Introduction
The Hershey Company is involved in the manufacturing, selling, and distribution of chocolate and confectionary and chocolate products, gum and mint refreshment products as well as pantry items. The company has more than 80 brands that are sold in more than 50 countries across the Americas and Asia regions. The company has more than 13,500 employees with 12,000 being full-time and 1,600 being part-time employees. The most iconic brands are Kisses, Hershey’s, and Reese’s. The company has recorded increased profitability over the years and is the leading confectionary producer in the US. Intense competition as well as ongoing consolidations in the confectionary industry could affect the company’s business and its market share.
Financial Analysis
The Hershey’s company has been recording increased revenues and profitability since 2007.The Increments in revenue were due to net price realization and sales volume increases in the US and for the international businesses. The operating net profit was $1,111.1 million in FY2012 an increase in 5.3% over FY2011. The net profit was $660.9 million in FY2012 an increase of 5.1% over FY2011.
The Debt to Equity ratio improved to 1.9 in the FY2009 from 4.3 in 2008. Although there is an improvement, the company has a substantial amount of debt. In 2008, the total outstanding debt was $2,007 million out of which $1,505 million was long-term debt. The shareholder’s equity was $318 million, which represented a long-term debt-equity ratio of about 6.3 times (630%).
Liquidity
Liabilities associated with unsalable products have affected the liquidity of the company. In 2006, such products amounted to about 2% of the gross sales. The products have increased the cost of sales for the company thereby affecting its net sales. Hershey’s incurred $14 million worth of recovery of damages from a single product recall and factory closure in Canada. Such incidents coupled with unstable inventories and the appreciations of current assets have increased the company’s liquidity (Cevdet, Valories, Laura, & Katrina, 2013).
Comparison and analysis with industry ratios
The company was the largest market player in the US confectionary market with a share of 30.7% followed by another company that had 30.1% market share. The company led in the chocolate and breath fresher mint categories with 44.2% and 38.5% market shares respectively in 2013. The company also exceeded the closest competitors by more than 10 percentage points. In 2012, more than 38,000 consumers in the US chose Kisses as the best American chocolate brand. Other products also made it to the top 10 most favorite brands in the US. The company generated 83.9% of its revenue from the US market in comparison to its competitors such as Mondelez International and Nestle, which generated 17.1% and 25.7% of their revenues from the US market in FY2012.
Main issue
Impact of issue
The main issue that faces Hershey’s company is intensified competition from the other industry players. Stiff competition requires Hershey’s company to upgrade and upscale its marketing strategies. The company must advertise more intensely and this brings about increased production costs that have a negative effect on the profitability of the company. The consolidations of the companies also offer competition on the quality of products being released to the market. This could require Hershey’s to invest more in Reserch and Development of its products. Overall, the competition offered by the consolidating companies could lead to reduced market shares, which means that Hershey’s company has to change its organizational structures and adopt drastic changes in an attempt to recoup its market shares. Already, the company is recording increased expenditure on research and development activities having spent about $39 million in 2012 as compared to $33.2 in 2011 and $31.1 in 2010.
Causes of issue
Mergers and acquisitions have led to the consolidation of several confectionary companies thereby strengthening them and enabling them to offer stiff competition to the other industry players. Large companies such as Wrigley’s have merged with other companies such as Mars to come up with companies that are very strong financially and that have significant market shares. The smaller companies have also feared the intense competition in the industry and chosen to form partnerships with other large companies.
Recommendations
In order to overcome the threats of competition, Hershey’s company needs to adopt certain strategies. The first is a review of the workforce. The company’s management should review the current workforce to ensure that only the dedicated, talented, and qualified employees remain in the company. The acquisition of skilled employees from the competing companies is also a good way of taming the competition from the other companies. A good workforce is the launching pad for any meaningful strategy aimed at addressing competition concerns. The company should also invest in adequate research and development into new products as well as improving on the available ones. Thirdly, the company should clearly identify its target market, capitalize on it, and venture to acquire the emerging markets in other countries.
Conclusion
The Hershey Company is involved in the manufacturing, selling, and distribution of chocolate and confectionary and chocolate products. The company has recorded increased revenues since 2007 from a $4,946 to $6,644 in 2012. In addition, the company has enjoyed high operating and net profits over that period. The liquidity of the company has remained volatile due to product recalls and lack of unstable inventories. In comparison to other companies, Hershey’s is ahead in terms of market shares with a share of 30.7% followed by another company that had 30.1% market shares. The main issue the company is facing is increased competition due to the consolidation of companies. Hershey’s company can address this problem by acquiring a competent a highly skilled workforce, aggressive marketing, intensive research, and development activities among several other recommendations.
References
Data Monitor (2007). The Hershey Company. Company profile. Publication date: 8 June.
Data Monitor (2008). The Hershey Company. Company profile. Publication date: 03 Oct.
Data Monitor (2009). The Hershey Company. Company profile. Publication date: 14 Sep.
Data Monitor (2010). The Hershey Company. Company profile. Publication date: 27 Sep.
Data Monitor (2011). The Hershey Company. Company profile. Publication date: 22 July.
Cevdet. K, Valories. E, Laura. C & Katrina. C (2013). Hershey’s entry to the Australian Market with a new Brand: An accounting and marketing prospective. University of Pittsburgh Press.
The Hershey Company (2012). SWOT analysis, publication date: 30 Nov.
The Hershey Company (2013). SWOT analysis, publication date: 31 Oct.
Appendix
Table showing the SWOT analysis of Hershey’s
