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Page 1GLOBAL MARKET STRATEGY IN THE CONFECTIONERY INDUSTRY: THECASE OF HERSHEY FOODS CORPORATIONByChun ZhangA PLAN B PAPERSubmitted to Michigan State Universityin partial fulfillment of the requirementfor the degree ofMASTER OF SCIENCEDepartment of Agricultural EconomicsSpring 2001

Page 2ABSTRACTGLOBAL MARKET STRATEGY IN THE CONFECTIONERY INDUSTRY: THECASE OF HERSHEY FOODS CORPORATIONByChun ZhangThis study uses Hershey Foods Corporation as a case to demonstrate how to formulateglobal product strategy to penetrate growing international markets. In recent years,confectionery markets have been growing around the world. Hershey Foods Corporation,the North American confectionery leader, however, has been experiencing some setbacksin international expansion. This study uses the global strategy framework (Yip, 1992) toanalyze the strategic position and resources of Hershey Foods Corporation, and todiagnose confectionery industry globalization potential. The focus of the study is theformulation of global product strategies for Hershey's future expansion into strategicallyimportant markets. Benefits and costs of a global product strategy and the organizationalability of Hershey Foods Corporation to implement a global product strategy are alsoevaluated.

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rDedicated toMy mother Liu, Yuying, to my father Zhang, Kaiyin, and my sister Zhang, YanFor all their unconditional support and inspiration during my overseas study.

Page 4ACKNOWLEDGEMENTSI would like to express my sincere appreciation to all those faculty, staff,colleagues and friends who assisted in the completion of the paper. I am deeply indebtedto my major professor, Dr. Christopher Peterson, who provided continuous and valuableacademic guidance and financial support during my two years of study. I also would liketo express my appreciation to Dr. David Weatherspoon, who reviewed this manuscriptand served on my guidance committee.Thanks also to my colleagues and friends, Youssouf Cámara, Amy Damon,Kelley Cormier, Carlo Russo, Lorie Srivastava, and Lulama Traub. I sincerely appreciatetheir patience with my English, their believing in me, and their spiritual support. Theirfriendship enabled me to cope with pressure and frustrations in my two-year study, and toaccomplish my academic ¡

Page 5Chapter 1 Introduction.

TABLE OF CONTENTS11.1. Background Information j1.1.1. History of Confectionery Industry l1.1.2. History of Hershey Foods Corporation 31.1.3. Current Situation of Confectionery Industry 51.2. Problem Statement and Objectives 61.3. Research Questions1.4. .Structure of the PaperChapter 2 Methodological Framework: Globalization Strategy Framework 102.1. Description2.2. Data n2.3. Analytical Methods -2.3.1. Position and Resources of the Business and Parent Companyl42 3.2. Industry Globalization Drivers ll2.3.3. Global Strategy Lever: Global Product Strategy 182 3.4. Benefits/Costs of Globalization •••;• •■■-192.3.5. Organization Factors that Affect the Implementation of GlobalStrategyChapter 3 Analysis of Positions and Resources 233.1. SWOT analysis ^3.1.1 Performance Evaluation li3.1.2. Hershey Foods Corporation's External Environment 243.1.2.1. Competitive Forces 253.1.2.2. Change Forces ^3.1.2.3. Opportunities and Threats 313.1.3. Internal Environment ^3.1.3.1. Strengths ^3.1.3.2. Weakness •-*'3.1.4. Strategic Synthesis i3.2. Core Strategy Analysis3.2.1. Discussion of Desired Accomplishments «3.2.2. Hershey's Current Core Strategy 453.2.3. Recommendations for a New Core Strategy 4y3.3. ConclusionsChapter 4 Diagnosing confectionery industry globalization potential 554.1. Diagnosing confectionery industry globalization drivers 554.1.1. Market Drivers4.1.2. Cost Drivers

Page 6604.1.3. Government Drivers 624.1.4. Competitive Drivers 644.1.5. Conclusions ••;■■■••; fis4.2. Overview of International Confectionery Markets »4.2.1. Asia/Pacific Markets 694.2.2. Mature Western Europe 'JQ4.2.3. Eastern Europe '"744 2.4. Latin America • ç,04.2.5. Summary of Regional Market AnalysesChapters Global Product Strategy of Hershey Foods Corporation, . 835.1 Approach to Analysis g45 2 Selection of Markets • ""'1""¿""-¡,""Á',5.3 Discussion of Ideal Products Strategies for Hershey Foods ^Corporation çq5.3.1 Asia/Pacific Markets 935.3.2 Western Europe 945.3.3 East Europe • "96534 Latin America ; ■• ■■"•■ '5.4 ' Review of Actual Product Strategy of Hershey Foods ^Corporation 995 4 1. History of Internationalization .....-...^-..----5.4.2. Review of Market/Product strategies of Hershey Foods ^

Corporation 1035 5 Recommendations for Changes<w; Renefits/Costs of a Global product strategy ••••■• '57 OrgSonAbilityofHersheyFoodsCorporationtoImplemenUAbility ....Ill5.7.2 Recommendations 1145.8 Conclusions118Chapter 6 Conclusion6.1 Summary of Specific Findings/Recommendation jl«6 2 Critique of the framework ■■ ^6.3 Recommendations for future research

Page 7LIST OF TABLESTable 2-1 : Global Product-Communication Mix Strategic Alternatives 20Table 3-1: Confectionery Industry Opportunities and Threats 34Table 3-2: Strengths and Weaknesses of Hershey Foods Corporation 39Table 3-3: Three Scenarios for the Confectionery Industry 40Table 3-4: Hershey's Current Core Strategy 45Table 3-5: Hershey Foods Corporation's Acquisitions in 1990's 47Table 4-1: Asia/Pacific Markets Sugar Confectionery Consumption as % of TotalConfectionery 67Table 4-2: Latin American Market 1997 Per Capita Consumption .79Table 4-3 : Characteristics of International Confectionery Markets 82Table 5-1: Lists of Product Strategies for International markets 93LIST OF FIGURESFigure 2-1: A Framework for Global Strategy 12Figure 2-2: Industry Globalization Potential 18Figure 2-3: Elements of Global Organization 22Figure 3-1: Stock Closing Prices of Hershey Foods Corporation (Ten Year) 24Figure 3-2: 1998 US Total Confectionery Market Share 26Figure 3-3: Hershey's Du Pont Formula 37Figure 3-4: Hershey's SWOT Analysis Diagram 41Figure 4-1: 1997 Growth Rates of Asia/Pacific Confectionery markets 57APPENDIXAppendix 4.1.4: Chocolate and Products Imports in Million US Dollars 126Appendix 4.1.5: Sugar Candy Non-Chocolate Imports in Million US Dollars 128III

Page 8Chapter 1 IntroductionConfectionery has grown from ancient delights to a US$2! billion industry in theUnued States. TheU.S. confectionery market leader, Hershey Foods Corporation, alsohas grown from a small chocolate company in the countryside of Pennsylvania to theleaderofthe North American markets, m recent years, confectionery markets have beeng.owingworldwide.However.Hersheyisexperiencingdifficultyintakingadvantageofglobal growth. As a result of this concern, Hershey needs to reevaluate its strategies inorder to seize the present global opportunities.1 1 Background Information1.1.1 History of ConfectioneryHuman^esireforsomethingsweettoeatgoesbacktoprimitivetimesandhasgr0wnintoa$21billion confectionery industry in the United State, The industryp.oducesaun.versalfoodproductus.ngtngredientsfrommanypartsofthe world. FromcomfieldsoftheMiddleWest, to the fruit and trees in many parts of the world, to the^tsandherbsarea.tothedairylandsinmostcountrie.candystronglyaffectsagricultural produce« and their markets. Modern machines, skilled workers, andexecutive, scientific and distributive techniques combine to meet the great demand forconfectionery products.The recordedhistoryofconfectionerycanbetracedback to ancient Egyptians,Romans, Greeks and Chinese. Nevertheless, the confections made at that time wouldseem strange compared to modern candies. Ancient Egyptians made candy from flour and

Page 9crude starch, sweetened with honey, with additions of spices and sweets. By combininghoney with flour paste and fruits, ancient Romans and Greeks also enjoyed theirconfections. Records dating back to ancient China show that the people made a variety ofhard candy by boiling barley and water toa hard consistency, spinning it into sticks andthen rolling these in toasted sesame seeds. At that time, candy was a luxurious treat thatonly a few could afford.The increased availability of sugar transformed candy from an ancient delight intoa major modern industry producing a relatively low-cost food that millions of peoplecould enjoy. Candy evolved from ancient forms produced in ancient origins to a modernindustry centered in Europe. Venice had long acquired sugar through trade with the East.In the 13 century, Venetians had a virtual monopoly on the European sugar trade. Theywere also the first to improve sugar-refining methods. Eventually refineries sprang up inItaly, Germany, Spain, England and Brazil.The first confectioners in America were the Dutch backers of New Amsterdam,later called New York. At the beginning of the 20th century, there were about 1000manufacturers in the United States. They employed 27,000 workers and the total annualsales were $60,000,000 (Minifie 1989). Equipment until the 1900s consisted chiefly ofkettles, hand cutters, starch boards, shallow trays, and hand printers. The majority of thesewere quite primitive. The introduction of European candy manufacturing inventionsmodernized the candy industry in the United States. These inventions enabled massproduction of candy at a lower cost, improved the sanitary conditions of candymanufacturing by eliminating work previously done by hand, and increased production tomeet the ever-increasing demand for candy.

