coursework, study

1. MBC
618
Hershey
Homework
Assignment
–
Shuai
Wang
1.
Conduct
a
STEEP
analysis
of
Hershey
using
just
the
10-­‐k
information.
You
may
do
this
in
bullet
point
format,
or
table,
or
prose.
STEEP
Analysis
is
the
scanning
of
Sociocultural,
Technological,
Economic,
Ecological
and
Political-­‐legal
environmental
forces.
Social
–
cultural
-­‐ Lifestyle
Changes:
Hershey
Sales
are
typically
higher
during
the
3rd
and
4th
quarters
of
the
year,
representing
seasonal
and
holiday-­‐related
sales
patterns.
(10-­‐k
p4)
-­‐ Customer
activism:
Hershey’s
customers
are
mainly
wholesale
distributors,
B2B
businesses.
McLane
Company,
Inc.
is
the
primary
distributor
to
Wal-­‐Mart
stores,
Inc.,
amounted
22.2%
of
Hershey’s
total
net
sales
in
2012.
(10-­‐k
p4)
-­‐ Pension
plans:
Hershey
sponsors
a
number
of
defined
benefit
pension
plans.
In
addition
to
the
increase
in
net
periodic
pension
benefit
cost
in
2012,
the
level
of
lump
sum
withdrawals
during
2012
resulted
in
a
pension
settlement
loss
of
$19.7
million.
(10-­‐k
p41)
-­‐ Consumers’
health
concerns
including
obesity
and
the
consumption
of
certain
ingredients
could
cause
a
decline
for
demand.
(10-­‐k
p10)

2. Technological
-­‐ Engage
a
variety
of
R&D
activities
in
a
number
of
countries,
including
the
Unites
States,
Mexico,
Brazil,
India
and
China.
(10-­‐k
p7)
-­‐ Productivity
improvements
through
automation:
Hershey
empowers
the
World
Cocoa
Foundation,
International
Cocoa
Initiative,
and
CocoaLink,
by
a
first-­‐of-­‐its
kind
approach
that
uses
mobile
technology
to
deliver
practical
information
on
agricultural
and
social
programs
to
rural
cocoa
farmers.
(10-­‐k
p8)
-­‐ Infrastructure
and
Computer
hacking
activity:
Invest
in
industry
standard
security
technology
to
protect
the
Company’s
data
and
business
process
against
risk
of
data
security
breach
and
cyber
attack.
o Measure
data
security
effectiveness
o Maintain
routinely
test
backup
and
disaster
recovery
(10-­‐k
p12)
Economic
-­‐ Inflation:
Heavily
relies
on
Commodities
for
Production:
Cocoa,
Sugar
and
Fluid
diary
products,
etc.
o 2012
Cocoa
prices
moderated
in
2012
after
trading
at
37-­‐year
highs
in
early
2011.
o Hershey
tries
to
maintain
product
prices
not
fluctuated
much
because
of
their
forward
purchasing
and
hedging
practices.
“Except
for
the
dairy
futures
markets
are
not
as
developed
as
many
of
the
other
commodities
futures
markets
and,
therefore,
generally
it
is
difficult
to
hedge
our
costs
for
dairy
products
by
entering
into
futures
contracts.”
(10-­‐k
p6)
-­‐ Global
market
competition:
Hershey
continues
expanding
globally,
especially
in
Asia.
o China
is
top
priority,
internationally.
By
end
of
2013,
agreement
to
acquire
80%
stake
of
iconic
Chinese
confectionery
firm
Shanghai
Golden
Monkey
Food
Company,
remaining
20%
in
2015.
o Launches
Jolly
Rancher
brand
in
India
(first
country
out
of
North
America)
and
tailored
flavors
for
Indian
customers.
o Biggest
single
investment
ever
in
Asia
with
$250
Million
Malaysia
plant.
(Source
from
www.confectionerynews.com/Big-­‐brands/hershey
)
Ecological

