STRATEGIC MANAGEMENT PAPER ON

Hershey’s Company

SUBMITTED BY:

Fredrick Dale D. Fernandez

4-ABE

October 12, 2015

Vision Mission Statement

Mission Statement

“Bringing sweet moments of Hershey happiness to the world every day.”

Vision Statement

Continuing Milton Hershey’s legacy of commitment to consumers, community and children, we provide high-quality HERSHEY’S products while conducting our business in a socially responsible and environmentally sustainable manner.

Analysis of Mission and Vision:

MISSION STATEMENT

PARAMETER YES/NO EVALUATION1. Customer YES The company stated they aim to bring Hershey

happiness to the world which means that they would like to serve all the people in the world and that the company requires no age in order to be satisfied with the product.

2. Products or Services

YES Their mission statement suggests that their product is actually the experience you’ll get after tasting their chocolates and that is what they call the Hershey happiness.

3. Markets YES It is clearly stated that their market is international and they would like to serve all the people around the world. What they’re giving the people around the world is the happiness their chocolates will give to each consumers.

4. Technology NO They have not stated any technology of their product.

5. Survival growth profit

NO They have not mentioned anything about the company’s growth and profitability. Their mission is just to bring happiness to every individual in the world.

6. Philosophy YES Their mission states that their goal is to bring sweet moments through the Hershey happiness. Meaning the philosophy they try to impart to consumers is the experience with their product together with the people around, the family and friends having fun together.

7. Self-Concept NO The company shall exert all efforts to transform every opportunity to expand their sphere of business activities into instruments to help our constituents realize their own goals and aspirations.

8. Public Image NO The company focuses on the satisfaction of its customer and it seems that they don’t care about their public image as long as they achieve their goal in serving its customers.

9. Employees NO The company did not state anything about its employees. The company should show value and appreciation to its employees because the quality of their product highly depends on its

employees.

VISION STATEMENT

PARAMETER YES/NO EVALUATION1. Does it clearly

answer the question “What do we want to become?”

YES It is stated that they aim to continue the vision and values of the man who started the company, Milton Hershey. Although it is not clearly stated on what do they want to become it has something that the company would get directions on what they should do and that is continuing the legacy of the man who started it.

2. Is it concise yet inspirational?

NO Their vision is not concise compared to the required statement. However, it is inspirational since they are committed in serving its customers with the quality and values of the man who started the company. It becomes inspirational simply because the consistency of the company never failed to provide its consumer needs since day one.

3. Is it Aspirational? YES It is aspirational simply because their vision gives clear indication as to what the company is trying to achieve. The workers and owners have something to look up to in serving and providing their consumer needs. Sticking to the legacy of the man who started the company is very aspiring.

4. Does it give clear indication as to when it should be attained?

NO There is no time frame as to when their vision will be achieve. But since they are trying to continue the legacy of Mr. Milton then their vision will be passed over through generation to generations.

COMPETITIVE PROFILING MATRIX

Hershey’s Nestle MarsCritical Success Factors Weight Rating Score Rating Score Rating Score1. Brand recognition 0.13 4 0.52 3 0.39 3 0.392.Product Quality 0.13 4 0.52 3 0.39 3 0.393.Price Competitiveness 0.14 3 0.42 3 0.42 4 0.564.Management 0.13 3 0.39 4 0.52 3 0.395.Financial Position 0.12 3 0.36 4 0.48 3 0.366.Customer loyalty 0.11 4 0.44 3 0.33 3 0.337.Global expansion 0.17 3 0.51 4 0.68 3 0.518.Market Share 0.07 2 0.14 4 0.28 3 0.21

Total 1.00 3.30 3.49 3.14

The Competitive Factor Evaluations Matrix shows that Hershey is well positioned against Mars but slightly behind Nestle, in part because of Nestle’s financial position, their market share and their global footprint. However, Hershey is well positioned in terms of brand recognition, customer loyalty and the quality of their products. The Hershey trust company controls the Hershey Company. At the time of the case, the chairperson of the board had been replaced. Hershey’s management position may be weaker than its competitors because the trust has the right to cast over two thirds on any matter that requires common stockholders to vote upon. The result may be biased decisions regarding the company since the trust can make decisions without common stock holder’s approval. Their financial position is weaker than Nestle because a majority of its sales are US based and because cocoa costs have climbed from 40 cents a pound in 1990 to 135 cents a pound in 2009.

