully handle the issue. It has been ten years since September 2001, when Hershey made an agreement to put an end to forced child labor in cocoa farm by 2005. Ten years after Hershey’s commitment, hundreds of thousands of children continue to work in hazardous conditions on cocoa farms in West Africa, and human trafficking continues. For countries such as the U.S, which people and its government pay a lot of attentions on companies’ ethical business behaviors. In the long term, Hershey’s reputation will decline if the issue of using forced, child, and trafficked labor is not carefully addressed.
Lost Market Share and Sales to its competitors
Hershey is a manufacturer of chocolate and other candy items, selling its products in over two million retail outlets in 50 different countries.Although Hershey has global reach, more than 90% of its revenue and profits come from the United States. Ever since the Raise The Bar campaign brought Hershey’s issue with forced child labor to attention, over 50,000 consumers nationwide have signed petitions to Hershey to “go Fair Trade”, and thousands more have called the company and protested its stores. Since there was no significant action taken by Hershey to address with the issue yet, there is are possibilities for Hershey to lose its U.S market share to its competitors such as Mars and Nestle, who have committed to begin sourcing cocoa that is independently certified to comply with labor rights standards.
Even though it would be a disadvantage for Hershey in the U.S market if they do not address the issue of the use of child labor in its supply chains, it is not likely that Hershey will experience a significant decline in their financial performance given their strong market share and brand. Hershey, along with its competitors, is expanding globally to reach larger markets and to increase sales, especially in the BRIC (Brazil,Russia, India, China) countries, where using child labor is not their primary concern.
“Hershey Factbook 2011.” N.p., July 2011. Web. 25 Apr. 2013. <https://www.thehersheycompany.com/assets/pdfs/hersheycompany/FactBook-July-2011.pdf>.
“Hershey Foods (HSY).” Stock:. N.p., n.d. Web. 25 Apr. 2013. <http://www.wikinvest.com/stock/Hershey_Foods_(HSY)>.
Larsen, Todd. “Annual Report Card: Hershey, Trailing Behind Competitors, Gets “F” For Failing to Remove Child Labor From Its Chocolate Production.” Green America: Hershey Gets “F” For Failing to Remove Child Labor From Its Chocolate Production. Newsroom, 13 Sept. 2011. Web. 25 Apr. 2013. <http://www.greenamerica.org/about/newsroom/releases/2011-09-13-Hershey-Fails-to-Remove-Child-Labor-from-Chocolate-Production.cfm>.
When the 2011 follow up report for the Raising the Bar campaign was released on September 13th, Hershey did not release any statements. Articles were published about the report and what it could mean for Hershey’s future. Organizations such as Global Exchange, Green America, the International Labor Rights Forum, and Oasis USA (the organizations behind the Raise the Bar, Hershey campaign) criticized Hershey for not rising to the level of it’s competitors, such as Nestle and Mars, Inc., in trying to eliminate the use of child labor in their supply chain. Hershey has continued to not make information about their cocoa suppliers available to the public, despite repeated petitions from the organizations mentioned above. It is known that most cocoa is produced in West Africa, and Hershey is not inclined to release any specific information to identify it’s suppliers to the public.
Instead of responding to each accusation of these organizations, Hershey is taking the time to put together press releases for the public. In early October, Hershey plans to release updates on their CocoaLink program, which launched earlier this year in July. The updates include efforts toward malaria prevention and a focus on getting women farmers access to the program. Hershey is also working on consolidating it’s plans for community programs they would like to begin in West Africa in the upcoming year. Some of these programs will include expanding the CocoaLink program into Ivory Coast, sourcing cocoa for Hershey’s Bliss® chocolates from Rainforest Alliance Certified™ farms, and investing $10 million by 2017 to reduce child labor and improve cocoa supply in West Africa.
These will all be part of a series of official press releases from Hershey, intended to be released in January. The press releases will have information and quotes from various top management, but they will all be released by Jeff Beckman – Hershey’s director of corporate communications. As Hershey had done in 2010 in response to the first Raise the Bar report, Hershey will release a second Corporate Social Responsibility report which will explain in more detail all that the company is trying to accomplish in order to reduce the use of child labor in its supply chain.
Hershey will respond to the criticism leveled at it by various organizations by making their efforts in West Africa known to the public. The planned press releases and CSR report will explain how Hershey is trying to improve the working conditions of the cocoa farmers in West Africa in order to eliminate the need for child labor altogether. The company is trying to show that it cares about By providing this information and having only Jeff Beckman as the point of contact to the media, Hershey hopes to show its shareholders that the criticisms made in the Raise the Bar, Hershey report are not entirely valid instead of simply saying so.
Elizabeth. “We Did It! Hershey Commits to Certification. The Fight against Child Labor continues.” Green America Blog. Green America, 4 Oct. 2012. Web. 25 Apr. 2013. <http://blog.greenamerica.org/2012/10/04/we-did-it-hershey-commits-to-certification-the-fight-against-child-labor-continues/>.
“Hershey’s.” The Hershey Company. N.p., n.d. Web. 25 Apr. 2013. <http://www.thehersheycompany.com/social-responsibility.aspx>.
