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The Hershey Company

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Although it has only a limited presence outside North America, The Hershey Company 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 - America's first homegrown milk chocolate when it launched in 1905 - as well as 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 originally 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. Hershey's 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 largely on organic development to bolster its market share. Key to this has been the expansion of its core Hershey's and Reese's brands into other categories, including salty snacks, and even a tentative step into meat-based snacks.

Advertising

Who handles advertising? Click here for agency account assignments for Hershey. The group declared advertising costs of $521m in 2015.

Competitors

See Confectionery Sector index for other companies and brands

Brands & Activities

Hershey is the undisputed champion in US chocolate and the lead it enjoys over rivals was extended during the 1990s and early 2000s by an aggressive program of new product launches. However that growth appeared to have dried up towards the end of the 2000s as a result of fierce competition from a revitalised Mars.

Hershey is by far the biggest chocolate maker in the US, ahead of arch-rival Mars. But the latter's takeover of Wrigley in 2008 pushed Hershey into second place in the combined chocolate and sugar confectionery market. The Mars-Wrigley deal was expected to push Hershey towards an alliance with another company, possibly either Cadbury or Nestle. At the end of 2009, Cadbury became the object of an unwelcome takeover bid from Kraft. Hershey spent several months attempting to assemble a rival offer, at one stage negotiating a combined approach with Italy's Ferrero. However, it was ultimately unable to match the larger company's firepower and was forced to abandon its attempt. It has made several small acquisitions since then, gradually taking back the top spot.

According to Nielsen data for 2016, Hershey was once again the leading player in US confectionery with 31.2% market share, ahead of Mars at 29.1%. Mondelez, Lindt and Nestle ranked far behind, all at around 5% apiece. Hershey had almost 46% share of US chocolate (to Mars' 29%). Mars leads sugar confectionery with almost 18% to Hershey's 15%.

The Hershey Company is still best-known for its original product, the oddly sour-tasting (to non-American consumers) Hershey Bar with which it made its name. The Hershey's masterbrand also covers a number of other products including Special Dark, Cookies n Creme and Extra Dark bars, Hershey's Bites miniatures and individually wrapped Hershey's Kisses. (These were invented by Hershey in 1907. Italian confectioner Perugina, now owned by Nestle, copied the idea for its Baci wrapped chocolates, introduced in 1922). More recent introductions include Hershey's Swoops, thin chocolate slices shaped like Pringles, and Hershey's S'mores, an unusual mix of chocolate, marshmallow and Graham Crackers, and Hershey's Bliss wrapped chocolates with flavoured soft centres. New line Hershey's Drops were introduced at the beginning of 2011, followed by Nuggets in 2012. Along similarly unconventional lines, Hershey's Take 5 bar contains whole pretzels along with chocolate, caramel, peanuts and peanut butter. A range of Hershey's cookies, snack bars and even chocolate-covered snack mixes have been introduced since 2016. The Hershey's brand contributed sales of $1.5bn in 2016, according to the company. Hershey's Kisses separately add another $460m.

However, despite its fame, the Hershey's brand is rivalled in sales terms by the Reese's product family, led by Reese's Peanut Butter Cups, Reese's Pieces and the Nutrageous candy bar, as well as a variety of other peanut butter confectionery products that also include baking chips and seasonal eggs. It remains the top-selling confectionery product in the US, with around 7.2% share of the market in 2014 according to Euromonitor (ahead of M&M's at 5.5%). The group reported combined sales of $1.96bn for 2016. The group's #2 best-seller is Kit Kat, which it produces under license from Nestle. Sales were around $700m in 2016.

Hershey has also moved aggressively into the premium chocolate sector, acquiring upscale dark chocolate manufacturers Scharffen Berger and Joseph Schmidt in 2005, and Dagoba, a manufacturer of high quality organic chocolate and drinking cocoa, in 2006. These brands are marketed through a separate unit, Artisans Confections Company, which also lent its expertise to the creation of a range of Hershey-branded premium items. Hershey's Cacao Reserve chocolate products were launched in 2006, followed by Hershey's Special Dark a year later and Hershey's Bliss in 2008. At the beginning of 2012 the group acquired premium Canadian confectioner Brookside Foods, which specialises in chocolate-covered fruit pieces. This was joined by BarkThins premium chocolate and nut snacks, acquired in 2016. Perhaps the most unsual addition to the portfolio was Krave meat jerky, acquired in 2015. At the end of 2017, Hershey acquire snacking company Amplify Snack Brands for around $1.6bn. Brands include Skinny Pop popcorn and corn cakes in the US and UK crisp maker, Tyrrell's.

Hershey licenses Nestle's Rolo brand in the US as well as a large collection of brands under license from the Cadbury division of what is now Mondelez, including Almond Joy, Mounds, York Peppermint Pattie, Cadbury Creme Eggs, Dairy Milk, Caramello and other products. Milk Duds, Jolly Rancher and other candy brands are licensed from Huhtamaki of Finland. A large supporting collection of other brands includes 5th Avenue, Mr Goodbar, Heath, Krackel and PayDay candy bars. These smaller-selling products are grouped under the heading of precision & variety brands.