Critical Success Factors:

1. Brand Recognition – I assigned a weight of 0.13 because the brand recognition plays a big role in every brand existing in this world. For the reason of constant advertisements creates a brand recognition in your memory. This means that if you are in a hurry to grab some chocolates the brand recognition will play back the first brand that your mind is used to see and know.

Weight: 13% - I rated the companies based on the brand popularity according to the annual reports posted on trusted websites. This reports will accurately tell us which brands are more powerful compared to competitor’s brand.

Hershey’s rating – 4

Based on the Brand raking websites, the Hershey company ranks as the 2nd most powerful brand playing in the industry. This means that they are well known all over the world and the first brand that people will recall when they think about chocolates and candies. The

Hershey brand gained this reputation through serving its consumers with the right quality and values they impart.

Nestle’s rating – 3

Based on the brand raking websites, the nestle company ranks 28th in the most powerful brand in the industry. This means that they are far from the brand’s power of Hershey.

Mars rating – 3

Mars Company is not included in the list of powerful brand in the market. However, the products (M&M’s, Snickers, Etc.) of mars are very popular in some countries but it is not directly linked to the mars company. This resulted to disorientation of the buyers that the products they like the most was created by Mars Company.

2. Product Quality – I assigned a weight of 0.13 because the product quality is important in terms of why consumers buy the product repetitively. Though it is important it is not the major factor for the confectionary industry.

Weight – 13%

I rated the company based on the product quality and the safety precautions they observe while making their confectionaries. This is an important basis simply because their end product hardly relies on the quality of the work they put in.

Hershey’s rating – 4

I assigned 4 to the Hershey Company simply because they have a set of values that they follow and quality is their number one strength in making their product. They also maintain the same quality in all their manufacturing sites. Thus, they provide the same preference all over the world.

Nestle’s rating – 3

Although the company recognize in giving quality product to its customer they are having a hard time in maintaining the same product and satisfaction in their manufacturing sites. Thus, their products sometimes vary in each nations because of ther dilemma.

Mars rating – 3

It is acceptable that every brand aims to produce quality products for their customers. But Mars company’s quality is not enough in satisfying its customers. What’s good about mars

company is that they carefully select the ingredients they use in making their product. They ensure in putting only the quality ingredients in every product.

3. Price CompetitivenessWeight: 14% - I weighted each company based on the price it offers to the public. The price of a certain product is also a consideration of consumers when purchasing due to the increasing inflation all over the world.

Hershey’s rating – 3Due to the increasing inflation in the cocoa industry the Hershey Company increased its price rates up to 8%. Making its products price higher and the price will not be friendly to some buyers. Although they don’t focus on profitability they ensure the quality of the product they offer.

Nestle’s rating – 3Nestle has seen a strong start to 2008, partly thanks to its strategy of increasing product prices quickly in line with commodity price increases. Their increase in their product price in line with their increasing cost resulting to consumers in buying alternatives of its products.

Mars rating – 4Although inflation of basic commodities in each state are continue to rapidly grow, the mars company managed to just increase their products price only by 7%. Their minimal price increase results to making them the confectionary company who offers the lowest priced candies in the world.

4. Management

Weight: 13% - The management of a certain company highly depends on the decision making and actions of the people behind it. Thus, I weighted 0.13 to the management factor simply because big companies with several offices all around the world requires competitive schemes of its management team.

Hershey’s rating – 3The rating I gave the company is 3 because Hershey is well positioned in the marketplace and their momentum in the U.S. and key international markets gives them confidence in their business strategy,” The Hershey Company. “These organizational enhancements will

help accelerate their global growth by broadening and leveraging their leadership expertise, knowledge and capabilities across the company. They have an experienced management team, great talent throughout the organization and the right vision, strategy, talent and brands to win wherever they compete.”

Nestlé’s rating – 4I rated the company 4 because The Nestlé Group is managed by geographies (Zones Europe, Americas and Asia/Oceania/Africa) for most of the food and beverage business, with the exceptions of our globally managed businesses, which include Nestlé Waters, Nestlé Nutrition, Nespresso, Nestlé Professional and Nestlé Health Science. They also have joint ventures such as Cereal Partners Worldwide and Beverage Partners Worldwide.

Mars rating – 3I assigned 3 for the company because Mars, Incorporated is run by a global management team led by Grant F. Reid, Office of the President. The company’s management team brings a wealth of experience to bear in its oversight of the day-to-day operations of the business across six business segments: Petcare, Chocolate, Food, Wrigley, Drinks and Symbioscience. Mars has aligned its global leadership structure with these business segments in an effort to continue to grow and sustain improvement in company performance.