“Hershey Expands Responsible Cocoa Community Programs in West Africa.” Hershey Expands Responsible Cocoa Community Programs in West Africa. N.p., n.d. Web. 25 Apr. 2013. <http://www.thehersheycompany.com/social-responsibility/cocoa-sustainability/>.
“Historical Press Releases.” The Hershey Company. N.p., n.d. Web. 25 Apr. 2013. <http://www.thehersheycompany.com/newsroom/historical-press-releases.aspx>
Russell, Michelle. “US: Hershey Investment to Target Child Labour in West Africa.” just – food global newsJan 30 2012. ProQuest. Web. 25 Apr. 2013 . <http://search.proquest.com/docview/918650634?accountid=8500>
“Still Time to Raise the Bar: The Real Corporate Responsibility Report for the Hershey Company.” Labor Rights.org. N.p., n.d. Web. <http://laborrights.org/sites/default/files/publications-and-resources/HersheyReport2011_0.pdf>.
“Why Target Hershey for Labor Rights Abuses?” International Labor Rights Forum. International Labor Rights Forum, 2012. Web. 25 Apr. 2013. <http://www.laborrights.org/stop-child-forced-labor/cocoa-campaign/why-target-hershey-for-labor-rights-abuses>.
Even though “Raise the Bar, Hershey!” Campaign aims at Hershey as its main target for sourcing cocoa beans and other materials produced through unlawful labor practices, child labor has been a long existing issue in the confectionery industry. Having been in the industry for over a century, Hershey is a well-established company that has a large market share and retains a strong base of customers. Hence, the effect of the child labor crisis will not reflect in the company’s financial performance in short term. Stock prices would have been a measurement for the impacts that the crisis could have on Hershey, but we will not see such effect until later. It is also understandable to the public that this industry-wide issue would not be solved in a short period of time. Moreover, the data regarding its third quarter sales and earning will not be released until late October. According to Hershey’s second quarter report, its net sales has increased 7.5 %, the net sales were $1.33 billion compared with $1.23 billion for the second quarter of 2010. This increase in its net sales demonstrates how Hershey maintains strong financial performance even during times of public negativity and protests.
Dividend is another measurement for the company’s profitability and directly affects the investment decisions made by the company’s shareholders. While the issue over the use of child labor in its supply chain might cause concerns among the shareholders, but in the short run, the shareholder would not face any financial losses as Hershey continues to issue dividends to the stockholders.
Hershey might not experience any significant financial losses, but protests against Hershey for its use of cocoa produced through child labor and Hershey’s refusal to disclose the names of its direct supplies put the company’s reputation at risk. The community is disappointed that Hershey, the largest producer of chocolate in North America, failed to comply legislations regarding legal labor practices in its supply chain. As a result, nonprofits and advocacy groups voiced their discontent through campaigns such as “Raise the Bar, Hershey” to demand the company for change. Initiated by Green America, Global Exchange, and International Labor Rights Forum, “Raise the Bar, Hershey” campaign was launched in 2010. From 2010 to 2011, the campaign released reports targeting Hershey’s corporate responsibility and its lack of progress in driving child labor and other unlawful labor practices out of its supply chain. In its 2011 report, Hershey received the worst rating for its progress in making commitments to responsibly certified cocoa since 2010 among its competitors such as Barry Callebaut and Mars, who have made progressive changes.
The advocacy groups have definitely brought consumer’s attention to Hershey’s child labor issues. Consumers were appalled to find out that their long trusted chocolate producer have been exploiting children for profit when the company’s target market is children. On June 8th, 2011, hundreds of students and concerned consumers gathered around Hershey’s store in Times Square to protest against the company’s the use of child labor in its supply chains. At the same time, “Raise the Bar, Hershey!” also asks their supporters to print out a consumer alert card, each containing a QR code that informs people about the dark side of the chocolate industry and directs them to take action, and place it next to Hershey’s products.
The increasing discontent among customers, who are concerned about Hershey’s use of cocoa beans produced through unlawful labor practices, is very likely to put pressure on retailers carrying Hershey’s products. As the negative voices reached its peak, there is a great chance that retailers would start removing Hershey’s products off their shelves. This will not only hurt the company’s brand image but also affect the sales of Hershey’s products, as Hershey sells all of their products through retailers. In conclusion, if Hershey does not address its child labor issues in a timely manner, Hershey will lose more customers, decrease in sales and revenues, eventually.
Ackerman, Tori. “Activists Protest Hershey in Times Square, Calling on Chocolate Giant to Stop Using Child Labor.” NY Daily News. NY Daily News, 8 June 2011. Web. 23 Apr. 2013. <http://www.nydailynews.com/new-york/activists-protest-hershey-times-square-calling-chocolate-giant-stop-child-labor-article-1.127762>.
“Form 10-Q.” The Hershey Company – SEC Filings. The Hershey Company, 10 Aug. 2011. Web. 24 Apr. 2013. <http://phx.corporate-ir.net/phoenix.zhtml?c=115590&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTc3NTk2NDQmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d >.
Sniderman, Zachary. “Campaign Protests Hershey’s With QR Codes.” Mashable. Mashable, 13 July 2011. Web. 02 May 2013. <http://mashable.com/2011/07/13/hershey-qr-protest/>.
