Introduction & Case Background
Hershey is one of the oldest chocolate company in the United States with presence around the world for more than a century. The iconic Hershey’s bar is one of the most loved chocolates in America. Hershey is headquartered in Pennsylvania and was founded in 1882. Hershey’s owns more than 80 brands and it has now become the largest confectionery and chocolate producer in America with numerous famous brands like Kisses, Reese’s Rolo & Krackle Bar, Hershey’s Chocolate Bar, You Peppermint Patties, Mr. Goodbar, Payday, Almond Joy, Milk Duds and many others. Major products include chocolates, food, beverages, confectioneries, baking ingredients etc. Hershey’s sells in more than 70 countries in the world within Europe, Asia, Africa, Middle East and North America; whereas, it has its operation in Pennsylvania, Lancaster, California, Mexico and Tennessee.
The given case study of Hershey Company - 2009 expounds the situation of Hershey in 2009, when the sales escalates by 5.9 % to settle at $ 1.17 billion while making a profit of $ 71.3 million. However, the advertising cost of the company increased by 46 % as Hershey had to focus on aggressive marketing to retain and acquire more customers who have switched from Hershey’s premium products to other low-price products. It elucidates that Hershey’s brands gave it a strong market standing that enables it to face even the intense competition that was posted by businesses like Anthony-Thomas Candy Company and Annabelle Candy Company. Hershey marked its success by operating under its successful business strategy that was a perfect blend of low-cost and differentiation. The case depicts how Hershey overhauled its global supply chain and reduced the number of its production plants to exploit the benefits of having low operational cost through outsourcing. The underlying strategic objectives were to reduce its operational cost while increasing the supply chain efficiency to enhance Hershey’s global market presence (Walsh & Mansfield, 2010).
Hershey’s Financial & Competitive Position Analysis
Hershey is one of the biggest names in the confectionary world and it upholds approximately 31.1% share in the global market and 43% share in the United States. While being a global leader in the sugar-confectionary industry, Hershey has a capitalization of over US $16.05 billion. Hershey competes in an oligopolistic market, which includes some international competitors including Cadbury, Mars, Nestle, and other domestic producers such as Anthony-Thomas Candy Company and Annabelle Candy Company. Hershey upholds a strong competitive and financial position in the global and domestic confectionery market although it constantly come across the competitive and financial challenges such as raw material price fluctuations, intense competition from the rivals with bigger and better resources, increased cost of energy resources, fluctuations in commodity market, terms and conditions of suppliers etc.
While considering the profitability and financial performance of the company, Hershey’s had demonstrated a tremendous growth between 2009 – 2013 when its net sales, net margins, and gross profits indicate remarkable figures. Hershey recorded a significant increase in gross profits margins that escalates from $38.7 million in 2009 to $45.9 million in 2013. Likewise, net profit margin increased from $14.4 million to $18.7 million. Moreover, other significant ratios like return on capital employed, return on total assets, asset turnover, account payable receivable period and net sales demonstrated notable increase; whereas, working capital, sales expenditure, inventory turnover, and account payable period depicts significant decrease. The overall situation mark healthy, favorable and profitable condition for Hershey. A detailed analysis of Hershey’s financial and competitive position has been done by undertaking SWOT analysis of the company as mentioned below (Walsh & Mansfield, 2010):
SWOT Analysis
Strengths
Hershey has a rich and traditional history, mass-production technology, brand innovation, philanthropic service, extraordinary customer service and exceptional strategic alliances. The organizational capabilities of Hershey and their passion for producing premium quality chocolate products enable them to offer undisputed market leadership and top-class value creation. These superior organizational competencies combine to offer a winning market edge and deliver a strong convention to expand and grow into future. Hershey is also a model business organization in terms of corporate social responsibility and business ethics; which plays a significant role in bringing in profits for Hershey (Walsh & Mansfield, 2010).
Weaknesses
Although Hershey has high standards of quality, customer service, diversity; however, there are a number of weaknesses that exist and post potential threats to Hershey’s business. For instance, for an organization as old as Hershey, it is necessary to constantly transform its business processes, legal procedures, and organizational culture in order to remain competitive with modern business trends and developments. Hershey’s market share is relatively lower than Mars and Nestle because Mars has a stronger domestic presence; whereas, Nestle is consistently playing its strengths in international markets. In addition to it, although Hershey conducts responsibly towards society and natural environment; however, it needs to be further expressed. Moreover, prices of cocoa production are rising and even a small fluctuation in price substantially affect consumer buying at the retail level. Another weakness of Hershey is that its decision making is primarily centered to brand loyalty, and due to the fact, it has reduced advertising expense. Apparently, this side is well exploited by Mars and Nestle that heavily relies on extensive advertising and product marketing (Walsh & Mansfield, 2010).
Opportunities
The consistently changing consumer preferences offer Hershey unlimited options to expand and enlarge its product line and product range. Hershey has a great potential to expand its product range by adding up a healthier product range just like Nestle. It may also develop several business ventures and partnerships to tap new product market. Hershey may also tap new regions for cocoa production other than Africa and can also produce bio-fuel as a byproduct that can be used at a different process in production. It may also emphasize on recycling its industrial waste and developing environment-friendly packaging. Hershey also has a great prospect to exploit the Southeast Asian, Indian and Chinese markets (Walsh & Mansfield, 2010).
Threats
One of the major threats for Hershey is that consumers are consistently inclining towards healthier products, which require them to expand their product line to meet customer demand. Additionally, the prices of milk, cocoa, and sugar are rising steadily which is resulting in increased cost of production and operation. Also, Nestle is extracting 25% of its revenues from international market and this posts somber threats to Hershey to quickly make its way to market other than the United States. Hershey needs to focus on its advertising apart from product innovation (Walsh & Mansfield, 2010).
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Hershey’s Environment Analysis
Porters Five Forces Model
There are a lot of internal and external forces that affect business operations of Hershey. According to Porter’s Five Force Model, the first force that influences Hershey is the bargaining power of supplier. In confectionary industry, the bargaining power of supplier is high because Hershey heavily relies on the supplier of cocoa and other raw material for the production of its products. The second force that influences Hershey is the bargaining power of buyers that brings low to moderate impact to the business. Currently, the buying trends and preferences of customers are changing rapidly, which causes Hershey to cope up with them to keep its competitiveness. The third force is the threat of the new entrants, which is low for Hershey because the market is already captured by the market players like Mars, Nestle, Kraft Foods, and Hershey itself. Another force is the threat of substitute, which is moderate to high for Hershey as there are numerous substitutes available in the market that may replace the product and quality of Hershey. Last force according to Porter’s Five Force Model is the intensity of rivalry, which is also very high for Hershey.
Hershey’s Strategic Analysis & Strategic Recommendations
Hershey currently relies on a blend of low-cost and differentiation strategy; however, there are certain strategic changes that are required to be made by Hershey. On the basis of above discussion and below mentioned Ansoff matrix, Hershey is recommended to undertake the following strategic changes.
Hershey should focus on international market expansion in order to exploit emerging and untapped market, as well as, meet its competitors international like Mars and Nestle.
It should focus on product innovation for product development in order to diversify and expand its product range. This will not only help Hershey to diversify its business risks but will also allow it to exploit the profitable and opportunistic prospects of other markets.
Hershey should focus on its branding and advertising to enhance brand visibility and brand awareness. Moreover, this will help it to penetrate further into the existing and emerging markets.
Ansoff Matrix
References
Anne Walsh and Ellen Mansfield (2010) Hershey Company – 2009 Case. La Selle University. Retrieved from http://documents.mx/documents/hershey-case-55846298320e8.html
