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Case Study Hershey Food Corporation

Case Study Hershey Food Corporation

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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

Rolo and Krackle Bar as well as the smooth. chocolate drink mixes. USA. creamy indulgence of Hershey’s Bliss chocolates. lowest among its competitor. having hired over 12. Hershey’s Kisses. confectionery products sold in the form of bar goods. Weaknesses. His first successful business was the Lancaster Caramel company and it was only in 1893 that Milton expressed interest in making Chocolates. nonchocolate and grocer y products. grocery products in the form of baking ingredients. SWOT Analysis to define the Hershey Strengths. So. production department and in organization structure to increase the market share and compete globally. Brands: The Hershey Company offers such iconic brands as Hershey’s Chocolate Bar. Pennsylvania the home of Hershey Foods Corporation known as Chocolate Town. With the help of these brands. OBJECTIVE OF THE STUDY To analyze the Hershey Food Corporation situation and suggest certain strategies department wise to overcome from the main threat i. marketing. INTRODUCTION The Hershey Company is famously known for being the biggest manufacturer of chocolates and confectionery products in USA. The company lives by its mission statement. Ice breakers. BRAND RESEARCH 2. Opportunities and Threats. dessert toppings and beverages. Hershey continues to preserve a higher position by successfully converting consumer desires into reality.EXECUTIVE SUMMARY Hershey. and his interest began at an early age under candy maker Joe Royer of Lancaster. making the company’s net worth over $4. Hershey gained success and popularity. the air in this city actually smells like chocolate.1 Detailed History Milton Hershey was fascinated with the process of making chocolate.4 billion company producing as array of quality chocolate. Pennsylvania.e. Hershey’s principal product group includes: chocolates. York Peppermint Pattie. peanut butter. Reese’s. Twizzlers. competitor. one plant operation in 1894 to a $ 4. Suggest the certain techniques and strategies to increase the market share and t o compete globally.4 billion dollars. Hershey should come up with new strategies in finance. Milton was an entrepreneur who was keen to own a candy-making business. Hershey market share is less than 10 percent.000 employees worldwide and exporting their products to sixty different countries over the world. bagged items and boxed items. 2. Hershey has grown from a one product. Page | 2 . “Undisputed Marketplace Leadership”. 1. Kit Kat.

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. Lenny is serving as a CEO of Hershey. Hershey Foods Corporation became the industry leader by the end of the 20th century. functional structure with no divisional presidents. Page | 3 . Reese Candy Company (1960). Confectionery operations(1988) and Ronzoni Foods(1990). In 1927. was easily accessible to ports that would supply sugar. In late 1990s. Leaf North America(1996). Hershey sought to expand its product line by partnering up with several related companies and even created different brands for their own products. Pennsylvania in 1906. Hershey’s sale reached $662. Some famous partnerships include H. Nabisco’s gum businesses(2000) and Grupo Lorena & Mauna Loa(2004). acquired Dagoba Organic Chocolates. makers of Twizzlers liquorice(1977). After much experimentation. 2. By 1901.ORGANIZATION STRUCTURE Hershey operates from a centralized. the Hershey company sales were only $662. Hershey has approximately 13. Milton began producing chocolate coated caramels that eventually led to the founding of Hershey Chocolate Company in 1894. in 2006. Mr.000 thus creating the need for a new factory. cocoa beans etc.S. Between 1930 & 1960 Hershey went through rapid growth. and had a vast amount of dairy farms. INTERNAL AFFAIRS.2 Corporate Expansion In the year of 1901. 3. San Giorgio Macaroni Foods(1966). This was the first step towards the company’s expansion since this city had a large population.B. which was later renamed Hershey. Hershey Mexico. since the more common design would be decentralized. In 1903.Soon after. Peter Paul/Cadbury’s U. This maintains Hershey’s top position in the North American market.300 part-time employees.000 and within the span of 10 years the Hershey sales reached $ 5 million in 1911. The company continued diversifying and soon acquired Joseph Schmidt confections in 2005 and a year later.700 full-time and 2. Milton discovered the famous Hershey’s Chocolate recipe and sold his caramel business in 1900 for the sum of $1 million. a type of structure unusual for an organization of Hershey’s size. the company was renamed as Hershey Foods Corporation. R. Milton built his company at a place called Derry Township in Pennsylvania. During this time. Thereafter Hershey’s sales increased 4 to 5 percent annually. In 1968.H. Hershey had operated with two divisions: Hershey North America and Hershey International. Y&S Candies.

