case-study-hershey-food-corporation

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case-study-hershey-food-corporation

  1. 1. 1. Introduction The Hershey Company is famously known for being the biggest manufacturer of chocolates and confectionery products in USA, having hired over 15,000 employees worldwide and exporting their products to ninety different countries over the world. The Hershey Company has several popular brands, some of most notable ones being Hershey’s Chocolate Bar, Kit Kat, Hershey’s Kisses, Reese’s, York Peppermint Pattie, Rolo and Krackle Bar. With the help of these brands, Hershey gained success and popularity, making the company’s net worth over $4 billion dollars. Hershey’s products include chocolates, confectioneries, food and beverage related products such as baking ingredients, toppings etc. The company lives by its mission statement, “Undisputed Marketplace Leadership” (www.hersheys.com). Hershey continues to preserve a higher position by successfully converting consumer desires into reality.2. Brand Research2.1 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 Hershey’s Chocolate recipe and sold his caramel business in 1900 for the sum of $1 million. 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 company’s 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. As quoted on the corporate website, “In a long and useful life, Milton S. Hershey proved himself to be a courageous entrepreneur, a determined builder and a compassionate humanitarian” (www.thehersheycompany.com) Page | 1
  2. 2. 2.2 Company Mission statement The Hershey Company’s mission statement, according to their corporate website, read as follows, “Our mission is to be a focused food company in North America and selected international markets and a leader in every aspect of our business. Our goal is to enhance our #1 position in the North American confectionery market, be the leader in U.S. chocolate-related grocery products, and to build leadership positions in selected international markets” (www.hersheys.com) This statement is further broken down into five categories to ensure leadership in the marketplace. 1. Hershey values creation of their products. 2. Encourage and promote healthy living. 3. Continuously note consumer desires for their product. 4. Maintain high levels of ethics and conduct. 5. Sustain a strong result oriented approach to business.2.3 Corporate Expansion 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 San Giorgio Macaroni Foods(1966), Y&S Candies, makers of Twizzlers liquorice(1977), Peter Paul/Cadbury’s U.S. Confectionery operations(1988) and Ronzoni Foods(1990). Hershey Foods Corporation became the industry leader by the end of the 20th 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 Hershey’s top position in the North American market. (www.hersheys.com) Page | 2
  3. 3. 3. P.E.S.T. Analysis3.1 Political/Legal Analysis - Chocolate producers unable to distribute products to certain countries. - Major issue is child labour in cocoa farms - Mostly affected areas in Africa where child labour runs rampant. - The Chocolate Manufacturers Association(CMA) and the World Cocoa Foundation(WCF) created the Harkin-Engel Protocol,which is an agreement that focuses on child labour practices on cocoa farms in West Africa (U.S. Labour, 2006). - Result opened new channels to export and distribute cocoa to international countries.3.2 Economic Analysis - In 2006, due to hurricane impact, the price of refined sugar decreased from $0.38 to $0.31 per pound (Hershey’s 10-K, 2009). - This allowed companies to cut retail costs and redistribute the savings. - A lot of waste material is produced, and companies spend thousands of dollars on disposing it. - However, there is a new opportunity born due to recent developments in biofuel. - Since 2007, Lovell discovered a new method of production that can use the by-product of chocolate manufacturing companies.3.3 Sociocultural Analysis - Consumers want a larger variety of chocolates and healthier alternatives to the traditional chocolates. - Dark chocolates provided several health benefits by adding a flavonoid in the chocolate that prevents various cardiovascular problems (Chocolate Trading Co., 2005).3.4 Technological Analysis - The chocolate and cocoa industries lack supports of Non-Government Organizations (NGO), which restrict the farmer’s access to business guidance, funding, and continuing education. - Farmers can’t learn new technologies making them less efficient. - This prevents the chocolate manufacturers from gaining cocoa efficiently to create more chocolates for the consumer. Page | 3
  4. 4. 4. Target Audience The primary consumers of Hershey Chocolates include a vast audience ranging from children, teenagers and adults. But mostly, Hershey targets its consumers ranging from age 13-30 years old. The chocolate bar is considered a snack or is part of a daily diet in case of some athletes. The chocolates are available in most grocery stores, gas stations, malls etc. Consumers primarily buy chocolates according to their price. They also prefer if the chocolates fit their health and nutritional requirements, although there is a very low margin of difference between selecting according to price and according to health. Page | 4
  5. 5. 5. S.W.O.T. Analysis for Hershey Food Corporation5.1 Strengths - Hershey has grown from one product one plant to a $4 billion company with various quality chocolates. - It’s 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 - World’s largest chocolate plant in U.S., with more than 2 million sq. feet. - Powerful partnerships (Starbucks, Kraft, Coca-Cola etc) - Major profits go to Milton Hershey School for Orphans. Also donates to Red Cross, UNICEF, and Habitat for Humanity etc. - Cooperative with students and professors. Toll free number 1800-468-1714, to access additional information on request.5.2 Weaknesses - Hershey’s Global market share is very low, around 10% - 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. - Poor decision making as company relies on brand loyalty and has reduced advertising expenditure.5.3 Opportunities - Potential to expand range of Dark/Sugarfree products for health benefits. - Use partnership ventures to create chocolate flavoured coffee products. - Produce cocoa in new areas other than Africa - Produce bio-fuel from the chocolate by-products - Develop environment friendly packaging, recycling industrial waste - China, India and majority of SouthEast Asia are untapped markets.5.4 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 Page | 5
