Hershey case study

Topics: Chocolate, Marketing, Confectionery Pages: 14 (2538 words) Published: April 23, 2015

ABSTRACT

The case study is about the failure of Hershey Foods Corporation when entering the Australian market. Our group will scrutinize the reasons of this failure and analyze the Australian market to figure out the opportunities and challenges of the new entrant into this market. Finally, based on the recent situation of Hershey, our group will propose some recommendations for Hershey to re-enter and be successful in the Australian as well as the international market.

I. Background
1. Company overview
Hershey, which is one of the leading chocolate-making factories in the world, was founded in 1913. The company originated from a caramel confectionery business, and then moved to chocolate-making segment. The company's core values focus on maximizing customer value, achieving high quality products and building solid trade relations with partners.

The growth and success of Hershey has been relied on the strong focus on high expenditure of marketing and promotions, and utilization of the state-of-the-art production facilities. The sharp emphasis on its core competencies - chocolate making is also a solid foundation for Hershey to become one of the most popular chocolate brand names.

2. Acquisition strategy
To achieve its vision to become a major diversified food company, Hershey has been acquiring many players in this market. This strategy brought Hershey the leading position in the US confectionary industry.

The company was the number one of the US confectionary market with the highest market share at 20.5%. In order to gain this position, it focused on a string of acquisitions in North America. The development timeline is presented as the following graph:

In 1986, Hershey acquired The Dietrich Corporation to manufacture and distribute Luden’s and Queen Anne confectionary product lines. Coming to the mid-1987, Hershey continued to purchase Nabiso Brands Ltd of Canadian operations. Thanks to this acquisition, Hershey became the low cost producer and took advantage of chocolate production capacity here. The remarkable point was in the mid of 1988 when Hershey bought the US confectionary operations of Cadbury Schweppes. It allowed Hershey to supply the Cardbury brands in the US and brought Hershey to the top position of the US confectionary market. In 1988, Hershey ended up its acquisitions and planned for expansion. It closed the acquired Toronto plant and expanded the Smith Falls. This plan was about the new distribution center construction. Thanks to this, it promised to lower the distribution costs and better response to the market changes. One more thing, in late 1989, Hershey started to join in refrigerated foods with the new product – chocolate-bar-flavored puddings.

In order to ensure the diversification, Hershey desired to embark in many acquisitions, which allowed the company to distribute many product lines. More than that, the company could take the advantages about market distribution, reputation and gained more market shares of the acquired businesses. That was one of the critical strategies, which pushed Hershey into the number one position in the confectionary market.

III. WHY DID THEY FAIL IN AUSTRALIA?

1. DISTRIBUTION
As a new player in Australian confectionery market, one of the biggest concerns of Hershey at that time was about the distribution channels. In fact, the company faced difficulties in accessing into supermarket shelf space.

In 1987, Hershey came to Australia when the domestic market was already dominated by the three biggest companies. They were Cadbury Schweppes, Nestlé, and Mars. These three companies accounted for about 90% of Australian confectionary market. Because of the structure of the market and its intense competition, there was not much available room for Hershey’s products to reach its consumer at retail level, which were supermarkets. New arrivals often found it costly to access supermarket shelf space.

The situation was getting worse...
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