5. Financial Position

Weight: 12% - I gave this category a weighted score of 12% because it’s a good indication to see where the company is getting. I based my score on the annual profit of each company since it’s one of the major goal of every company.

Hershey’s rating – 3

Nestle’s rating – 4

Mars rating – 3

6. Customer Loyalty

Weight: 11% - I based my weighted scored in regards to how the company provide their service to their end consumers. I also based my score of 11% on the way how people see the company. Another factor I considered regarding this matter is the value the company follow when it comes to its public service.

Hershey’s rating – 4I rated the company with 4 because the Hershey’s Company are always listening and responding to its consumers. They work directly with their retail partners to ensure that they are delivering a positive, 360-degree brand experience inside and outside of their store. They are excited about the challenge of reacting quickly and innovatively to an exponentially changing marketplace. The pace of change will never be slower than it is today, and that creates challenges, but also great opportunity for nimble, entrepreneurial thinking. Consumers want a dynamic and engaging shopping experience, and the company are investing in unique solutions that they bring to market with their retail partners.

Nestle’s rating – 3I assigned a weighted score of 3 to the Nestle Company because when given a choice, customers are loyal to Nestle Company. Instead of targeting all customers, Nestle Company only needs to target new customers in order to grow their business. Customer Loyalty has a significant impact, so an analyst should put more weight into it. This statements will have a short-term positive impact on this entity, which adds to its value. The customer loyalty is a difficult qualitative factor to defend, so competing institutions will have an easy time overcoming it.

Mars rating – 3I assigned a score of 3 to the Mars Company because one important aspect of the Mars Marketing Code is their commitment not to direct advertisements to children under 12 years of age. In 2007, they were the first food company to announce a global commitment to stop advertising food, snack and confectionery products to children under 12.Specifically, they do not buy advertising time or space if more than a quarter of the audience is likely to be under 12 and they do not advertise on websites aimed at those under 13. Visitors to most of their web pages have to enter their birth date before downloading branded wallpapers or screensavers or participating in activities. Their advertisements and promotions never depict unaccompanied children under 12 eating snack foods, nor do they use them as spokespeople for their brands.

7. Global Expansion

Weight: 17% - Global expansion is the major factor in this industry that’s why I weighted it with 17%. It’s important for a company to serve all its customers with ease and fast service that’s why I based my rating with regards to the number of operating segments each company have. For the reason of the more operating segment a company have the more customers around the world will be satisfied and served. This will result to a higher margin of profit which will give the company a complete advantage towards it’s competitor.

Hershey’s rating – 3I rated the company 3 because the Hershey Company operate as a single reportable segment in manufacturing, marketing, selling and distributing various package types of chocolate candy, sugar confectionery, refreshment, and food and beverage enhancers under more than 80 brand names. Their five operating segments comprise geographic regions including the United States, Canada, Mexico, Brazil and other international locations, such as India, the Philippines, Korea, Japan, and China. They market confectionery products in approximately 50 countries worldwide.

Nestlé’s rating – 4I gave a rating of 4 to the Nestle Company because the Operating segments format represents their Group’s management structure and the way financial information is regularly reviewed by their Executive Board. The operating Segments of the company are:

Zone Europe Zone Americas Zone Asia, Oceania and Africa

Nestlé Waters Nestlé Nutrition Other

The Group considers the business from both a geographic and product perspective, through three geographic Zones and several Globally Managed Businesses (GMB). Zones and GMB that meet the quantitative threshold of 10% of sales, trading operating profit or assets, are presented on a stand-alone basis as reportable segments. Other business activities and operating segments, including GMB that do not meet the threshold, like Nestlé Professional, Nestlé Nespresso, Nestlé Health Science and the Joint Ventures in the Food and Beverages and Pharmaceutical activities are combined and presented in Other.

Mars rating – 3I rated the Mars Company with 3 because the company serves as one of the leading food manufacturers in the world, Mars has a significant international presence in more than 74 countries. The major markets of Mars Company includes the following:

Mars Australia and New Zealand

Mars China Mars France Mars Gulf Cooperation Council Mars Germany

Mars Mexico Mars Poland Mars Russia and CIS Mars United Kingdom Mars United States

8. Market Share

Weight: 7% - I Assigned a score of 7% to the market share category because this segments plays a minor role and does not affect the companies very much. Although it

doesn’t affect the company that much it still important in researching the different aspects of the business. I based my score regarding the company’s market share all over the world.

