The Hershey Company was founded in 1894, and is an international leader in superiority and non-chocolate confectionary and chocolate associated grocery in the Northern American industry. The company also has a good reputation and is a leader in the gum and mint industry. The company’s leading rivals are Purdy’s, Nestle and Meiji. Hershey employs a number of strategies which have continued to ensure that the company remains ahead of its competition. These strategies include a competitive advantage, international markets, and measures of cost, productivity and opportunities. The company can steer its growth by seizing opportunities with the use of its innovativeness and established brand name as a competitive advantage.
The company uses the differentiation and cost leadership strategy. The strategy allows the company to adapt quickly to new markets by swiftly acquiring the latest technology. The company achieves a competitive advantage by reducing its costs, which is made possible by the company’s strategy to establish its plants in countries which have access to cheap labor such as India, China, Mexico and Brazil (Simon Fraser University, 2013). The company has upgraded distribution and administrative channels which have made the supply chain more efficient and cost effective. The company has also invested heavily in the research and development department to increase penetration in new and current markets. The company’s portfolio has a number of brands to suit different market segments.
The company relies on the diversification strategy to increase its competitive advantage. The company has a total of five core brands across the world which are responsible for the company’s largest amount of profits. These core brands include Reese’s Hershey’s, Ice Breakers, Kisses and Jolly Rancher (Simon Fraser University, 2013). The company has invested heavily in manufacturing, cost reduction and marketing. The company partners with third parties to improve the company’s strategic position through cost effectiveness. Over the years, the company has acquired several pasta companies which increases its market share as well as high return investments. These acquisitions cut input costs, which is in line with the company’s cost leadership and differentiation strategy. The company is also embracing the idea of opening Hershey stores across the world.
Hershey is also looking to stay ahead of competition by expanding into foreign markets. The transnational strategy used by the company assists the company to achieve global efficiency and local responsiveness. The company is expanding internationally to big markets such as China, Brazil, Canada and Mexico (Alfonso, 2009). The standardized strategy is used to ensure consistency in quality in similar markets such as Canada and the United States. Products are mass-produced centrally in a few locations. The company expands into new markets through acquisitions, joint ventures and partnerships with foreign companies. By so doing, Hershey is able to understand the local market better, localize and come up with products which best suit the needs of the population. For instance, when the company first went into China, it got it a partnership with Lotte and continued to open a Research and Development center in the country to redesign its products to fit the need of the local consumer (Simon Fraser University, 2013). Success in business relies heavily on innovative products by the company. Consumers need products which are appealing to them. To achieve this, the company has to respond to consumer trends, obesity and the consumption of certain products and concerns regarding the health of consumers. The company’s global presence is further enhanced by strategic alliances with companies such as Lotte, Barry Callebaut and Godrej Beverages and Food.
Cooperative strategy is part of the company’s numerous strategies. The company has made intensive investments in West Africa through community programs. The aim of these community programs is to reinforce the stability of cocoa which is a key raw material for Hershey’s company. Joint efforts with both private and public companies are used to engage in agricultural practices expected to double the yields of cocoa in the country (Simon Fraser University, 2013). One of these programs is the coco link which uses mobile notifications to inform farmers on matters such as child labor, better farming practices, health, safety, crop marketing and crop disease prevention. The strategy ensures the sustainability of the company and at the same time acts as a social responsibility strategy to the cocoa farmers in West Africa.
The company’s marketing strategy focusses on the company’s strong brand equities, superior quality of its products, innovation, mass distribution and expertise in manufacturing. A lot of resources are also devoted towards the innovation of new products. Promotional programs is another marketing strategy which is employed by the company (Simon Fraser University, 2013). Promotional programs target consumers across the world at different times of the year. Most of the products by the company receive a wide acceptance by consumers across the world.
