The Hershey Company

Company Profile
Publication Date: 22 Jul 2011

www.datamonitor.com
Europe, Middle East & Africa 119 Farringdon Road London EC1R 3DA United Kingdom t: +44 20 7551 9000 f: +44 20 7551 9090 e: euroinfo@datamonitor.com Americas 245 5th Avenue 4th Floor New York, NY 10016 USA t: +1 212 686 7400 f: +1 212 686 2626 e: usinfo@datamonitor.com Asia Pacific Level 46 2 Park Street Sydney, NSW 2000 Australia t: +61 2 8705 6900 f: +61 2 8088 7405 e: apinfo@datamonitor.com

The Hershey Company

ABOUT DATAMONITOR
Datamonitor is a leading business information company specializing in industry analysis. Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive, Energy, Consumer Markets, and Financial Services. The company also advises clients on the impact that new technology and eCommerce will have on their businesses. Datamonitor maintains its headquarters in London, and regional offices in New York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies. Datamonitor's premium reports are based on primary research with industry panels and consumers. We gather information on market segmentation, market growth and pricing, competitors and products. Our experts then interpret this data to produce detailed forecasts and actionable recommendations, helping you create new business opportunities and ideas. Our series of company, industry and country profiles complements our premium products, providing top-level information on 10,000 companies, 2,500 industries and 50 countries. While they do not contain the highly detailed breakdowns found in premium reports, profiles give you the most important qualitative and quantitative summary information you need - including predictions and forecasts.

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

The Hershey Company Datamonitor

Page 2

The Hershey Company

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5

The Hershey Company Datamonitor

Page 3

The Hershey Company

Company Overview

COMPANY OVERVIEW
The Hershey Company (Hershey or the company) is involved in the manufacturing, selling and distribution of chocolate and confectionery products, pantry items and gum and mint refreshment products under more than 80 brand names. The company's products are sold in more than 60 countries spread across the Americas and Asian regions. It is headquartered in Hershey, Pennsylvania and employs about 13,500 people of whom 11,300 are full-time employees and 2,200 are part time workers. The company recorded revenues of $5,671 million during the financial year ended December 2010 (FY2010), an increase of 7% over 2009. Net sales increased due to an increase in sales volume by approximately 4%, primarily for core brands in the US and increased sales of new products. The operating profit of the company was $905.3 million in FY2010, an increase of 18.9% over 2009. The net profit was $509.8 million in FY2010, an increase of 16.9% over 2009.

KEY FACTS
Head Office The Hershey Company 100 Crystal A Drive Hershey Pennsylvania 17033 USA 1 717 534 4200

Phone Fax Web Address

http://www.hersheys.com

Revenue / turnover 5,671.0 (USD Mn) Financial Year End Employees New York Ticker December 13,500 HSY

The Hershey Company Datamonitor

Page 4

The Hershey Company

SWOT Analysis

SWOT ANALYSIS
The Hershey Company (Hershey or the company) is involved in the manufacturing, selling and distribution of chocolate and confectionery products, pantry items and gum and mint refreshment products under more than 80 brand names. The company's brand portfolio includes iconic brands, particularly Kisses, Hershey's and Reese's. However, intense competition and the ongoing consolidations in the global confectionery market could affect the company's business and its market share. Strengths Leadership position in the US confectionery market due to well known product brands, backed by ample advertising investments Broad product portfolio stabilizes the companys earnings Focus on research and development (R&D), helps Hershey to gauge the emerging market for healthier snacks options Opportunities Enhancing market presence through acquisitions and licensing agreements Growth in the global confectionery market Streamlining business through restructuring operations and supply chain management Weaknesses Excessive dependence on the US market, and a few distributors for revenue generation restricts Hershey's growth potential

Threats Ongoing consolidation revamps the confectionery market by making it more competitive Rise in prices of major raw materials could increase operating expenses

Strengths

Leadership position in the US confectionery market due to well known product brands, backed by ample advertising investments The company markets, sells and distributes various types of chocolate candy, sugar confectionery, refreshment and snack products; and food and beverage enhancers under more than 80 brand names. Hershey's marketing strategies have enabled it to create one of the strongest consumer brand franchises in the world. The company's products are sold worldwide and marketed under popular brand names such as Hershey's, Reese's, Hershey's Kisses, Kit Kat and others. Hershey's selling and marketing organization comprises of Hershey North America, Hershey International and the Global Marketing Group. All these three organizations are responsible for strengthening marketing capabilities in various regions. The brands are also well supported by the company's planned

