The Hershey Company, Research Paper Example

Executive Summary

In 1894, Milton S. H Hershey in founded Hershey Company. It incorporated under the laws of Delaware State on October 24 1927. Hershey forms the leading manufacturer of chocolate and other confectionery products in North America. Hershey Company is one of the topmost chocolate companies in the world (MarketWatch, 2010). The finished products of Hershey include chocolate, non-chocolate confectionary, and grocery products. The Hershey Company has unique chocolate and candy brands like the Hershey’s Kisses, Twizzlers licorice, buttercups, Mounds candy bars, Peppermint Patty, and Reese’s peanut York among others. The grocery products made by Hershey include baking chocolate, chocolate syrup, lollipops, cocoa mix, ice-cream toppings, cookies, hard candies, and snack nuts.

Hershey has five operating segments. It has segments in the United States, Mexico, Canada, Brazil, and India. This are not the only geographical regions as Hershey’s products also reach the Philippines, Japanese, Koreans, and the Chinese. The Hershey has strategic ways of handling its selling and marketing organization. It reportedly comprises of three selling and marketing organizations: Hershey North America, Hershey International, and the Global marketing group. The three organizations aim at leveraging sales and marketing in the US and Canada, growth of the strategic global markets, and the aim of being unique to customers while adapting the consumer trend.

The Hershey Company is not only self-centered to generating of profit and thus is involved in corporate social responsibilities. Milton, the founder preached the gospel of enduring responsibility while fighting to create a successful business. He insisted in making a difference in the communities, ensuring the business practices are safe and sustainable, while operating with the highest integrity level. To create a difference, and shape the future of the community, he considered the less fortunate children. Milton and Catherine Hershey established the Milton Hershey School. He established a Trust foundation that benefits the Milton Hershey School. The school comprises of the disadvantaged children (MarketWatch, 2010). The school provides an excellent nurturing, medication, quality education centre, and home to over 2000 needy children annually.The conspicuous Hershey has a Corporate Social Responsibility (CSR) program that benefits its employees, whether past or current. It ensures its employees gain high integrity in business, while supporting them immensely trough training. Hershey is so much committed to the youth, more especially nurturing the business talent. They have made liaisons with the Children’s Miracle Network, Family Health International and the children burn Center, where they offer financial and moral support. They also offer financial support to the World Cocoa Foundation and the sustainable Tree Crops program, thus indirectly supporting the cocoa farmers, who offer Hershey with the main raw material for making chocolate.

Industrial structure

Despite the competitive advantages of the Hershey Company, as discussed above, there is still need to analyze the industrial structure. The competitive structure of the business analyzed using the Porter’s five-force analysis. This will see in the strategic grouping and the mobility barriers as they affect the Hershey’s firm strategy. Potter argues out that the attractiveness of a company, and the likelihood that it makes profits in an industry depends on:

1)        The threat of a new competitor

2)        The bargaining power of the buyers

3)        The bargaining power of the suppliers

4)        The substitute threat

5)         The degree of rivalry with the existing competitors

Any business bound to the above named and this paper does a snap shot of how Hershey Company handles the five forces.

The threat of a new competitor

Being in a packaged goods industry, entry of new competitors is extremely easy. However, Hershey Company advantaged as it has grown tremendously. Any investor wishing to invest in such a firm would require a massive capital. Again, Hershey Company has been in the market long enough in that it has vast experience, and understanding of the market and how it works. The existing Hershey Company’s brands of high standards, and have even obtained loyal customers, and this is an added advantage against threats of new entrants.

The bargaining power of the buyers

The final consumers of Hershey Company’s products are many, thus their power to force down prices and profits in general is low (MarketWatch, 2010). However, the immediate customers including wholesale distributors, chain grocery stores, mass merchandiser, vending companies, wholesale clubs, concessionaries, natural food stores and dollar stores among others.  They all form pivotal customers to the Hershey Company, as they resell the products to end consumers in more than 2 million outlets in worldwide. The foundation of Hershey Company marketing strategy that reduces the power of the buyers is the strong brand equities, the consistently in the provision of superior quality products, product innovation, their manufacturing expertise and the mass distribution capabilities. If for example a company decides not to buy Hershey brand and opts for another, the probability of loosing loyal customers of the brand to other distributors is so high.

Hershey Company invests a lot in the identification, development, manufacturing, testing and marketing of any new products. They offer various promotional programs, advertising and promotional programs to customers, and consumers of their products. The buyers bargaining power reduced through all these strategies, thus they abide by the prices of the Hershey Company.