Page 10sformed to continuous operation. Candy became a: delicacy to a world commodityWorldWarlfosteredmassproductionofcandyandrevolutionizedtheindustry.AUnost every candy-making process, from the preparation of raw materials to thepackaging of the final product, was tränst,nationally recognized food, and its evolution from a mere cwas complete. World Wa, E also fostered many improvements in the candy industry.Methodstohelppreservecdyflavorsandfreshnessweredevelopedandarestillmgeneral use or advanced stages of development today.Considering all the changes thathave affected candy production a*d made it morewidely available, candy throughout history has never lost its consumer base.1.1.2. History of Hershey Foods Corporationmthe United States, Hershey and chocolate are synonymous. Hershey FoodsCorporation is the largest U.S. producer ofchocolate and non-chocolate confectioneryproductsa,dthecompanymarketsmorethan50brandsworldwide(HersheyFoodsCorporation Annual Report 1999).MiltonHersheyestablishedtheHershey Chocolate Comply around !900, aftersellingmscaramel-manufacturingbusiness^ecompanywaslocatedintherichPennsylvaniacountrysidewheretherewasaplentifulsupplyoffreshmilk.Aftermuch, developed his own method for making milk chocolate. Theexperimenting, Hershey c, Milk Chocolate bar first appeared in 1894, and one ofHershey Almond Bar and Hershey Ithe most popularitems,Hersheys kisses, was introduced in 1907.HersheysbusinessprosperedduringWorldWarn.Thefirmproducedaspeciallyfcrmulatedchocolatebar for theU.S. government that would not melt in a soldier,pOcket,butwouldsustainmatsoldierifnootherfoodwa3av,lable.About500,000bars

Page 11were produced each hour, twenty-four hours a day at the Hershey factory. The HersheyCompany experienced healthy growth at the close of World War D (Broekel 1982).However, after World War D, under the conservative leadership of PercyAlexander Staples, the Hershey Corporation had been through years of stagnation. Thecompany missed ideal opportunities to expand into European markets, lost its marketleadership position to Mars and had difficulties sustaining new product entries(Zimmerman 1993).It was also during this period that Hershey started to restructure management and

recruitment of talented young people for positions as junior executives. The 1960's wasthe first time that Hershey Foods Corporation recognized the need for more professionalmarketing and sales talents. The company introduced its first full national advertisingprogram in 1970 (Zimmerman 1993).Hershey expanded both its domestic and international market shares throughacquisitions. Since the mid-80s, Hershey has bought a dozen popular brands. As of April18,1999, Hershey held the leading position in both U.S. chocolate and non-chocolateconfectionery markets with a market share of 42.9% and 17.2%, respectively. AfterHershey completed a 96% interest sale of its pasta business in January 1999, the companyis now left with two major divisions: Hershey Chocolate North America and HersheyInternational (Hershey Foods Corporation Annual report 1999).Hershey Chocolate North America produces and markets many favorite Americanbrands, such as, Almond Joy and Mounds candy bars, Cadbury-s cream eggs candy, andHersheys Cookies'n' Creme candy bars. This division holds not only the leading positionin the US confectionery market, but also the Canadian baking chips and sundae toppings

Page 12markets. In addition, it holds the number two position in the expanded chocolate barsegment in Canada and in the chocolate confectionery and flavored milk drink categoriesin Mexico.Hershey International markets Hershe/s branded confectionery and groceryproducts in over 90 countries worldwide. It sells traditional Hershe/s chocolate andgrocery products, as well as Hershey's Extra Creamy Milk Chocolate, which is designedspecially to meet the taste preference of international consumers. Hershey's brandedproducts also are available through licensing agreements with partners in South Korea,Japan, Philippines and Taiwan.The company's ten-year compounded growth rate was 7.42% for sales, 4.77%for net income, and 6.79% for total assets. As of December 31, 1998, the corporationemployed 14,700 full-time and 1,500 part-time employees (Hershey Foods CorporationAnnual Report 1999).1.1.3. Current Situation of Confectionery IndustryIn recent years, confectionery markets have been growing worldwide.Opportunities range from the mature markets of Western European and the U.S. to theemerging markets of Asia Pacific, Eastern Europe and South America. Per capitaconsumption in the US has risen from 17.7 pounds in 1974 to 25.5 pounds in 1997 (USDepartment of Commerce). From 1993 to 1997, the total growth rate of candy sales wasabout 17.5% (Dtl Moscan 12/29/97). In 1997 confectionery sales growth doubled that ofthe overall food market's growth.Internationally, between 1993 and 1997, Vietnam (10.5%), Brazil (9.1%), Ireland(5.8%), China (5.7%) and the Czech Republic (5.4%) were the leading per capita

Page 13confectionery consumption growth markets in volume (Candy Industry 07/98). Data-monitor, a strategic market analysis company, forecasts that the confectionery tradingpattern will expand further into regions such as Eastern Europe, Brazil and China.Ranked first among snack categories and third among food categories in 1998, theU.S. confectionery industry is a highly concentrated industry which is becomingincreasingly global. Eight firms account for 85% of market share (Hershey FoodsCorporation Annual Report 1999). Among these firms, several of the leadingconfectionery companies are foreign-owned, but maintain or own manufacturing facilitiesin the United States. In 1997, the U.S. chocolate manufacturers' trade deficit increased by52% to $44 billion dollars despite domestic chocolate exporters increasing their globalpresence by 10% (Candy Industry 01/99).1.2 Problem Statement and Objectives:In spite of current domestic and international opportunities discussed above,Hershey has been experiencing some inadéquate performance. Starting from the fourthquarter of 1998, Hershey's stock closing price has performed below that of the averagestock on the S&P500 for the first time in the past five years. In addition, as confectionerygiants based in established mature markets are exporting and manufacturing in emerging. markets, such as, Eastern Europe and Asia, Hershey is absent from this heatedinternational competition, focusing mainly on domestic and North American markets(Brenner 1999).Ignoring the high product development costs and the difficulty of making marketshare gains, Hershey is still introducing new products to capture market share in the

Page 14mature North American markets. Hershey has one of the best innovation records in theindustry with three successful introductions in the United States and Canada during the1980s-Skors (1983), BarNone (1987), and Symphony (1989) (Yip, 1991). But thissuccess has not been transformed into international success.In contrast to the other major players, Hershey does not rely onafew core, globalbrands to build market share in new market, For example, in Mexico, the joint ventureHershey entered with National de Dulces in 1966 produces 12 Hershey products andHershey International exported an additional 14 brands (Yip, 1991). Mars' approach ofdirect control of manufacture and reliance on only a few standardized products has beenmore successful. Mars' market share surpassed Hershey's in the very first year it enteredthe Mexican market (Yip 1991).The purpose of this paper is to address the globalization issues faced by HersheyFoods Corporation. The paper attempts to evaluate the industry conditions (market, cost,government, and competitive drivers) that provide Hershey with the potential for usingglobal product strategy.1.3 Research QuestionsAs the North American confectionery leader, Hershey only ranked fifth in globalsales in 1997, far behind its archrival Mars (Travel Retailer International 1998). Hersheycontinues to focus primarily on the North American market while major US confectioneryproducers are competing with European confectionery giants in growing overseas marketsand reaping benefits from industries and technologies developed abroad.The following questions then arise:

Page 151. As to Hershey's overall strategic posture: a) What are the strategic resourcesof Hershey Foods Corporation?; b) How does Hershey position itself in theindustry?2. What product strategy should Hershey take to best utilize its industryglobalization potential and to penetrate international confectionery markets?3. What are the benefits/costs of a global product strategy for Hershey?4. Does Hershey have the organizational ability to implement a global productstrategy?1.4 Structure of the Paper.Chapter 2 describes the methodology used in this study: a global strategyframework. Different components of this framework are discussed and their respectivecontributions to this research are justified.Chapter 3 examines Hershey Foods Corporation's strategic position and resourcesby analyzing its strengths, weakness, opportunities and threats, and overall core strategy.Chapter 4 examines the confectionery industry's globalization potential andprovides an overview of international confectionery markets. Four groups of industryglobalization drivers are analyzed, and international markets are selected according totheir globally strategic importance to Hershey Foods Corporation.Chapter 5 discusses Hershey Foods Corporation's global product strategy. Idealproduct strategies for Hershey's selected international markets are suggested. Hershey'scurrent uses of product strategy are critiqued, and recommendations for change are

Page 16proposed. Thebenefits/costsofglobal product strategy and the organizational ability toimplement this global strategy are evaluated.Chapter 6 summarizes the findings of the paper, reviews recommendations forHershey Foods Corporation, international ma^ets penetration, critics the framework,and points out areas for further research.