The Hershey Company Datamonitor

Page 5

The Hershey Company

SWOT Analysis

advertising investments. In FY2010, Hershey incurred $391.1 million on advertising, which increased at a compounded annual growth rate (CAGR) of 25.6%. The company also invests considerably in consumer insights, in-store selling, merchandising and programming to drive profitable growth. The companys branding and promotional strategies have placed it strongly in the US confectionary market. As of 2010, the company commanded 43% of the US chocolate market compared to its closest rival Mars 30.7% share. Its strong domestic position also enabled it to extend its operations in emerging countries like China, Brazil, and India. Thus a strong brand portfolio gives Hershey a competitive edge over its peer companies. At the same time it results in stable revenues and easy penetration into new markets and product categories. Broad product portfolio stabilizes the companys earnings Hershey offers a range of products across many categories.The companys principal product category include chocolate and sugar confectionery products; gum and mint refreshment products; and pantry items, such as baking ingredients, toppings and beverages. Apart from usual chocolate and sugar confectionaries, the company provides a range of snack products (including calorie bars and snack nuts), refreshment products (including mints and chewing gum), and pantry items (including baking products, toppings, syrups, and hot cocoa). In addition, the company also operates retail stores which display the companys branded products. The extensive line of products provides a diversified source of revenue for the company and stabilizes its earnings. Focus on research and development (R&D), helps Hershey to gauge the emerging market for healthier snacks options Hershey has a strong acumen with respect to judging the changing trend in the customers' requirements. Increasing number of customers are looking for healthier snacks options, and in order to gauge this emerging market, the company established the Hershey Center for Health and Nutrition (HCHN or "the center") in Hershey, Pennsylvania in 2006. HCHN mainly uses scientific research to develop products and technologies that provides consumers with products that offer health benefits in the areas of heart health, weight management, and mental and physical energy. The primary focus of HCHN is work on product innovation that are drawn upon clinical studies and scientific analysis of the health benefits of cocoa, nuts and other natural ingredients. The center leverages Hershey's internal scientific capabilities as well as partnerships formed with internationally known researchers and institutions. In spite of a weak economic environment, Hershey has maintained its investment in R&D and spent approximately $30.5 million in 2010. Thus, increased emphasis on R&D enables the company to develop innovative products, which provide a competitive edge over the peer companies, by improving brand equity and also market share.

Weaknesses

Excessive dependence on the US market, and a few distributors for revenue generation restricts

The Hershey Company Datamonitor

Page 6

The Hershey Company

SWOT Analysis

Hershey's growth potential Hershey depends on the US for a major portion of its revenue. In FY2010, almost 84.8% of the revenue was generated from the US market. In comparison to this, its competitors such as Kraft Foods generated 57.5% of its revenue from outside the US in FY2010. The company's main customers comprise of wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, department stores and natural food stores. These customers then resell Hershey's products to the end consumers in some 2 million retail outlets in North America and other locations worldwide. In FY2010, approximately 22.1% of the company's total net sales came from McLane Company (McLane). McLane is one of the primary distributors of Hershey's products to Wal-Mart Stores. Thus, excessive dependence for revenue on one geographical region as well as on a few number of distributors can immensely restrict Hershey's growth potentials. Moreover geographic concentration of revenue increases vulnerability to market conditions in the US.

Opportunities

Enhancing market presence through acquisitions and licensing agreements In 2009, Hershey acquired Van Houten Singapore consumer business from Barry Callebaut. With this acquisition, the company has gained exclusive license of the Van Houten brand name and related trademarks in Australia, New Zealand, Middle East and Asia for the retail and duty free distribution channels. With this acquisition Hershey will gain an immediate market presence in many high potential countries like Malaysia and Indonesia, which in turn will drive its revenue growth. Hershey also entered into a licensing agreement with HP Hood, a distributor of dairy products in the US in 2009. This agreement grants HP Hood the license to manufacture, sell and distribute extended-shelf-life Hershey flavored milks and milkshakes across the US. Both the companies i.e. HP hood and Hershey will in partnership launch a line of single serve Hershey branded products including Hershey's Reduced Fat Chocolate Milk, Hershey's Chocolate Milkshake and Hershey's Cookies n' Cream Milkshake. These products will be marketed across the US. Hence, through these business agreements the company has been expanding its operations in the US as well as other growing markets in the Asian countries, which in turn would augment well for the company's topline and bottom-line growth. Growth in the global confectionery market According to Datamonitor, the global confectionery market grew at CAGR of 3% during 2005-09 period, with moderate to strong growth in all product categories. Although the overall market growth is expected to remain similar during 2009-14, the annual rate of growth is set to rise from a low of 2.7% in 2009 to a high of 3.1% in 2014. The market growth will primarily be driven by increased

