Case Analysis of Hershey Company

Case Analysis of Hershey Company

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Case Analysis of Hershey Company

Executive summary

Hershey Company is the largest producer of chocolate products in North America with sales from 2009 climbing up by 5.9% to settle at $1.17 billion. Hershey Company operates in over sixty countries throughout the world. The main plants are situated in Pennsylvania, California, Lancaster, Tennessee and Mexico. Hershey’s main products include chocolate bars, chocolate syrup and chips. Founded in 1882, Milton S. Hershey started The Hershey Company as Lancaster Caramel Company, but he later sold it and reinvested in chocolate manufacturing. The first products were milk chocolate bars. The Hershey Company has over 80 brand names such as Almond Joy, Payday, Mr. Goodbar and Milk Duds that give the company a strong footing within the fast food market, though it faces stiff competition from companies such as Annabelle Candy and Anthony-Thomas Candy Company. The Hershey Company operates using a business level strategy that is made up of differentiation and low costs. The company overhauled their supply chain, reduced the number of production plants, and outsourced most of their products in a bid to lower operational costs. This strategy is intended to cut costs by increasing the efficiency of its supply chains that will also increase Hershey’s global presence.

Existing mission, objectives and strategies

Mission statement

The company’s mission statement reads “Bringing sweet moments of Hershey happiness to the world every day”.

Objectives

To endorse the health advantages of consuming Hershey Chocolate products Transform the consumers negative attitudes towards considering chocolates as unhealthy To extend awareness and boost sales of all Hersheys products

Strategies

The Hershey Company has established itself as an icon in brand innovation. At the corporate level, Hershey Company is concentrated on growing its brand within the world markets. The company has been gradually losing its market share since 2007 and, as a result, the firm is focused on entering new markets in Brazil, United States and other international areas such as Japan and China. In relation to internal growth, The Hershey Company has a strategy to lower production costs that will boost efficiency. The company also planned to roll out their new global supply chain-restructuring program that was expected to eliminate close to 1,500 suppliers. The estimated cost of the restructuring was valued at $500 million while the immediate savings at the end of the first year were estimated at $15 million. Although the initial actualization of the restructuring ran into technical problems, Hershey’s strategy is solid enough to recover and nullify any losses.

Hershey Company also has strategies at the functional level. At this level, Hershey’s focuses on marketing, information systems, production, R&D and finance. In production, Hershey’s have been extremely unstable with the 2006 fall after the product platform shift being the most recent mistake. However, 6 plants and 3,000 workers have been rendered non-productive within the United States due to the cost-cutting initiative. In the marketing sector, Hershey’s has implemented strong, competitive measures to maintain a dominant position in the confectionery market. Hershey has developed a strong range of brands, increased the quality of their products and focused on innovation of the existing products. The company also engages in product stimulation on a regular basis that enables it to stay on top of other competing products. The information systems sector at Hershey was occupied with implementing the global supply chain system. The supply chain technology was intended to lower costs, increase volume of output as well as increasing the quality of products.

Research and development within Hershey’s focuses on developing a range of quality products as well as extending these products into new fields. At the top of the priority list for employees at R&D, is the development of healthy snacks. The Hershey Center for Health and Nutrition in Pennsylvania was developed solely for this reason. The center will be tasked with the responsibility of using advanced technology to develop products that provide health benefits to consumers. The decision to invest in the center was arrived upon after careful deliberation into the benefit of establishing it. It was designed to be a source of innovation in food technology. The inclusion of Barry Callebaut into the operations of Hershey’s also translates into a strong partnership in research and development.

Alternative strategies

The Hershey Company should focus on strengthening their business level strategy. At this level, the operations are far more valuable than focusing on growth or investments. Hershey should concentrate on increasing differentiation strategies and on embracing low-cost methods of production. The restructuring plan was not effectively implemented, and it utilized a large part of the upfront capital meaning that Hershey cannot afford any other extravagant expenditures. Hershey Company can achieve this plan by thoroughly outsourcing their operations while simultaneously selling off over a third of their production plants. This move is expected to increase profit margins significantly as well as boosting the company’s capacity to produce from 60% to an impressive 85% or more. Effective management of the relationships within the supply chains can also significantly lower costs in the entire system. An example is the recent collaboration with Barry Callebaut that will enable Hershey to produce high quality chocolate at a cheaper cost.

Forecasted ratios

The Debt–to-equity ratio refers to the ratio indicating the proportion of shareholders equity and the company’s debt. The debt-to-equity ratio is calculated using the following formula:

Debt-to-equity ratio = Total debt / Total equity

Total debt =4.892 billion Total equity=$2.36 billion

Debt-to-equity ratio=2.07

Debt-to-equity ratio has two main aspects: shareholders funds and outsider funds. Over a period of five years, Hershey’s has had a dismal performance if the debt ratios are used in determining the insolvency of a company. From 2005 to 2009, Hershey’s has had a steadily increasing debt ratio from 4 in 2005, 5(2006), 61(2007) and 8 in 2008. This downward trend has been reflected in the financial prediction for 2013 that means that Hershey’s is on the right track towards reducing their debt.

Pro-formal financial statements

The financial predictions for Hershey’s for the year starting January 2013 indicated that, for the first quarter, earnings were expected to rise to 1.05 from 0.96 in 2012. The trend was also replicated for the 2nd quarter with a rise from 0.66 in 2012 to 0.72 in 2013. The overall fiscal year reports were also expected to be increase slightly from 3.23 to 3.56 (Hershey’s Foods Corporation, 2012).

Constructive argument

Communication is vital within the business environment as it creates a way through which information can be shared. Communication is not only beneficial in persuading customers. I think that it is also crucial in keeping customers. When customers learn the benefits of staying with a vendor, communication plays the role of keeping customers. Maintaining customers is necessary hence, the stress on effective communication programs between customers and business firms.

However, I tend to disagree with the idea that companies use skewed information in misleading customers. Marketing approaches sometimes use too much business jargon and place too much information in fine print, which is unclear (Brody, 2012). The problem is that they place it in this difficult way purposely to mislead customers. I have had similar experiences with cunning sales clerks, who gift-wrap their pitches to hide the downside to investing in a scheme until one realizes losses later. Businesses should focus on creating affordable and effective products instead of misleading clients.

I concur with the writer on the notion that communication within business addresses one side only. When people are marketing their goods, most of them always convince you to see their point of view only. When they sell their products, they do persuade the customer in all manner of ways so that eventually a buyer will see the product as extremely important and necessary in their lives. In these transactions, clients have a small role to play. They often rely on the information given by sales persons that may often be misleading them into buying valueless products.

The writer’s arguments, that communication play the sole function of accepting one’s point of view within businesses, is flawed. Communication involves the transfer of information between two entities. If the proposition by the writer were true, there would be no need for feedback as only one side is involved. However, in business communication, two or more parties are involved in the conversation. Sales persons must be willing to listen to clients just as much as they are eager to present their products as being the best in the market. A compromise should then be found if they fail to conclude.

References

Brody D. (2012). Are you being obtuse? Deborah Brody Marketing Communications. Retrieved from http://deborahbrody.com/tag/deliberately-misleading-customers-through-marketing

Hershey Foods Corporation. (2012)Hershey Chocolate Corporation. & Hershey’s. Corporate financial reports. Hershey, PA: Hershey Foods Corp.