The bargaining power of the suppliers

The most significant raw materials of the chocolate products at the Hershey include Cocoa products.  Cocoa products as cocoa liquor, cocoa powder, and cocoa butter processed from cocoa beans to meet the manufacturing necessities. Hershey Company purchases Cocoa products directly from the third party suppliers, who obtain the cocoa beans from Far Eastern, and South American equatorial regions, and West African, where they  grown. The Hershey Company has developed a strong relationship with the suppliers (Kash, 2012). They offer discounts upon delivery of goods, and will to purchase the cocoa products at the existing market prices. They form loyal customers to specific suppliers, paying them in time and within the terms and conditions agreed upon and this somehow reduces the bargaining power of the supplier.

Another strategy the Hershey Company uses to minimize effects of future price fluctuations include purchasing of principal raw materials through forward purchasing. These purchases cover the future requirements for about 3-24 months. Hershey Company has the unique strategy of entering into futures contracts with suppliers to manage price risks for cocoa products, sugar, corn sweeteners, fuel oil, natural gas and dairy products.  This captures the suppliers and reduces their powers of blackmailing the company in case of shortages and shooting prices.

The degree of rivalry in between the existing competitors

There exist hundreds of companies falling in the packaged food industry category. Competition is high as every firm fights to outstanding in the market. There exist multinational, regional, national, and even local firms selling similar products. Some of the existing competitors are larger firms with greater resources and with operations that are more substantial. Despite this, the Hershey Company advantaged since most of their brands enjoy wide consumer acceptance. They form the leading brands sold in the market leading to a continued demand for their products.

The strategy employed by the Hershey Company to ensure continued demand that leads to generation of high revenues is the selling of products that are appealing to customers and consumers. Hershey Company has always worked on product innovation, while ensuring there is a constant entrance of new products into the market. They ensure effective retail execution and invest heavy on advertisements, campaigns, and marketing programs. Hershey Company fights towards securing shelf space at the retail outlets. They take consumer responses seriously and work towards their desires and demands. Hershey Company has taken care of the consumer health concerns as the development of obesity by considering the ingredients included in each product.

In the competitive environment, there emerge competitive products on a daily process with pressures on price. To combat these challenges and maintain high profit margins, Hershey Company has maintained a mutually and beneficial relationship with their key customers, who include distributors, retailers. Companies as McLane Company, Inc. form one of the largest distributors, and thus Hershey Company ensure they maintain a perfect relationship with them.

The substitute threat

Hershey Company faces a considerable challenge when it comes to the substitute threats. There exist a variety of chocolates and other varieties of chocolate stuff that one can substitute for those from Hershey Company. The substitutes could even be going at cheaper prices making matters worse. The only way Hershey Company fights this is offering high value products at a reasonable prices (Kash, 2012). They also ensure efficient distribution network that enables them maintain sales growth and provision of superior customer service. To avoid further substitute threat, the Hershey Company plans for optimum stock levels while working together with customers to set reasonable delivery times. Their distribution network gives efficient shipment of their products from manufacturing plants to distribution centers that strategically located at the United States, Canada, Mexico, and elsewhere. The trick behind ensuring the products are always present in the counter bars a loyal consumer from purchasing an alternative for lack of the Hershey Company brand.

Evolution of the industry

Forecasting is the most notable thing in any business management is able to reorganize the company. With the changing economy, rising competition, technological issues, regulatory issues, and uncertainties, the Hershey Company bound to operational risk factors including:

Quality and safety of Hershey Company products

With the rising number of companies dreaming to be like Hershey Company, some naughty company could think of imitating the  packaging, or rather produce product closely appearing as the Hershey Company ‘s. This will prove risky; as a consumer would pick the counterfeited product, thinking it is the usual Hershey Company product (Foster et al, 2011). This could just result into harmful and negative results that could harm the Company’s reputation. Such an occurrence would negatively affect Hershey Company’s operating results. The issues of safety, quality, and ingredient, packaging, and general imitation are likely to jeopardize the Company’s image and reputation. On could even do it purposely, not with the aim of making some income, but with the aim of jeopardizing the reputation of the Hershey Company.

Uncertain future financial results

The prices of raw materials as cocoa products, sugar, peanuts, corn sweeteners, daily products, natural gas, and fuel oil among others increase daily. In the next ten years, the production cost could be so high that the price of chocolate and other products would increase tremendously.

Price volatility and changes in supply of commodities will occur due to market fluctuations and the imbalances between supply and demand. The cocoa crop yielding countries could experience political unrest or adverse weather that could affect the yield of the crop. The fluctuating current rates cannot be predetermined, while the government agricultural programs and changes in energy policies and are uncertain. The whole issue of uncertainty results into the uncertain future financial results.

Possibility of decline of the market of new and existing products

The health providers have always insisted on people to stop taking junk food. There is an increasing tread of people contacting lifestyle diseases like obesity, diabetes, and hypertension among others. Such patients medically advised not to consume some of Hershey’s products. The increasing number of persons suffering from lifestyle diseases is a threat to the market of Hershey Company’s products.