Hershey’s rating – 2Global Market Share: 6.7%Best-Selling Candies: Hershey's, Hershey's KissesEtc: America's milk chocolate pioneer has been considering making an offer for Cadbury

Nestle’s rating – 4Global Market Share: 15.6%Best-Selling Candies: Nestlé Crunch, ButterfingerEtc: Just bought Kraft's frozen pizza business and said it wouldn't bid for Cadbury

Mars rating – 3Global Market Share: 14.6%Best-Selling Candies: M&Ms, Snickers, Milky WayEtc: Snickers was named after the Mars family's favorite horse in 1930

IFE Matrix

Key Strengths Weight

Rating Weighted Score

1. Brand Recognition 0.12 4 0.482. Consumer Good will 0.09 3 0.273. Strategic acquisitions and

Joint Ventures0.1 3 0.3

4. Research and Development 0.09 3 0.275. Employee empowerment 0.1 3

Key Opportunities1. Independent board members

needed0.11 4 0.44

2. Hedged futures contracts necessary

0.1 4 0.4

3. Diversity among suppliers and shippers

0.11 4 0.44

4. Lower manufacturing costs 0.08 3 0.245. Increase in healthy snack

subdivisions0.1 3 0.3

Total 1 3.44The average total weighted score is 3.44

Analysis:

The average total weighted score is 3.44, which is well above average for companies in this industry. They are well positioned in terms of research and growth, have made strategic acquisitions and continue to shore up weaker product lines through these acquisitions or through partnerships. However, again weakness is shown by their lack of a truly independent board, which is voted in by common stock holders.

Key Strengths:

1. Brand recognition:

They have iconic brands such as Hershey, Reeses, kisses, Kit Kat, York and many others. These brands have been available heavily and marketed for many years and so have inherent value spanning multiple generations. Any new company or major competitor has to compete against such long standing brand names that are extremely familiar to most individuals.

2. Consumer Good Will:

The Hershey Company has existed since the early 20th century and has developed positive good will for more than one hundred years. The company has collaborated with many organizations helping to prevent child labor, end adverse farming practices and promote environmental responsibility. They also have established a school and theme park in Pennsylvania.

3. Strategic Joint Ventures:

Hershey Foods has acquired over forty other companies since its establishment. Some of the more notable acquisitions were H.B. Reese, Delmonico Foods, San Giorgio, Y.S Brands, Nabisco, Leaf America, Dagoba Organic Chocolate, LLC and Van Houten. These do not include their partnerships with organizations in various countries throughout the world. These ventures expand both their knowledge and product base.

4. Research and Development:

Hershey’s acquisitions expand its patent base, its knowledge of other products along with the employees who can create those products, the equipment to produce new products and help foster creativity with the products it has now.

5. Employee Empowerment:

Hershey foods employees operate in a team environment where new ideas are fostered as well as creativity. This allows dynamic innovation to develop among its employees and then to be cultivated by managers into profitable results.

Key opportunities:

1. Independent board members needed:

Hershey foods board members are appointed by those who own the Hershey Trust Company, that is the Milton Hershey School Trust, as such they are also controlling stockholders for the Hershey Company. Therefore, their board is independent of any outside stockholders. This makes independent decisions difficult for those who have shares outside of those owned by the trust.

2. Hedged futures contracts necessary

Hershey Foods has and will continue to need to hedge their commodity purchases because of increased prices. Unfortunately, they will only be able to insulate themselves from only a portion of the price increases if there is a steep rise in costs because hedging only removes some of the risk associated with commodities purchasing.

3. Diversity among suppliers and shippers

Hershey foods should attempt to increase their access to a variety of suppliers and shippers instead of relying on a few major suppliers. This is because of the inherent instability that having only one or two suppliers from one country creates. They may not need other suppliers at this time but instability in other parts of the world is increasing and so too may the risk of having only one or two suppliers in a country should that country eventually be afflicted with internal issues.

4. Lower manufacturing costs

As cocoa and sugar prices rise, the need for Hershey to decrease the cost in their manufacturing to offset those costs will increase. The competition for snack food purchase dollars is intense and snack foods are price sensitive, therefore they will need to reduce costs in other areas of food production if they are to keep shelf prices of their candies down to reasonable competitive levels.

5. Increase in healthy snacks subdivisions

As consumers desire for healthier snacks increase so too Hershey must increase their creation of healthy snacks. The market for snack foods, candies are driven by customer demands, and as such, they need to align their business model to fit that demand. If they do not fit their production with what the consumer demands, they risk losing market share and profits.