Page 17Chapter 2 Global Strategy FrameworkThe methodological framework used in this study is Yip's global strategyframework (1992). Five components of the framework are.l) position and resources ofbusiness and parent company, 2) industry globalization drivers, 3) global strategy levers,4) benefits/costs of global strategy, and 5) organization's ability to implement a globalstrategy. These various components are discussed and their uses in this framework are

justified.2.1 Description of the FrameworkThe old models of multinational strategy are primarily "multi-domestic" in nature.Hout, Porter and Rudden (1982) defined a global industry, in contrast to a multi-domesticindustry, as one in which a firm's competitive position in one country market issignificantly affected by its competitive position in other country markets. Therecommended response (Porter, 1986) is a combination of concentration and co-ordination of value-added activities. Bartlett and Ghoshal used a somewhat differentdefinition. In their view, a "transnational" industry, is one in which businesses are drivenby simultaneous demands for global efficiency, national responsiveness and worldwidelearning.Building on a conceptual framework for competition in global industry (Porter,1986) and the industrial organization link to competitive strategy (Cave, 1980), Yip setout a framework that systematically relates global strategy choices to global industrycondition. This study will use Yip's global strategy framework to analyze globalization

Page 18potential of the confectionery industry and discuss global strategy choices for HersheyFoods Corporation, the leader of the U.S. confectionery market.Figure 2-1 shows Yip's global strategy framework for diagnosing and developingglobalization strategy as adapted for this study. This framework starts with the discussionof position and resources of the business and parent company. Attractiveness ofglobalization strategy is firm specific. Resources and position of a company have directeffect on the extentofthe use of global strategy. Another important influence to the useof global strategy is industry globalization driver, These drivers (underlying market, cost,government and competitive drive«) are external* determined byindustry conditions oroytheeconomicsofthe business, and they create the potential for a worldwide businessto achieve the benefits of global strategy. Industry global strategy levers are choicesavailable toaworldwide business. Companies possessing different resources andinfluencedby different mdustry globalization drivers use different global strategy levers(global market participation, global products, global locationof activities, globalmarketing and global competitive moves). In order to achieve the benefits of a globalstrategy and avoid the costs, managers have to set their global strategy levers appropriateto the industry globalization drivers and also appropriate to the company's position andresource, The organization's ability (structure, management, culture, and people) toimplement the formulated global strategy affects how well benefits can be achieved. Italso affects how ambitious the global strategy should be, and conversely the desiredglobal strategy affects how the organization should be structured and managed.

Page 19Figure 2-1 A Framework for Global StrategyPosition and Resources ofBusiness and Parent CompanySWOT AnalysisCore Strategy AnalysisGlobal Strategy Global StrategyLevers:Global Market ParticipationGlobal ProductsGlobal Location of ActivitiesGlobal MarketingGlobal competitive MovesIndustry Globalization Drivers:MarketCostGovernmentCompetitive

]Organization's Abilityto Implement a GlobalStrategySources: Adapted from Yip (1989)2.2. DataThis study uses data primarily from secondary sources. Information for theconfectionery industry and Hershey Foods Corporation was gathered through tradejournals, industry reports, company web sites, theFAOweb site, the World-Bank website and electronic library resources at Michigan State University. Interviews were also

Page 20conducted with representatives ofboth the National Confectionery Association andHershey Foods Corporation.I, should be noted that data were collected according to the various analysesundertaken in this study.For SWOT and core strategy analyses, the following data werecollected: company product line, market share, expenses on advertising and promotion,compensation program, growth rates of retail sales, financial statistics, acquisition lists,manufacturing capacity, information system, industry concentration ratio, competitivesituation, global revenues for firms within the industry, distribution channels,consumption trends and government regulations. For the assessment of industryconditions, the data needed were information on customer need, global customers andchannels, marketing, global scale economies, differences in country costs, productdevelopment costs, trade policies, technical standard, marketing regulations, exports andimports, global competitors. In addition, information on tastes and preferences, incomes,distribution channels and trade policies of different regions was also gathered. The resultsand conclusions from the first two analyses were used to formulate product strategy forHershey Foods Corporation.2.3. Analytical MethodsYip's global strategy framework is adapted to guide this study, which involves thefollowing analyses: 1) Position and resources of business and parent company areexamined in order to assess a compan/s capability (strengths, weakness, opportunitiesand threats)and core strategy. This helps to build upasolid foundation for furtherdiscussion of a global strategy; 2) Industry glooalization drivers are analyzed to diagnose

Page 21the confectionery industry globalization potential; 3) Global strategy levers are discussedto evaluate the choices that are available to a worldwide business (this study in particularfocuses on one of the levers, global products); 4) the benefits and costs analysis allowsthe evaluation of a global strategy; and, 5) organizational factors are examined to assess acompany's ability to implement a global strategy. All of these steps from Yip'sframework are applied to the case of Hershey Foods Corporation.2.3.1. Position and Resources of the Business and Parent CompanyIn order to build a solid foundation for discussing global strategy, a rigorous lookat a company's core strategy, analyzing strengths and weakness, opportunities, and threatsis necessary (Yip, 1991). This study uses SWOT analysis and core strategy analysis to dothis.SWOT analysis is based on the assumption that an effective strategy derives froma sound "fit" between a firm's internal capabilities (strengths and weaknesses) and itsexternal situation (opportunities and threats) (Pearce and Robinson 1994).This study uses competitive forces (Porter 1986) and change forces (Peterson) toidentify opportunities and threats of Hershey Foods Corporation. The competitive forcesframework argues that the ultimate profit potential of an industry is determined by thecollective strength of five basic forces: the threat of new entrants, the bargaining power ofsuppliers, the threat of substitute products or services, and the competition among currentrivals. Whatever their collective strength, a corporate strategist's goal is to find a position

in the industry where his or her company can best defend itself against these forces, orcan influence them in its favor.

Page 22Aside from the five competitive forces, there are also changes of major trends thatwill either provide opportunities or pose threats to a firm. The change force methodfocuses on analyzing changes in the following areas: buyer demand, long-term marketgrowth rate, product and marketing innovation, technology and the speed which itspreads, regulatory influences and government policy, business risk, economy andincreasing globalization of the industry. Less change corresponds to less threats, butprobably fewer opportunities. Greater change corresponds to more threats, but probablymore opportunities (Peterson).A firm's strengths and weaknesses are analyzed through the following functionalcategories: marketing resources, financial resources, human resources,operations/production resources, management/leadership resources, organizationresources, and information resources (Peterson). Firms are not likely to evaluate allfactors as potential strengths or weaknesses. Instead, to develop or revise a strategy,managers would prefer to identify a few factors on which its success is most likely todepend.The SWOT analysis provides a foundation for the examination of the firm'sstrategic position and resources. Based on SWOT analysis, a firm's overall core strategy isthen discussed. Academic researchers define core strategy somewhat differently. Pearceand Robinson define core strategy as the combination of generic strategy (cost leadership,differentiation, and focus) and fourteen derived grand strategies varying in risk levels.Thomson and Strickland propose similar generic strategies, and then define alternativecourses of actions for companies in different environments and with different degrees ofdiversification as their core strategy. Yip specified core strategy as business definition,