  6. 6. 6. Five forces6.1 Threat for new entrants There is very little threat for new entrants in the chocolate industry because of the current economy, the various differences in products, and the constant need for large capital requirements. Also, since there is a lack of distribution channels and with the strict FDA regulations kept in place for food manufacturers, the threat for new entrants is almost non-existent (Michael et al, 2007)6.2 Bargaining powers of buyers As stated by Michael et al, 2007, the bargaining powers of buyers increase by two factors: a number of large volume buyers and the buyers’ relatively low profits from the product. But since the industry as so many different products, the presence of different costs, the bargaining power of the buyers is low to moderate at best.6.3 Bargaining power of suppliers The bargaining power of suppliers has decreased since the chocolate industry is an important customer for the suppliers. But the power is moderate to high since the suppliers are concentrated; there are no substitute products available.6.4 Pressures from substitute products The chocolate companies compete with various substitutes that threaten the industry. There are various flavours that are used as a substitute for chocolate. These include vanilla, butter, mint, rose, lemon, etc. Many consumers readily switch to these as they also consider chocolate to be unhealthy.6.5 Rivalries amongst competitors Among the chocolate industry, there are intense rivalries amongst the highest competitors. There are numerous strong chocolate manufacturers giving out various varieties of chocolates at different prices, resorting to creative advertising schemes, constantly giving out new products and high quality chocolates to satisfy the consumer needs. Page | 6
  7. 7. 7. Marketing mix7.1 Product - The new ‘Hershey Slim’ dark chocolates will have a flavonoid substance added which helps protect the cardiovascular system and is efficient until three hours upon consumption (Chocolate Trading Co., 2005) - Produced for health conscious consumers to ensure that Hershey favours healthier alternatives. Hershey will also assure people with health issues such as diabetics, that their chocolates are a safe and healthy alternative. - The core strategy is to reinvent the image of chocolates from being a source of a lot of sugar and calories therefore making people fat and/or diabetic, to an image where chocolates are considered an aid for protecting the consumers from heart disease and enhancing the rate of metabolism, by using flavonoids in their products.7.2 Price - To keep the chocolates reasonably affordable, keeping current financial trends in mind. - To have a promotion campaign in part with the contest - Currently chocolate bars are priced at $2.50 each. As part of the contest promotion, the chocolate will be sold at $2.00 each.7.3 People - Target Audience would primarily be consumers from age range of 13-30 years, particularly health conscious individuals. - The most bought products are chocolate bars, which some consider as a snack, while others as part of their daily diet.7.4 Place - The chocolates will be available in grocery stores, malls, supermarkets, gas stations, coffee shops, airports, and at the main outlets. Major Channel Distributors Secondary Channels Supermarkets Commercial stores (7-11, Cheers) Department Stores Amusement areas (cinemas, parks) Pharmacy Duty Free Outlets Grocery store Gas Stations Main outlet7.5 Promotion - The chocolates will be marketed through an interactive contest. Also, some promotional programs could be held under joint sponsorships through gyms/spas. Page | 7
  8. 8. 8. Objectives and Strategies8.1 Product - To reinvent Hershey Chocolates as a health conscious low calorie dark chocolate. - To reassure health conscious consumers to purchase this new product by providing all the necessary nutritional information8.2 Objectives - To promote the health benefits of the new Hershey Dark Chocolate - Help the consumers change their mind-set that chocolates are unhealthy. - To spread awareness and increase sales of the product.8.3 Strategy - To increase sales using promotional materials such as an interactive contest. We can use one of the three proposed strategies. 1. Hershey Dark Chocolate Mascot Strategy - Each chocolate has a code which in the package - Unlocks part of a character. A total of 25 unique parts allowing consumers to create 120 variations of characters. - Customers can go online and create the character of choice online and submit to the contest - Winning character will be the new mascot for the Hershey Slim. Winner will also receive gift vouchers and a 1 month membership to California Fitness Gym 2. Healthy mind, healthy body with Hershey Strategy - In the chocolate packaging are instructions to visit website - Consumers have to play a classic memory game which has five levels of difficulty. - Cards show healthy foods, and Hershey products - Winners who complete the final score under a specific time limit win a one day all access pass to California Fitness Gym 3. WrapperCash Strategy - Each Hershey Slim wrapper contains points - These points can be collected under an online account - Purchases can be made from the Hershey shop using these points. - There would be a limit to the number of points one can input per day, per account. - The more you save, the bigger better things you can buy. - Products would mostly include exercise equipment. Possible to buy products at half their retail price using the point system. Page | 8
  9. 9. ReferencesBooks/Papers/ Journals“Chocolate is good for you” Chocolate Trading Co. July 13th, 2005. Retrieved January 15th, 2011“Hershey Co. Form 10-K”, The Hersheys Company, December 31st, 2009.Retrieved January 14th, 2011.http://www.thehersheycompany.com/assets/pdfs/hersheycompany/2009AnnualReport.pdfLovell, Jeremy. “Eat More Chocolates and Help the Environment” PlanetArk.com November 7th,2007. Retrieved January 14th, 2011.Michael et al. “The Hershey Company – Introduction the World of Chocolate”, 2007. RetrievedJanuary 10th, 2011.“U.S. Labour Department Funds Project to Evaluate Effectiveness of Anti-Child-Labour Efforts in theCocoa Industry.” World’s Technology News. October 4th,2006. Retrieved January 14th, 2011.Websites.www.hersheys.comwww.thehersheycompany.comOtherLot of information received directly from Hershey Company via Student and Teacher Resourceshttp://www.hersheys.com/discover/resources.asp Page | 9

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