Hershey Foods Corporation

FOUNDED: 1908

Contact Information:

HEADQUARTERS: 100 Crystal A Dr.
Hershey, PA 17033-0810
PHONE: (717)534-6799
FAX: (717)534-6724
URL: http://www.hersheys.com

OVERVIEW

Hershey Foods Corporation manufactures, distributes, and sells chocolate-related products and candies as well as grocery and pasta products. In 1997 the company controlled one-third of the U.S. candy market, making it the leading manufacturer in North America of chocolate, confectionery, and chocolate-related grocery products. Hershey's nearest competitor, Mars Inc., held just over 20 percent of the market. The company also is the leading producer in North America of brand-name dry pasta products. In addition, Hershey Foods Corporation has international interests and exports its products to more than 90 countries worldwide.

Although once content to rely on its products' quality to generate revenue, the company has gradually revised its policy and has sought to improve its prospects through new product introductions, corporate acquisitions, and specialized marketing campaigns, including thematic merchandising.

COMPANY FINANCES

Hershey Foods Corporation had record sales and earnings in 1997. Sales totaled $4.3 billion in 1997, compared to $3.99 billion in 1996, resulting in profits of $336.3 million and earnings of $2.25 per share. Hershey Foods corporate stock outperformed the S&P 500 during the first three quarters of 1997 by increasing 25.6 percent; its P/E ratio was 115 percent. The stock had a closing price of $62 on December 31, 1997. Hershey Foods' confectionery business is growing at a rate of 6.7 percent. The corporation has paid a dividend on its common stock every quarter since the first quarter of 1930. The increase paid in September 1997 was the twenty-third consecutive annual increase of the corporation's common stock.

ANALYSTS' OPINIONS

Analysts with Morgan Stanley, Dean Witter expect the company's Hershey Chocolate North America division to provide 87 percent of the company's operating profit in 1998. They project Hershey's gross profit should rise in 1998 primarily due to volume growth.

HISTORY

Milton S. Hershey was born in Pennsylvania and was apprenticed to a candy maker as a teenager. His first candy business was a failure but a later venture with caramels was a success. It wasn't until Hershey visited the 1893 World's Columbian Exposition in Chicago that chocolate became a business interest. He decided then that the future was in chocolates, not caramels: he started the Hershey Chocolate Company the following year. Hershey sold his Lancaster Caramel Company in 1900 and returned to Derry County, his birthplace, to build his chocolate empire. His chocolate factory was completed in 1905. By 1911 the company was posting sales of $5 million and was a pioneer in confectionery mass-production techniques. The name Hershey would become synonymous with chocolate—even though the company did not advertise its products until the 1970s, adhering instead to Milton Hershey's policy of letting the quality of the products vouch for themselves.

In the 1960s Hershey Foods Corporation began expanding beyond its traditional product lines and making acquisitions. Toppings and a liquid baking product were among the line extensions. The company's first acquisition, made in 1963, was the H. B. Reese Candy Company, which had been founded by a former Hershey employee. Hershey Foods further expanded its chocolate and nonchocolate confectionery lines through the 1977 purchase of Y&S Candies, whose products included Twizzlers; the 1988 purchase of Peter Paul/Cadbury, whose products included Almond Joy and York peppermint patties; and the 1995 purchase of Henry Heide, Inc., whose products included Jujyfruits and Wunderbeans jelly beans. In 1996 Hershey purchased Leaf Inc., the leading company in the nonchocolate confections market, from Huhtamaki Oy of Finland. This acquisition, the largest ever by Hershey, added Good & Plenty, Heath, Jolly Rancher, Rain-Blo bubble gum, Whoppers malted milk balls, and other popular candy and chewing gum brands to the Hershey line, and reportedly enhanced the company's position in the chocolate candies market as well. Hershey Foods saw an increase in its 1996 net sales of 8 percent over 1995 sales.