“Still Time to Raise the Bar: The Real Corporate Responsibility Report for the Hershey Company.” Labor Rights.org. N.p., n.d. Web. <http://laborrights.org/sites/default/files/publications-and-resources/HersheyReport2011_0.pdf>.
“Whole Foods Drops Hershey’s Scharffen Berger Chocolates Over Child Labor Issues.” Green America. Green America, 3 Oct. 2012. Web. 25 Apr. 2013. <http://www.greenamerica.org/about/newsroom/releases/2012-10-03-Whole-Foods-Drops-Heshey-Sharffen-Berger-Chocolates-Over-Child-Labor-Issues.cfm>.
2001 – Acknowledge of abusive child labor worldwide; pressured chocolate manufacturers including Hershey to use 100% certified cocoa supplies.
2011 – 2nd Raise The Bar Report released.
2012 – A Lawsuit: Louisiana Municipal Police Employees’ Retirement System v. Hershey Co.
Dating back to 2001, illegal labor practices in West Africa on cocoa farms were publicized regarding issues of abusive child labor, child trafficking, and forced labor. Consumers were shocked. Chocolate companies like Hershey agreed to commit to end these labor abuses. About almost a decade after, Hershey, who has 42.5% of the market share in the United States did not take any actions to prevent child labor problems from its supply chains. “Raise the Bar, Hershey!” campaign was launched in 2010. In September 2010, the first report, Time to Raise the Bar: The REAL Corporate Social Responsibility Report for the Hershey Company, was released by Global Exchange, Green America, and The International Labor rights Forum in seeking Hershey to take immediate action. Regardless of consumers’ call asking Hershey to take actions, Hershey failed to address the issue. September 2011, a second report was released, wanting Hershey to commit to track down their suppliers and use 100% fair trade certified cocoa for all products by 2020. Compared to other competitors, Hershey is seriously lagging and falling behind in taking measurable steps. The report gave Hershey’s a “thumb down” for its commitment to responsibly certified coca since 2010 (figure 1). As shown in figure 2, Hershey does not have policies, monitoring programs, certified cocoa procurement, or disclosure performance in place to ensure that cocoa is not produced with forced/child labor or trafficking problems.
According to the report, Hershey’s has refused to identify its cocoa suppliers since 2010. Without transparency in its sourcing, Hershey is suspicious to the public by making it impossible to verify its sources. Hershey tried to prove their effort in social responsibility by pointing to their charitable programs to children in the US and West Africa. However, it did not ensure those suppliers as child labor free. Despite of the campaign and reports again Hershey, Hershey did not implement any new initiatives. Although Hershey acquired Dagoba brand, which some of its products are fair trade certified. Nevertheless, that is less than 1% of all Hershey products. In its own Corporate Social Responsibility Report, Hershey announced a program, CocoaLink, with collaboration with Ghana Cocoa Board and the World Cocoa Foundation. It aims to reach cocoa farmers to help and educate them regarding farming techniques through mobile texting, which enables farmers to provide feedback and ask questions. However, this does not ensure that child labor issues will be eliminated from the supply chain. Moreover, Hershey also hides its financial contribution to its programs to the public. Throughout the years, Hershey continues to fail to meet its commitment to end child labor issues while its competitors are committee to purchase certified cocoa.
More and more consumers are aware of Hershey’s lack of actions. There’s also a documentary, The Dark Side of Chocolate, that revealed the child labor in the cocoa industry in West Africa. Thousands of signed petitions were sent to Hershey. Still, Hershey remained quite. This concerns its consumers and shareholders. On November 1, 2012, Represented by a Hershey Company’s shareholder and corporate governance law firm Grant & Eisenhofer, the Louisiana Municipal Police Employees’ Retirement System (LAMPERS) filed a complaint (Louisiana Municipal Police Employees’ Retirement System v. Hershey Co., CA7996, Delaware Chancery Court) in Wilmington, Delaware. LAMPERS wants a court order to disclose Hershey’s corporate records for shareholder inspection, claiming that the company uses ingredients from West African suppliers, who practice illegal child or forced labors when Hershey is aware of the illegal practices in its supply chains in the cocoa industries in West Africa coast, especially in Ghana and Ivory Coast. Moreover, controlling 42% of the market shares of chocolate products in the United States, the Hershey Co. undertook to ignore the issue and continue to use cocoa supplies from those areas in West Africa with abusive child labor practices. On the other side, Hershey spokesperson responded in an e-mail statement that the company’s been supporting cocoa growing and sustainability for more than 50 years by committing to source 100% third-party certified cocoa by 2020.
Askew, Katy. “US: Hershey Under Fire Over Child Labour Allegations.” just – food global news Nov 02 2012. ProQuest. Web. 24 Apr. 2013 .
Milford, Phil, Dawn McCarty and Steven Church. Hershey Investor Sues for Records on African Child Labor. 1 November 2012. 24 April 2013.
Newman, Tim and Elizabeth O’Connell. Time to Raise the Bar 2011 Edition. September 2011. 24 April 2013 <www.RaiseTheBarHershey.org>.