Page 23strategic thrust, sources of competitive advantage, value-adding activities and competitivestrategy. Peterson groups core strategy into five categories: customer value/competitiveadvantage, strategic initiative, strategic scope, industry role and vertical coordination.The different categorizing of core strategy builds on the general understanding ofstrategic choices, i.e., firms need to select core strategy to create one of two basic types ofcompetitive advantages: cost or differentiation. Therefore these core strategies arehomogeneous in nature. Peterson's grouping provides a reasonable approach to guide thisstudy and is discussed in detail.The first component of core strategy as defined by Peterson, customervalues/competitive strategies, is similar to generic strategy. A firm's ultimate strength orweakness is determined by its control over either cost or differentiation relative to itscompetitors (Porter, 1986). Four types of strategies to create customer values are derivedfrom this notion: cost leadership, differentiation, focus, and total innovation. The secondcomponent, strategic initiatives are a firm's choices ranging from grow, maintain/defendto reposition, retrench, and exit. When defining the third element, strategic scope, firmscan choose to manage either a single/dominant business or diversified product lines. Theycan also choose to develop their business lines either internally or through externalmerger/acquisition. In terms of the fourth element, industry role, firms usually positionthemselves as leaders, adapters, challengers or loners. Finally, firms use different verticalcoordination strategies, varying in the intensity of control over transactions, to coordinatetheir behaviors with suppliers and buyers (Peterson). These five elements cover a firm'soverall strategic choices to position itself and develop its competitive advantages, andtherefore build a solid foundation for further discussion of a firm's global strategy.16

Page 242.3.2. Industry Globalization DriversGlobal strategy theory argues that industries differ in their globalization potentialbeeause of underlying industry conditions (Porter, 1986; Morrison, 1990). In the case ofglobal strategy, these conditions can be called industry globalization drivers. Variousresearchers have identified different types of industry globalization drivers: globallycommon customer needs (Levitt, 1983); cost drivers, such as global scale economies(Porter, 1986) or technological and advertising intensity (Kobrin, 1991); governmentdrivers, such as the absence of trade restrictions (Doz, 1979); and competitive drivers,

such as cross-country subsidization (Hamel and Prahalad, 1985). The drivers identified inthe literature can be grouped into four categories: markets, cost, government, andcompetitive drivers (Yip, 1989 and 1992). Together, these four sets of drivers cover allthe critical industry conditions that affect the potential for globalization. While othergroupings are possible, these four distinguish among the fundamental sources (market orcost, etc.) of the drivers; therefore, they help managers to identify and deal with themmore easily. Drivers are primarily uncontrollable by a worldwide business. As illustratedin figure 2-2, each industry has a level of globalization potential that is determined byexternal drivers.Market globalization drivers depend on customer behavior, the structure ofdistribution channels, and the nature of marketing in the industry. Cost drivers depend onthe economics of the business. Government globalization drivers depend on the rules setby national governments. Competitive drivers depend on the actions of competitors. Eachgroup of drivers is different for each industry and can change overtime. Therefore, someindustries have more globalization potential than others, and these potentials change

Page 25across time. Recent changes, such as, convergence of lifestyle and tastes, acceleratingtechnological innovation, have increased the globalization potential of many industries,and spurred the interest of managers to pursue a global strategy (Yip 1992).Figure 2-2 Industry Globalization PotentialSource: Adapted from Yip (1989,1992)2.3.3 Global strategy lever: Global product strategyGlobalization strategy is multidimensional. There are five such dimensions:market participation, products/services, locations of value-adding activities, marketing,and competitive moves. This study focuses on the most commonly identified feature withglobal strategy: product strategy.Developing products that satisfy market needs are the essential requirement of aneffective strategy. The products or services a company chooses to sell to the selectedtargeted market constitute the basis for development of the company's world-wide

Page 26both customers and competitors.^muUi-^productstrate^theproauctsattdservicesoffered in each countsaretai1oredto1ocaUeeds.Inag,obalproductstrategy)theidea1isastandardiZedcoreproductthatrequiresamin^^^^product strategy ar.ematinawo^^isthedeve1oPmentofgloba1productsandbrands(Uvitt,1983).However>otherspo1nttoindividualmarkets(Fisher>1984;Kotler,1985;Vedder!l986).Neverthe1ess,s—zationoccursa^^^^^^bystandardizingthecoreproductora1argepartofit,wffllecustomizingPeriPhera1or,u Art (Ym 1995) TTie extent to which products/services should beother parts of the product (Yip l!*»)- me cstandardized depends on industry globalization drivers.Keegan's discussion of global product strategy widened the standardizationdiscussionandidenn„edthreegloba1strategy alternatives: extension, adaptation, and

^^«-^-^^^^^^BaSedonthethreestrategy alternatives, six stratèges are formulated: dual extension,product extension-communication adaptation, product adaptation-communicaUon(Table2-l).Each strategy has been applied by companies to different situations (Keegan

Page 271969 1995). This study uses Keegan's product strategy matrix to evaluate Hershey FoodsCorporation's product strategy and formulate recommendations.Table 2-1 Global Product-Communications Mix Strategic AlternativesStrategy Product Conditions of Ability to buy Product Communicationfunction or product use products strategy Strategy need satisfied (as % of base case)1SameSame100ExtensionExtension2

DifferentSame100ExtensionAdaptation3SameDifferent100AdaptationExtension4DifferentDifferent100AdaptationAdaptation5SameDifferent25InventionCreate6SameSameLimited FinancialResourcesExtensionExtensionAdapted fromKeegan, 19952.3.4 Benefits and Costs of GlobalizationIndustry globalization drivers allow the use of global strategy to gain various typesof benefits: cost reductions (Kogut, 1985a), improved quality of products or programs(Yip, 1989), enhanced customer preference (Levitt, 1983), or increased competitiveleverage (Hout et al. 1982; Hamel and Prahalad, 1985). Globalization, however, can alsoincur significant management costs through increased coordination, reportingrequirements, and even added staff. Globalization can also reduce managementeffectiveness in individual countries if over-centralization hurts local motivation andmorale. In addition, each global strategy lever incurs particular drawbacks. Productstandardization can result in a product that does not fully satisfy customers anywhere.The most successful worldwide strategies find a balance between over-globalizingand under-globalizing. The ideal strategy matches the level of strategy globalization to theglobalization potential of the industry.20

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Page 29relevance and effectiveness of this particular combination of Yip's frameworksupplemented by Peterson's and Keegan's methods will be tested.Figure 2-3 Elements of Global OrganizationPeople/\A I Use of foreign nationals/ Multi-country careersrv ^^^ Frequent travel/ x^^" Statements and actionsof leadersSource: Adapted from Yip, Loewe, and Yoshino (1988)22

Page 30Chapter 3 Analysis of Position and ResourcesThis chapter develops the first component "positions and resources of businessand parent company" of Yip's global strategy framework using SWOT and core strategyanalyses. SWOT analysis examines the environment Hershey is operating in, andsummarizes Hershe/s key strategic issues. Based on SWOT analysis, Core Strategy

Analysis evaluates Hershe/s current core strategy and proposes a future core strategy thataddresses Hershe/s strategic issues.3.1 SWOT Analysis3.1.1. Performance Evaluation:Hershey Foods Corporation is the leader of the U.S. confectionery industry. Itssales have been growing in recent years. However, the growth ratesofboth its sales andnet income have declined. In 1998, Hershe/s sales growth rate of 3.1% compared with7.8% in 1997 failed to meet stockholder expectations (Security and ExchangeCommission 1999). The corporation's inadequate performance was reflected in its stockprices. Starting from the fourth quarter of 1998, Hershey's stock closing prices have beenperforming below that of the average stocks on S&P500 for the first time in the past fiveyears (Figure 3-1).In their 1999 annual report, Hershey Foods Corporation attributes their weakperformance in international markets as one major reason for the decline of its stockprices. Other reasons cited in their report are the overall decline of food industry stocksand increases in input prices.23

Page 31Figure 3-1 Ten Year Stock Closing Prices of Hershey Foods Corporation in Comparisonwith S&P 500.Ctli 1 I lorw)

More recently, a technology rollout problem in 1999 delayed Hershey's shipmentsto its retailers and dropped Hershey's third quarter earnings by 19% over 1998. Onereason for the delays was Hershey's lack of adequate facilities. Despite healthy consumerdemand for Hershey's confectionery producte, sales of the corporation were still down12% from the previous year (Wall Street Journal 10/26/99).In addition, as U.S. confectionery leader, Hershey is facing intense competitionfrom many other multinational, national, regional and local firms (Packaged Facts 08/96).The above performance-related problems indicate that Hershey has some strategicproblems to address. The following section analyzes Hershey's strengths, weaknesses,opportunities, and threats, and then presents Hershey's important strategic issues.3.1.2. Hershey Foods Corporation's External EnvironmentThe U.S. confectionery industry enjoyed an overall annual growth rate of 4-6% inthe last five years (1993-1997) (Candy Industry 07/99). This was an incredible growth24