3. -­‐ Due
to
Hershey’s
business
nature,
the
adverse
weather
(drought,
flood)
and
crop
disease
will
cause
a
decrease
on
the
harvest
amount
so
the
price
of
raw
materials
rises.
Hershey
is
attempting
to
minimize
the
environmental
impacts
of
its
operations.
o The
historical
drought
in
the
US
caused
dairy
prices
to
rise
starting
in
July,
2012.
o Ideal
weather
in
the
North
American
sugar-­‐growing
regions
caused
prices
to
trade
lower
in
the
fall
of
2012.
(10-­‐k
p5)
-­‐ In
2012,
Hershey
is
one
of
only
seven
companies
in
the
Food
and
Beverage
super-­‐sector
that
were
recognized
in
the
DJSI
(Dow
Jones
Sustainability
Index)
o Over
2008
baseline,
Hershey
decreased
waste
generation
by
23%,
water
usage
by
12%,
greenhouse
gas
emission
by
15%.
o In
2012,
improved
company
wide
recycling
rate
to
80%,
Carbon
Disclosure
Score
by
20%
and
moved
up
172
spots
in
the
Newsweek
Green
Rankings.
(10-­‐k
p8)
Political
-­‐ Government
regulators
of
alleged
pricing
practices
o Food
Conservation
&
Energy
Act
of
2008
sets
price
support
level
for
sugar,
corn,
peanuts
and
diary
products.
o Restrictions
on
Sugar
importations:
2012
sugar
supplies
are
negatively
impacted.
(10-­‐k
p5)
-­‐ Political
unrest
in
raw
material
production
countries:
West
Africa
accounts
for
70%
of
the
world’s
supply
of
cocoa
beans.
(10-­‐k
p5)
-­‐ Food
quality
and
safety
regulation:
Hershey’s
Product
Excellence
Program
provides
an
effective
product
quality
and
safety
program
against
all
regulations
by
various
government
agencies.
(10-­‐k
p7)
-­‐ Foreign
Trade
regulations:
unsolved
legal
proceedings
of
civil
lawsuits
o The
violations
of
Canadian
Competition
Act
in
the
sale
and
supply
of
chocolate
products
sold
in
Canada.
(10-­‐k
p14)
-­‐ Tax
Laws:
Full
paid
in
of
$222,975
tax
penalty
in
2012
due
to
an
understatement
of
a
reportable
transaction.
(10-­‐k
p14)
2.
Based
solely
on
the
facts
provided
in
your
analysis,
describe
3
opportunities
and
3
threats
that
Hershey
faces
from
the
external
environment.

4. 3
Threats:
-­‐ Vulnerable
supply
chain
of
raw
materials
due
to
dependency
of
Environmental
Factors:
adverse
weather,
crop
disease,
etc.
-­‐ Decline
of
market
demand
due
to
Consumers’
Health
concerns
to
obesity
and
consumption
of
certain
ingredients.
-­‐ Intensely
competitive
confectionery
industry
and
global
competitors
may
threat
Hershey’s
business.
3
Opportunities:
-­‐ Ensure
supply
of
raw
materials
and
Improve
productivity
through
technology
innovation,
e.g
advanced
planting
and
farming
technics,
pesticides
etc.
-­‐ Innovation
of
supplementary
nutritious
products,
e.g
low
calories
candy
bars
or
fat
free
chocolate;
including
maintaining
a
strong
supply
of
these
new
products.
-­‐ Continuing
global
expansion
and
addressing
Asian
market
as
top
priority.
3.
Conduct
an
industry
analysis
of
Hershey
(considering
Hershey
as
the
incumbent
firm)
and
conclude
whether
or
not
you
think
Hershey
is
competing
in
an
attractive
industry.
Industry
Analysis
of
Hershey
Company
shall
includes
the
following
6
aspects:
1)
the
bargaining
power
of
buyers
(who
are
they),
Who
are
they:
Hershey’s
customers
are
mainly
the
wholesale
distributors,
chain
grocery
stores,
mass
merchandisers,
chain
drug
stores,
vending
companies,
wholesale
clubs,
convenience
stores,
dollar
stores,
concessionaries
and
department
stores.
These
customers
then
resell
products
to
end-­‐customers
in
retail
outlets
worldwide.
(10-­‐k
p4)
The
bargaining
power
of
buyers
could
be
high,
since
Hershey,
as
a
manufacturer,
is
facing
wholesalers
mainly,
then
retailers
and
end
customers.
The
alliance
formed
by
wholesalers
and
hypermarkets
will
put
pressure
on
the
Manufacture’s
margins
by
an
aggressive
price-­‐cutting
strategy.
McLane
Company
accounts
for
the
22.2%
of
the
total

5. net
sales
of
Hershey
in
2012.
The
distribution
channel
is
crucial
and
the
wholesalers
not
Hershey
dominate
it.
Hershey
has
relatively
low
control
to
the
price
to
market.
To
meet
the
end-­‐customers
directly
is
not
a
wise
business
recommendation,
because
customers’
shopping
behavior
is
not
easily
changed
from
Supermarket,
drug
stores
to
Hershey
owned
retail
stores.
The
Eight
Hershey
Chocolate
World
Factory
stores
worldwide
serve
more
of
a
branding
function.
2)
the
bargaining
power
of
suppliers
(who
are
they),
Who
are
they:
Hershey’s
most
significant
raw
materials
requirements
include
cocoa
products,
sugar,
dairy
products,
peanuts
and
almonds.
Therefore,
the
suppliers
of
the
raw
materials
are
mostly
in
the
developing
countries,
which
are
highly
depended
on
the
export
of
those
materials.
The
bargain
power
of
these
suppliers
is
relatively
low.
On
the
one
hand,
the
supplier
industry
is
not
highly
dominated
by
a
few
organizations
or
companies.
For
most
of
the
time,
the
exportations
of
the
commodities
are
the
backbones
of
these
developing
countries.
So
the
possibility
of
monopoly
is
low.
On
the
other,
even
the
supplying
countries
have
no
absolute
say
to
the
yield
of
these
commodities.
It’s
much
up
to
the

