Firm Level Research & Analysis

Confectionery has been one of the strongest markets out there ever since its inception. According to recent statistics, about 263.17 million Americans have consumed chocolates and other derivatives so far in the year 2018 CITATION Stand7 \l 1033 (Statista.com, n.d.). In contrast to this, the confectionery industry all over the world had a revenue of 186 billion USD in just the year 2017. In light of this, it could be seen how large and encompassing the industry is. In this article, an analysis of one of the most dominant companies in the United States, The Hershey Company, would be analyzed. This includes the firm’s basic information, strategic units, and a CC analysis among others. All in all, the authors of this article believes that although being a relatively small company in the world’s confectionery industry, looking at the Hershey Company could provide a much more better understanding of the whole industry.
1 Firm Level Research & Analysis
Despite its size and name, The Hershey Company is a relatively small company in its industry. Hershey’s Net Sales for 2017 totaled $7,515.4 million, a 1.0% increase from the previous year. Excluding foreign currency, however, Net Sales increased by .8% in 2017 (Hershey Co. 10-K, 2017). In conjunction, Net Income for 2017 totaled $783.0 million, a $53.0 million increase from 2016. As a late-stage company and one that occupies 45% of its market, Hershey’s return on investment has recently made a promising turnaround. Its second-quarter reports show that Hershey Co.’s return on investment as of July 1, 2018 is 34.29%, which was a significant change from its negative Return on Investment rates in previous quarters (Hershey Co. 10-K, 2017).
The Hershey Company is comprised of various brands that bring in revenue and increase its return on investment as a company. All of these brands manufacture ready-made products distributed to companies from which the consumer purchases the final product. The three most major brands of Hershey Co. include Hershey’s, Reese’s, and Kisses which are brands that sell chocolate products as well as baking products, toppings, and serving syrups. The Hershey’s and Reese’s brand additionally include chocolate spreads, snack bites, and mixes. To keep with the fluctuating trend of customer demand for premium chocolate, Hershey Co. supplies premium chocolate in the United States through the Scharfeen, Berger, and Dagoba brands. Other popular chocolate and non-chocolate brands owned by Hershey Co. include barkTHINS, Cadbury, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers, Krave meat snack products, Popwell snacks, SkinnyPop popcorn, Oatmega, Paqui, Tyrells, and York (Hershey Co. 10-K, 2017). Alongside its lead chocolate brands, Hershey Co. was placed as the third highest gum and mint product seller in 2015, encasing gum and mint brands Ice Breakers, Breathsavers, and Bubble Yum (Hershey Co. 10-K, 2017).
While Hershey continues to dominate the Chocolate and Confectionery Manufacturing from Cocoa Beans Industry, Hershey’s major competitors are Mars and Nestle, both of which earn a much higher income than Hershey. As of the most recent Financial Year, Mars earned a revenue of 35 billion USD and Nestle earned a revenue of 8.1 billion USD (Hershey Co. 10-K, 2017).
Like its competitors, Hershey relies on Cocoa producers to supply the raw material used to manufacture its  ready- made chocolate. Due to the reliance on natural factors in terms of producing cocoa, the price of supplies fluctuates depending on how much the season yields. In September 2016, the International Cocoa Organization estimated a six-percent drop in production (Hershey Co. 10-K, 2017), raising the price of cocoa butter, but with increased rainfall in West Africa, the price increase and drop in production is expected to be temporary.
Similar to the risks when it comes to cocoa production, the demand for chocolate and cocoa products varies seasonally and most profits are typically made in the third and fourth quarter—during the holidays. The rising interest in health-consciousness is also taking its toll on chocolate companies. The medical research discussing health risks associated with high-fat milk chocolates and the health benefits associated with dark chocolate also fluctuate customer interest and facilitate a rise in impulse purchases of high-end chocolates as “affordable indulgences.”  
From chocolate chips to popcorn, Hershey has a large source of income and majority of marketing intermediaries in the U.S. not only because it owns many brands, but because it distributes its products to various types of stores. For example, Hershey-owned snacks can be bought in a store similar to Best Buy, despite the fact that Best Buy is not a primary distributor of any type of food.  
