Management Information system Case study Hershey Food Corporation

-Done by:
M. Himaja Reddy (10mse0278)

INTRODUCTION:
The Hershey company is famously known for being the biggest manufacturer of chocolates and confectionery products in USA, having hired over 15,000 employees worldwide and exporting their products to ninety different countries over the world. The Hershey Company has several popular brands,some of most notable ones being Hersheys Chocolate Bar,Kit Kat ,Hersheys Kisses, Reese,s ,York Peppermint Pattie, Rolo and Krackle Bar With the help of these brands , Hershey gained success and popularity ,making the companys net worth over $4 billion dollars. Hersheys products include chocolates, confectionaries , food and beverage related products such as baking ingredients ,toppings etc. Hershey continues to preserve a higher position by successfully converting consumer desires into reality.Below are some of the companys popular brands * Hersheys Chocolate Bar * Almond Joy * Kit Kat * Hersheys Kisses * Mounds * Reeses * Payday * York Peppermint Pattie * Milk Duds * Mr. Good bar * Rolo * Skor * Whatchamacallit * Whoppers * Crackle Bar

These legendary brands have contributed to the success of having sales that reach wellover four billion dollars. The Hershey Company also enjoys being the leader of the dark a n d p r e m i u m c h o c o l a t e s e g m e n t . The top brands in this category include HersheysSpecial Dark, Hersheys Extra Dark, and Cacao Reserve. Expansion has also lead to thedevelopment of different snacks. Hersheys chocolate has been used to enhance cookies, brownies, and cakes.The Hershey Company lives by their mission statement: Undisputed MarketplaceLeadership . They strives to maintain a superior standing by having continual creation of value, developing a diverse portfolio of brands, and by successfully transforming consumer and customer desires into reality. Today,the Hershey Company remain s committed to fulfilling the mission of Milton Hershey, the founder who started it all. HISTORY:

Hershey made three attempts at starting his own company before successfully starting the Lancaster Caramel Company .It wasnt until 1893 that Milton Hershey became interested in the art of chocolate making. While attending the Worlds Columbian Exposition, Hershey purchasedmachinery and thus began producing chocolate that covered his caramel creations. Soon after this discovery, Hershey started the Hershey Chocolate Company in 1894. After many trials and errors, he finally stumbled upon the famous recipe that would become his legacy .In 1900, Milton Hershey sold his caramel business for one million dollars. He then focused solely on making chocolate. In 1903, Hershey decided to build his company at anew location in Derry Township. This location had a larger population, easy access to port cities that would supply sugar and cocoa beans, and plenty of dairy farms. Milton Hershey sought not only to build a company, but also to build a community. He believed that workers worked better under pleasant working conditions and pleasant.For this reason, Hershey built an infrastructure to take care of his workers. T hisinfrastructure was accompanied with a department store, convention hall, and lots of schools. In a long and useful life, Milton S. Hershey proved himself to be a courageous entrepreneur, a determined builder and a compassionate humanitarian. Chocolate and Cocoa Industry History / Development: The chocolate industry relies heavily on fluctuations in demand. The demand for these products increases drastically during the holiday season. For this reason, sales increase during the third and fourth quarters of the calendar year. Several consumer trends such asthe rising sales of premium-priced chocolates and the growing concern about the healthrisks associated with the consumption of such highfat foods affect the chocolateindustry. There were 995 establishments that produced chocolate in 2000. California and Pennsylvania were the two states that had the majority of these establishments. The total consumption of chocolate in a year is about 3.1 billion pounds with a total of retails sales reaching about $13 billion. The chocolate industry dates back to 1765. At that time ,growers in the West Indies supplied cocoa. The first chocolate factory was established in England. During the First World War, chocolate was used as a morale booster and for nourishment. From 1989 to 1991 the chocolate/cocoa industry experience

