The Hershey Company (US)

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Although it has only a limited presence outside North America, Hershey is the reigning giant in the US chocolate business with a large portfolio of well-established and much-loved brands. These include the main Hershey's masterbrand, Reese's, Almond Joy and the local license for Nestle's Kit Kat, as well as sugar candy brands such as Ice Breakers and Twizzlers. However, the group's overall lead in confectionery has come under intense pressure in recent years from long-time rival Mars, and it has an occasionally stormy relationship with its controlling shareholder, a charitable trust established by founder Milton Hershey. In 2002, the trust put the business up for sale. After a storm of protest from employees and the inhabitants of the town where the company is based, the sale was called off just a few weeks later. It tried unsuccessfully to raise funds to acquire Cadbury in 2009 but was beaten to that prize by Kraft. No viable opportunities remain for Hershey to grow significantly in the US through acquisition so it must now rely upon organic development to bolster its market share.

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Adbrands Company Profiles provide a detailed analysis of the history and current operations of leading advertisers, agencies and brands worldwide, and include a critical summary which identifies key strengths and weaknesses. Adbrands Account Assignments tracks account management for the world's leading brands and companies, including details of which advertising agency handles which accounts in which countries for major markets. Subscribers may access the following website links:

Hershey website

Brands

Reese's Hershey's Kisses
PayDay Hershey's Bites
Jolly Rancher Ice Breakers
Twizzlers Bubble Yum
Care Free Kit Kat
Hershey's Syrup Hershey's Milk

Worldwide

Hershey's Brazil Hershey's Mexico
Hershey's Canada

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 22nd Dec 2016: Hershey confirmed Michele Buck, currently COO, as its new CEO. She will succeed JP Bilbrey in March next year, becoming the first woman to lead America's biggest chocolate maker.

Adbrands Weekly Update 20th Oct 2016: Hershey said JP Bilbrey will step down as CEO in July next year, earlier than expected. He will remain chairman, but the group will now seek his successor as CEO. Current COO Michele Buck is regarded as a likely contender. No firm reason was given for Bilbrey's resignation but the announcement follows an unsuccessful takeover bid by chocolate rival Mondelez. Hershey's controlling charitable trust refused to contemplate a sale, despite a proposal to change the name of a merged group from Mondelez to Hershey. It's not known what Bilbrey's own position was for or against; the Mondelez offer, however, his two predecessors as CEO are known to have departed as a result of clashes with the notoriously conservative trust over strategy.

Adbrands Weekly Update 1st Sep 2016: Mondelez abandoned its pursuit of US confectionery rival Hershey. The latter rebuffed Mondelez' initial $23bn bid in June, but talks had continued behind the scenes. In fact Mondelez is said to have raised its offer from $107 per share to $115. Still no dice, though, with Hershey apparently refusing to budge for under $125 (or around $26.9bn). “Following additional discussions... we determined that there is no actionable path forward toward an agreement,” said Mondelez CEO Irene Rosenfeld in a statement. Most analysts tracking Mondelez welcomed the news, believing that a deal for Hershey would be more of a distraction than a benefit. As a result, the global snacking group's shares rose sharply following Rosenfeld's announcement. Hershey's on the other hand tumbled by 11%.

Adbrands Weekly Update 7th July 2016: Snacking giant Mondelez launched an initial assault on US chocolate rival The Hershey Company, with an informal offer to acquire the business for around $23bn. The target immediately declined the offer, which it said "provided no basis for further discussion". However, Mondelez is unlikely to be deterred by the stonewall. It faced similar opposition when, as Kraft, it launched a similar and ultimately successful attack on UK company Cadbury. Indeed that Cadbury business plays a significant role in Mondelez' latest move. For historical reasons, Hershey's has US rights to several of Cadbury's biggest brands, as well as Nestle's Kit Kat, alongside its own Hershey's and Reese's portfolios. That effectively blocks Mondelez from playing a bigger role in the world's biggest chocolate market. Yet, the global snacking giant will face an even steeper climb than it did with Cadbury to win over Hershey's controlling shareholders. These are not business-minded investors but a charitable trust which runs the school for underprivileged children founded by Milton Hershey more than 100 years ago, as well as much of the town of Hershey, Pennsylvania, which grew up around the original factory. The trust has turned away offers before, but recent performance has been patchy, so this time many observers believe its hand could be swayed with the right offer. Some have even suggested that Mondelez might propose moving its HQ to Hershey, PA, and even adopt the Hershey name in place of its own, widely reviled cod-Latin construction. (Active investor Nelson Peltz, who sits on the Mondelez board, once said its name sounds "like a disease"). If successful Mondelez would overtake Mars to become the world's biggest confectionery company. The current price is worth $107 per Hershey share; some analysts believe Mondelez might be prepare to go as high as $130, or a total of $28bn.

