STRATEGIC

MANAGEMENT

CASE STUDY

COURSE INSTRUCTOR: PROF. ALI

ASKARI
DATE: 16TH AUGUST, 2011

GROUP 06: DANIA BAIG

NIMRA JAWAID
SYEDA FARYAL JAFRI
UROOJ FATIMA
Page | 1

EXECUTIVE SUMMARY
Hershey, Pennsylvania the home of Hershey Foods Corporation known as
Chocolate Town, USA, the air in this city actually smells like chocolate. Hershey
has grown from a one product, one plant operation in 1894 to a $ 4.4 billion
company producing as array of quality chocolate, nonchocolate and grocer y
products. SWOT Analysis to define the Hershey Strengths, Weaknesses,
Opportunities and Threats. Hershey market share is less than 10 percent, lowest
among its competitor. So, Hershey should come up with new strategies in
finance, marketing, production department and in organization structure to
increase the market share and compete globally.

OBJECTIVE OF THE STUDY

To analyze the Hershey Food Corporation situation and suggest certain strategies
department wise to overcome from the main threat i.e. competitor. Suggest the
certain techniques and strategies to increase the market share and t o compete
globally.

1. INTRODUCTION
The Hershey Company is famously known for being the biggest manufacturer of
chocolates and confectionery products in USA, having hired over 12,000
employees worldwide and exporting their products to sixty different countries
over the world.
Brands: The Hershey Company offers such iconic brands as Hersheys
Chocolate Bar, Kit Kat, Hersheys Kisses, Reeses, Twizzlers, Ice
breakers, York Peppermint Pattie, Rolo and Krackle Bar as well as the
smooth, creamy indulgence of Hersheys Bliss chocolates.
With the help of these brands, Hershey gained success and popularity, making
the companys net worth over $4.4 billion dollars.
Hersheys principal product group includes: chocolates, confectionery
products sold in the form of bar goods, bagged items and boxed items;
grocery products in the form of baking ingredients, chocolate drink mixes,
peanut butter, dessert toppings and beverages.
The company lives by its mission statement, Undisputed Marketplace
Leadership. Hershey continues to preserve a higher position by successfully
converting consumer desires into reality.

Page | 2

2. BRAND RESEARCH
2.1
Detailed History
Milton Hershey was fascinated with the process of making chocolate, and his
interest began at an early age under candy maker Joe Royer of Lancaster,
Pennsylvania. Milton was an entrepreneur who was keen to own a candy-making
business. His first successful business was the Lancaster Caramel company and
it was only in 1893 that Milton expressed interest in making Chocolates.
Soon after, Milton began producing chocolate coated caramels that eventually
led to the founding of Hershey Chocolate Company in 1894. After much
experimentation, Milton discovered the famous Hersheys Chocolate recipe and
sold his caramel business in 1900 for the sum of $1 million.
By 1901, Hersheys sale reached $662,000 thus creating the need for a new
factory. In 1903, Milton built his company at a place called Derry Township in
Pennsylvania, which was later renamed Hershey, Pennsylvania in 1906. This was
the first step towards the companys expansion since this city had a large
population, was easily accessible to ports that would supply sugar, cocoa beans
etc, and had a vast amount of dairy farms.
In 1927, the Hershey Chocolate Company was incorporated under the laws of the
state of Delaware and listed on the New York Stock Exchange with 20%stock sold
to public. Between 1930 & 1960 Hershey went through rapid growth.
2.2
Corporate Expansion
In the year of 1901, the Hershey company sales were only $662,000 and within
the span of 10 years the Hershey sales reached $ 5 million in 1911. Thereafter
Hersheys sales increased 4 to 5 percent annually.
In 1968, the company was renamed as Hershey Foods Corporation. During this
time, Hershey sought to expand its product line by partnering up with several
related companies and even created different brands for their own products.
Some famous partnerships include H.B. Reese Candy Company (1960), San
Giorgio Macaroni Foods(1966), Y&S Candies, makers of Twizzlers liquorice(1977),
Peter Paul/Cadburys U.S. Confectionery operations(1988) and Ronzoni
Foods(1990), Hershey Mexico, Leaf North America(1996), Nabiscos gum
businesses(2000) and Grupo Lorena & Mauna Loa(2004). Hershey Foods
Corporation became the industry leader by the end of the 20 th century.
The company continued diversifying and soon acquired Joseph Schmidt
confections in 2005 and a year later, in 2006, acquired Dagoba Organic
Chocolates.
This maintains Hersheys top position in the North American market.