d 50acquisitions, mergers, licensing agreements, or joint ventures. During the mid 1990s, the industry catered toward new consumer trends. The development of light chocolate and light desserts increased drastically with the creation of fat-free chocolate items Manufacturing Process: In order for U.S. manufacturers to use cocoa beans, the beans must be imported by direct purchase or through a broker. The growers of these beans are paid market price. Once the beans are obtained, they are then processed to make chocolate liquor. This liquor is then used to manufacture cocoa, syrup, and solid chocolate chips. It can also be used to enhance confections, bakery items, and other dairy products. The manufacturing process includes roasting, shelling, and grinding of the beans to produce the unsweetened chocolate liquor. Additional processing will yield one of two products, cocoa or chocolate. Cocoa is produced by extracting fat from the liquor. The remaining cocoa cake is crushed to form a powder and may be sweetened or left unsweetened. The fat that is extracted is known as cocoa butter which can be used in sweetened chocolate or as moisturizers. The production of chocolate requires the addition of sugar and cocoa butter to the liquor. Milk solids are also needed when manufacturing milk chocolate. Chocolate manufacturers typically sell the semi-processed products to other firms that use them when producing confectionery goods. Exports of chocolate products consist of confectionery items rather than semi-processed chocolate. HERSHEYS TIMELINE: 1887: Milton Hershey establishes the Lancaster Caramel Company.1895: The Company begins to sell chocolate.1900: Hershey sells his caramel company to focus on chocolate1905: Milton Hershey established an independent trust company to provide the towns financial services and manage the assets that were to fund his many philanthropicendeavors.1906: The Village of Derry Church is renamed Hershey1907: Hershey Kiss was introduced.1927: The firm incorporates as Hershey Chocolate Company and

is listed on the New York Stock Exchange.1940: Hersheys chocolate plant is unionized.1963: H.B. Reese Candy Company is acquired.1968: The firm adopts the name Hershey Foods Corporation.1970: Hersheys first consumer advertisement appears in 114 newspapers.1988: Hershey Purchases the operating assets and manufacturing assets of Peter Paul/Cadbury brands.1996: Hershey launches its first hard candy line, Taste Tations, and the reduced-fat Sweet Escapes Line.1999: The firm sells its pasta business to New World Pasta, LLC.2002: The Milton Hershey Trust School announces plans to sell Hershey, but with draws offer. OPPORTUNITIES:

1.China and India are huge untapped markets. Malaysia, Indonesia, Vietnam, and Thailand also are untapped, So, Hershey has the opportunity to gain a foothold in those Countries. 2.There is another opportunity for Hershey to develop environmentally safe products and packages, reducing industrial waste, recycling, and establishing an environmental audit process are strategies that could benefit Hershey. 3. Another opportunity is that Hershey diversifies more into non-chocolate candies because that segment is growing most rapidly in foreign countries like U.S &U.K. THREATS: *The main competitors of Hershey Foods are Mars and Nestle. Mars is already a threat for Hershey, because Mars has a stronger presence than Hershey in Europe, Asia, Mexico, and Japan. *Unlike Hershey, Mars has historically relied upon extensive marketing and advertising expenditures to gain market share, rather than on product innovation.

* 25 percent of Nestls revenues and profits come from coffee, and adverse economic occurrences in South America, particularly Brazil, affect the company. Nestle plans to continue to play to its strengths, international markets outside the United States, to combat Hershey. COMPETITORS ANALYSIS The competitive characteristics of an industry are generally considered in the contexts of (1) the structure of competition (2) marketing resources and skills (3) production resources and skills (4) financial resources, (5) managerial resources (6)competitive strategies (Thompson & Strickland, 1990).