Hershey Foods entered the pasta market with the 1966 purchase of San Giorgio Macaroni Company. Since then the company has become the manufacturer of a number of regional pasta brands, the producer of an extensive line of food service pasta products, and the supplier of private-label pasta products to large retail chains and wholesalers. In 1996 Hershey Foods integrated its pasta and grocery operations into a single group. In addition to pasta, the division makes baking products, ice cream toppings, chocolate syrup, peanut butter, and milk products.

STRATEGY

After losing a big chunk of its market share to Mars in the 1970s, Hershey Foods began advertising for the first time and diversifying its product lines. In 1997 the company increased summer candy sales by 20 percent through what was called the "largest and most complex [promotion] ever attempted in the candy industry." The promotion, a tie-in with the movie Lost World, encompassed several Hershey brands and featured dinosaur-themed candy. A similar campaign tied in with the 1998 movie Godzilla featured "Godzilla" packaging and novelty items. The company also has thematic merchandising programs tied to NASCAR, the NFL, and the NCAA Final Four.

INFLUENCES

Late in 1995 Hershey Foods increased wholesale prices on its candy bars and king-sized candy bars by 11 percent to offset higher costs for raw materials and packaging. The increase was the first in more than five years. Also in 1995, the company repurchased stock from the Milton Hershey School Trust. (Hershey Foods repur-chased another 9.9 million shares from the trust in 1997.) These and other actions helped boost the company's stock value 40 percent. Hershey Foods' pasta business had a slight decline due to higher durum wheat costs in 1996, and experienced further decline in 1997 due in part to the trend toward away-from-home eating.

In April 1996 Hershey unveiled Sweet Escapes, a reduced fat and calorie candy line, spurred by the consumer demand for such food products. Hershey Foods claims the line is its "most successful new product introduction to date." Also in 1996, Hershey Foods introduced its first hard candies, called TasteTations, and its boxed candies, Hershey's Pot of Gold. In 1997 Hershey Foods introduced Reese's Crunchy Cookie Cups. Reese's is the corporation's largest and most successful brand.

PRODUCTS

The Hershey Chocolate North America division produces chocolate and nonchocolate candies for consumers in the Americas under the Hershey brand name, as well as other candies, such as Almond Joy, Mounds, Cadbury Creme Eggs, Twizzlers, Reese's peanut butter cups, Sweet Escapes candy bars, Milk Duds, Jolly Rancher, Jujyfruits, and York peppermint patties. One of the company's core brands, Hershey's Kisses chocolates, was introduced in 1907. The candy has been packaged with the trademarked tissue paper plume since a mechanical wrapping machine was put into use in 1921. On July 26, 1971, Hershey's Tropical bar was sent to the moon with Apollo 15 astronauts.

The Hershey Pasta and Grocery group makes a wide range of grocery items, including eight regional pasta brands—American Beauty, Ideal by San Giorgio, Light 'n' Fluffy, P&R, Mrs. Weiss, Ronzoni, San Giorgio, and Skinner—and Hershey's and Reese's baking products and hot cocoa mixes. Hershey's hot chocolate was introduced in 1940, and its instant cocoa mix in 1956. The division holds the leadership position in the chocolate syrup and unsweetened cocoa categories in the United States.

Hershey's product line is diverse, comprising assorted flavors of Luden's throat drops, introduced in 1992; Reese's peanut butter ice cream cups, Hershey's Great American Cafe non-dairy creamers, and Amazin' Fruit drink boxes, all introduced in 1995; two flavors of Hershey's classic caramels, introduced in 1997; and ReeseSticks wafer bars, which appeared in 1998.

CORPORATE CITIZENSHIP

Milton S. Hershey, founder of Hershey Foods Corporation, established a tradition of corporate philanthropy. According to corporate literature, "Mr. Hershey's belief that an individual is morally obligated to share the fruits of success with others resulted in significant contributions to society."