Page 32„umber for a relatively mature market. "Competitive forces" and"change forces" are usedto identify the opportunities and threats that Hershey is facing in this market.3.1.2.1. Competitive ForcesPotential of entrants. The likelihood of potential entry into the confectioneryindustry is very low. The manufacturing of chocolate is highly automated, and requires aninitial investment of at least several million dollars (Yip 1992). The capital-intensivenature of the confectionery industry builds up a high entry barrier.In addition, the confectionery industry is a highly concentrated industry, whichmakes the profitability of new firms uncertain. The top four firms, Hershey, Mars, Nestle,and R. Stover controlled 72% of the market share in 1998 (Figure 3-2). Confectionerygiants enjoy production and marketing cost advantages. According to Candy IndustryReport, when the costs in many ingredient categories escalated in 1998, small-sizedmanufacturers reported an average 33 % ingredient cost increase, compared to a 9%increase for mid-sized companies and a 6% increase for large companies.Brand identity increases the barriers of entry as well. The candy industry ischaracterized with highbrand identity. The top ten brands keep occupying retailing space,and retailers have less interest to market unknown brands (Candy Industry 07/99).25

Page 33Figure 3-2: 1998 U.S. Total Confectionery Market ShareSource: Hershey Foods Corporation Annual Report 1999Rivalry. The rivalry in the mature U.S. confectionery industry is intense.Domestically, the major competitors, namely, Hershey, Mars and Nestle, keep expandingtheir influence in the seasonal market and competing in both market share and packaging.In 1996, Hershey filed a lawsuit against Mars claiming that the packaging for peanut

butter M&Ms is similar to that used for its Reese's products (Candy Industry 12/97).Internationally, confectionery giants are expanding and competing worldwide.According to a report in Planning Review (1991), each of the major chocolate producersgained a large percentage of its chocolate revenues outside its "home" country: Nestle98%, Jacobs Suchard 95%, Cadbury-Schweppes 50%, M&M Mars 50%, and Hershey,the least, with 10%.Buyers'Power. There are two kinds of connected buyers for confectionery:retailers and consumers.26

Page 34^^¿Eower. Consumers usually buy candies at supermarkets (19%), but the„^merchandisers' sHceofthe confectionery pie has increased steadily over the pastfive years. In 1999 they garnered 37% of the ca.dy sales (Professional Candy Buyer 8,„o3 05/2000). This shows that consumers are changing their purchase decisions towardthe retailers that are more price-sensitive. The bulk volume purchased by me-rchandisers gave ftese retai^^^ ^Ç^^mÉ^,- An individual consumer does not have great bargaining powerover confectionery giant, In 1997, when the input cost rose for confectioners, they passedthe cost increase to consumers. Consumers in the U.S. paid 30 cents more for a pound ofconfectioneryproducts man they did in 1987 (Candy Industry 01/99). However, aggregateconsumer demand had a significant influence on confectioners' profitability. Hershey'ssales of chocolate candy bars less ft. 3.5 ounces were down 3% and b,s more than 3.5ounces are down 1.3% in 1997 because of the increase in bar prices (Candy Industry01/99).Suppliers'po.er. The major inputs for the confectionery mdustry are sugar,cocoa, milk and Nutmeat. These agricultural commodities are less differentiated,therefore suppliers have less power against confectioners. However, the price of sugar intheU.S.is subject to price supports under theFederal Agriculture and ImprovementReform Act of 1996. Due to import quotas and duties imposed to support the price ofsugarestablishedby that legislation, US confectioners have to pay 22 cents per poundofsugarversus5cents per pound paidby confectioners in the rest of the world (CandyIndustry 07/99).

Page 35Substitutes. In recent years, manufacturers in other snack categories have enticedconsumers with candy flavors or candy-filled products. Consumers are given alternativessuch as cookies, premium ice cream, bakery snacks, and fruit snacks to satisfy their sweettooth. Consumers are becoming more and more health conscious. Consequently, thedemand for healthier snacks has been growing. Consumers prefer snack cereal bars astheir breakfast instead of candy, and mothers usually consider ice cream and fresh fruitcakes healthier than candy for their kids (Candy Industry 07/99). With the increase in thedemand for candy substitutes, the retailing space for candy is shrinking. Encroachmentfrom many competitive snack categories has reduced the amount of candy available atcheckouts.In summary, the likelihood of new entrants and the final consumer buyers' powerin the confectionery industry are low, which explains in part the overall medium to highprofitability of the confectionery industry. Suppliers'power, especially sugar suppliers'power, is enforced by the U.S. government subsidy programs. Competitors in the highlyconcentrated industry are a few but their capacities are in balance with each other, thusintensifying competition. The emergence of substitutes for confectionery has brought areal "headache" for confectioners in recent years. Overall, the industry's profit potentialwould appear to be declining, or at least, threatened.3.1.2.2. Change ForcesChange in buyer demand. Changes in demographics, consumers' life styles, andincomes keep shaping the environment of the confectionery industry.Although American consumers still enjoy sweet treats, an increasing number ofthe aging population demand healthy foods. The chocolate portion of US confectionery28

Page 36sa,es was flat in the past years. Furthermore, growth in the confectionery industry iscoming from non-chocolate and functional candy (Candy Industry 01/99).

Consumers are becoming more price-conscious than brand conscious. In 1997,theincrease in the pricesofchocolatebarsimmediatelyledtoasales drop for confectioners'.In addition, the polarity of income was witnessed bythe faster growth ratechocolate bars.(10%) of gourmet boxed chocolate category in1998 (Professional Candy Buyer 7,01/99).Long-term market growth. The U.S. confectionery market has grown steadilysince the early 1990s. The non-chocolate category, however, grew much faster than thechocolate category. In 1998, the candy industry saw its biggest gains in the non-chocolatecategories for the year ended 4/17/99, with dollar sales reaching $1,423.2 million, up5.3% from the previous year. The second-largest gains were in sales of chewing gum,which grew to $590.0 million in sales. Chocolate candy saw sales gains of 2.5% for theperiod to $2,430.3 million (Candy Industry 07/99).Product and market innovation. Confectioners are innovating new low-fatproducts to meet consumers' changing taste. For example, Mars innovated Mars Lites,which has almost the same taste as the regular chocolate bar (Retail World August 31-September 13,1998).Regulatory influences and government policy. Sugar prices are under governmentsupport since the 1930's. This put domestic confectioners at a cost disadvantage. One ofthe hopes that US confectioners have nowis the Sugar Program Reform Act. Theapproval of this act will reduce sugar prices and end price supports after 2002(CandyIndustry 07/99).29

Page 37Increasing globalization of the industry. The confectionery industry is becomingmore and more globalized in recent years. Emerging oversea markets are growing rapidly.In 1997, domestic exporters of chocolate increased their global presence by 10%. Themost promising opportunities for the US lie in Central and South America, along withEast Asia (Candy Industry 01/99).The analysis of Hersheys external environment can be summarized through thedescriptionof the opportunities and threats suggested bythe competitive forces andchange forces.30

Page 383.1.2.3. Opportunities and ThreatsOpportunitiesUS confectioners have three opportunities: innovation in the low-fat andfunctional candy category; cHange of government sugar policy; and emergence of globalmarkets.innovation. The candy industry needs to innovate constantlyto meet consumerdemand. Consumers increasingly view candies, foods and drinks as imparting functionalelements, rather than strictly refreshment. Confectionery giants have kept innovating andextending product lines to meet this demand. For example, Mars extended its famous lineto deliver low-fat Mars Lite. In addition, time-starved consumers want convenience aswell. Mars spent $50 mi.lion to advertise a metabolized bag with resealable zipperoffering consumers freshness, convenience and portability.Gove^e»iP0^.TheU.S.govenUnenfssugar price supportput domesticconfectioners at a cost disadvantage. Confectioners are making efforts to end thegovernment interference with their input prices. An industry-friendly provision of theSugar Program ReformAct was introduced in Mayofl998. This provision was intendedto reduce support prices and eliminate the support after 2002 (Candy Industry 07/99).Emergence of international market, Oppo^s for confectioners are presentinternationally, ranging from the mature markets of Western Europe and theU.S. to theemergingmarketsofAsiaPacific, Eastern Europe and South America. Betweenl993 and19*7. Vietnam (10.5%), Brazil (9.1%), Ireland (5.8%), China (5.7%) and Czech Republic(5.4%)were the leading confectionery consumption growth markets (Candy Industry31

