Reference no: EM133293763

ARTICLE : Hershey's Sweet and Salty Strategies

Sources: Write-up below combined from articles published in WSJ, Forbes, Fortune, HersheyPark.com, VegNews, CNN, and the New York Times.

Hershey doubles in five years, outperforms tech giants over three years and beats more than 450 companies in the S&P 500 this year. The company was being targeted for a takeover in 2016, and now Hershey's products like Reese's and Kit Kats are performing more like gas and oil. How did the iconic American chocolate maker avoid the market meltdown? Such a tasty answer required the company to rethink what business it was in and where that business should be.

There are many companies that will find themselves dealing with crises during a market downturn. Some will double down on existing strategies. Some will diversify. Hershey did both and discovered an unlikely new identity. A management shake-up elevated Michele Buck to CEO, and she laid out her vision for a long-term strategy on her first day on the job. She told investors to expect changes.

The first move was spending billions of dollars on popcorn, cheese puffs and pretzels. Hershey went on a spree of buying SkinnyPop, Pirate's Booty, Dot's Homestyle Pretzels and Pretzels Inc. over several years for reasons familiar to any sentient being: The company had a craving for sweet and salty. "We see great synergies there," said Kristen Riggs, Hershey's chief growth officer. It would cost a few billion dollars to find out if sweet and salty were complementary tastes in business, too. But what the company realized along the way is that Hershey doesn't sell chocolate. It sells Hershey's chocolate.

Hershey experimented with mixing candy with jerky. This didn't go well. Hershey's deal for the artisanal beef-jerky maker Krave Pure Foods in 2015 was a surprising acquisition that signaled to Wall Street the company's broader ambitions. Hershey would have to eat chocolate-covered crow-Krave was sold back to its founder in 2020-but it was not deterred. Soon it tried again with popcorn. Anyone who has been to the movies could have predicted that Hershey and popcorn would be a much better fit. "SkinnyPop was a seminal moment for us as a company," said Ms. Riggs, who was named chief growth officer right before the pandemic. That deal in 2017 pushed Hershey to acquire Pirate's Booty in 2018 and Dot's in 2021. The company's North American sweets portfolio is generating more revenue than ever. But salty grew faster than sweet for two consecutive quarters after the company broke out sales figures earlier this year for the first time. Hershey has been generating interest through use of words like "Reese's popcorn in a test market" and "Reese's stuffed with potato chips" and "Reese's filled with pretzels."

The second move was more contrarian. Hershey bucked the conventional wisdom-and its own history-by scaling back internationally and sharpening its competitive edge at home. With the company under pressure, it was a risky play but it paid off. North American sales went from 88% of Hershey's total sales in 2017 to 92% in 2021. Instead of competing against varied tastes and established brands, Hershey pulled back internationally and shifted the playing field to where it already had the advantage. The company then extended its dominance at home, where the maker of Kisses and Whoppers commands a 46% share of the U.S. chocolate aisle.

"They're not just a confectionery company anymore," said Morningstar analyst Erin Lash.

That sounds a bit like Willy Wonka going keto. But this is a company based in a town built on chocolate and controlled by a powerful trust designed by founder Milton Hershey in 1905 to support his school for underprivileged children. Hershey has always been different from most corporations. Otherwise, it might not be around. This was also the company that built Hersheypark, a family theme park located in Hershey, Pennsylvania. This park was originally founded in 1906 (Hershey Park then) by Milton S. Hershey as a leisure park for the employees of the Hershey Chocolate Company. It is wholly owned by Hershey Entertainment and Resorts Company. Hersheypark has won several awards, including the Applause Award and constantly updates its amusement park including the brand new 'Wildcat's Revenge' set to open in 2023. The park also showcases seasonal attractions such as Halloween Dark Nights and Christmas Candylane, which is the only place in the Northeast where guests can get an up-close look at all nine of Santa's reindeer and features more than 5 million twinkling lights, including a dazzling NOEL light show with more than 250,000 dancing lights synchronized to Christmas music.

There were huge shocks that changed Hershey's trajectory, like the pandemic and candy inflation. Candy just got smaller. The National Confectioners Association last month announced that 85 percent of chocolate and candy sold today comes in packaging that contains 200 calories or fewer per pack. A bag of dark chocolate Hershey's Kisses is now a couple of ounces smaller than before. A two-pack of Reese's Peanut Butter Cups is a tenth of an ounce lighter. And nearly 100 percent of candies sold now have front-of-pack calorie labels, up from just over half in 2016. Consumers can partly blame "shrinkflation" - the phenomenon of manufacturers reducing the size of their products rather than increasing the price. This move also taken to appease Nonprofit groups focused on health and nutrition, who have long advocated for candy makers to shrink the size of their products, reduce calorie counts and add clear front-of-label calorie counts.

The beginning of the pandemic was tough for candy, said Sally Wyatt, a food and beverage expert for the market research firm IRI. Many people skipped celebrating Easter and Halloween in 2020, and office vending machines barely saw any action. But 2021 saw booming times as families comforted themselves with sugary treats, with volume sales up more than 4 percent, the firm said. In the past year, things have shifted again, according to IRI data, with the number of sales dropping and prices spiking.

The chocolate industry has long faced controversy around a host of ethical considerations issues of child labor, underpaid workers, deforestation and soil contamination. For one, an alarming amount of chocolate is made by children forced into modern slavery. One 2020 report from the University of Chicago estimates that more than one million child slave laborers work in Ivory Coast and Ghana, where 75 percent of the world's cacao is grown. Another concern is deforestation. In the Ivory Coast-a biodiversity mecca-80 percent of its forests have been lost, mostly to chocolate production, in the last 50 years.

To ensure that its chocolate is always ethical, United Kingdom-based WNWN does not use cocoa at all. Instead, the brand uses ethically sourced ingredients such as carob and cereals like barley into a chocolate substitute that tastes and behaves just like the real thing. California Cultured, based in Davis, California, has begun producing chocolate from plant cells. Voyage Foods creates cacao-free milk-chocolate-style bars from grape seeds, sunflower flour, sugar, fat and natural flavors. However, A spokesperson for Hershey reiterates the company's commitment to cacao: "Our iconic chocolate products have been rooted in using real cacao for more than 125 years.... We believe there will be sufficient cacao to meet the world's demand for the foreseeable future, and we are investing our time and resources in helping make sure it is done so in a sustainable and environmentally appropriate manner.

QUESTIONS:

Based on the information given, conduct a SWOT/TOWS matrix analysis on Hershey. (You do not have to actually have it in boxes, i.e., the matrix form. You can write/make the strategies out in paragraph form).

2 a) List and describe at least four (each) Strengths, Weaknesses, Opportunities, Threats for Hershey.

2 b) In detail, describe one S-O strategy, one S-T strategy, one W-O strategy, and one W-T strategy. Explain each strategy clearly, and indicate why it would be good for Hershey. Make this is a clear strategy statement.

Now, choose one strategy out of these strategies, and write a full-fledged strategic recommendation using all five elements of strategy. Please use as many details as possible.