The Hershey Company Datamonitor

Page 7

The Hershey Company

SWOT Analysis

demand for premium chocolates. Moreover, the preference for chocolates that features ingredients such as lavender, honey and blueberry, is also expected to fuel the market as a subset of product premiumization. Hershey with its wide spread presence in both the matured and emerging markets can benefit immensely from the ongoing trend. The company can leverage its strong product portfolio and distribution network to expand its reach and carter to a larger customer base thereby increasing its revenue base. Streamlining business through restructuring operations and supply chain management In order to bring about operational efficiency, the company has launched an initiative, "Next Century" in 2010. As part of the program, production will transition from the company's facility at Hershey, Pennsylvania, to a planned expansion of the West Hershey facility. The estimated cost of the program included pre-tax charges and non-recurring project implementation costs of $140 million to $170 million over three years. These investments will help Hershey to create a more cost-effective and efficient supply chain. Once the plan is fully complete, it will result in the annual savings of approximately $60 million to $80 million. Thus, streamlining business operations through similar restructuring plans will help Hershey to remain competitive and increase its profit margins.

Threats

Ongoing consolidation revamps the confectionery market by making it more competitive The products offered by Hershey faces stiff competition from many other brands offered by multinational, national, regional and local competitors. In addition to this, there has been a lot of consolidation that has taken place in the confectionary industry which all the more intensifies competition in the confectionery market. Recently, in 2010 Cadbury was acquired by Kraft Foods. The two companies together have become a powerful company in terms of products offerings, global reach and some iconic brands such as Dairy Milk, Flake, Crunchie, Toblerone, and Dairylea among others. In addition to this the threat from private labels, that offer low priced alternative to the branded products, is also becoming a greater competitive threat. Due to the economic downturn in the US, consumers have increasingly become price-conscious and have been increasingly opting for these private brands. Hershey's competitors have been expanding their scale of operations by extending products offered as well as enhancing geographical reach. These developments can erode Hershey's competitive edge and force it to lose market share in many of the geographical regions thereby rendering blow to its revenue growth.

The Hershey Company Datamonitor

Page 8

The Hershey Company

SWOT Analysis

Rise in prices of major raw materials could increase operating expenses As a confectionary manufacturer, Hershey depends heavily on a wide basket of global commodities for manufacturing its goods, the prices for which have risen substantially in recent years. The company's major raw materials constitute cocoa products including cocoa liquor, cocoa butter and cocoa powder; dairy products; sugar; and peanuts. Majority of these raw materials witnessed record prices during 2010. For instance, during 2010, the average cocoa futures contract prices increased compared with 2009, and traded in a range between $1.26 and $1.53 per pound. Cocoa futures prices during 2010 traded at prices that were near 30-year highs. Also in 2010, prices for dairy products increased from $.14 per pound to approximately $.18 per pound on a class II fluid milk basis. Prices are stronger in the face of strong demand for dairy products and tight supply of butterfat. On the other hand, prices of sugar and peanuts also recorded significant growth. During 2010, refined sugar prices increased significantly in the US, trading in a range from $.48 to $.66 per pound; while peanut prices in the US increased from $.46 per pound to $.56 per pound due to the subpar yield for the current year's crop. The rising inflation, hence, would pressurize the company's margins; and profitability would depend on the cost saving initiatives. Since the unilateral price pass-off to the customers could erode the company's market share, the company has to implement stricter cost rationalization measures to deliver the similar earnings growth in future.

The Hershey Company Datamonitor

Page 9

Copyright of Hershey Foods Corporation SWOT Analysis is the property of Datamonitor Plc and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.