Page 3907/98). As a recent report from Confectionery Production indicates, the confectionerytrading pattern will expand further into regions such as Eastern Europe, Brazil and Chin,

ThreatsThe "competitive forces" and "change forces" analyses point out that the greateststrategy threat for the confectionery industry is the change in consumers'life style towardlov-fatandhealthyfood. Candy products, especially chocolate, are known to be rich infat. Although sugar-free and functional products are becoming popular, these are not easytnarkets for candy makers to break into. First, manufacturing difficulties for replacingsugar have presented the biggest challenge for confectioners. Second, consumers wanttheir food to contain more attributes but with the same taste. Consumers would prefer toeat sugarless versions of their favorite confections only if they taste the same as theconfection with sugar. Confectioners are struggling to invest in R&D in order to providetasty functional candy. Third, consumer understanding of the term "functional" is poorlydeveloped. The Health Focus survey conducted in 1998 indicates that 80% of consumers„ever heard of the term "functional". Finally the word Sugar-free is traditionallyassociated with diabetics, which deters some consumers from purchasing.Secondly, the emergence of candy substitutes is taking away market share from«^.Healthy snacks are competing with candy in taste, packaging, retailing space, andhealthy attributes. Consumers have been given a myriad of non-candy alternatives withcandy flavors to satisfy their desire. Competitive categories have hijacked candy-eatingoccasions by offering perceived "healthier alternatives" for breakfast, lunch and dessert.In addition, portability of other foods has grown atafaster pace than candy. Someretailing space of candy was reduced by other snacks.32

Page 40These non-candy products also offer consumers a broader choiee and thus^easetheirhar^ngpowera^nst confectioners. Once the price for chocolate,arsincreased, consumers could find candy substitutes with ease.Tne most immeäiate tHreat to tne confectionery inäustry's future comes from tne„Sg0—Government«^mouthofconfectionersforye^other ways to cope with this situation," says SalFerrara, chairman of NationalConfectionery Association, "Our industry employees cancompete against anyone,butforcing«* tobuyraw sugar at 22 cents per pound puts us at a tremendous disadvantage."industrys deficit inl998 showed the competitive capacity of foreign confectioners. Theorigin of confectionery is inEurope, andEuropean giants are competing withUSconfectioners in both the U.S. market and Internationa! markets. Furthermore, US^vemmentsubsidyofsugarpricesputsUS confectioners at a competitive disadv«.Confectioners from Canada and Mexico are able to purchase sugar at worldprices, then^plowerpocedproductsintotheUS^dtherebyundercutthepriceofUSproducts(Candy Industry 07/99).n^ini-hinitir" ^ Th"«*s SynthesisThe above analysis showed that the confectionery markets haveboth greatopportunities md signified threats (Tabic 3-D-Change in consumer's taste, income, lifestyle, government regulation, and globalization of the confectionery industry canallbev fnr the industry To which extent these factors are opportunitiesthreats and opportunities for the industry.or threats depend on how Hershey responds to the changes.33

Page 41Table 3-1 : Confectionery Industry Opportunities and ThreatsThreatsChange in consumers' life styleHigh substitutesGovernment regulationOpportunitiesInnovationCancellations of sugar price supportEmergence of global marketsGlobal competitionAs discussed above, consumer demand represents the key challenge for theconfectionery industry. Only when confectioners overcome difficulties to provideconsumers with appealing products can they fully exploit their biggest opportunities forasuccessful future.

A change in sugar price regulation would have a great impact on the profitabilityof US confectioners. Furthermore, in the heated international competition, only ifHershey develops global competitive skills, will global markets become an opportunity to,he corporation. Otherwise, this is a great threat for the US domestic giants as foreigncompetition expands.3.1.3. Hersheys Internal EnvironmentAfter the evaluation of Hershey Foods Corporation's external environment, weneed a closer examination of the corporation's internal strengths and weakness. This willreveal those factors most under the corporation's control. The following sections providean outline of such strengths and weaknesses.34

Page 423.1.3.1. StrengthsMarketing Resources. Hershey is strongly associated with an image of highquality and a broad and deep product line. Hershey manages more than fifty brand in thedomestic market andhas built up a number of leading brand names. Among the top tenbrands ranked by dollar sales in 1998, five of them belong to Hershey (Snack Food¿Wholesale Bakery 06/99). These leading brand names also create opportunities forHershey's product Une extension, and in some cases, royalties for its use on productsmade by others. Hershey licensed its stable of well-know brand names, includingHersheys and Reese's, to other companies for use on products ranging from cereals to icecream (Standard and Poor's 1998).Human Resource Management. Hershey has a strict standard to measureperformance and an improved compensation program. Hersheys management teambenchmarks are Earning Per Share, Free Cash Flow, and Economic Value Added(Hershey Foods Corporation Annual Report 1997). Its managers' compensations are tiedto these benchmarks. In addition, Hershey broadened its employee compensation programin 1996. The program was changed from Key Employee Incentive Package to HSYgrowth, under which Hershey granted its eligible employees one time 100 stock optionsand made its employees become owners for the first time. This partly explained theincrease in Hershey's sale, In their annual report of 1997, Hershey's CEO attributed thesales growth to employees' effort. Hershey's employees have good morale in terms ofimproving Hersheys product quality and lowering cost.Innovation. Hershey dedicates itself to expanding market share in the matureNorth American markets by introducing new brands. Hershey had one of the best35

Page 43novation records with three successful introductions in the United States and Canadaduring the 1980s: Skor (1883), BarNone (1987), and Symphony (1989) (Yip, 1991).Hersheys managers proudly assert that they have the industry's largest inventory of newproducts. In 1996, Hersheys successful launch of TasteTations brought a 65% retail saleincrease for this product (Chicago Tribune 02/98). In addition, Hershey also keepsinnovating in merchandising, which made its retail grow at 5.6% greater than the categorygrowth (Hershey Foods Corporation Annual Report 1998).Hershey advertises its products by sponsoring entertainment activities, especiallymovies and sports. In 1997, Hershey sponsored Jurassic Park and increased its seasonalcandy sales (Adweek 05/18/98).Financial Resources.Hershey Foods Corporation in general has strong financial performance. Its profitmargins ranged between 6.8% and 7.7% from 1996 to 1998, slightly above the industryaverage of 7.0%. The corporation's return-on-assets ratios increased from 8.6% in 1996to 10.0% in 1998. Its total asset turnover ratios also increased from 1.25 to 1.3 during thesame period, higher than the industry average 1.10. Its return-o„-equity ratios alsoincreased and stood well above the industry average of 13.0%. One major concern aboutHershey's financial performance is the corporation's use of debt. Hershey's equitymultipliers in the period of 1996-1998 were 2.74,3.86, and 3.26 respectively, which allwere higher than the industry average of 1.9. These multipliers indicate thatHershey useda larger percentage of debt to finance its operations (Figure 3-3).36

Page 44

Figure 3-3: Hershey's Du Pont formulaNIAT ($million)Sales (Smillion)Assets ($million)Equity (jmillion)Profit MarginTATROAEMROE199619971998 Industry Average273336341398943024436318532913404116185310426.8%7.8%7.7%7%1.251.311.301.18.6%10.2%10.0%2.743.863.271.923.5%39.4%32.7%13%Source: Hershey Foods Corporation Annual Report 1998tl 3 7.. WeaknessesHershe/s most serious weakness is its international expansion strategy.Historically, most of Hersheys acquisitions occurred in the domestic market, while themajority of its divestiture is in international markets. Mars beat Hershey almost ineveryone of Hersheys international markets. Hershey has tried to sell its products inMexico for decades; Mars's market share surpassed Hershey in the very first year itentered the Mexican market. In Japan, Mars also surpassed Hershey. Although Hersheyexports to 90 countries, exports accounted for only less than 4% of its 1997 total sales. Inaddition, Hershey is the only confectionery giant that has no manufacturing factoriesoutside the U.S (Brenner 1999).Management Leadership. Hersheys management lacks an international mindset.The company has little knowledge of world markets (Brenner, 1999). Its Vice President,appointed in 1993 and in charge of its international operations, does not speak a secondlanguage. "How can they really have hopes for global expansion when he can't even37

