Corporate Overview
Hershey Company is a global company that produces chocolate and other goods. According to researchers, Hershey has been on the market for over 100 years and has become one of the top-selling chocolate manufacturers worldwide (Rosenthal, 2019). The industry in which it operates is food processing and the main products that Hershey markets are chocolate bars, milkshakes, cookies, etc. It is a public company, which means that the shares of stock are traded, and there is a multitude of owners. Hershey’s website specifically mentions the focus on shareholder value. Moreover, the corporation illustrated that the 2020 report showed more than $8B in net sales and a 13% rate of shareholder return (Hershey). The stats highlight the profitability of the brand and the positive internal and external environment that facilitates such high rates.
Hershey focuses on three different business units, which are chocolates, sweets, and snacks. The primary codes are SIC Code 5149 and NAIC Code 424490 for groceries. Moreover, the subdivisions of the NAIC Code are 311351 for chocolate and other products made of cacao and 311340 for nonchocolate products. Such a wide array of products that the brand markets allow for a more precise satisfaction of consumer demand and a higher level of competitiveness with other retailers within the same category. Yahoo Finance’s stock summary points out that one Hershey Company (NYSE-HSY) share costs approximately 180$, which is higher than the rate during previous years (Yahoo Finance). Evidence shows that Hershey is a successful corporation that manages to overcome a highly competitive market and improve as a brand by releasing new products and increasing the revenue for the shareholders.
External Analysis
P.E.S.T Analysis
The political regulations are much more complex for international corporations such as the Hershey Company. For example, the company has been criticized for using child labor in West Africa (Yusnaidi, 2019). Moreover, operating in multiple countries worldwide increases the risks for governmental instability, frequent change in regulation, and a high level of population that has lower potency for buying products. The US market has primarily been favorable, which allowed the corporation to increase its power and market reach. However, providing goods to countries with less capability of customer purchases leads to fewer transactions and a lower income for the organization.
Hershey has been a consumer favorite for multiple decades, which is evidence that customers are willing to purchase the company’s products and support the brand from a social standpoint. However, as the trends are changing, Hershey cannot overcome the new demands. For example, a large number of people became health conscious, which is a negative implication for the brand. Since Hershey does not market itself as healthy or make changes to fit the new demand, certain social challenges have occurred. The technological advances in the Hershey Company have always been significant standpoint. The mass-market production level requires a high level of technological implication, which is why Hershey often improves in this domain. Moreover, the supply chain management operated by the global corporation imposes high investment in better technological solutions to complex problems.
Industry Description
As mentioned before, Hershey operates in the food processing industry. This particular domain involves the transformation of raw materials into food that consumers are able to purchase. It is a complex area since multiple processes are involved. The main levels are the primary, secondary, and tertiary ones (Aryee et al., 2018). These actions illustrate how an agricultural product is turned into something edible, cooked, and marketed. Moreover, multiple concepts are to be considered during these processes. Companies that operate in this field must have high hygiene standards, efficiently use energy, lower water waste, take responsibility for workers, etc. While Hershey mainly produces chocolate and nonchocolate confectionery goods, the food processing industry includes such domains as fish processing, slaughterhouses, canneries, etc. (Shen et al., 2018). It is a compound area with various different categories that contrast on multiple levels.
Direct Competitors
Hershey’s main direct competitors on the market are Mars, Nestle, and Mondelez International. Mars is a manufacturer that specializes mainly in confectionery. Their most popular brands are M&M’s, Skittles, and Snickers. Moreover, Mars is operating in the veterinary services industry with a well-known label, Pedigree. Such a vast array of products allows the organization to expand and reach a broader consumer base. Mars is a strong competitor as it is another American brand that specializes in chocolate and nonchocolate goods. Mars has also been criticized for disregarding health concerns comparable to Hershey’s (Minocher, 2018). Such similarities illustrate how competitive the two brands are.
Nestle is a Swiss corporation that operates within the food and drinks processing industry. While Mars produces pet food, Nestle has expanded by marketing baby food, bottled water, coffee, and other beverages. Some of the most well-known brands are Nescafe, Kit Kat, Nesquik, and Maggi. Similar to Mars and Hershey, Nestle is a global corporation. However, the European market is a more significant revenue source for this company compared to Hershey.
Mondelez International may not be as recognizable to consumers, yet its products are just as popular as the competitors’ goods. Oreo, Chips Ahoy!, Belvita, and Milka are a few of the brands that Mondalez International owns. This is another American corporation with a multinational market reach and similar products. Unlike Mars and Nestle, Mondalez does not have a brand that produces goods unrelated to the food and beverage processing industry field.
Porter’s Five Forces
Porter’s Five Forces are the five potential external impacts: the risk of new entrants, the supplier’s bargaining potential, the consumer’s bargaining potential, the risk of substitutes, and competition. Since the food processing industry is highly competitive, especially on the mass-market level, there is a threat of new entrants. This is why Hershey’s pricing is kept relatively low. Moreover, Hershey minimizes the risks by releasing new products and researching new ways of covering the market, such as holiday flavors, coffee, and milkshake kits (Hershey). There are also the risks of suppliers increasing the prices, leading to adverse financial outcomes for the corporation. Since Hershey needs large quantities of raw materials, the company engages in unethical practices to attain cheaper agricultural products, such as using child labor (Yusnaidi, 2019). Such practices are less expensive for companies yet damaging to vulnerable populations.
As mentioned before, Hershey is not the only supplier of goods within the domain in which they operate. This means that consumers can have a significant impact on the price that the corporation uses to market its products. Moreover, such a vast number of rivals creates competition, which does not allow Hershey to increase prices or decrease quality. Furthermore, existing substitutes maximize the risk for potential buyers to choose the goods produced by another company, such as their close rival, Mars (Wunsch, 2021). Some of the goods are relatively similar, which increases the risk of a loss in market share.
Additional Key External Analysis Information
There is an increase in demand for more healthy and less processed products. While Hershey does not market their products as healthy, creating a brand that targets a more health-conscious audience can benefit the corporation. This is an opportunity that highlights possible beneficial results within the external environment. Such a strategy would minimize the controversy in regards to Hershey being a brand that does not consider the health of the general population. Moreover, it is another consumer base that was previously impossible to attain for the company.
References
Aryee, A. N. A., Agyei, D., & Udenigwe, C. C. (2018). Impact of processing on the chemistry and functionality of food proteins. Proteins in Food Processing, 27–45.
Investor relations. Hershey. (n.d.).
Minocher, X. (2018). Online consumer activism: Challenging companies with Change.org. New Media & Society, 21(3), 620–638.
New Hershey’s products: Hershey’s. Hershey. (n.d.).
Rosenthal, C. (2019). In chocolate we trust: The Hershey company town unwrapped. Social History, 44(4), 518–520.
Shen, X., Zhang, M., Bhandari, B., & Gao, Z. (2018). Novel technologies in utilization of byproducts of animal food processing: A Review. Critical Reviews in Food Science and Nutrition, 59(21), 3420–3430.
Wunsch, N.-G. (2021). U.S. market share of chocolate companies, 2018. Statista.
Yahoo! (2021). The Hershey Company (HSY) stock price, news, quote & history. Yahoo! Finance.
Yusnaidi, Y. (2019). Case study of the ethical issues of child labor in chocolate business in the West Africa regions. Jurnal Bisnis Dan Kajian Strategi Manajemen, 2(2).