Adbrands Weekly Update 9th Jun 2016: The Hershey Company promoted current North America president Michele Buck to a new role as COO, putting her in pole position to succeed CEO JP Bilbrey as CEO.


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Background

Free for all users | see full profile for current activities: Milton Hershey had a number of failed businesses behind him before he finally established a successful confectionery company in 1886, making caramel. The 29 year-old had learned his trade in Lancaster, Pennsylvania more than 10 years earlier, but repeated attempts to open his own candy store first in Philadelphia, then New York, Chicago and other cities, were doomed to failure. However the Lancaster Caramel Company proved very successful, and by the mid-1890s Hershey had also begun to make chocolate coatings for his caramel products. This was bitter or baking chocolate, since milk chocolate was still virtually unknown at the time. In fact it had been invented only a few years earlier in Switzerland by Daniel Peter (whose business later became part of Nestle), and the process was shrouded in secrecy, although it was known to be extraordinarily complex. Small supplies of extremely expensive Swiss milk chocolate were being imported into the US, and Hershey was determined to discover his own process. In 1900, he sold Lancaster Caramel for the princely sum (at the time) of $1m, and moved back to the town where he had been born, Derry Church, Pennsylvania. Here he set out to prove that milk chocolate could be mass-produced.

Since there was no published formula for milk chocolate, Hershey conducted hundreds of painstaking experiments in a bid to teach himself how to produce his own version of the Swiss and German imports. It took almost three years, before he successfully blended his first batch of milk chocolate. According to one version of the legend, the process he developed caused fresh milk to sour slightly, which led to the Hershey Bar's very particular taste. For more than a century, European chocolate makers have disparaged Hershey's so-called "barnyard" flavour, but there is no arguing with its commercial success in America.

In 1905 Milton Hershey opened a huge new factory in farmland near Derry Church to make the original Hershey Bar, priced at 5 cents. Two years later Hershey's Kisses, individual foil-wrapped chocolates, followed into the market. As the business flourished, a huge community grew up around the plant. Over the next 30 years, Hershey commissioned the construction of an entirely new town, containing a bank, department store, school, park, churches, golf courses, zoo, and even a trolley car system. As a result, Derry Church gradually adopted the name of its prodigal son, becoming Hershey, Pennsylvania. During the Great Depression of the 1930s, Hershey kept men at work constructing a grand hotel, a community building, a sports arena, and a new office building for the chocolate factory. But his greatest achievement was the foundation of the Hershey Industrial School, later known as Milton Hershey School. Hershey and his wife Kitty were unable to have children, and as a result decided to dedicate what was now an immense fortune to disadvantaged children who had lost their parents. The Hershey Industrial School was established in 1909 as an orphanage, although it later expanded its remit to include children from poor or broken homes. In 1918, its founder donated his entire shareholding in Hershey Foods, then worth the enormous sum of $60m, to a Trust set up solely to manage the school's affairs.

For the next 50 years, Hershey wholly dominated the US confectionery market. Though other companies attempted to break the stranglehold, none succeeded. Mars came closest, although even until the mid-1960s virtually all of its chocolate coatings were actually supplied by Hershey. The company's stature was all the more remarkable for the fact that its founder refused to advertise his products. Even after he died in 1945, the company tradition remained firm. Yet arguably Hershey never recovered from its founder's passing. After World War II, with European chocolate makers in disarray, Hershey could have effectively conquered the world market. Instead the Trust chose to stick with the market it knew best, and the legacy of Hershey Bars, spread globally by GIs during the war, gradually disappeared in Europe.

In 1963, the company acquired The HB Reese Candy Company, also situated in Hershey, and renamed itself Hershey Foods Corporation. In fact the smaller company had been founded by a former Hershey dairyman during the 1920s. Hershey supplied Reese with land in the town to build his first factory, making Reese's Peanut Butter Cups, and later other nut-based candy, and the two companies co-existed for the next 40 years until Reese's death. Yet while this broadened Hershey's portfolio in the US, the marketplace was itself changing completely.

At around the same time, the US operation of Mars came under the control of Forrest Mars. Having cut his teeth in the far tougher European market, he quickly set about reversing the cosy working practices fostered by his father. In 1964, he cancelled Mars Inc's contract to buy chocolate coatings from Hershey, which by then accounted for almost a third of the company's sales, and mounted a fierce marketing campaign designed to topple Hershey's leadership. Hershey attempted to broaden its portfolio further in response, agreeing a licensing deal in 1970 with UK chocolate maker Rowntree to manufacture its top-selling brand Kit Kat in the US, followed by Rolo a year later. But by the mid-1970s, Mars had overtaken Hershey as the US #1.