Page 45communicate?" questioned Jeffery, a current consultant in the industry. In 1998,Hersheys experienced big change in its management. Recently, eight top managers wereremoved (Hershey Foods Corporation Annual Report 1999). It will take some time for thecorporation to adjust to changes and react to markets.Production Efficiency. Hershey's packaging and handling distribution costs arequite high. According to Hersheys Annual report of 1998, there are some higherpackaging, handling and distribution costs associated with their thematic merchandisingstrategy. The higher distribution costs related to the diversity of Hersheys product line

continued to exert pressure on Hersheys gross margin.In addition, Hersheys manufacturing capacity is falling behind market demand forits new products. ReeseSticks, introduced in 1998, has been a very successful market forHershey. However, Hershey does not have enough manufacturing capacity to produce allthe usual package types (Product Alert 29, no. 11, June 14, 1999). Furthermore,Hershey's recently emerged technology-related problems delayed the corporation'sshipments and caused its earning to drop by 19%. One major reason for this delay isHershey's lack of adequate facilities (Wall Street Journal 10/26/99).Summary of Strengths and Weaknesses (Table 3-2)Hershey has been successful in product innovation. Its efficient human resourcemanagement gives employees incentives to improve product quality, lower cost andprovide satisfying customer services. The corporation enjoys leading brand names, whichenables it to reap profits from product line extension and royalties. Its strong financialposition has been evidence of its good performance in the above areas. Although Hershey38

Page 46has these strengths, Hersheys weak performance in international markets revealsconcerns related to globalization and management leadership as discussed above.Table 3-2: Strengths and Weakness of Hershey Foods CorporationStrengthsMarketing ResourcesInnovationHuman Resource ManagementFinancial ResourcesWeaknessesGlobalizationManagement LeadershipProduction3.1.4. Strategic SynthesisThis section provides a synthesis of both the internal and external analysis forHershey Foods Corporation and formulates strategic issues that the company mustaddress.rnre Competencies and Competitive AdvantagesIn the mature domestic confectionery market, Hersheys key competencies are itsability to maintain dominant market share in both chocolate and non-chocolateconfectioneries and its capabilities in product innovation. These are also Hersheys keycompetitive advantages over rivals.grenario analysis for Hershey's futureTo analyze where Hershey's strengths and opportunities reinforce each other andwhere its weaknesses and threats reinforce each other, a scenario analysis for Hershey's39

Page 47future is conducted. Each of the scenarios represents a possible future for Hershey (Table3-3).Table 3-3: Three Scenarios for the Confectionery IndustryScenario 1"Bitter Candy"1. Consumers prefer candysubstitutes to candy2. Input prices are undergovernment support3. Intense competition fromglobal confectionersScenario 2"Mild Candy"1. Consumers show stronginterests in purchasingfunctional candy.2. Intensity of competitionremains.3. Government sugar supportregulation remains.

Scenario 3'Sweet Candy "1. Increased demand for"functional candy"2. Hershey enjoyscompetitive advantageglobally3. Government sugarprice support ends.The first scenario is a "bitter candy" scenario, where Hershey's external threatsand its internal weaknesses reinforce each other. This causes a significant decline in thecompany's performance. Under this scenario, health-conscious consumers prefer candysubstitutes to candy; government is still supporting sugar prices; competition from globalconfectionery giants is intense and takes market share from Hershey worldwide. All theabove factors will cause the decline in both Hershey's sales and market share.The second scenario is a "mild candy" scenario. In this scenario, the combinationof positive and negative changes of external and internal environment leads to a gradualextension or even enhancement of Hershey's performance. Although sugar governmentsupport and global competition are still present, innovation of functional products gainsconsumer acceptance. Hershey is able to gain its profits by focusing on US domesticmarkets.40

Page 48The third scenario is a sweet candy scenario. The fondamental external andinternal changes are all toward Hershe/s advantage. Sugar price support legislation isended;Hershey no, only holds threading market share in US domestic market, but alsosuccessfully expands globally. In this scenario, the sales of Hershey grow significantlydue to the rapid demand growth of emerging markets. Hershey is able to compete withglobal giants and reap the benefit of technology developed abroad.Nature of ChangeThe SWOT analysis suggests that Hershey's external opportunities outweigh itsthreats, and the corporation's internal weaknesses outweigh its strengths (Figure 3-4)Hershey should make internal changes, such as adopting a global focus, cos, control andmanagement team reform to overcome its weakness and assure a successful future.However.currentlyHershey is still focusing on mature domestic markets. It would appearthat some significant turnaround in internal strategy is needed to move Hershey into theaggressive quadrant.Figure 3-4: Hershey's SWOT Analysis Diagramopport nitiesweaknesses

Page 49Key Strategic IssuesThe following lists the crucial strategic issues faced by Hershey FoodsCorporation:How can Hershey innovate its confectionery products to appeal to the healthconcern of consumers? The increase in consumer demand is the key to Hershey's futuresuccess. Although functional candy markets are fuelling confectionery market growth,there are still problems about manufacturing and consumer acceptance.How can Hershey effectively expand globally to explore the growingopportunities in the global confectionery markets? American confectionery markets,although growing, are mature markets and are going to reach their saturation point.Meanwhile overseas markets in East Europe and Asia present abundant opportunities forestablished confectioners worldwide. Compared to being the market leader in the UScandy market, Hershey has experienced failure in its global expansion. Therefore,identifying obstacles to its global expansion is a key to Hershey's future development.How can Hershey make effective internal management changes and costcontrol improvements to take advantage of the opportunities present? Innovationwill be a competitive advantage only when the cost of innovation can be covered by itsbenefits. Hershey should reinforce its cost control to enjoy sustainable advantage in itsproduct innovation in US confectionery markets. In addition, the company shouldassemble a strong management team to assure the sustained development of thecorporation.42

Page 503.2 Core Strategy Analysis3.2.1. Discussion of Desired AccomplishmentsA companys desired accomplishments are formulated in its mission/vision andobjective statements.1. Mission/vision statementThe mission/vision statement specifies a firm's ultimate aims, and provides a unityof direction for manager, An effective mission statement shows the belief of anorganization, communicates its values effectively, and inspires employees of all level,Consequently.theevaluationofacompanys mission/vision statement is the first step inastrategicplanni„gproces,Hersheysmission/viSioniS stated as follows:»^™**t0 be a focused food company in NortH America ana select international markets ana aleader in every aspect of our business. "Hershey'smission/visionstatementclearly communicates the strategic scope andindustry roleofHersheys business: "to beafocused food company" and "aleader inevery aspect of our business'r. In addition, the statement inspires Hersheys employees mterms of understandingshared expectation and stimulating employees at all levels toachieve this goal. Hershey has beencommitted to expanding its US confectionery marketshareandhasbecometheU.S.maAet leader smce 1988 (Brenner 1999).This indicatesthatHershey Foods Cooperation is truly willing to live up to the mission/vision statement,t of "selected international markets" fails to give HersheysHowever, the statement cmanagers enough incentivesshould state its ultimate aim asives to expand the corporation's business globally. Hershey"to be a world confectionery leader," which is moreinspiring to its management team.43

Cadburys - Marketing Strategies

In order to increase sales Cadburys needs to undertake a range of

marketing activities before deciding upon the best way to encourage

the purchase of its product. When identifying the basic principals

which Cadburys must apply to its marketing will be its basic

objectives because all business must have objectives it allows them to

increase sales and make profit.

Corporate aims are the long term intentions of a business, whereas

corporate objectives are the specific targets required to achieve the

aims.

The common aim and objectives of the corporation such as Cadbury

includes the following:

1 Survival

2 Profit maximisation- which is often taken to be the reason why firms

exists and to be the primary objectives in practices most firms have

a hierarchy of objectives when a firms survival is threaten it may

profit maximise in order to restore its financial health.

3 Growth- which includes Cadbury selling new products or expanding

overseas.

4 Diversification- which is the spreading of business risks by

reducing dependence on one product.

5 Sales maximisation- which is the increasing of sales

6 Improving the product image-which includes creating a new logo or

launching a new brand of product and creating more attractive

packaging.

For example, Cadbury set out two objectives for the development of

their chocolate, Fuse. These were:

1. To grow the market for chocolate confectionery

2. To increase Cadbury's share of the snacking sector

When launching a product the company Cadbury’s had to make sure that

any new product in the snaking sector must establish points of

difference, creating a unique selling proposition (USP) i.e. a product

with unique appeal which is not shared by any of its competitors.

Referring back to the example of Fuse, Cadbury lost a lot of money

testing out the combination of various ingredients and more than 250

were combined before the recipe of the chocolate was finalised. As the

products are developed, Cadbury tests them to ensure that consumers

are willing to buy them.

Cadbury then promotes its products in various ways such as the use of

above the line promotion, which is where a product is advertised

through consumer media such as television, magazines, newspapers and

radio.

“A small price to pay for the value received.”