Hershey’s 2012 CSR Scorecard
2. http://search.proquest.com.remote.baruch.cuny.edu/abiglobal/docview/889365231/1 3DA3553F3D6EE1E918/13?accountid=8500
3. http://search.proquest.com.remote.baruch.cuny.edu/abiglobal/docview/1125365509/ 13DA3553F3D6EE1E918/6?accountid=8500
4. http://ehis.ebscohost.com.remote.baruch.cuny.edu/ehost/detail?sid=311de596-89b5-4c6f-bffa-2d4c15a0aaea%40sessionmgr112&vid=1&hid=106&bdata=JnNpdGU9ZWhvc3 QtbGl2ZQ%3d%3d#db=bwh&AN=201208231033PR.NEWS.USPR.DC61906
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The Hershey Company was founded by Milton S. Hershey in 1894. It is headquartered in Hershey, Pennsylvania. The company aims to “bringing sweet moments of Hershey happiness to the world every day.” The Hershey company was the first American candy company to produce affordable milk chocolate, which before was a luxury only affordable to the rich. In addition to developing different candy brands and improving his chocolate formula, Milton Hershey set out to build a strong infrastructure for his company. The Hershey factory was built in the Derry Township, Pennsylvania. But Milton Hershey continued to expand and built a company town, which came to be known as Hershey, Pennsylvania. Today Hershey Inc., operates in 90 countries, though its presence is largest in United States. A list of Hershey’s manufacturing sites can be found here.
The Hershey Company manufactures, markets, sells, and distributes chocolate and sugar confectionery products, pantry items, toppings and beverages, and gum and mint refreshment products. These products are sold under more than 80 brand names, such as the well-known ones like Hershey’s, Reese’s, Hershey’s Kisses, Hershey’s Bliss, Hershey’s special Dark, Kit Kat, Twizzlers, Jolly Rancher, and Ice Breakers, in approximately 70 countries around the world. These are only a few of the hundreds of products Hershey’s makes. A full list can be found in Hershey’s Factbook (pg 46-47).
For a glimpse into how all of these products are made, consumers can go on a Hershey Factory Tour.
Sales, Distribution, and Diversification
Hershey sells their products through retail. The company’s main customers include wholesaler distributors, chain grocery stores, mass merchandisers, vending companies, supermarkets, and convenience stores, wholesaler clubs, department stores and dollar stores. (Fact Book pg 45) McLane Company, Inc. is one of Hershey’s distributors whose vast network of distribution account for 22.2 percent of Hershey’s net sales. Hershey change or make adjustments to its system of operations in different countries. For example, Hershey manufactures, markets, sells, and distributes sugar confectionery, beverages and cooking oil products in India while the company only markets, sells, and distributes chocolate products in China. (Fact Book pg 47)
After succeeding so well in the candy market, in the mid 1900s, Hershey’s began to diversify. Among Hershey’s many acquisitions are San Giorgio Macaroni, Delmonico Foods, Ronzoni Foods, and Friendly Ice Cream Corporation. Hershey also purchased the rights to manufacture and distribute Cadbury products in the United States. In addition to confections, Hershey trades in the commodities of sugar and cocoa products, since they are the main ingredients of Hershey’s chocolate.
Another way Hershey has diversified is in where its products are sold. Hershey products are sold in over ninety countries, distributed in vending machines, as ingredients for the food service industry, for fundraising, concession stands, convenience stores, and large retailers, and online. Hershey owns manufacturing operations in Mexico, and has acquired he assets and brands of Grupo Lorena, one of the leading confectionery businesses in Mexico that also has a presence in the US Hispanic community. To expand into more international markets, Hershey branded products are manufactured by joint-venture organizations in Brazil, India, and China. Hershey branded products are also manufactured by licenses in Japan and South Korea, and by co-manufacturers.
Aside from all of its food products, Hershey has also developed and maintained its own town – Hershey Pennsylvania. The town is home to the first Hershey’s chocolate factory, which is still operating today. The town was developed for the workers of Hershey, so it also contains a community center, a K-12 school, residences, a hospital, a hotel, and a sports arena. But the biggest attraction in Hershey, Pennsylvania is Hershey Park. The park consists of camping and picnic grounds, a pool, a band shell with daily concerts, and amusement rides such as a model railroad and roller coasters and a carousel. Today Hershey Park and the Hershey Factory attract thousands of tourists and families a year.
The Confections Industry
One decision Hershey needs to make is what kind of foreign direct investment (FDI) strategy to pursue. While deciding between a wholly owned subsidiary, a joint-venture or another form of FDI, Hershey must look at a myriad of factors.
One such factor is the economic viability of each option. Though prices or sugar and cocoa no longer fluctuate as extremely as they once did, the prices are kept artificially high because of speculators trading in the commodities market, since prices are no longer set based on pure supply and demand. The transportation of goods also falls into this category, as oil is a commodity and is affected by the same phenomenon as sugar and cocoa. Hershey needs to evaluate what kind of investments would actually pay off in the future, as well as what the company can afford to do.
Another factor is the legal environment of the country Hershey wants to do business with. Hershey must take into account import and export tariffs and quotas when finding suppliers of sugar and cocoa, among other ingredients frequently used. Labor laws regarding wages, age, and working conditions also have to be complied with, in addition to food and safety regulations with regards to ingredients and production – all of which may vary greatly from country to country. In trying to comply with the laws of many nations, Hershey has to decide whether to tailor its operations to each locale, or to adopt the same policies through out the company as much as possible.