Page | 3

3. INTERNAL AFFAIRS- ORGANIZATION STRUCTURE

Hershey operates from a centralized, functional structure with no divisional
presidents; a type of structure unusual for an organization of Hersheys size,
since the more common design would be decentralized.
Mr. R.H. Lenny is serving as a CEO of Hershey.
In late 1990s, Hershey had operated with two divisions: Hershey North America
and Hershey International.
Hershey has approximately 13,700 full-time and 2,300 part-time employees.
Companys stated objectives include:

Annual
Annual
Annual
Annual

increase
increase
increase
increase

of
of
of
of

3 to 4% in sales
70 to 80 basis points in gross margin
7 to 9% in EBIT
9 to 11% in E.P.S

Hersheys products are marketed under more than 50 brands names and sold in
over 2 million retail outlets in North America, including grocery wholesalers,
chain stores, mass merchandisers, drug stores and food distributors.

4. SOCIAL RESPONSIBILITY
Building on Milton Hershey's legacy of commitment to consumers, community
and children, the firm makes an annual contribution of cash, products and
services to various charitable organizations including Hershey National Track,
Field Youth Program, Childrens miracle network.
The firm operates Milton Hershey School where full-time care and education is
provided to children mainly orphans. The Hershey School Trust owns over 75% of
companys stock.

5. RESEARCH AND DEVELOPMENT

Hershey performs various research and development activities to develop new
products and improve and modernize existing products and production
processes.
Companys R&D expenses have declined from the level of $28.6m (1998) to
$23.2m (2004).
In 2004; Hershey introduced the following new products: Hersheys Kisses
filled with caramel milk chocolates; Ice Breakers Liquid Ice mints;
Hersheys Snack Barz rice and marshmallow bars; Hersheys Smart
Zone nutrition bars; Take5 candy bars; Hersheys Almond Joy, York, and
Reeses cookies; Reeses Piece candy with peanuts; and Reeses Big
Cup.

Page | 4

6. FINANCE
There has been a vital growth in Income of Hersheys Food after 2001. Hersheys
net income was $590. 9 million in 2004 compared to $457.6 million in 2003.
Companys sales increased about 6% and gross margin increased to 39.5% in
2004 from 39% in 2003.
Company purchased 11.28m shares from Milton Hershey School Trust in 2004;
currently it has a $900m revolving line of credit and has the option to borrow to
an additional $600m if required.

7. MARKETING
Hershey has a well-established distribution network from its manufacturing
plants, to distribution centres and to warehouses throughout the United States,
Canada & Mexico.
Hershey has steadily decreased its advertising expenses. In the year of 1998,
Hershey invested $187.5 million on advertisements, but in 2004 Hershey
invested only $ 137.9m on advertisements.
Though the selling, marketing and administrative expenses increased by 4% in
2004, they decreased to 19.1% from 19.6% (in 2003) as a percentage of sales.
Hershey uses network television, syndicated television,
magazines and spot radio as its advertising media.

spot

television,

Hershey generates about 20% of annual sales during the 2 nd quarter and 30%
during the 4th quarter of each year due to holiday seasons.

8. GLOBAL ISSUES
Hershey exports its food products worldwide but not vigorously as it has no plans
to overtake or threaten Nestle or Mars in Europe-where the per capita chocolate
consumption is highest in the world.
Hershey has introduced its products into Russia, Philippines and Taiwan; however
it has failed to tap the overall Far East market due to high political and economic
risks coupled with companys lack of experience.
Cocoa beans are the most significant raw material of Hersheys chocolate, but
cocoa prices are getting high. The prices hit an 18-year high in February 2003
and since then have remained high, averaging 67.7cents per pound in 2004.
Sugar is the second most important commodity for Hersheys chocolate and
confectionery products. But due to import quotas and duties sugar prices are
higher in United Sates than in world sugar market.
Almonds prices also rose from $2 per pound during 1 st half of 2004 to $3 per
pound during the 2nd half. Milk prices were also on hype in same year.

Page | 5

Today, global channels of distribution are available for chocolate manufacturers

and global marketing uniformity is prevailing in the industry. Hersheys
competitors are taking advantage of this globalization trend.
The confectionery industry is characterized by high manufacturing economies of
scale. Hershey has the largest and highly automated chocolate plant in the world
as it occupies more than 2m square feet. High manufacturing costs encourage
global market expansion, globally standardized products and centralized
production.
The industry is also characterized by high transportation costs for moving
primary raw materials i.e, milk and sugar.
Moreover, candy industry is subject to grow. Candy consumption varies in
different markets of world. Northern Europeans consume twice as much
chocolate per capita as Americans while Asians and South Europeans prefer
types of sweets other than chocolates.

9. COMPETITORS
There are six major competitors in the $10-billion U.S. confectionery industry
who contribute 70% of the market:

Hershey
M&M Mars
Brack & Brock
Nestle of Switzerland
RJR Nabisco
Leaf Inc.

Hersheys two major competitors are Mars and Nestle.