6. environmental
factors
such
as
weather
or
political.
That’s
why
they
don’t
have
much
bargaining
power.
3)
the
threat
of
new
entrants,
The
analysis
of
the
new
entrants
threat
will
be
two
parts:
a.
Market
Maturity;
North
American
wide
and
European
the
confectionery
market
is
fully
matured
market;
however
globally
speaking
there’re
still
huge
opportunities
in
emerging
markets
like
China,
India,
Brazil
and
even
Australia.
Admittedly,
local
adaptation
to
these
new
markets
would
be
another
challenge
for
the
new
entrants.
b.
Entry
Threshold.
In
general,
the
entry
threshold
of
the
confectionery
is
high
considering
the
requirement
of
raw
materials
for
production
as
well
as
an
established
distribution
channel.
So
the
any
new
entrants
shall
build
up
their
own
supply
chain
network
as
well
as
prepare
for
the
declined
market
demand
in
certain
matured
markets.
(Source:
Global
Packaged
Confectionery
Trends
2011)

7. 4)
the
threat
of
substitute
products
(what
are
they),
The
threat
is
low.
Possible
substitutes
could
be
artificial
or
natural
sweeter
and
additives,
which
involved
highly
with
R&D
resources
and
man-­‐hours.
The
cost
to
switch
to
these
substitutes
is
high;
much
more
costly
than
the
raw
materials
such
as
cocoa
or
sugarcane
supplied
by
developing
countries.
5)
the
intensity
of
rivalry,
The
global
competition
is
fierce,
according
to
the
10-­‐k
report
information.
Some
of
the
Hershey
competitors
are
much
larger
firms
that
have
greater
resources
and
more
substantial
international
operations.
Key
Competitors:
Mars,
Nestlé,
Mondelez
International,
Ferrero
are
all
strong
competitors
worldwide.
Presently,
Hershey
is
the
fifth
biggest
manufacturer
Worldwide.
Mars,
Nestlé,
and
Cadbury
have
the
widest
exposure
in
key
worldwide
markets.
Ferrero
is
renowned
in
Europe
and
now
is
aggressively
entering
the
developing
markets
to
leverage
substantial
profits
from
the
rapid
rates
of
growth
experienced
by
these
economies.
Hershey
from
this
table
is
falling
behind
in
global
expansion.
No
factories
Worldwide.
However
learning
from
the
most
recent
industry
news,
Hershey
is
investing
$250
million
in
Malaysia
for
a
new
factory,
in
order
to
access
25
markets
across
Asia.
The Top 5 Global Confectionery Companies
Confectionary Company Net Sales 2011 Number of Employees Factories Worldwide
Kraft Foods Co.
(Illinois USA)
$19.96 billion 98,000 1,683
Mars Inc.
(Virginia USA)
$16.20 billion 65,000 1,353
Nestlé SA
(Vevey, Switzerland)
$12.80 billion 283,000 4,563
Ferrero Group
(Piedmont, Italy)
$9.61 billion 21,600 18

8. The Top 5 Global Confectionery Companies
Confectionary Company Net Sales 2011 Number of Employees Factories Worldwide
Hershey Foods Corp
(Pennsylvania, USA)
$6.11 billion 14,400 N/A
(Sources: Candy Industry magazine January 2012, Top 5 research
http://www.companiesandmarkets.com/MarketInsight/Food-and-Drink/Global-Confectionery-
Market/NI8061 )
6)
and
the
availability
of
complementary
products.
High.
Hershey
manufactures
and
sells
a
variety
of
confectionery
products.
The
complementary
products
go
along
with
Hershey
candies
could
be
coffee,
diary
products
and
bakeries,
which
are
daily
life
essentials.
The
supply
of
these
products
is
normally
sufficient,
so
it’s
not
likely
that
Hershey’s
business
will
be
affected
directly.
4.
Based
solely
on
the
3
opportunities
and
3
threats
described
in
answer
2,
as
well
as
your
industry
analysis
in
answer
3,
make
recommendations
for
Hershey
regarding
the
products,
markets,
and
industries
in
which
is
should
consider
competing.
Recommendations:
-­‐ R&D
priorities:
o Increase
funding
of
technology
R&D
focusing
on
the
agricultural
technics
to
improve
the
yield
of
raw
materials
in
developing
countries
o Invest
to
develop
healthy,
nutritious
new
products
to
cater
potential
new
market
demand.
-­‐ Asia
priorities:
o Increasing
investment
in
Asia,
in
both
manufacturing/plant
and
sales/marketing.
o Achieve
market
share
by
strategically
local
acquisition.
o Develop
new
products
with
locally
adapted
flavors
and
maintain
strong
pipeline.