The Hershey Company works to inspire Almond Joy and lots of Kisses. As a global leader and North America's top chocolate producer, the company has built a big business manufacturing such well-known chocolate and candy brands as Hershey's, Kisses, Reese's peanut butter cups, Twizzlers licorice, and, under license, Mounds candy bar, York peppermint pattie, and Kit Kat wafer bar. Hershey also makes grocery goods, including baking chocolate, chocolate syrup, cocoa mix, cookies, snack nuts, breath mints, and bubble gum. Products from the chocolate king are sold to a variety of wholesale distributors and retailers throughout North America and exported overseas.
The company's operations consist of two business segments, in which more than 80 name brands are made, marketed, sold, and distributed. Many product types sold under the Hershey's, Kisses, and Reese's names are included in the company's chocolate business unit. Other popular brand franchises -- such as Twizzlers, Mounds, York, Kit Kat, Ice Breakers, and Bubble Yum -- fall within the company's sweets and refreshment business unit.
Hershey also has a retail presence. Referred to as The Hershey Experience, the company's retail operations comprise Hershey's Chocolate World (Hershey, Pennsylvania) and stores in New York City, San Francisco, Chicago, Niagara Falls (Ontario), Shanghai, Dubai, and Singapore.
Hershey's business focuses on three regions. The US is the company's largest market. The Americas, its second region, consists of Canada, Mexico, Brazil, Central America, Puerto Rico, and global exports. Hershey also operates a third region in Asia, Europe, the Middle East, and Africa. The company markets its products in about 70 countries worldwide. While the US is a top revenue generator, sales outside the US from developing regions have contributed about 16% of its total revenue.
To drive sales growth, Hershey is investing in its five core brands -- Hershey's, Reese's, Hershey's Kisses, Jolly Rancher, and Ice Breakers -- in both the US and key international markets. As a result, the confectionery company aims to meet new long-term targets of sales growth in the 7% to 9% range.
It's also looking to build out its existing infrastructure in China and chase after the country's growing middle class there through a new initiative to grow its international operations to 25% of its business by 2017. As part of this effort, Hershey opened an Asia Innovation Center in Shanghai in mid-2013, and has announced plans to build a $250 million confectionery manufacturing plant in Malaysia. It also debuted the new Lancaster line of caramels in early 2013 and aims to roll out its US version, which is manufactured in Canada, in the states in 2014.
Overseas, Hershey has agreed to buy out the 49% stake that it didn't already own in its Indian joint venture with Godrej Industries and a minority investor. The takeover includes $47.6 million in debt and candy brands Maha Lacto and Nutrine, beverage brands Jumpin and Sofit, and manufacturing facilities. The former JV will operate as a Hershey's subsidiary, renamed Hershey India. In 2011 Godrej Hershey posted sales of $80 million; Hershey's portion of the JV's loss was $7 million.
Mergers and Acquisitions
Hershey's strategic focus is on expanding its global presence as it jockeys for market share from rivals Mars and Kraft, which owns Cadbury. In 2012 Hershey acquired Canadian confectioner Brookside Foods, producer of fruit pieces, nuts, and dark chocolate-covered exotic dried fruits. The $172.9 million deal extends Hershey's reach in North America, as well as complements its chocolate lineup. Hershey is looking to make more purchases during the next few years to capture these niche markets and expand overseas.
Despite a troubled economy that has slowed consumer spending, Hershey has seen an incremental increase in both sales and net income during the past five years. In fiscal 2012 (ends December) revenue rose by 9% and net income was up 5% vs. 2011 due to both net price realization and sales volume increases in the US and overseas. Sales saw a boost from new product introductions in the US and a nearly 2% rise in net sales from the Brookside acquisition. Cash generated from operations in 2012 boosted the overall cash flow and showed a positive balance against a negative balance in both 2011 and 2010.
Sales and Marketing
Among its significant customers, wholesale distribution giant McLane Company accounted for 22% of Hershey's sales in 2012, up from 13% in 2011. It's the primary distributor of Hershey products to Wal-Mart. Hershey leverages a staff of full-time sales representatives and food brokers to peddle its products to customers. In general the confectionary company counts wholesale distributors, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, and department stores among its vast customer set. Hershey's distribution network ships its products from its manufacturing plants to strategically located distribution centers, using common carriers to deliver products from there to customers.
The company makes a point to launch new versions of old favorites, such as Jolly Rancher lollipops and bite-size bits of chocolate bars. Although chocolate bars take center stage, most recently premium dark varieties, it introduced sugar-free chocolate to tempt the growing number of diabetic and overweight consumers. Moving into the snack aisle, Hershey has rolled out cookies, 100-calorie treats, and granola bars.
The Hershey Trust -- which benefits the Milton Hershey School for disadvantaged children -- controls approximately 80% of Hershey's voting power.