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Short Term Effects

Financial Performances

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.

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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.

Reputation Risks

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.

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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.

Hershey_Raise_The_Bar_Campaignalg-hershey-protest-jpg

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.

References:

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>.

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Some useful sources

1. http://ehis.ebscohost.com.remote.baruch.cuny.edu/ehost/pdfviewer/pdfviewer?sid=4a00360f-4c71-4151-a137-3e19a9eadf3a%40sessionmgr115&vid=2&hid=106

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

5. http://ehis.ebscohost.com.remote.baruch.cuny.edu/ehost/detail?sid=e1534589-ce5e-4dfd-af66-0bbf00df4826%40sessionmgr10&vid=1&hid=15&bdata=JnNpdGU9ZWhvc3 QtbGl2ZQ%3d%3d#db=bwh&AN=bizwire.c44450167

6. http://ehis.ebscohost.com.remote.baruch.cuny.edu/ehost/detail?sid=2da8265c-81de-4f24-9c4e 9d0fb9029af8%40sessionmgr13&vid=1&hid=15&bdata=JnNpdGU9ZWhvc3Qt bGl2ZQ%3d%3d#db=bth&AN=83628532

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References

 

 

 

 

 

 

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Financial Analysis

Financial Analysis

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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).

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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.

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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.

Sources:

 

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Company Analysis

 SWOT ANALYSIS

[please click on the diagram for a larger view]

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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Overview II

Note: My version of overview includes the Long term objectives of the Hershey Company and some other information in addition to Overview I. (These two overviews will be combined in the final version of our team’s MNE Profile)

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 company operates on a consumer-driven basis to bring the most quality confectionery goods to its consumers.

The Hershey Company manufactures, markets, sells, and distributes chocolate and sugar confectionery products, patry items, toppings and beverages, and gum and mint refreshment products (Fact book, pg 41). 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 (Hershey’s Official Site).

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 accounts for 22.2 percent of Hershey’s net sales. Hershey changes or makes adjustments to its system of operations in different countries. For example, Hershey manufacture, market, sell, and distribute sugar confectionery, beverages and cooking oil products in India while the company does everything except manufacturing  chocolate products in China mainly through its franchised brands Hershey’s and Kisses. (Fact Book, pg 47)

One of Hershey’s long-term objectives is to expand its business and build its brands in International markets like China, India, and Mexico. The company is looking forward to reach $10-billion revenue in the next five years with 25 percent of its revenue to come from international sales. The company will also continue to develop its competitive advantage in the United States and Canada. They will continue to diversity through mergers and acquisitions as well as innovations.

Sources used:

  • “Hershey Fact-Book.” The Hershey Company. Hershey Company, 2012. Web. 3 Apr. 2013.

      <http://www.thehersheycompany.com/assets/pdfs/hersheycompany/fact-book.pdf>.

  • “Hershey’s.” The Hershey Company. The Hershey Company, n.d. Web. 03 Apr. 2013.

     <http://www.thehersheycompany.com/>.

  • 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/>. 

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List of useful sites II

SWOT Analysis

Company Profile -S&P

Company Profile-Mergent Online

Market Share and Competitors

Child Labor Crisis related

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