MARS:
Mars enjoys a stronger presence than Hershey in Europe, Asia, Mexico and
Japan. While Mars obtains 50% from international sales, Hershey obtains
the least with 10%.
Worldwide sales and profits are estimated at over $7b and $1b
respectively.
Unlike Hershey, Mars globally uses uniform marketing. Its M&M candies
slogan It melts in your mouth, not in your hands, is used worldwide. On
contrary, Hersheys BarNone candy is named Temptation in Canada.
Unlike Hershey, Mars has also historically relied upon extensive marketing
and advertising expenses to gain market share, rather than on product
innovation.

Page | 6

Mars has been repackaging, restyling and reformulating its leading

brands: Snickers, Bounty, Balisto, Milkyway, M&Ms and 3 Musketeers.
Mars also successfully developed and marketed frozen Snickers Icecream
bars. It has world- class production facilities in New Jersey and has
manufacturing plants in several European locations.

NESTLE:
Nestle is the largest food company in the world with annual sales of more
than $9billion in U.S., having an edge internationally.
Having corporate headquarters in several states, Nestle is a major
competitor in Europe, Far East and South America.
Nestle sells products in over 360 countries on all seven continents, mainly
in Third World.
Nestle is the worlds largest instant coffee manufacturer, with Nescafe the
dominant product, and is the largest producer of milk powder and
condensed milk. Also produces chocolates and malt drinks.
Nestle manufactures chocolate in 23 countries particularly in Switzerland
and Latin America. Each factory is highly automated, employing an
average of 250 people.
Nestles popular
Butterfinger.

10.

brands

are

Callier,

Crunch,

Yes,

Smarties

and

S.W.O.T. Analysis for Hershey Food Corporation

10.1
-

10.2
-

Strengths
Hershey has grown from one product one plant to a $4 billion company
with various quality chocolates.
Its a strong brand name and has a strong image.
By 1996, Hershey was largest candy maker in U.S. with 30.7% market
share
It is also the largest pasta manufacturer in U.S. with 28.4% market share
Worlds largest chocolate plant in U.S., with more than 2 million sq. feet.
Marketed under more than 50 brand names.
Powerful partnerships (Starbucks, Kraft, Coca-Cola etc)
Huge man power approx. 13,700 full-time and 2,300 part-time employees.
Increasing sales 3 to 4 percent annually.
Major profits go to Milton Hershey School for Orphans. Also donates to Red
Cross, UNICEF, and Habitat for Humanity etc.
Weaknesses
Hersheys Global market share is very low, around 10%.

Page | 7

Hershey operates from a centralized, functional structure with no

divisional president.
Very few multinational distributors.
Concern for natural environment needs to be expressed.
Cocoa production rates are rising, and even a small price increase at retail
level affects consumer buying.
Unable to adopt Global Channels of Distribution.
Poor decision making as company relies on brand loyalty and has reduced
advertising expenditure.
Lack of experience of International Market.

Opportunities
Potential to expand range of Dark/Sugar free products for health benefits.
Use partnership ventures to create chocolate flavoured coffee products.
Produce cocoa in new areas other than Africa.
They can adopt Global Channels of Distribution.
Develop environment friendly packaging, recycling industrial waste.
China, India and majority of Southeast Asia are untapped markets.

10.3

10.4
-

11.

Threats
Consumer demanding healthier substitutes.
Steady rise in prices of cocoa, milk and sugar.
Main competitors are Mars and Nestle.
25% of Nestle revenues profits come from coffee. Nestle plays its
strengths in international markets. Hershey is more focused on just local
markets.
Mars uses extensive marketing and advertising expenditures to gain
market share. Hershey just uses product innovations.

CONCLUSION AND RECOMMENDATIONS

To overcome from the problems means to increase the sales Hershey
should adopt certain strategies like, Hershey should go globally. They have
to take experience of outside market (untapped market).
They have to come up with new candies like fat less candies because
consumers are going to be health, nutrition and weight conscious. Hershey
should adopt the Global Channels of Distribution to increase the sales
worldwide.
They have to invest in advertisement, if they have to have to maintain the
market share/increase the market share.
They have to find out the new channels of distribution and adopt the new
channels to increase the sales. Go international advertisement to promote
the product and use Multinational channel to increase the sales.
Increase the production capacity of Chocolate and Candy. Come up with
different types of candies and chocolate because people want variety in
products which is crucial to success.
Page | 8

 Should design new organization structure and go for decentralization.

There must be continental presidents, who will help to compete globally or
to increase the market share globally because they will have the
experience of the particular continents and they will work according to
market conditions.

12.

BIBLOGRAPHY

Case: Hershey Foods Corporation 2005 Fred R. David (Francis Marion

University).
Hershey Website www.hersheys.com

Page | 9