Consumer trends influence the type of products that are produced by a company. The company relies heavily on its sales to increase its total revenue. The health benefits of cocoa dictate that the company produces dark chocolate which requires more cocoa to manufacture. This is a concern which is likely to drive the cost of cocoa up. To deal with the deficit, the company has engaged actively in community programs in West Africa to ensure the sustainability of Cocoa production (Simon Fraser University, 2013). The sociocultural aspects of consumers also influence the demand for products by the company. For instance, during the Christmas season and valentines, the demand for chocolate shoots up. This is the case especially in developed countries such as Canada and the United States.
Demand by consumers are affected by a number of factors in the industry. One of these factors is the economic status. For instance, during the 2008 economic crisis, the purchasing power of people across the world was reduced, leading to a decline in the demand for the confectionary products (Simon Fraser University, 2013). The slowing demand which was experienced across the world led to a decline in the pricing of chocolate across the world. Health concerns surrounding confectionary products have a negative impact on the demand for these products. Fitness concerns are likely to lead to negative publicity which might lead to a decrease in the demand for confectionary products. Demand faces a lot of influence from global, economic and environmental concerns across the world. Sociocultural tendencies such as the preference of chocolate products during festivities like Christmas and Valentines also leads to seasonal demands.
Cocoa farmers are the company’s leading supplier. 70 percent of the worlds’ supply of Cocoa comes from West Africa (Alfonso, 2009). Without the supply of cocoa, the company would be unable to produce its products. Sales made by the company have a direct influence on the supply of Cocoa. The pricing of the products has a direct influence on the company’s total revenue and the total amount of sales made by the company. The company has over 90 centers across the world, and each of these centers demands for specific suppliers to suit the needs of the local consumer to enhance local responsiveness (Alfonso, 2009).
The bargaining power of suppliers in the confectionary industry is rather high due to the differentiation of resources. Most of these materials lack substitutes, and the few substitutes that are available are hard to come by. Hershey relies heavily on suppliers to supply them with high quality cocoa with great taste, and which meets the food regulations. Supply is a major concern as the cocoa plant is grown in areas which are prone to hurricanes, which interferes with the number of Cocoa suppliers. Other supplies that are likely to impact production in the confectionary industry include the supply of peanuts and almond. The price of these products has continued to go up over the years due to reduced amount of supply of these products. Supply is influenced by numerous factors which include the fluctuations of the commodity in the market, foreign currency exchange rates, lacking balance between supply and demand, weather changes, speculations, political stability in producing countries, trade regulations and government policies on agricultural programs (Alfonso, 2009).
One of the company’s objectives is to come up with products with an exceptional taste, and which provide consumers with the best price in the target market. There is no existing regulation by the government regarding matters such as pricing. The prices of chocolate are on the rise, and the government is likely to reinstate regulations on the price of cocoa and other raw materials such as sugar. The price of sugar in the United States is lower when compared to the price of sugar in Canada. Canadian manufacturers prefer to import chocolate from the United States instead of manufacturing or purchasing it locally (Simon Fraser University, 2013). Cocoa butter is another primary raw material in the confectionary business. Poor weather in Ivory Coast and Ghana which are the leading producers of coffee have increased the cost of cocoa beans up by over 80 percent. This has a direct influence on the pricing of chocolate, causing the prices of chocolate to soar up.
There are a number of factors which influence production at Hershey. These factors include the cost of production. To cut on the cost of production, the company engages in mass production of its products. A decreased cost of production reduces the unit cost. Production cost are relatively high since there are no regulation on prices to the raw materials used in the confectionary business (Simon Fraser University, 2013). As a result, the cost of cocoa is still considerably high, and in turn, the price of chocolate remains high. The high cost of production in the confectionary industry is considered advantageous as the threat of new entrants in the industry is considered low. Moreover, the company has managed to reduce the cost of production by establishing manufacturing sites in countries which provide cheap labor such as China, Brazil, India and Mexico.