That victory was to prove short-lived. Having achieved his goal, Forrest Mars retired from his business, handing control to his sons, who were slow to build upon their father's success. Hershey, on the other hand, shocked by the ferocity of Mars's attack, set about a full restructuring, sharpening its corporate practices and finally appointing its first ever advertising agency. During the 1980s, the pendulum swung back in Hershey's favour. Famously, Mars made a huge blunder mid-decade, when the company refused to let Steven Spielberg use M&Ms in his film E.T. as the candy used to lure the extra-terrestrial out of the woods. Instead Spielberg approached Hershey for the lesser known Reese's Pieces. After the film's release, sales of Reese's Pieces tripled. A few years later, after several attempts to establish its own presence in North America, British confectioner Cadbury called it quits and put its US business up for sale. This was Peter Paul Confectionery, founded in 1919 by six Armenian immigrants, led by Peter Paul Halajian. Its best-selling product was Mounds, introduced in 1920, followed by Almond Joy, launched in 1946. Cadbury had acquired the business in 1978, but failed to make headway against Hershey and Mars. Originally Cadbury had offered the business to Mars, but was turned down. It was snapped up by Hershey in 1988, pushing Mars back into the #2 slot.

Hershey had also diversified a little during the 1960s, acquiring pastamaker San Giorgio. In 1990 the company bought a portfolio of pasta and sauce products from Ronzoni. The group also moved into the non-chocolate confectionery market, acquiring Henry Heide candy in 1995, and the candy brands Jolly Rancher, Milk Duds and Good & Plenty in 1996 from Leaf, as well as chocolate product Whoppers. At the end of the decade, the group took the decision to consolidate its interests in candy, selling off the pasta and other non-confectionery businesses to New World Pasta for around $450m. Instead, a year later, it spent around $135m to buy the various breath mint and gum brands owned by Nabisco. In 2001 the group moved into Latin America through the purchase of several confectionery brands from Brazilian food manufacturer Visagis, and sold off its Luden's throat drops business to Pharmacia for around $60m. A year later the non-chocolate Heide brands were sold on to Farley's & Sather Candy Company.

Despite these sales and purchases, the company's growth slowed markedly, and the controlling trust behind the company became increasingly anxious about the extent to which it was exposed to Hershey Foods' success or failure. Even after a series of sales of equity back to the company, Hershey Foods still constituted around 50% of the Milton Hershey Trust's assets by 2002. In March that year, the Trust informed the company's management that it was seeking ways of "diversifying" its interests. The company offered to buy back a large parcel of shares, but this was declined. A few weeks later, nearly 3,000 Hershey workers went on strike for six weeks over proposed cuts to healthcare cover. This appeared to harden the Trust's resolve, and a month after the strike was ended, it ordered management of Hershey Foods to find a buyer for its entire shareholding. Coming so soon after the strike, this move caused a storm of protest within the state of Pennsylvania, where Hershey is among the biggest employers. With support from the Pennsylvania Attorney General, the 12,000 inhabitants of Hershey - half of them employees of the company - issued an injunction blocking the sale, and this was temporarily approved pending further investigation.

Meanwhile, a number of potential buyers had appeared, not least Nestle and Cadbury Schweppes, both keen to regain control of their brands in the US, who teamed up for a combined $10.5bn offer. However the best bid came from Wm Wrigley which offered around $12.5bn for the Hershey Trust's stake, while also promising to safeguard jobs and the community of Hershey. Yet despite its previous decision, the Trust changed its mind once more. After an exhausting 10-hour meeting, 10 out of the 17 Trustees voted against the sale, and the Trust's shareholding was taken off the market. Ironically that move was considered by other investors to be the worst possible outcome, and shares in Hershey Foods dropped immediately afterwards to a 15-year low. Relations between the controlling Trust, the management of Hershey Foods and its 6,000 employees also fell to an all-time low. Nevertheless, the company's management team pushed on with a strategic reorganisation, selling off a small portfolio of non-core gum brands, including Fruit Stripe, Rain-Blo and Super Bubble, to Farley & Sather's. There was also an aggressive move into new markets such as snacks, and the introduction of a several new products and spin-offs. The group changed its name from Hershey Foods to The Hershey Company in 2004.

Rick Lenny announced his retirement as chairman, chief executive and president of The Hershey Company from the end of 2007. He was replaced as CEO by David West, previously EVP & COO. Kenneth Wolfe became chairman of the board. See full profile for current activities


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