The Hershey Company SWOT and PESTLE Analysis

Strength

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Weakness

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Opportunity

1. Increasing awareness about health benefits of chocolates: Major drivers for increasing awareness about health benefits of chocolates are: anti-oxidants enrichment, anti-aging properties and blood pressure suppressing nature of chocolates. Dark chocolate is recommended to slow down aging and prevent cardiovascular diseases. Chocolate is also believed to relieve stress. There are also new applications of chocolate and confectionary items, as well as increase in consumption of chocolate flavoured milk, ice creams, bakery products etc which are expected to increase the demand for chocolates. Hershey has a variety of such products that are expected to have high demand, like Hershey milk syrup and multiple dark chocolate brands like Scharrfen Berger (produced by Artisan Confections Company, a Hershey subsidiary), Hershey Special Dark chocolate and Hershey Dark Chocolate Kisses.

2. Rising chocolate consumption in developing countries: Developed countries have long been thriving markets for chocolate consumption. However, in recent years, developing countries are seeing a rise in chocolate and confectionery consumption. Some major trends driving the growth in developing countries are: shift in consumer tastes, increasing urbanisation, widespread availability of chocolates, increasing perception of chocolate as an affordable luxury, growth opportunities in handmade chocolates, rise in consumption of niche products (like chocolate drinks, fudge, mousse) and preference for chocolates as festival gifts. Asia Pacific region, especially India and China, is expected to be the fastest growing market over 2016-2024, mainly due to rising influence of Western lifestyle, seasonal and festive sales, and awareness of health benefits of chocolates. Though Hershey is faring poorly outside USA and retreating from many international markets, its products seem to be doing very well in India. Currently Hershey is experiencing a 50% growth rate in India and this is the reason for the company planning to introduce more brands in the Indian market, looking at the huge opportunity available. The company is planning to invest $50 million in India over the next 5 years starting 2019 to build infrastructure and manufacturing capabilities. However, despite the huge potential in Chinese market too, Hershey has not fared well in China, having been forced to sell off its Chinese brand Golden Monkey Candy.

3. Leveraging artificial intelligence and advanced analytics: Like most industries, artificial intelligence has found applications in the confectioneries industry too. Hershey can leverage advanced analytical techniques to get a deep understanding of consumers, shoppers, end-to-end supply chain, retail environment and macroeconomic factors at both a broad and precision level. AI can help companies create the right candy product. In 2018, AI technology along with Bayesian Optimisation technique was used by Google to design the perfect chocolate chip cookie. Hershey’s licorice brand Twizzler had a problem of weight variation due to slight variations in temperature. But the company must ensure that when the customers buy the package, it weighs exactly the same as mentioned on it. This has proved to be a challenging problem which was solved with the help of Microsoft’s AI system, which uses machine learning to let the machine access millions of data points to reduce the variability of weights.

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Threat

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Political

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Economic

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Social

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Technological

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Legal

1. Sugar taxes being introduced in many countries: The UK government has introduced a sugar levy from April 2018 for beverage makers. Next to possibly come under the levy is confectionery companies. Lobbyists for the levy are insisting the government impose a 20% tax on candies. This kind of action is a potential threat not only in UK but in the rest of the world too, as sugar causes health issues. Anti-sugar groups are using sugar tax as weapons in their fight, and as of 2018, governments in 31 countries have introduced this tax. This tax, combined with fluctuating prices of sugar, pose problems to confectionery companies as one of their major raw materials is sugar. Governments are also imposing restrictions on promotions by the companies. It could pose a challenge to Hershey’s international expansion plans as the restriction on promotion activities could make it difficult for its brands to announce their presence in the regulated countries. Even some states in US have imposed the tax but this is unlikely to have too much of a negative impact domestically as the company has already cemented a solid reputation over more than a century at home.

2. Compliance with child labor laws: There are various initiatives by governments, NGOs and UN to curb child labor around the world. Countries have passed laws regulating the issue. Confectionery companies like Nestle, Mars and Hershey have faced lawsuits accusing them of encouraging child labor and not informing consumers that the cocoa in their chocolates might have come from child labor, which is a major issue in the major cocoa producing region of West Africa. Hershey has defended itself by announcing that currently they source 75% of the cocoa from certified sources and they plan to make it 100% by 2020.

3. Sugar price controls under U.S. farm legislation: For many years, the US government has been controlling the production and import of sugar to ensure minimum price levels that are higher than those in international markets. This has led to higher costs for US consumers. East coast refined sugar traded between $0.38 to $0.40 per pound in 2017. In 2018, legislations were passed relaxing the quota, which benefitted companies like Hershey.

Environmental

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