Increased marketplace competition

Globally, the confectionery packaged goods industry is extremely competitive. Some competitors that the Hershey Company faces consist of larger firms with greater resources and are more substantial. The international outlets face challenges, as local consumers prefer promoting their local products.

In order to protect Hershey Company’s existing market share and further increase market share in the retail environment, further expenditures on promotions and advertising necessary. They need to have a continuous introduction and establishment of new products in a consistent manner.

Increased Pension costs and funding requirements

Every year marks retirement of some workers. In ten years time a substantial number of workers would have retired, with each one requiring pension payment. Further changes in interest rates in market value of plan assets likely to affect the funding status of Hershey Company’s pension scheme. There could be volatility in their benefits costs if surprisingly, a significant number of retired employees or those employees who left the company decide to withdraw lump sum from their pension accounts.

Unpredictable government regulations

Future developments of government regulators for the alleged pricing practices of the confectionery industry could affect Hershey Company’s reputation (Foster et al, 2011). This is because currently, the government regulators are carrying out investigations on the alleged pricing of products of the confectionery industry under some given jurisdictions. Any arising claim could lead to adverse fines, while the company could incur other defense costs for the government actions.

Likelihood of fluctuation of International operations

The Hershey Company has had a tendency of deriving sales from customers outside the US. It reports that approximately 14.4% of their net sales in 2008 came from outside the US. With the increased investments, they have assets located in India, China and other nations. If anything like inflation, deflation, environmental changes, or any business interruption occurs to such nations, then it would adversely affect the Hershey Company. Changes in the regulatory structure, Political and economic instability, civil unrest or even nationalization of their properties by foreign governments would affect the Hershey Company.

Strategy formulation

Despite all the efforts by the Hershey Company, there still exist other strategies to strengthen further the competitive position. There is always room for improvement and expansion. Hershey Company should aim at formulating a consolidated financial ground. They should carry out a SWOT analysis annually to identify its areas of weakness.

The next most noteworthy thing is the employment of external auditors to carry out the firm’s audit. This would bring out the understanding of internal activities and their control of the financial reporting. Auditing helps in identifying risks, and ways of dealing with them. The material weakness of the Hershey Company evaluated after an audit, where a test and evaluation of the design and approach identified and adopted. A firm that would literary appears to be doing as well as the Hershey Company could be facing underground problems. With the large profits, one could “steal” unnoticeable. An audit would reveal the whole truth. Internal audit control over financial reporting of a company is a process designed to provide reasonable assurance (Foster et al, 2011). The shareholders of a company only assured of a reliable financial reporting for preparation of financial statements after an audit.

The top most managers have so many powers in running a business. The directors, executive officers, and corporate governance need assessment from time to time. The names, positions held and periods of service examined. The performance of the directorate assessed at that service period to determine those managers who perform. A manager with feasible performance demoted from the position as those showing greater performances promoted.

Last, but not least, the other approach to a flourishing company is the involvement of every employee. Despite the position of an employer, he /she could have helpful suggestions that could help in growth and development of the firm. Annual general meetings organized, where every member has an equal opportunity in the decision-making process.

Recommendations and conclusions

In general, the Hershey Company has tried so much to standing tall in the confectionery industry. Its products and services to customers and consumers are above standards. Its involvement in the social corporate responsibilities and its contributions in offering a helping hand recognized. However, it still ought to consider some few recommendations to combat some of the potential risks.

In order for Hershey Company to sell their iconic and branded products, they should maintain a solid reputation with customers and consumers. Hershey Company should take initiatives to educate their loyal customers and consumers on how to identify the genuine Hershey Company product. They should do this repeatedly through media advertisements, while warning and alerting consumers of the fake products.

Hershey Company should make products that are medically fit for all persons. They should adjust their ingredients and drop those likely to cause harmful effects on the human body.

In order to protect Hershey Company’s existing market share and further increase market share in the retail environment, further expenditures on promotions and advertising necessary. They need to have a continuous introduction and establishment of new products in a consistent manner.

To maintain the risks involved especially in foreign nations, the Hershey Company should insure their business against risks as occurrences of civil unrest, climate changes or even the likelihood of Political and economic instability.

References

Kash, R. (2012). The Hershey Company: Aligning Inside to Win On the Outside. Ivey Business Journal. Vol. 76 ( 2), 27-29. 3p.

DATAMONITOR. (2011 ). Hershey Foods Corporation SWOT Analysis. The Hershey Company, 1-9. 9p

MarketWatch: Global Round-up. (2010 ) Food: Company Spotlight: Hershey, Vol. 9 Issue 3, 89-95. 7p

Foster, J., Gipe, C., & Friedrich, A. (2011). Hershey Helps Students Taste Their Future Full Techniques: Connecting Education and Careers, v86 n6 p52-57