EFE Matrix

Opportunities Weight

Rating Weighted Score

1. Increased demand from emerging markets

0.12 3 0.36

2. Ethical labor and environmental brand exposure

0.07 2 24

3. New opportunities for marketing in a varied media environment

0.1 3 0.3

4. Diversity among consumer tastes spurring new products

0.09 3 0.27

5. Increase in global market space for products

0.12 30 0.36

Threats1. Continued slow economic

growth0.06 2 0.12

2. Increased price on main ingredients

0.13 4 0.52

3. An increase in health conscious consumer purchasing

0.12 3 0.36

4. Further fragmentation of the industry

0.07 2 0.14

5. Increase in conversion of sugar to ethanol

0.12 3 0.36

Total 1 2.93

The average total weighted score is 2.93

The average total weighted score is above average at 2.93. Hershey is well suited to maintain profitability, increase sales and expand globally. They are selling a majority of their products at mass merchant establishments as well as supermarkets. They are number two in America for confectionery sales, number one for chocolate sales in the US, number two in non-chocolate sales in the US and number one in the US for breath freshener sales. They operate in over 70 countries including India, China, Brazil, South Korea, the Philippines, Canada and all of Europe. The only weak spot is in gum sales controlling only 2.8 percent of the US market share and the continued increase in the cost of the raw commodities they use to produce their products.

Analysis:

1. Increased demand from emerging markets

Although Hershey sales are still predominantly America based, they now have operating segments in Canada, Mexico, Brazil, India, Japan and China. These countries now have sizable middle class communities with access to Hershey products and the potential sustained demand for Hershey products.

2. Ethical Labor and environmental brand exposure

Hershey is actively working with the international cocoa initiative foundation, the world cocoa foundation, the roundtable on sustainable oil encourages sustainable farming practices. These organization seek to eliminate child labor, facilitate the purchase of supplies that have less of an impact on the environment and are produced with fewer chemicals.

3. New opportunities for marketing in a varied media environment

New opportunities for Hershey to market its products include, movie tie-ins, online, on television, through their interactive website and through social media sites. Although television advertising is not new to Hershey the large increase in channels and the ability to record shows4.

4. Diversity among consumer tastes spurring new products

Consumers desire a variety of chocolate candies and are also seeking alternative treats that are healthier than traditional sweets. There is an increased desire for different types of chocolate products such that the market can support those types; people will buy new and varied products if they are offered to the public. Consumers are also more health conscious wanting to snack healthier than they had in the past. These factors create and opportunity for Hershey to gain market share by creating new chocolate products as well as diverge from chocolate into healthy snacks.

5. Increase in global market space for products

Hershey’s products are sold in millions of retail outlets as well as a variety of national chain stores. These chain stores are themselves expanding globally, which can offer new shelf space for Hershey products in these new countries.

External Threats:

1. Continued slow economic growth

Continued slow economic growth here in the US and globally may slow their sales, and lower expected profits from Hershey Food Investments. This could in turn put pressure

on the company to decrease costs by cutting personnel, investments in manufacturing, research, development and marketing of their products.

2. Increased price of main ingredients

Cocoa and Sugar both commodities needed to produce Hershey products suffer from price fluctuations, which can only be partly mitigated by futures contracts. The price of both of these commodities has increased from 2007 to 2009 necessitating an increase in the final cost of Hershey confectionaries paid at consumer outlets.

3. An increase in Health conscious consumer purchasing

Nationally Americans are more health conscious. This is in part due to a significant increase in diabetes but also the aging of Americans, who as they become older are required to increase their healthy activities in order to decrease their statistical chances of chronic disease. Health conscious Americans are purchasing healthier foods and snacks while decreasing their purchasing of high fat, high calorie foods. Hershey must invest in new healthier foods if they are to maintain profitability.

4. Further fragmentation of the industry

American consumer tastes are varied and so too are their food buying habits. As the variety of consumer products has increased, so too has the consumer’s desire for new and varied products has increased. This cycle is reflected in most consumer industries but no more so than in the processed food industry. Hershey’s market share can in part increase or decrease with the number of successful brand extensions they create in the next several years.

5. Increase in conversion of sugar to ethanol

Sugar is produced from sugar cane and alternately high fructose corn syrup. Hershey products by their nature require large amounts of sugar or alternate forms of sugar making the cost of manufacturing these products vulnerable to conversion to ethanol. If more ethanol is produced from sugar cane and corn then there is less available for food products increasing the scarcity of these commodities increasing their costs on the market. If the costs of these commodities rise because Brazil is converting more of its sugar cane into ethanol, the result will be an increase in the cost of manufacturing food products for Hershey