Trend Analysis Paper

Trend Analysis Paper

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From: Mr. Brian Richard

Date: 29th January, 2009

Subject: Investment opportunities at Hershey’s Chocolate Manufacturing Company.

Dear Sir,

You had requested me to make a critical analysis on the future of Hershey’s Chocolate Manufacturing Company while examining its most recent launch and the future of that product. In line with your previous memo, I have carried out extensive research you will find useful in making your decision to invest in the company or not.  You will find below analysis of the Hershey Company and its latest brand, Bliss. The company has tied great importance to the new product and expects the development of this brand to directly influence the company itself.

The Hershey Company is the largest American producer of Chocolate and has a sideline partnership with Starbucks. Currently employing 13,000 workers across the world and listed with $ 5 billion in revenues[1], the Company is currently introducing a new brand. The Hershey’s Bliss Chocolate is being launched across the country this season. The new chocolate is available in three unique flavors; milk chocolate, dark chocolate and milk chocolate Melt away.  The company recently started its campaign by launching 10, 000 parties to start publicity of this brand of chocolate.

Hershey’s fourth quarter net income was up by 51%, to 81 million dollars. Marketing products seems to be one of the main reasons by Hershey products get good visibility. The brand, Hershey’s Bliss Chocolate is actually doing quite well in the market. Women, being the primary target have responded well to the brand. Marketing figures for the company show that marketing made 23% of the costs last year, to 161 million dollars. The CEO, Mr., West, projects that these costs will increase by another 20%-25%. So, you can expect massive publicity drives that are bound to increase the share value of the Company. With the amount of spending that Hershey has ordained for its marketing strategy, it would be a safe assumption to expect rapid expansion in the coming year, 2009. This strategy will not only increase spending in the economy and boost general economic balances but will also increase the consumer base of Hershey’s Bliss Chocolate. This increase in consumer base will bring in existing consumers and attract new ones, resulting in a sharp increase in sales. This marketing strategy is not isolated to the Bliss brand alone and we can safely assume that with marketing strategies being applied to other Hershey brands, there will be a complementary effect on sales for all Hershey products. The increase in sales, as Hershey expects, will boost products. Thus, the company has safely regarded the progress of its new brand Bliss to the progress of its company as a whole.

A recent survey showed that Hershey’s Company has a very wide and loyal consumer base. Because of this brand loyalty Hershey’s Company has been able to exert, it is highly unlikely that the company will lose out market share to competition very easily. Consumers indulge in various Hershey Brands, especially Hershey Kisses. Currently, the company is employing similar strategies by hosting 10, 000 parties in honor of their new brand, Hershey’s Bliss Chocolate. This has already racked in a number of loyal consumers from all over America. The new brand has already started developing with females loving not only its taste but also its feel and look. The events left PR impressions of over 115 million across different social classes in the United States. The parties that were hosted and organized separately gained attendances that cumulated to over 150,000 people, creating a national footprint in the name of advertising and publicity stunts. The main strategy being used was word of mouth marketing. The result was that Host and Guest word of mouth linkages accumulated to approximately over 8.5 million people in the United States alone. A total 125 million impressions were created during this event which highlights the fact that Bliss is now nationally known. The company is not taking its new brand lightly and has extensively applied their resources to develop this one particular brand in 2009. From the above material, you can rest assured that this brand is being considered by Hershey as their life line to re-energize their lost profits and low share value. Hershey’s is investing to develop this brand and we can assume that in year 2009, this very product will increase Hershey’s sales significantly. The fact that the company won the Forrester Groundswell Award on “energizing”, for their marketing strategy on Hershey’s Bliss Chocolate, created waves around the future of the company and the base it is creating. Investors have started viewing the company favorably.

The Chocolate Company plans to expand outwards and target markets around Asia and India. With good demand factors present in Asian countries, Hershey’s sales are expected to rise significantly. The company plans to launch the Bliss brand across Asia with the same marketing fervor that it has done so in the United States. Currently, the company is working a detailed expansion related report regarding its operations in India and China. Both economies are growing at a rapid pace and China seems least affected by the financial crisis so far. India, the South Asian tiger GDP is phenomenal and the society demographics indicate that it is finally maneuvering towards a consumer based economy. This does however spell uncertainty in the United States. With raw material prices already high, there is only so much Hershey will produce. If most of the target market is in Asia, there is a good chance of stunted growth in the United States as shortages of production accumulate. This will result in a direct cost increase for the consumer due to basic demand supply forces. This could significantly tarnish the consumer base in the United States as Hershey has already announced that 1/3rd of its products will see a price increase withstanding supply demand forces. The total price might push consumers to a point of disillusionment with the product.

1/3rd of Hershey Products are expected to suffer from inflation. The rising prices of milk, cocoa, electricity and shipping has pushed the company down. Prices are being increased by up to 13% and there is wide anticipation if Hershey’s Bliss Chocolate could be a victim too. With 19% milk inflation, the company is expected to announce a rise in prices for its latest brand. 2 of the flavors host milk as their most basic ingredient. If this does happen, Hershey will have no choice but to pass on the cost to its consumer. Here, they run the risk of losing a wide consumer base for the product. If people find the product too expensive, they will not buy. And given that the amount of investment is being made on this product alone, this is an obvious life line for the company. Such a price increase will decrease the buying trend of Hershey’s Bliss Chocolate and could bring the future of the company into jeopardy.  There is a risk of losing consumer base in America.

