Hershey produces and distributes a range of confectionery products, with a view to establishing itself as the leading international supplier of such goods.
Hershey traces its roots back to 1873, and the establishment of a small candy shop in Philadelphia by Milton Hershey. This first candy shop remained open for only six years, following which Milton Hershey took on an apprenticeship at a larger confectioner in Denver. He ultimately returned to Pennsylvania in 1886, where he founded the Lancaster Caramel Company, which used fresh milk in the production of caramels. Milton Hershey later sold the Lancaster Caramel Company for a reported $1,000,000, using the proceeds to launch a chocolate manufacturing business. He began producing Hershey’s Milk Chocolate Bars in 1900.
Hershey expanded significantly throughout the 20th Century, expanding its product portfolio with the launch of Hershey’s Kisses in 1907, and through a number of acquisitions, notably the purchase of Reese’s in 1963, which had been developed by a former Hershey’s employee. The Company has also licensed the rights to manufacture and distribute products owned by larger international confectioners, such as the UK’s Cadbury Company and Switzerland’s Nestle.
Today Hershey controls more than 40% of the US confectionery market, and markets products across Latin America, Asia, Europe, Africa, and the Middle East. The Company trades a portion of its shares on the New York Stock Exchange and has a current market capitalisation of $21.75 billion.
Business model of The Hershey Company
Hershey manufactures, markets, and distributes a range of chocolate and confectionery products, intended for consumption by the mass consumer market. While the Company does sell products directly to consumers online and in physical stores, it principally reaches the general consumer market indirectly via sales to customers in the following segments:
- Distributors, comprising confectionery wholesalers and consumer food product distributors; and
- Retailers, comprising chain grocery stores, supermarket chains, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, and department stores.
The majority of Hershey’s customers resell the Company’s products to end-consumers in retail outlets in North America and other locations worldwide. In 2015 approximately 26% of the Company’s consolidated net sales were made to McLane Company, one of the largest wholesale distributors in the US to convenience stores, drug stores, wholesale clubs and mass merchandisers, and the primary distributor of Hershey products to Wal-Mart Stores.
Hershey’s principal market is its native US. The Company, however, serves a global customer base, marketing and distributing its products across Asia Pacific, Latin America, Europe, Africa, and the Middle East.
Hershey provides value to its customers in the following ways:
- The strength of its brand name and portfolio, with the Company’s signature brand a household name across North America and much of the wider world, in addition to its other high-profile brands such as Reese’s, Jolly Rancher, Kit-Kat, Rolo, and Twizzlers;
- Its domestic market share, with the Company controlling a domestic market share of more than 40%, serving an extensive consumer base through a network including all of the country’s major confectionery retailers;
- Its international reach, with the Company exporting, marketing, and distributing its products and brands across around 70 countries worldwide, spanning North America, Latin America, Asia Pacific, Europe, the Middle East, and Africa;
- Its extensive manufacturing infrastructure, with the Company owning and operating an international network of manufacturing and distribution facilities, which includes the single largest chocolate factory in the world in Pennsylvania; and
- Its industry expertise and experience, with the Company employing one of the oldest and most experienced businesses in its sector in the US, employing specialist manufacturing personnel and experienced industry executives.
Hershey operates a website at www.thehersheycompany.com, through which it provides information on its various brands, products, operating locations, and corporate activities. The Company also operates an online store at www.hersheysstore.com, where consumers are able to purchase a range of Hershey products – including flagship brands such as Hershey’s, Reese’s and Twizzlers – as well as Hershey-branded merchandise, such as homeware, apparel, and toys. Additionally, Hershey sells products directly to consumers through its physical network of Hershey Chocolate World locations across the US, as well as in Dubai, Shanghai, and Singapore.
The majority of Hershey’s sales are made to retailers and distributors via the Company’s in-house direct sales force, which is organised by geographic regions and product line. These sales personnel operate out of the Company’s offices across North America, Latin America, Asia Pacific, and the Middle East, including in China, the United Arab Emirates, Brazil, the Philippines, and Mexico.
Hershey’s sales channels are supported by its own extensive manufacturing and distribution infrastructure, which spans a number of countries across all of its operating regions. The Company’s infrastructure facilitates the shipment of its products from manufacturing plants to strategically located distribution centres around the world, form which the Company primarily utilises the services of third party common carriers to deliver products to customers.
