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Crisis Description

Timeline

2001 – Acknowledge of abusive child labor worldwide; pressured chocolate manufacturers including Hershey to use 100% certified cocoa supplies. 

2010Raise The Bar, Hershey! Campaign1 st Raise The Bar Report released.

20112nd 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.

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Figure 1:

Company Commitments

Source: Still Time to Raise the Bar: The REAL Corporate Social Responsibility Report for the Hershey Company 2011

Figure 2:

Figure 4

Source: Still Time to Raise the Bar: The REAL Corporate Social Responsibility Report for the Hershey Company 2011

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References:

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

 

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International Strategy (II)

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 (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. It was hard to hear the voices from the end-customers, but they drive to listen to them so they can create something new or improve existing product such as its packaging that customers would love. To keep up and support the 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 a 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.

 

 

 

Figure 1:

Global Retail Chart Source: Hershey Fact Book

 

 

Bibliography

 

Goudreau, Jenna. Hershey’s Provocateur-In-Chief Pushes The Candy Company To $10 Billion. 14 March 2013. 1 April 2013 <http://www.forbes.com/sites/jennagoudreau/2013/03/04/hersheys-provocateur-in-chief-pushes-the-candy-company-to-10-billion/>.

“Hershey Fact-Book.” The Hershey Company. Hershey Company, 2012. Web. 3 Apr. 2013. <http://www.thehersheycompany.com/assets/pdfs/hersheycompany/fact-book.pdf>

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>.

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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