Company Analysis

Posted on April 4, 2013 by yz113511

 SWOT ANALYSIS

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Strengths

Being the first company to produce and sell milk chocolate, with that, 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. According to the latest industry data, It is estimated that Hershey owned a share of 28.9 percent, a little less than the leader’s 31.1 percent, in the confectionery market. Within the market, Hershey’s shares in the chocolate and mint categories exceeded those of its top competitors by 10 percent or higher. Also, Hershey offers very diversified products in over 80 brands, many of which 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).

Weaknesses

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 overdependence 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 overreliance 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.

Opportunities

United Sates is a mature market, a market that no longer promise significant business growth, for Hershey. In order to expand its business and generate more revenues, Hershey should shift more of its focus to markets oversea. Emerging markets such as India and China, the two places with the world’s most population, show opportunities to businesses. The Indian chocolate market, with a value of $550 million, posts great potentials. 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 “mortar and brick” (physical stores) to virtual online stores. The increase popularity of social media also enables businesses to market and sell their products in creative ways. Hershey, a century old brand with strong reputation, should explore businesses through Internet. 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.

Threats

If Hershey continued to depend on the U.S. Market for sales, it would eventually lose market share to its rivalries 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).

Sources:

  • “The Hershey Company SWOT Analysis.” Hershey Foods Corporation SWOT Analysis (2012): 1-9.Business Source Complete. Web. 4 Apr. 2013.

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