Political factors will also influence what kind of FDI Hershey is allowed to make. For example, India currently does not make it easy for foreign businesses to set up wholly owned subsidiaries since they are trying to grow the domestic market, but that policy may change with the next election. Also, the political stability of countries where Hershey does business, and especially where Hershey sources its supplies, is important to the expectation of profits. If the West African region were to have major political conflict, Hershey might not be able to procure enough cocoa beans to maintain operations for long.
Hershey’s top three competitors in the confections industry are Mars, Inc. Nestle, and Mondelez International (what used to be Nabisco, Kraft, Cadbury, Christie, Adams, and LU). In addition, Hershey has to research local competitors in different countries and tailor their marketing strategy. For example, in the United States Hershey is known for being quality chocolate at a lower price that most other chocolates, and consumers respond to that. However, in a country known for artisan chocolates like Belgium or Sweden, consumers may not be willing to sacrifice quality for a lower price.
The confections industry can be looked at as a whole, but it also can be broken down into more specific categories. Some examples are the chocolate, non-chocolate, gum, and breath freshener mint markets, all of which Hershey is involved in. Hershey’s main focus is on the chocolate market, though it does have products that fall into the non-chocolate, gum & refreshments categories. Hershey Park would also place Hershey in entertainment, but the company’s strong point is chocolate. In the US chocolate market, Hershey has 43% market-share, placing it ahead of Mars Inc., though Mars Inc. has a greater market share than Hershey in the US total Confectionery market.
In order to remain relevant in the confections industry, Hershey has to find ways to differentiate itself and its brands from the rest of the market. There are hundreds of types of candy, and many recipes for milk chocolate. Hershey sells chocolate and peanut butter cups, and so do many other, smaller candy makers. So, Hershey builds up strong brands. Hershey’s Reese’s Peanut Butter cups are immediately recognizable by their orange wrapper, yellow writing, and flat, round shape. Hershey also spent many years perfecting their recipe for milk chocolate, and the many other varieties of chocolate they produce.
In a market that is replete with substitutes, Hershey has to develop strong brand recognition and loyalty. To do this Hershey has to find the right balance of quality and price for each market they enter. Some markets may only allow for the sale of artisan chocolates, while a lower priced but tasty chocolate would succeed in others. Hershey has managed to grow so far by creating variations of successful products (like adding almonds to their milk chocolate bars, or creating York peppermint Pieces) or by creating completely new products.
Some trends that are likely to affect the confectionary industry in the next decade are the green or sustainable trend, as well as the fitness or health conscious trend. The green trend will have an effect with regards to packaging and sourcing ingredients. Using recyclable material for and removing excess packaging can become a selling point for Hershey products, emphasizing the idea that Hershey is trying to be environmentally friendly. Using ingredients that are grown/produced in a sustainable manner can also become a selling point for Hershey products, especially as environmental protection becomes a bigger issue.
As for the health conscious trend that seems to be gaining momentum, candy makers have been looking for ways to market themselves as healthy candy for years now. With the concerns about obesity and the popularity of yoga, zumba and other workouts (at least in the US) health and nutrition are becoming more important to consumers. Sugar-free versions of candy, gum, and chocolate have been available for decades, but they didn’t always taste good. Sugar-free candies have improved in taste, and now candy makers are trying to make candy less bad for consumers. One method is replacing high-fructose corn syrup and highly processed sugars with natural fruit juices and raw sugar. This reduces calorie content, and makes candy easier for the body to process. Some candy makers are creating organic candy, like organic lollipops from Yummy Earth.
Being the first company to produce and sell a more affordable milk chocolate, Hershey was launched with a strong presence in the U.S. market. This advantage, along with its quality products, has allowed Hershey to gain its position as a global leader in the chocolate market. Within the market, Hershey’s shares in the chocolate and mint categories exceeded those of its top competitors by 10 percent or higher. Many of Hershey’s brands are also leaders in their categories. Kisses, for example, has been ranked as the best American chocolate in 2012 according to the 2012 Harris Poll. Hershey also made many investments on research and development (R&D) to innovate their products. The Hershey Center for Health and Nutrition, established in 2006, aimed to create products and technologies that are beneficial to consumers. As a consumer-driven based company, Hershey also develops products according to consumer insights. Hershey’s Simple Pleasures chocolates were developed and launched in 2012 as the result of a survey indicating the strong need in low-fat chocolates by a significant number of women in the United States. Along side with its large market share, broad range of products, commitment in R&D is Hershey’s strong reputation. It has been in business for over 100 years and its products are being sold and marketed in 70 countries around the world. These strengths are the competitive advantages that help Hershey succeed in the confectionery industry (SWOT Analysis).
The Hershey Company’s leadership in the confectionery market and its strong reputation have given Hershey the competitive advantage in the United States and Canada. However, Hershey’s over-dependence on the U.S. market and a small number of distributors as sources of revenue are what limit the company from growing in international markets. Revenues from Hershey’s international operations represent less than 10 percent of the company’s total revenue (Fact book, pg 41). As previously mentioned, McLane Company, Inc. was responsible for 22.2 percent of the company’s revenue in the fiscal year of 2011. Moreover, McLane is Hershey’s primary distributor to Wal-Mart Stores, which accounted for about 17.2 percent of Hershey’s account receivables. Hershey’s Canadian operations also focus on a small number of costumers, who control about 70 percent of the grocery sales in Canada (Fact book, pg 50). The over reliance on the U.S. market and the limited distributors for revenue generation put Hershey at great risk because sales would be greatly impacted if there were loss of costumers during situations such as economic downturns.