SOCIAL RESPONSIBILITY Building on Milton Hershey's legacy of commitment to consumers. The firm operates Milton Hershey School where full-time care and education is provided to children mainly orphans. 9 million in 2004 compared to $457. marketing and administrative expenses increased by 4% in 2004. Hershey introduced the following new products: Hershey’s Kisses filled with caramel milk chocolates.5 million on advertisements. Company’s sales increased about 6% and gross margin increased to 39. FINANCE There has been a vital growth in Income of Hershey’s Food after 2001. York. 5. Hershey’s net income was $590. RESEARCH AND DEVELOPMENT Hershey performs various research and development activities to develop new products and improve and modernize existing products and production processes. Hershey’s Almond Joy. chain stores.1% from 19. mass merchandisers. and Reese’s Big Cup.9m on advertisements. 7. In 2004. The Hershey School Trust owns over 75% of company’s stock. In the year of 1998.6m (1998) to $23. Hershey’s Smart Zone nutrition bars. Page | 4 .Company’s stated objectives include:     Annual increase of 3 to 4% in sales Annual increase of 70 to 80 basis points in gross margin Annual increase of 7 to 9% in EBIT Annual increase of 9 to 11% in E.6 million in 2003. Hershey invested $187. Children’s miracle network. they decreased to 19.5% in 2004 from 39% in 2003. drug stores and food distributors. currently it has a $900m revolving line of credit and has the option to borrow to an additional $600m if required. including grocery wholesalers. to distribution centres and to warehouses throughout the United States. Reese’s Piece candy with peanuts. products and services to various charitable organizations including Hershey National Track.28m shares from Milton Hershey School Trust in 2004. 4. community and children.2m (2004).6% (in 2003) as a percentage of sales. Though the selling. MARKETING Hershey has a well-established distribution network from its manufacturing plants. 6. Canada & Mexico.S Hershey’s products are marketed under more than 50 brands names and sold in over 2 million retail outlets in North America. Company’s R&D expenses have declined from the level of $28. Take5 candy bars. Company purchased 11.P. Field Youth Program. but in 2004 Hershey invested only $ 137. Ice Breakers Liquid Ice mints. Hershey has steadily decreased its advertising expenses. and Reese’s cookies. Hershey’s Snack Barz rice and marshmallow bars. the firm makes an annual contribution of cash.

Hershey has the largest and highly automated chocolate plant in the world as it occupies more than 2m square feet. spot television. Moreover. confectionery industry who contribute 70% of the market:   Hershey M&M Mars Page | 5 . Hershey’s competitors are taking advantage of this globalization trend. globally standardized products and centralized production. but cocoa prices are getting high. Cocoa beans are the most significant raw material of Hershey’s chocolate. COMPETITORS There are six major competitors in the $10-billion U. 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 uses network television. But due to import quotas and duties sugar prices are higher in United Sates than in world sugar market. averaging 67. Almonds prices also rose from $2 per pound during 1st half of 2004 to $3 per pound during the 2nd half. 9. Philippines and Taiwan. Sugar is the second most important commodity for Hershey’s chocolate and confectionery products. Northern Europeans consume twice as much chocolate per capita as Americans while Asians and South Europeans prefer types of sweets other than chocolates. magazines and spot radio as its advertising media. The industry is also characterized by high transportation costs for moving primary raw materials i. Hershey generates about 20% of annual sales during the 2nd quarter and 30% during the 4th quarter of each year due to holiday seasons. Hershey has introduced its products into Russia.e. global channels of distribution are available for chocolate manufacturers and global marketing uniformity is prevailing in the industry. candy industry is subject to grow. The prices hit an 18-year high in February 2003 and since then have remained high. syndicated television. The confectionery industry is characterized by high manufacturing economies of scale. Today. Candy consumption varies in different markets of world. milk and sugar.7cents per pound in 2004. 8.S. High manufacturing costs encourage global market expansion. Milk prices were also on hype in same year. however it has failed to tap the overall Far East market due to high political and economic risks coupled with company’s lack of experience.