This research, however, is concerned only with the structure of Hershey's competition. The competitive structure of an industry is determined largely by the segmentation of the market, and the targeting of market segments. The identification of Hershey's competitors depends largely on the specific market segments in which the company operates. Hershey Foods operates in several market segments

Because of the Hershey candy bar, Hershey Foods, aside from Coca-Cola, is the best known company in the United States (Moskowitz, Katz, & Levering, 1986). In the 1990s, Hershey markets candy under brand names other than Hershey Reese's, Krakel, Kit Kat, Mr. Goodbar, After Eight, Rolo, Skor, and Symphony, to name but a few. Company also markets cooking chocolate prepared puddings, ice cream, and pasta products.Hershey's pasta products are marketed under the brand names San Giorgio, Delmonico,Skinner, and Procino-Rossi, or P&R (Dagnolin, 1990). INDUSTRY ANALYSIS Introduction: Porters five forces model of industry competition is used to inspect a competitiveenvironment and establish a firms possible profits. The model uses five competitive forces that determine a particular firms capability to compete. The chocolate and cocoa industry can use the five forces model as an analytical tool to determine the competitive market. The Threat of New Entrants It is a competitive force that determines how easily a firms profits can be lowered because of new competitors in the industry. There are six barriers that determine the risk of new entrants risk of new entrants These include economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels and cost disadvantages independent of scale In addition to economy of scale, product differentiation is another entry barrier in the chocolate and cocoa industry.

 Another entry barrier is the presence of large capital requirements that a r e required in the chocolate and cocoa industry. Large capital requirements createanentry barrier for new entrants because it requires the company to hav e a significant source of capital to get started Switching cost create a barrier to entry for new companies entering the chocolate and cocoa industry. Switching the supplier of chocolates raw materials such as cocoa beans, sugar, and milk create additional testing and research that must be completed by the company to ensure correct quality, safety and taste. Bargaining Power of Buyers The bargaining power of buyers is a competitive force that can result in lower prices for a product and increase the quality of service, which decreases profits and increases costs for the industry. Buyers power increases if large volumes of the product are purchased, the product is undifferentiated, few switching costs exist, low profits are earned, backward integration is possible, and the quality of the buyers product is not affected by the suppliers product QUESTIONS AND ITS SOLUTIONS 1) What are the strengths of Hershey foods??? A: * Hershey Foods has grown from a one-product, one plant operation to a $4 billion company with many U.S and international plants providing an array of quality chocolate and confectionery products and services. *Hershey entered 1996 as the largest candy maker in the United States with 30.7 percent market share. *Hershey is the largest pasta manufacturer in the United States with 28.4 percent market share * Hersheys main chocolate factory, for example, occupies more than 2 million square feet, is highly automated, and contains much heavy equipment, vats, and containers. It is the largest chocolate plant in the world

* Hershey is very cooperative with students and professors; Hershey has a toll-free number (1-800-468-1714) that students or professors can call to obtain additional information about the company 2) What are the weakness of Hersheys food corporation?? A: * Hersheys global market share in the chocolate confectionary

Industry in only 10 percent, lowest among its competitors. * Concern for the natural environment is an issue Hershey should address before competitors seize the initiative. * The average price of Cocoa beans rose 25.8 percent in 1995, following a 28.9 percent rise in 1994. World production is not keeping pace with increas ed consumption. The price per pound in 1995 was $0.72 and is expected to continue increasing. This is a major problem for Hershey because even a small price increase at the retail level severely restricts consumer buying. * Some analysts contend that Hershey International as a separate division pro ducing and selling diverse products is an ineffective organizational design 3) What are the threats to Hersheys???? A: * The main competitors of Hershey Foods are Mars and Nestle. Mars is already a threat for Hershey, because Mars has a stronger presence than Hershey in Europe,Asia, Mexico, and Japan. * Unlike Hershey, Mars has historically relied upon extensive marketing and advertising expenditures to gain market share, rather than on product innovation. * 25 percent of Nestls revenues and profits come from coffee, and adverse economic occurrences in South America, particularly Brazil, affect the company. Nestle plans to continue to play to its strengths, international markets outside the United States, to combat Hershey