United Sates is a mature market, a market that no longer promises significant business growth, for Hershey. In order to expand its business and generate more revenues, Hershey should shift more of its focus to emerging markets such as India and China, countries with the world’s the two largest populations. The Indian chocolate market, with a value of $550 million, has great potential. Hershey’s latest acquisition of Godrej Industries Limited. enhanced Hershey’s position in the Indian market. Moreover, with the increasing demand of healthy and low-fat chocolates, Hershey could look forward to expand its dark chocolates and organic chocolates as the lines have been experiencing growing sales with the increasing preference for healthier chocolates. In today’s society where smart phones, laptops, and other electronic devices are ample and where internet is widely available, more and more businesses have moved their operation from the traditional brick and mortar stores to virtual online stores. The increaseing popularity of social media also enables businesses to market and sell their products in creative ways. Operating businesses online will not only help the company to reach the younger population faster but also save money that would have gone into advertising and marketing.
If Hershey continues to depend on the U.S. Market for sales, it will eventually lose market share to its rivals and new entrants in the confectionery market. One of Hershey’s key competitors is Nestle. Founded in 1866, Nestle has expanded over more than 80 countries around the world. It is ranked 57 out of the 100 best global brands by Interbrand. In addition to that, Nestle also shifts its focus from food manufacturing to nutritional healthcare in response in consumers’ rising need for healthy products. Nestle’s acquisition of Pfizer’s Nutrition Unit in 2012 is one example that illustrates this move. Hershey would start and continue to lose market share to competitors like Nestle if Hershey does not change now. Another threat in the market is the increasing penetration of private labels, whose products emphasis greater customization at a lower price. Hershey has to be prepared for adopting competitive pricing strategies as the private labels continue to gain a hold in the market. A confectionery manufacturer, Hershey relied heavily on commodities such as cocoa products, sugar, dairy products, and peanuts. Most of these raw materials have experienced significant price increases during recent year. For example, dairy products were traded between $.17 to $.21 per pound in 2011 while they were only traded for $.14 to $.18 before the rise. The price increases in these commodities give more pressure to Hershey’s operating object (SWOT Analysis).
As a well-established brand, Hershey has always shown positive financial performance throughout the years. Above is a snapshot of the financial statement of the Hershey Company. As shown in the table, from 2007 to 2012, Hershey has experienced increases in both of its net sales and net income from year to year. The net sales and net income were still increasing, although not greatly, even during the economic recession that started in 2007, following the housing crisis, into 2009 in the United States. One reason why Hershey was still earning revenues during the recession is the successful initiation of its 3 year restructuring plan, which included cutting 1500 jobs, taking away one third of Hershey’s product lines, outsourcing low value-added items, and building a plant in Monterrey, Mexico (Moore).
Starting in 2009, prices of key commodities such as cocoa, sugar, milk, and peanuts, which Hershey depends on to produce its chocolates and other products, were experiencing high inflation. The turmoil in the Ivory Coast, which accounts for the production of approximately 40% of the world’s raw cocoa, and the following crop plagues in Ghana and Indonesia have caused the prices of commodities to increase dramatically. This forced businesses to change their recipes and product weight and to increase domestic wholesale prices (Gregory). The inflation of commodities’ prices have impacted revenues and slowed the growth of the Hershey Company. When the inflation stopped in 2011, there was a significant 9.3 percent increase in the net sales in 2012 ($6.64 billions) compared to that of 2011 ($6.08 billion). This demonstrates direct and great impact commodities could have on businesses in the confectionery market.
While the income statement shows solid financial performance of the Hershey Company over the last five years, Hershey’s stock performance from 2008 to 2013 also shows a positive trend. Although there were some drops throughout the period, the price per stock is still gradually increasing overtime. The lowest price per stock was $32.78 as of June 30th 2008. Just like others in retail, Hershey’s stock prices suffered gradual decreases during the recession. However, things turned around as the restructuring plan began to take place after mid-2010. This shows that Hershey’s has a strong management team that made effective recovery plans during crisis. Hershey’s stock has been experiencing an increase after the company’s release of its fourth-quarter profit of $150 million compared with $142 million, a 5.6% increase. The highest price per stock was $87.53 as of March 29th, 2013.
As for now, Hershey’s international plan is to increase its market share in the international market. Their goal is to increase their revenue 54 percent to $10 billion by 2017, and to increase its sales growth from the international market to 50 percent. Hershey’s priority is to expand immediately in China, Mexico, and Canada, because they can provide rapid sales growth. While expanding in these markets, Hershey’s strategy is to create partners though strategies like mergers, acquisitions or joint ventures with foreign companies that better known local markets around the globe. Within these markets, they want to focus on five of its’ brands: Hershey’s, Reese’s, Ice Breakers, Kisses, and Jolly Ranchers. Besides the markets Hershey’s primary focus is on, they also want to expand presence in the Middle East, North Africa, Brazil, and Southeast Asia. As for West and South Africa, India and Eastern Europe, they have long-term growth goals with short-term market participation.