Hershey acquired a portfolio of gums and mints in 2000 from Nabisco, including Ice Breakers, Breath Savers, Care Free, and Bubble Yum. Ice Breakers is now the group's 4th most important brand, with sales of $475m in 2016. The group's sugar confectionery portfolio is led by long-established favourite Twizzlers, supported by Jolly Rancher and Milk Duds. In 2014, the group launched its first completely new brand for 30 years, a range of soft caramel cremes under the Lancaster brand. Later the same year it acquired Canadian confectioner Allan Candy, already the contract manufacturer of Jolly Rancher and Lancaster, but also with its own range of products including Allan and Big Foot. Hershey's Mexican subsidiary produces a range of sugar confectionery products endorsed by hugely popular entertainer Thalia, under the name La Dulceria Thalia. These are marketed in the US as well as Latin America, for a largely Hispanic audience.

In addition the company makes a number of grocery products including baking chocolate, Reese's peanut butter, and Hershey's Chocolate Syrup. It moved into the cookies market in late 2004, with four products based on its Reese's, Hershey, Almond Joy and York Peppermint Pattie brands, as well as crispy rice Snack Barz. Macadamia nut processor Mauna Loa, acquired in the 2000s, was sold again in 2014. The group's most aggressive move into the broader grocery sector came in 2014 with the launch of Hershey's chocolate spreads, including a chocolate and hazelnut variant which is a direct competitor to Ferrero's Nutella. Chilled chocolate drink Hershey's Milk is produced under license by various local dairies and by Morningstar Foods.

The group sells its products in the US through a wide variety of retail channels. Hershey tends not to supply its products directly to retailers. Instead its biggest customer is wholesale distributor McLane, which accounted for 25% of group sales in 2016. There are also a small number of company-owned branded "experiences" including Hershey's Chocolate World in the town of Hershey, Pennsylvania, and retail malls in Chicago, New York, Las Vegas and Niagara Falls, as well as in China, Singapore and Dubai. These outlets also offer personally customised confectionery items

Globally, Hershey ranks as the world's #4 confectionery company, with around 5% total share. However, around 83% of the group's revenues are still generated in the US and almost another 5% in Canada. Hershey Canada is the local #3 behind Nestle and Mondelez with almost 17% share of the combined confectionery market. The Canadian range is slightly different from its US neighbour, and also includes products such as Oh Henry! candy bars, Glosette chocolate-covered raisins and nuts, and Chipits chocolate chips. In 2014, the group acquired Allan sugar candy. In Mexico, Hershey Mexico has owned leading local confectioner Grupo Lorena since 2004. It makes Pelon Pelo Rico spicy candy, Crayon fruit candy and other brands.

Operations outside the US, Canada and Mexico are, for now, still quite limited though they have grown steadily in recent years. The company acquired Brazilian manufacturer Visagis in 2001, and markets Hershey's in that market as well as local products Visconti chocolate sprinkles and Io-Io hazelnut creme products. However market share is well behind leaders Nestle and Kraft. The group sold a 49% share in Hershey's Brazil in 2008 to local producer Bauducco, who took over sales and distribution of the group's products. In 2015, Hershey reacquired its partners shares to take back full control.

Hershey also has interests in Japan and exports its products to several other territories, especially in Asia. The company took tentative steps into the UK in 2002 and 2003, testing the Reese's range in selected outlets. However the experiment was eventually discontinued. Another attempt was made to establish the Reese's brand in Britain from late 2014, with more success.

At the end of 2005, the group promised to "dramatically increase" its presence in Asia in general and China in particular. A key step towards that goal was the creation of a joint venture with Lotte of Korea to manufacture and market both companies' products in China from mid-2007. (In return, Hershey agreed to test Lotte's Xylitol chewing gum in the US market. It has been incorporated in some of the group's Ice Breakers mint variants). The group's biggest success in China has been with its Hershey's Kisses wrapped chocolates, although it also launched its first international brand in that market in 2013, milk candy Lancaster. In 2007, Hershey establish a debut presence in India by acquiring a majority stake in the confectionery division of local conglomerate Godrej. Sales from this business are modest at around $00m annually. In 2012, Hershey announced plans to buy out its partner and take full control of the business. Brands include Maha Lacto and Nutrine. The group acquired Singapore-based Van Houten, a duty free confectionery brand, in 2009. At the end of 2013, the group strengthened its footprint in China with the acquisition of 80% of local confectioner Shanghai Golden Monkey for around $580m including debt. The company specialises in flavoured milk candy. Ownership proved challenging, though, and the business was sold again in summer 2018.

Although the company floated in 1927, it is controlled by the Hershey Trust Company, which owns around 80% of voting stock. The sole beneficiary of the Trust is Milton Hershey School, which provides education for nearly 1,200 children from broken or underprivileged families. Relations with the Trust appear to have calmed in recent years, following tension in the mid 2000s. In 2007, the Trust forced a complete overhaul of the board of directors, resulting in the resignation of CEO Rick Lenny.

Financials

Performance has been growing steadily. Revenues for 2014 rose 4% to a best-ever $7.42bn, while net income was up 3% at $847m. There was a dip in 2015 to revenues of $7.39bn, while net income fell to $513m.

For 2016, topline rose 7% to a new company high of $7.44bn. Net income came in at $720m. More than 83% of sales were generated in the US, and around another 5% from Canada. However other international markets now contribute 12%.

Background

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.

Last full revision 20th October 2017

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