The Hershey Company sells all its products through its wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires and department stores (Hershey Co. 10-K, 2017). Majority of customers resell Hershey’s products to end-consumers through retail outlets in North America and worldwide. In 2017 2016, and 2015 respectively, 29%, 25%, and 26%, respectively, of Hershey’s consolidated net sales were made to McLane Company, Inc, one of the largest wholesale distributors in the U.S., to convenience stores, drug stores and mass merchandisers like Wal-Mart (Hershey Co. 10-K, 2017).
Hershey must also be aware of the different macroenvironmental factors that affect its manufacturing. In order to create its products, it must source cocoa, almonds and sugar, as well as purchase fresh milk, and vanilla (“Our Ingredients”).  For packaging and delivery, the company uses 100% recycled wrappers and cardboards (“Shared Goodness: 2016 Corporate Social Responsibility Report”) to reduce waste, lessen its carbon footprint, and improve sustainability methods. Because Hershey utilizes many different types of agricultural products, the prices are influenced at a macro level by factors such as global demand, available supply, social conditions and technological changes. There are also instances in which supply and shipping processes may be affected, namely weather conditions, regulations on trade, variations on currency exchange rates, and global warming.
            Confectionery has been an indispensable part of the life of American households. And the majority of American people are willing to spend a significant amount of money on confectionery products.  
In the U.S., the total revenue of the confectionery market was $70,842 million in 2017 (Statista, 2018). By the end of 2018, the market revenue is expected to reach at least $72,842 million. The revenue growth rates were 1.62% in 2013, 1.06% in 2014, 3.66% in 2015, 1.71% in 2016, and 2.83% in 2017 (Statista, 2018), and the market is expected to grow annually by 2.5% from 2018 to 2021.
In the global scale, U.S. market is largest for confectionery products. China ranks second with total revenue of $40,890 million and Brazil is third with $15,819 (Statista, 2018).
The chocolate confectionery products, Hershey’s main focus, is the largest segment of the confectionery industry. Among all the segments of confectionery products, dark chocolate and milk chocolate have the highest attractiveness and market growth rate (Sinha & Tyagi, 2016). The revenue was $25,435 million in 2017. Moreover, the revenue growth rates between 2013-2017 are 1.02%, 3.65%, 8.07%, 2.32%, 4.25%. The market revenue for the chocolate industry is not growing at a stable rate (Statista, 2018).
Source: Grand New Research
Comparing the average volume consumed per capita, the total confectionery consumed per capita slightly increased from 25.4 kg in 2013 to 26.6 kg in 2017 (Statista, 2018). The average volume per capita of chocolate consumed also increased from 5 kg in 2013 to 5.57 kg in 2017, accompanying the entire confectionery consumption. Although the volume per capita of confectionery is expected to be constant for the next few years, that of chocolate is anticipated to increase at a steady pace.
Lastly, comparing to the price of other confectionery segments, the average price of chocolate is significantly higher. In 2017, the average price of chocolate was $14.02 while other confectionery was $7.31 (Statista, 2018). The price of chocolate increased at a rate of 2.15% for the last ten years; therefore, the growth rate is expected to maintain the same.
Among the confectionery companies, the Hershey Company occupies one of the top positions. Over the hundred-year history, Hershey Company has built an empire and is known as a household name all across the globe. This includes over 80 well-known brands all over the world (Kurie, 2018). It is often described as the company which spreads joy and kisses due to the products it manufactures. Being the number one chocolate producer in North America, Hershey’s has created a brand that is sustained by its production of bars such as cookie layer crunch bar, almond joy candy bar, take 5 king size candy bar, Kit-Kat wafer bars among other well-known candy brands. Hershey’s baking section has a wide market range in North America and overseas with its range of chocolate chip cookies and other varieties of baked products with specialty in cookies (Todd et al, 2017).
According to Euromonitor in 2016,  Hershey's 31.3 percent market share makes it the largest chocolate company in the U.S. chocolate market, followed by Mars with 29.1 percent  (Daniels, 2016). Worldwide, Mars is tops in share with a 14.5 percent closely followed by Mondelez International with 14.3 percent, Nestle with 12.3 percent,    and Hershey with 7.3 percent. By 2016, 85 percents of Hershey’s sales came from the North American market; therefore, Hershey started putting more effort on international markets (Daniels, 2016).       
                                                                                                                                                                                                                            
Hershey has four major Strategic Business Units:
1 SNACKS
Hershey Company offers one the best chocolate bars in the American market. While the market of chocolate bars is primarily dominated by the aforementioned company as well as Mars, consumers are getting bored of pure chocolate bars...