In December 2004, Hershey added some backward integration with the purchase of the Mauna Macadamia Nut Corporation, and their forward integration seems to end at the Hershey store located in Hershey, PA. Since Hershey did not outsource its production, almost all the chocolates are manufactured in the factories located in PA. In February 2007, Hershey decided to outsource the production of their block chocolate bars (main ingredient in many of Hershey’s products) to Barry Callebaut. No further information indicates that Hershey is outsourcing its manufacturing, which is one potential weakness in the global market, because Hershey does not have the competitive advantages of cheap labor and lower material cost or many other things that its competitors have.
Being the largest chocolate manufacturer and non-chocolate confectionery producer, the Hershey Company has gone through many corporate synergies such as acquisitions and licensing agreements, which allowed them to develop a wide network of distribution. The first acquisition started with the peanut butter cups by REESE’S. Hershey had been providing Reese’s Candy Company the supplies for chocolate coating since 1928 and finally bought the company in 1963 after H.B. Reese’s death. After this event, Hershey started to grow by acquiring related companies and diversify by spreading out to other food products like pasta. Here’s a complete list of acquisition/divestitures (FactBook page 4). Additionally, the company also went through merges and entered foreign markets using Agent-Importer and licensing agreement such as joint-venture methods to enter the markets penetrating strategies. Along with the synergies, the company also expanded geographically by building new chocolate factories in other states and globally. To maximize it’s net income, Hershey also got rid of its low-return asset. For instance, it sold its aseptic packaging plants and entered contracts with other companies to manufacture the aseptic drinks.
Hershey breaks down its market into three geographic regions: the US, the Americas, and Asia, Europe, the Middle East and Africa (AEMEA). Business unit wise, it is divided into the chocolate business unit and the sweet and refreshment unit with a supply-driven business model. In the United States, Hershey’s customers are mainly the middlemen in the supply chain (wholesales, vending companies, dollar stores, etc.), not the everyday customers we see in the stores. In North America especially Canada, Hershey sold assets, removed manufacturing to existing sites, and divested the gum and freezer snack businesses in early 2000s in order to fit into their business operating and distribution model strategically. To stay competitive as the leading company in the industry besides Mars and Nestle, Hershey often acquired or allied with other companies in the region to decrease the competition and obtain more products type. Top five customers in Canada that has contributed 70% of the net sales are wholesalers. Hershey also adapted some of its product formula to better satisfy the people from different regions of the world. In other foreign markets such as India, China, and Brazil, Hershey usually penetrated the market starting with manufacturing or formation joint ventures. According to the Global Retail Confectionery Markets in the Fact Book (Figure 1), which includes China, Brazil, Japan, Mexico, India, South Korea, and Philippines (ranged from the highest to lowest in terms of retail sales). Moreover, even with only $1.9 billion sales in India in 2011, its growth, about 23% is the highest among those countries compare to China and Brazil (both around $11 billion sales) with 7.4% and 12.5% respectively. On the other hands, more developed Japan demonstrates a slightly decreasing at sales.
In the upcoming future, Hershey is expected to have a rapid growing market in India especially with recent acquisition of Godrej Group in India a private conglomerate. Not only India, Hershey will continue to leverage through more investment and joint ventures. Overall, Hershey aims to boost revenue to $10-billion in five years along with more leveraging and innovation. Whether or not they can accomplish this ambitious goal, Hershey is aiming something big. Hershey has devoted a lot of resources into D&R for health and wellness trends to provide healthier options for both the US and worldwide. Sales for organic and dark chocolate have generated more sales than other snacks. According to Michele Buck (Chief Growth Officer) in the Forbes article, Hershey’s top strategic plan is to penetrate more into the market in China due to increasing population and GDP growth. It is Hershey’s Number one market in global retail markets. Recently, Hershey gradually changed its business model from supply-driven to consumer-driven global approach for brand investment and product development purposes. Hershey tries to incorporate end-user feedback to improve existing products, such as its packaging, or create something new that customers would love. To support its growth and reputation (especially in the emerging markets), Hershey is expected to develop a bigger infrastructure and thus more employees. It also needs to ensure the sustainability and affordability of its raw materials such as cocoa and sugar so that Hershey can maintain its strong portfolio of over 80 brands. Moreover, Hershey will face a lot low-priced competition from the private labels, who have demonstrated a greater growth in the industry along with a increasing price in commodities.
- Analysts: Nestle SA (NSRGF.PK). Reuters, n.d. Web. 3 Apr. 2013. <http://www.reuters.com/finance/stocks/analyst?symbol=NSRGF.PK>.
- Chernavtseva, Aleksandra. “Global Strategies – BUS100sashach.” Global Strategies – BUS100sashach. N.p., n.d. Web. 04 Apr. 2013. <https://sites.google.com/a/email.vccs.edu/bus100sashach/home/global-strategies>.
- Doherty, Dermot. “Nestle to Acquire Pfizer Baby Food Unit for $11.9 Billion.” Bloomberg. N.p., 23 Apr. 2012. Web. 04 Apr. 2013. <http://www.bloomberg.com/news/2012-04-23/nestle-agrees-to-buy-pfizer-baby-food-unit-for-11-9-billion-1-.html>.