Donor: Richard EggDate: October 6, 2009Amount: USD 200.00

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[Hide][Show]Wikipedia Forever Our shared knowledge. Our shared treasure. Help us protect it. [Show]Wikipedia Forever Our shared knowledge. Our shared treasure. Help us protect it. ConfectioneryFrom Wikipedia, the free encyclopediaJump to: navigation, search"Sweets" redirects here. For other uses, see Sweets (disambiguation).

This article needs additional citations for verification.Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (December 2007)

An arrangement of confectionsConfectionery is the set of food items that are rich in sugar, any one or type of which is called a confection. Modern usage may include substances rich in artificial sweeteners as well. The word candy (U.S.A.) or sweets (U.K.) is also used for the extensive variety of candies that comprise confectionery. Generally speaking, confections are low in nutritional value but rich in calories. Specially formulated chocolate has been manufactured in the past for military use due to its high concentration of calories.

Contents[hide]1 Regional names 2 Examples 3 Risks 4 See also 5 References

6 Further reading [edit] Regional names

Different dialects of English use regional terms for confections:In Britain, Ireland and some Commonwealth countries, sweets or more colloquially sweeties (particularly used by children, sweeties also resembles the Scottish Gaelic word suiteis in pronunciation and meaning[citation needed]) . In some parts of England, spogs, spice, joy joy and goodies are terms used, alongside sweets, to denote confectionery. In North-West England, especially Lancashire, toffees is often used as a generic term for all confectionery. Northeast England and the Scottish Borders commonly use the word ket (plural kets) and more recently chud, derivative of chuddy, a localised term for chewing gum. In Australia and New Zealand, "lollies". In North America, "candy" - although this term can also refer to a specific range of confectionery and does not include some items called confectionery (e.g. pastry) (See below and the separate article on candy.) "Sweets" is occasionally used, as well as "treat" [edit] Examples

Columns of sweetsFurther information: List of candiesConfectionery items include sweets, lollipops, candy bars, chocolate, Cotton candy, and other sweet items of snack food. The term does not generally apply to cakes, biscuits, or puddings which require cutlery to consume, although exceptions such as petit fours or meringues exist. Speakers of American English do not refer to these items as "candy." See candy making for the stages of sugar-cooking.Some of the categories and types of confectionery include the following:Hard sweets: Based on sugars cooked to the hard-crack stage, including suckers (known as boiled sweets in British English), lollipops, jawbreakers (or gobstoppers), lemon drops, peppermint drops and disks, candy canes, rock candy, etc. These also include types often mixed with nuts such as brittle. Others contain flavorings including coffee such as Kopiko. Fudge: A confection of milk and sugar boiled to the soft-ball stage. In the US, it tends to be chocolate-flavored. Toffee (or Taffy or Tuffy): Based on sugars cooked to the soft-ball stage and then pulled to create an elastic texture. In British English, toffee can also refer to a harder substance also made from cooked sugars which resembles toffee. Tablet. A crumbly milk-based soft and hard candy, based on sugars cooked to the soft-ball stage. Comes in several forms, such as wafers and heart shapes. Liquorice: Containing extract of the liquorice root. Chewier and more resilient than gum/gelatin candies, but still designed for swallowing. For example, Liquorice allsorts. Has a similar taste to Star Anise.

A chocolate.Chocolates are bite-sized confectionery. People who create chocolates are called chocolatiers, and they create their confections with couverture chocolate. A chocolate maker, on the other hand, is the person who physically creates the couverture from cacao beans and other ingredients. Jelly candies: Including those based on sugar and starch, pectin, gum, or gelatin such as Lokum / Turkish Delight, jelly beans, gumdrops, jujubes, cola bottles gummies, etc. Marshmallow: "Peeps" (a trade name), circus peanuts, fluffy puff, etc. Marzipan: An almond-based confection, doughy in consistency, served in several different ways. It is often formed into shapes mimicking (for example) fruits or animals. Alternatively, marzipan may be flavoured, normally with spirits such as Kirsch or Rum, and divided into small bite-sized pieces; these flavoured marzipans are generally served coated in chocolate to prevent the alcohol from evaporating, and are very common in northern Europe. Marzipan is also used in cake decoration. Its lower-priced version is called Persipan. Divinity: A nougat-like confectionery based on egg whites with chopped nuts. Not all confections equate to "candy" in the American English sense. Non-candy confections include:Pastry: A baked confection whose dough is rich in butter, which was dispersed through the pastry prior to baking, resulting in a light, flaky texture; see also pie and tart. Chewing gum: Uniquely made to be chewed, not swallowed. However, some people believe that at least some types of chewing gum, such as certain bubble gums, are indeed candy. Ice cream: Frozen flavoured cream, often containing small chocolates and fruits[citation needed] Halvah: Confectionery based on tahini, a paste made from ground sesame seeds. Alfajor: a traditional South American cookie typically consisting of two round sweet biscuits joined together with a sweet jam, generally dulce de leche (milk jam). Dragée - Coated almonds and other types of coated candy. [edit] RisksExcessive consumption of confectionery has been associated with increased incidences of type 2 diabetes, obesity, and tooth decay.[1][edit] See alsoJalebi (Type of Indian sweet) [edit] References^ Magee, Elaine; "Sugar: What Kinds to Eat and When" WebMD.com (Health & Cooking), 28 January 2009 (Retrieved: 11 July 2009)

Wikimedia Commons has media related to: confectionery

[edit] Further reading

Wikibooks Cookbook has a recipe/module on Confections

Richardson, Tim H. (2002). Sweets: A History of Candy. Bloomsbury USA. ISBN 1-58234-229-6.  Stroud, Jon (2008). The Sucker's Guide - A Journey into the Soft Centre of the Sweet Shop. Summersdale. ISBN 9781840247091.  Weatherley, Henry (1865). A Treatise on the Art of Boiling Sugar. http://books.google.com/books?id=lH4EAAAAYAAJ. Retrieved 2008-07-14.  Kennedy, Angus (2008). Kennedy's Confection Magazine. http://www.kennedysconfection.com. 

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Old time candy, a childhood favorite memory. Taking a walk down memory lane, re-living those first bursts of Lemon Heads and licorice in the movie theaters (drive in, of course!) Where did it all come from? Many places. Here are some facts and fun on those delectable confectionery inventions that we just can't live without:

In 1847, a young English immigrant, Oliver Chase, invented the first American candy machine, a lozenge cutter. This being the pioneer movement of the NECCO family.

In 1868 Richard Cadbury introduces the first Valentine's Day box of chocolates.

In 1880s Wunderle Candy Company creates candy corn.

In 1903 Milton Hershey builds a chocolate factory and a town for his workers near Harrisburg, Pennsylvania. Known today as Hershey, Pennsylvania.

In 1911 Frank and Ethel Mars build a candy company in Tacoma, Washington. Later it become the Mars, Inc.

In 1930 the famous Bazooka Bubble Gum, and later, in 1953 the infamous Bazooka Joe were introduced.

In 1966 The Campbell Soup Company buys the Godiva Chocolatier, Inc. of Belgium. There's nothing better than Belgium chocolates!

In 2007 The Retro-Candy company introduces the 2 pound package of nostalgic candy. What treats!

These are only just a few of the favorites that have gone on for decades (well, a few of them are working on centuries!)

It's such a shame that so many crafty confections have gone by the wayside. Mary Janes, Parachute Jumpers, Black Cow, to name just a few.

They say that smells bring back memories. What about tastes? Didn't you fall in love to Junior Mints, pucker up to the sour taste of Sweet Tarts, and bite quickly to the center of Blo-Pops and Tootsie Pops?

A favorite memory of mine? Zots. Remember those? You put them in your mouth, NEVER suck them. These you had to bite. And WOW! The middle was full of the most sour tasting lemon you could want! It was like biting straight into a lemon! As soon as you bit into these, it would fiz. Oh man! I think the fastest I ever ran was when I introduced my dad to the wonderful world of these fizzy Zots! That's something you can only do once. Thankfully, he was a good sport, as I live on to share with you a sweet, and yes, sometimes sour, walk through our pasts.

Contact us at http://www.nostalgic-candy.net for those delectable delights of nostalgia!

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MLA Style Citation: Cacho, Sharon "A Little Confectionery History." A Little Confectionery History. 16 Jul. 2008 EzineArticles.com. 5 Dec. 2009 <http://ezinearticles.com/?A- Little- Confectionery- - History&id=1332326>.

APA Style Citation:Cacho, S. (2008, July 16). A Little Confectionery History. Retrieved December 5, 2009, from http://ezinearticles.com/?A- Little- Confectionery- - History&id=1332326

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