Hershey offers a full range of products to general consumers on a self-service basis through its online store, which allows customers to browse its catalogue of products and merchandise, place orders, track deliveries, and manage accounts without interacting with members of the Company’s sales and support personnel. The Company’s chain of physical retail outlets also provides a largely self-service experience, with sales representatives also available to offer personal assistance and complete purchases.
Hershey’s direct sales force works closely with its retail and distribution customers, who are frequently afforded their own account management teams and executives, who maintain regular contact with the Company’s customers. The Company negotiates contract terms directly with clients, in order to efficiently cover their individual requirements. By providing personal care to its customers, Hershey seeks to establish longstanding business relationships.
Hershey provides customer support to consumers through its online Customer Care portal, where consumers are able to access information on shipping and returns, ordering and payment, and FAQs, or can contact support directly for personalised care through an online contact form.
Additionally, Hershey operates several social media accounts – including with Facebook, Twitter, LinkedIn, YouTube, and Instagram – through which customers can interact with the Company directly.
Hershey is a manufacturer, marketer, and distributor of chocolate and non-chocolate confectionery items. The Company offers a broad portfolio of products, including gum and mint refreshment products; and pantry items, including baking ingredients, beverages, spreads, meat snacks, bars, and snack bites.
Hershey aligns its operations into two reportable business segments: North America, which is responsible for the Company’s chocolate and sugar confectionery business, as well as its grocery and snacks business, across the US and Canada; and International and Other, which is responsible for the Company’s operations across all other jurisdictions where the Company manufactures, imports, markets, sells or distributes chocolate and non-chocolate confectionery products. Hershey markets, sells and distributes its products under approximately 80 brand names – including Hershey’s, Reese’s Jolly Rancher, and Kit-Kat – in more than 70 countries across the Americas, Europe, Asia Pacific, Africa, and the Middle East.
Hershey works in conjunction with a range of companies and organisations in the manufacture and distribution of its products. These partners include:
- Supplier and Vendor Partners, comprising suppliers of raw ingredients, materials, and equipment used in the Company’s manufacturing and packaging processes, as well as suppliers of various services that are utilised more broadly across the enterprise;
- Channel and Distribution Partners, comprising various distribution companies and third party carrier that assist in delivering the Company’s products to its customers around the world;
- Licensing Partners, comprising international confectionery producers that license brands and products for manufacture and sale by Hershey in the US;
- Joint Venture Partners, comprising a range of manufacturing and distribution businesses that produce and market certain products in collaboration with Hershey through mutually owned entities; and
- Strategic and Alliance Partners, comprising a range of companies across multiple sectors with which the Company maintain a close relationship and collaborates on joint projects.
Hershey is constantly updating its network of partners. In recent years it has launched a partnership with Chef’d to introduce desserts to subscription meal kits, and a tie-up Infosys build predictive analytics solutions.
Hershey’s key resources are its brands and intellectual properties, its raw materials and supply chain, its manufacturing and distribution facilities, its IT and communications infrastructure, its sales and marketing channels, its partnerships, and its personnel.
Hershey owns a number of intangible assets, consisting primarily of trademarks and patents, including those related to its high-profile brands, which have been obtained through business acquisitions and are considered key to the Company’s operations. Searches of records published by the US Patent and Trademark Office identified several patent applications filed in Hershey’s name, including applications entitled ‘Methods of purifying and identifying the presence of and levels of procyanidin oligomeric compounds’, ‘Rapidly dissolving comestible solid’ and ‘Confectionery’.
Hershey additionally owns and or leases a number of properties that are key to its activities, most notably its network of manufacturing assets based primarily in the US, China, Malaysia, and Mexico.
Hershey incurs costs in relation to the development of its products, the procurement of supplies and materials, the operation of its manufacturing and distribution infrastructure, the maintenance of its IT and communications infrastructure, the implementation of advertising and marketing campaigns, the management of its partnerships, and the retention of its personnel.
In 2015 Hershey recorded total cost of sales for the year of $4.00 billion, and selling, general, and administrative costs, including advertising and marketing expenses, of $1.97 billion.
Hershey generates revenue through the manufacture and distribution of various confectionery products – including chocolate products, baking ingredients, and gum and mint products – to consumers, distributors, and retailers across the world. This includes sales of major brands such as Hershey’s, Jolly Rancher, and Reese’s.
In 2015 generated net sales of $7.39 billion, down marginally on the $7.42 billion recorded by the Company in 2014. The vast majority of the Company’s sales are attributed to its North America segment, which alone recorded net sales of $6.47 billion in 2015.