There are various measures of cost which influence business practices at Hershey’s. Switching to new products is costly, and requires additional investments such as advertising, promotional programs and marketing to increase the awareness of consumers in the confectionary industry. Fixed and storage costs are considered relatively high in the confectionary industry. For instance, equipment used in the manufacture of raw materials such as chocolate and milk need to be maintained at a specific temperature, which is costly for the manufacturers. Cost-effectiveness is one of the company’s leading strategy, and as a result, the company is keen on reducing the cost of production (Simon Fraser University, 2013). The company achieves this through mass production and the strategic location of its manufacturing plants. Cost effectiveness has influenced the company to integrate backwards and acquire acquisitions such as macadamia plantations which enable the company to cut down on the cost of production, allowing the company to offer consumers competitive prices.
The government plays an important role in the confectionary industry which have a direct influence on Hershey Company. One of the leading challenges in the industry is the numerous regulations in the food industry. Government scrutiny and inspections are costly, a factor which increases operational cost causing an increase in the pricing of chocolate. The lack of existing price regulations on the raw materials used in the confectionary industry is another major challenge (Simon Fraser University, 2013). The price of sugar, cocoa butter and cocoa has continued to soar up, and in turn, the prices of chocolate continue to go up. While the price of sugar is considered low in countries such as the United States, it is extremely high in countries such as Canada, a factor that influences Canadian manufacturers to import chocolate from the United States instead of manufacturing locally.
There are various strategies that the company can employ to increase their profit making abilities and increase their presence in their current market locations. Hershey can expand its growth by seizing opportunities in emerging markets. These markets include Canada, Brazil and Mexico. International markets offer Hershey a chance for increased revenue due to favorable foreign exchange rates in the international market (Alfonso, 2009). The company, therefore, needs to increase its presence in its existing foreign markets by investing heavily in its core brands which are found in its international markets. This can be achieved through extensive marketing, advertising and promotional programs. The United States offers Hershey with numerous opportunities for expansion especially in South and Central America, as well as in Asia.
The company should also come up with strategies to increase their customer value to their consumers. Consumers are satisfied with the quality and features which is provided by products produced by Hershey and therefore, the company should strive to maintain these aspects in their products. The niche market strategy should be used to enable the business to expand in the domestic market. This can be achieved with the use of products such as high-end candy and functional candy (Zhang, 2001). Innovative products which suit the needs of the niche markets are expected to increase the company’s revenue. The new niche markets along with the company’s traditional markets are expected to improve the company’s total sales and revenue.
The company needs to adopt a strategic industry role which means becoming both challenger and industry leader. The company should maintain its business practices which have continued to place the company at the top of the industry (Zhang, 2001). The company can get rid of competition by coming up with new products with unique tastes which will challenge the traditional customer expectations. The company should maintain its strategic position instead of diversifying into other areas. The confectionary business is yet to reach saturation levels, and as a result, the company needs to conduct intensive and extensive research in its current line of operations.
In conclusion, the international markets and changing consumers trends offer Hershey Company with numerous opportunities for growth, which the company can exploit using its established brand name and innovativeness. The company can expand its growth by focusing on available opportunities. These opportunities include consumer demands which are shifting towards functional candy, as well as the emergence of new international markets. The company which has an established brand name which is influenced by innovation will enable Hershey to seize these emerging opportunities. The company should focus on offering its customers with superior quality in the international market to get rid of competition. Emerging markets in South and Central America, Asia, Brazil and Mexico are opportunities that Hershey can exploit to enhance its growth in the confectionary industry.
References
Alfonso, H. P. (2009, February 20). The Hershey Company Annual Reports. Retrieved from Annul Reports: http://www.annualreports.com/HostedData/AnnualReports/PDF/hsy2008.pdf
Simon Fraser University. (2013, November 6). Hershey's Synopsis. Retrieved from Simon Fraser University: http://www.sfu.ca/~sheppard/478/syn/1137/G_2_1137.pdf
Zhang, C. (2001). Global market strategy in the confectionery industry . Retrieved from AgEcon Search: http://ageconsearch.umn.edu/bitstream/11170/1/pb01zh01.pdf