Nestle sells products in over 360 countries on all seven continents. It has worldclass production facilities in New Jersey and has manufacturing plants in several European locations. Mars has also historically relied upon extensive marketing and advertising expenses to gain market share. Unlike Hershey. Nestle is a major competitor in Europe.. Page | 6 . Each factory is highly automated. Having corporate headquarters in several states. rather than on product innovation. Mexico and Japan. NESTLE: Nestle is the largest food company in the world with annual sales of more than $9billion in U. Nestle’s popular brands are Callier. Hershey’s two major competitors are Mars and Nestle. While Mars obtains 50% from international sales. Yes. Mars globally uses uniform marketing. M&M’s and 3 Musketeers. MARS: Mars enjoys a stronger presence than Hershey in Europe. Balisto. Asia.    Brack & Brock Nestle of Switzerland RJR Nabisco Leaf Inc. Milkyway. Bounty. Hershey obtains the least with 10%. with Nescafe the dominant product. Smarties and Butterfinger. employing an average of 250 people. Hershey’s BarNone candy is named “Temptation” in Canada. Worldwide sales and profits are estimated at over $7b and $1b respectively. Mars also successfully developed and marketed frozen Snickers Icecream bars. Its M&M candies slogan “It melts in your mouth.S. Mars has been repackaging. and is the largest producer of milk powder and condensed milk. Unlike Hershey. Nestle is the world’s largest instant coffee manufacturer. Nestle manufactures chocolate in 23 countries particularly in Switzerland and Latin America. Crunch. is used worldwide. having an edge internationally. On contrary. restyling and reformulating its leading brands: Snickers. Also produces chocolates and malt drinks. not in your hands”. Far East and South America. mainly in Third World.

S. with more than 2 million sq. and even a small price increase at retail level affects consumer buying. Very few multinational distributors. Hershey just uses product innovations. Page | 7 10. Mars uses extensive marketing and advertising expenditures to gain market share. Kraft. Threats Consumer demanding healthier substitutes.700 full-time and 2. 13. with 30. Main competitors are Mars and Nestle. Steady rise in prices of cocoa.2 10. It’s a strong brand name and has a strong image.S. Poor decision making as company relies on brand loyalty and has reduced advertising expenditure. milk and sugar.4 - .4% market share World’s largest chocolate plant in U. feet. India and majority of Southeast Asia are untapped markets. Major profits go to Milton Hershey School for Orphans.1 - S. Weaknesses Hershey’s Global market share is very low.. They can adopt “Global Channels of Distribution”.300 part-time employees.3 10. 10.T. Cocoa production rates are rising. Hershey was largest candy maker in U. By 1996. recycling industrial waste. Produce cocoa in new areas other than Africa. Opportunities Potential to expand range of Dark/Sugar free products for health benefits.W. Hershey is more focused on just local markets.O. Analysis for Hershey Food Corporation Strengths Hershey has grown from one product one plant to a $4 billion company with various quality chocolates. Increasing sales 3 to 4 percent annually. Hershey operates from a centralized. UNICEF.10.7% market share It is also the largest pasta manufacturer in U. Nestle plays its strengths in international markets. around 10%. China.S. with 28. Powerful partnerships (Starbucks. functional structure with no divisional president. 25% of Nestle revenues profits come from coffee. Marketed under more than 50 brand names. Concern for natural environment needs to be expressed. Use partnership ventures to create chocolate flavoured coffee products. Develop environment friendly packaging. Unable to adopt “Global Channels of Distribution”. and Habitat for Humanity etc. Also donates to Red Cross. Lack of experience of International Market. Coca-Cola etc) Huge man power approx.

com Page | 8 . CONCLUSION AND RECOMMENDATIONS  To overcome from the problems means to increase the sales Hershey should adopt certain strategies like. if they have to have to maintain the market share/increase the market share. 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. nutrition and weight conscious. Go international advertisement to promote the product and use Multinational channel to increase the sales.  They have to come up with new candies like fat less candies because consumers are going to be health.  Increase the production capacity of Chocolate and Candy. Hershey Website – www. Hershey should adopt the “Global Channels of Distribution” to increase the sales worldwide.  They have to find out the new channels of distribution and adopt the new channels to increase the sales. There must be continental presidents. Come up with different types of candies and chocolate because people want variety in products which is crucial to success. David (Francis Marion University). 12. BIBLOGRAPHY Case: Hershey Foods Corporation – 2005 Fred R. They have to take experience of outside market (untapped market).11. Hershey should go globally.hersheys.  They have to invest in advertisement.  Should design new organization structure and go for decentralization.

Hershey Website – www. 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. 1. David (Francis Marion University).hersheys. Come up with different types of candies and chocolate because people want variety in products which is crucial to success. ➢ Increase the production capacity of Chocolate and Candy.➢ They have to find out the new channels of distribution and adopt the new channels to increase the sales.com Page | 9 . Go international advertisement to promote the product and use Multinational channel to increase the sales. ➢ Should design new organization structure and go for decentralization. BIBLOGRAPHY Case: Hershey Foods Corporation – 2005 Fred R.

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