- “The Hershey Company SWOT Analysis.” Hershey Foods Corporation SWOT Analysis (2012): 1-9.Business Source Complete. Web. 4 Apr. 2013.
- The Hershey Company. thehersheycompany Form 10-K. 22 Feburary 2013. 1 April 2013 <http://www.thehersheycompany.com/assets/pdfs/hersheycompany/TheHersheyCompany_10K_20130222.pdf>.
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- “Hershey’s.” The Hershey Company. The Hershey Company, n.d. Web. 03 Apr. 2013 <http://www.thehersheycompany.com/>.
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- “Godrej Exits Joint Venture with Hershey’s.” The Times of India. The Times of India, 8 Sept. 2012. Web. 04 Apr. 2013. <http://timesofindia.indiatimes.com/business/india-business/Godrej-exits-joint-venture-with-Hersheys/articleshow/16305540.cms>.
- Goudreau, Jenna. “Hershey’s Provocateur-In-Chief Pushes The Candy Company To $10 Billion.” Forbes.Com (2013): 20. Business Source Complete. Web. 4 Apr. 2013. <http://www.forbes.com/sites/jennagoudreau/2013/03/04/hersheys-provocateur-in-chief-pushes-the-candy-company-to-10-billion/>.
- Gregory, Mark. “Could Ivory Coast Turmoil Make Chocolate More Expensive?” BBC News. BBC, 22 Dec. 2010. Web. 04 Apr. 2013. <http://www.bbc.co.uk/news/world-africa-12047762>.
- MarketLine. EBSCOhost: The Hershey Company. 30 Nov 2012. 1 April 2013 <http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=9203f13f-4e1f-45f7-a8d6-16d8a0cf3f5c%40sessionmgr15&vid=4&hid=109>.
- Moore, Angela. “Hershey Sets Restructuring Plan, to Cut 1,500 Jobs.” Market Watch. Market Watch, 15 Feb. 2007. Web. 03 Apr. 2013. <http://www.marketwatch.com/story/hershey-to-cut-1500-jobs-in-broad-restructuring>.
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- Vaishampayan, Saumya. “Hershey’s Profit Rises 5.6%.” Wikinvest News. Market Watch, 31 Jan. 2013. Web. 02 Apr. 2013. <http://www.wikinvest.com/wikinvest/api.php?action=viewNews>
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As a well-established brand, Hershey has always shown positive financial performances throughout the years. Above is a snapshot of the financial statement of the Hershey Company. As shown in the table, from 2007 to 2012, Hershey has experienced increases in both of its net sales and net incomes from year to year. The net sales and net incomes were still increasing, although not greatly, even during the economy recession that started in 2007 following the housing crisis into 2009 in the United States. One reason why Hershey was still earning revenues during economic is the successful initiation of its 3 year restructuring plan, which included cutting 1500 jobs, taking away one third of Hershey’s product lines, outsourcing low value-added items, and building a plant in Monterrey, Mexico (Moore).
Starting in 2009, prices of key commodities such as cocoa, sugar, milk, and peanuts, which Hershey depend on to produce its chocolates and other products, were experiencing high inflation. The turmoil in the Ivory Coast, which account for the production of approximately 40% of the world’s raw cocoa, and, following by that, crop plagues in Ghana and Indonesia have caused the prices of commodities to increase dramatically. This forced businesses to change their recipes and product weight and to increase domestic wholesale prices (Gregory). The inflation of commodities’ prices have impacted revenues and slowed the growth of the Hershey Company. When the inflation stopped in 2011, there was a significant 9.3 percent increase in the net sales in 2012 ($6.64 billions) comparing to the one in 2011 ($6.08 billion). This demonstrates direct and great impacts commodities could have on businesses in the confectionery market.
While the income statement shows a solid financial performance of the Hershey Company over the last five years, Hershey’s stock performance from 2008 to 2013 also shows a positive trend. Although there were some drops throughout the period, the price per stock is still gradually increasing overtime. The lowest price per stock was $32.78 as of June 30th 2008. Just like others in retail, Hershey’s stock prices suffered gradual decreases during the recession. . However, things turned to the brighter side as effect of the restructuring plan began to take place after mid-2010. This shows that Hershey’s has a strong management team that made effective recovery plans during crisis. Hershey’s stock has been experiencing an increase after the company’s release of its fourth-quarter profit of $150 million compared with $142 million, a 5.6% increase. The highest price per stock was $87.53 as of March 29th, 2013.
- Gregory, Mark. “Could Ivory Coast Turmoil Make Chocolate More Expensive?” BBC News. BBC, 22 Dec. 2010. Web. 04 Apr. 2013. <http://www.bbc.co.uk/news/world-africa-12047762>
- Moore, Angela. “Hershey Sets Restructuring Plan, to Cut 1,500 Jobs.” Market Watch. Market Watch, 15 Feb. 2007. Web. 03 Apr. 2013. <http://www.marketwatch.com/story/hershey-to-cut-1500-jobs-in-broad-restructuring>
- Vaishampayan, Saumya. “Hershey’s Profit Rises 5.6%.” Wikinvest News. Market Watch, 31 Jan. 2013. Web. 02 Apr. 2013. <http://www.wikinvest.com/wikinvest/api.php?action=viewNews>