Hershey returned to Pennsylvania's dairy country in 1903 because of the large supply of fresh milk for his products. Once there, he built a plant and developed the community around it. "Some people were suspicious of Mr. Hershey's motives in founding the town and feared that he would take advantage of people who lived there, as had happened in other 'company towns'," writes a Hershey biographer in a corporate history. "But though Mr. Hershey could certainly be autocratic and was criticized for deciding what was important, often without consulting the town's inhabitants, his concern for his workers' welfare was genuine."

Hershey found work for the community even during the Depression, when he built a hotel, a community building, a sports arena, and new corporate headquarters. No employees were laid off from Hershey during the Depression.

Hershey and his wife, who were childless, established the Hershey Industrial School in 1909. The school for orphaned boys was the primary recipient of Hershey's benevolence, just as it is today. Currently the Milton Hershey School Trust owns 35.5 percent of Hershey Foods common stock and more than three-fourths of the company's voting shares.

Hershey Foods is involved in community philanthropy to this day, primarily through Hershey's Track & Field Youth Program and the Children's Miracle Network.

GLOBAL PRESENCE

Hershey International exports Hershey's branded confectionery and grocery products to more than 90 countries. It also markets these products, some of which are designed specifically for their markets. The company has licensing agreements with companies in several Asian nations. Hershey's strongest market outside North America is the Philippines. Products are sold there both at retail and in duty-free shops. The company plans to concentrate its expansion into the Far East, Russia, and China.

EMPLOYMENT

The company attributes much of its success in the mid-1990s to the team concept it promotes. It credits one such team with the development of Sweet Escapes. Other teams have developed means to control quality in Peter Paul Almond Joy candy bars, thereby eliminating missing almonds, and a corporatewide purchasing plan. In 1997 Hershey Foods became one of the few companies with more than 100 employees to extend stock options to every fulltime employee, regardless of position.

Hershey Pasta in Louisville, Kentucky, has employed hearing-impaired people since the 1950s; about 10 percent of all production employees at the Louisville facility are hearing-impaired. Most employees use sign language to circumvent the noisy equipment. Sign language is also taught at the plant.

SOURCES OF INFORMATION

Bibliography

Adding Value: Hershey Foods Corporation Summary Annual Report 1996. Hershey, PA: Hershey Foods Corporation, 1996.

"Hershey Foods Corporation. Hoover's Online, 10 March 1998. Available at http://www.hoovers.com.

"Hershey Foods Corporation."International Directory of Company Histories. Detroit: St. James Press, 1996.

"Hershey Foods Corporation Announces 1997 Record Sales and Earnings." PR Newswire, 28 January 1998.

"Hershey Foods Posts Record Sales, Earnings." Knight-Ridder/Tribune Business News, 19 January 1998.

"Hershey Will Make 'Godzilla' Chocolate Bars in Movie Tie-In." Knight-Ridder/Tribune Business News, 12 March 1998.

Hershey's Home Page, 16 February 1998. Available at http://www.hersheys.com.

Heuslein, William. "Timid No More." Forbes, 13 January 1997.

The Man Behind the Chocolate Bar: An Introduction to Milton S. Hershey 1857-1945. Hershey, PA: Hershey Foods Corporation, ND.

Moody's Investors Service. "Hershey Foods Corporation," 10 February 1998.

Morgan Stanley, Dean, Witter. "Hershey Foods - Company Report," 13 November 1997.

Profile of Hershey Foods Corporation. Hershey, PA: Hershey Foods Corporation, April 1996.

Warner, Mary. "Hershey Foods Offers Stock Options Plan to All Employees." Knight-Ridder/Tribune Business News, 26 February 1997.

Warner, Mary. "Hershey Foods Reaches the Non-Chocolate Lead among Candymakers." Knight-Ridder/Tribune Business News, 30 April 1997.

For an annual report:

write: Hershey Executive Offices, 100 Crystal A Dr., PO Box 810, Hershey, PA 17033-0810

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Hershey Foods Corporation's primary SICs are:

2064 Candy & Other Confectionery Products

2066 Chocolate And Cocoa Products

2098 Macaroni Spaghetti