With the economy in a troubled state of recession, expansion is not the option for many companies. As global economies contract, demand has decreased for everything but bare necessities of life and consumers are shying away from the consumer based society. However, Hershey has drifted away from the thought and has actually increased spending on marketing. According to the CEO, the company plans to follow a simple directive of increasing spending to rejuvenate the market of chocolates. This plan is based on the underlying fact that advertising and marketing expenses will generate increased sales which will grant profits to the company. At the moment, the strategy has worked for Hershey Company and it has shown a drastic increase in sales over the last quarter. With spending being increased by 25%, it is probable that company sales will trend upwards further and increase the company’s profits. With global initiatives by various countries to jump out of the recession, the United States economy is expected to start recovery eventually. With the amount of budget that Hershey has allocated towards it marketing expense, such trade in will benefit the company in the coming 3 quarters. The share of Bliss has been the cornerstone in this entire strategy as this brand is being seen as the new penetrative brand for market share in the saturated chocolate industry. Bliss will gain the majority of the expense portion as the company plans to kick start the brand in the industry to gain majority share. The new product is expected to rise with the investment being made in it and to take controlling share of the market very soon. Thus, our analysis shows that the brand will prove to be a significant asset that will rejuvenate Hershey’s Chocolate Company.

An upward trend can be created for the brand if Hershey can capitalize on its recent success in award winning. The company must publicize its achievement to enhance its public relations with its consumers and possible investors like you. Recently, the brand won the Best New product Award for its Bliss category. The award highlighted that the new brand is doing well in the market. However, Hershey’s strategy is concentrating too much on advertising and not on public relations. The company must expand its marketing operations to show consumers a different side of the chocolate brand, Bliss, and to create an all new customer experience[2]. To accomplish this, unless they grant sophisticated and credible publicity to the Bliss brand, the chocolate will remain dependant on advertising and after a few months of hype, will die down. Therefore, we forecast an increase trend in sales and brand value if Hershey can successfully take advantage of the laurels Bliss is earning the company[3].

Survey results and company statements clearly indicate that the company is targeting the brand in one particular segment of the demographic divisions of consumers; women[4]. Though the strategy has worked and women from all over United States have come to recognize the brand Bliss, we believe this is not a long term strategy. By targeting a niche market, the company has limited it growth potential. Therefore, we believe there is only so far the company can go in the future. If your company does choose to make the investment, we would recommend that you highlight this aspect and get Hershey’s to expand in other demographic sectors. The dark milk chocolate Bliss brand can easily be expanded to the male segments of society[5]. Another strategy could be to leave the brand gender free and publicize it based on all demographic sections of society. This would help target a much bigger market and could increase sales sustainably for the company.

Survey indicate that the United States consumers are more health conscious then they were a few years ago. This has been evident with consumers choosing healthy food over junk food and fatty foods. The obesity rate in the United States has further compounded the issue and more and more consumers are shifting towards healthy consumerism. When we look at the Bliss brand which is chocolate, we immediately relate to fatty foods. Because of this, Hershey’s is vulnerable to competition which provides sugar-free chocolates or power bars which are considered healthier components than plain chocolate. An opportunity for Hershey’s exists here if they can promote Bliss as a healthy commodity. The fact that the milk contents of the chocolate are quite high and the nutrient value is significant, Hershey should be pushed to develop a strategy towards targeting the health conscious market of United States. Such initiatives will drive up sales for all products of Hershey’s and will benefit investors as share value will rise as a consequence.

A merger is on the boards for Hershey and another major competitor in the same line of business. The most recent attempts have been between Hershey’s and Cadbury. However, due to minute details, the deal could not be finalized. But with pressure high on Hershey with other major competitors pushing for mergers including, Mars-Wrigley, the possibility of Hershey Company joining hands with another competitor is seemingly high. We feel, such a move should be pushed and your company can play an important role in the merger. If Hershey can be convinced to go for the merger, the company assets will increase manifold and the consumer base will drastically increase at the same time. The current crisis the company is facing will die down and share values will increase.

Work Cited Page

Barstow, Donna. What Do Women REALLY Want? Chocolate! Nantier Beall Minoustchine Publishing, 2004

Burford, Betty. Chocolate by Hershey: A Story about Milton S. Hershey. Carolrhoda Books, 1994

McMahon, James. Built on Chocolate: The Story of the Hershey Chocolate Company. General Publishing Group, 2008

Penn, Bill. Be Your Own PR Expert. Cengage Learning Business Press, 2004

Tisch, Jonathan. Chocolates on the Pillow Aren’t Enough: Reinventing The Customer Experience. Wiley, 2007

[1] McMahon, James. Built on Chocolate: The Story of the Hershey Chocolate Company. General Publishing Group, 2008
[2] Penn, Bill. Be Your Own PR Expert. Cengage Learning Business Press, 2004, pp34-76.
[3] Tisch, Jonathan. Chocolates on the Pillow Aren’t Enough: Reinventing The Customer Experience. Wiley, 2007, pp23-56.
[4] Burford, Betty. Chocolate by Hershey: A Story about Milton S. Hershey. Carolrhoda Books, 1994, pp57-98.
[5] Barstow, Donna. What Do Women REALLY Want? Chocolate! Nantier Beall Minoustchine Publishing, 2004, pp25-74.

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