Brand Audit Report

Submitted to: Julie Haworth

Submitted by: Patrice Khunteyev

5/1/2015

BRAND INVENTORY

Brand History

The Hershey Company is an American chocolate company that has been manufacturing and producing affordable chocolate for over 100 years now. The Hershey Chocolate Company began as entirely owned subsidiary of Milton Hershey’s Lancaster Caramel Company. The company originated in 1894 when the candy-manufacturer Milton Hershey decided to create a milk chocolate coating for his caramels. When Milton Hershey hired William Murrie to sell the excess products to other confectionaries, sales began to quickly increase. Hershey then realized how profitable the chocolate industry would be for his company. The Hershey Company is headquartered in Hershey, Pennsylvania and is now the largest chocolate manufacturer in North America. Hershey markets its products in about 70 countries worldwide, although receives the majority of revenues from its United States manufacturers. In 2013, Hershey generated $7.1 billion in total company revenue1.

Some of the companies well known products include Hershey’s chocolate bar, Hershey’s Kisses, York Peppermint Patties, Reese’s, Milk Duds and Kit Kat. Hershey’s went through many transitions and changes in its history, including the company’s expansion of its confectionary product lines, acquiring similar companies and even diversifying into other food products which include gum, frozen treats, hard candy, grocery and snack foods. One of Hershey’s greatest and most unique brand extension was HersheyPark, a theme park in Derry Township, Pennsylvania based on chocolate and candy. Hershey’s is one of the oldest chocolate companies in the United States and has earned the reputation of being an American icon for its chocolate bar. With that said, HersheyParks’ success should come with no surprise to its widespread audience. In 2000, HersheyPark won the International Applause Award for its creative accomplishments and outstanding performance.2

Hershey’s has established a memorable and recognizable brand which is universally known and loved. With a market cap of $20.86B3 and share price of $94.634, Hershey’s remains as one of the global leaders in chocolate confectionary companies competing against other successful brands such as Mars Inc. and Nestle5.

1 http://clients1.ibisworld.com.libproxy.utdallas.edu/reports/us/industry/majorcompanies.aspx?entid=230#MP9049 2 http://en.wikipedia.org/wiki/Applause_Award 3https://www.google.com/search?q=The+hershey+company+market+cap&ie=utf-8&oe=utf-8 4http://finance.yahoo.com/q?s=HSY 5http://www.hoovers.com/company-information/cs/competition.THE_HERSHEY_COMPANY.41159547e6950ee8.html

SUBSIDIARIES OF THE HERSHEY CO.

Subsidiary Name Jurisdiction of Incorporation

Hershey Netherlands B.V. The Netherlands

Hershey Canada, Inc. Canada

The Allan Candy Company Limited Canada

Hershey Mexico S.A. de C.V. Mexico

Hersmex S. de R.L. de C.V. Mexico

Servicios de Hersmex S. de R.L. de C.V. Mexico

Hershey Chocolate of Virginia, Inc. Delaware

Hershey Chocolate & Confectionery Corporation Delaware

Hershey International Ltd. Delaware

CSH Foods, Inc. Delaware

Artisan Confections Company Delaware

Apure Foods Company Delaware

Mauna Loa Macadamia Nut Corporation Hawaii

Hershey Caribe, Inc. Puerto Rico

Hershey Europe Ltd. United Kingdom

Hershey India Confectionery Private Limited India

Hershey India Private Limited India

Nutrine Confectionery Company Private Limited India

Hershey (Shanghai) Foods Research and Development Co. Ltd. China

Hershey Commercial (Shanghai) Co. Ltd. China

Hershey Foods International Trade (Shanghai) Co. Ltd. China

Hershey Japan Co., Ltd. Japan

Hershey Philippines, Inc. Philippines

Hershey Singapore Pte. Ltd. Singapore

Hershey Asia Pacific Pte. Ltd. Singapore

Hershey Malaysia Sdn. Bhd. Malaysia

Hershey (Thailand) Co. Ltd. Thailand

Shanghai Golden Monkey Food Joint Stock Co., Ltd. (80% ownership) China

Hershey do Brasil Ltda. (51% ownership) Brazil

Lotte Shanghai Foods Company (50% ownership) China

LH Foods Co., Limited (50 % ownership) Hong Kong

Financial Performance

From the years 2010 to 2015 revenue from candy production in the United States has

grown at an annualized 6.5% to an estimated $1.7 billion. This gives Hershey's just over

one-fifth of industry market share, making it the second largest competitor in US candy

production after Mars. The majority of the company's revenue growth has resulted from

increasing focus on the marketing of core brands, such as Jolly Ranchers and

Twizzlers, alongside the introduction of new hard candy. Operating income has also

been strong and improving, with company profitability aided by its ability to pass

increases in the price of sugar onto its customers. Profit is expected to reach 18.8% of

revenue by 20156.

Seasonal sales are usually the highest revenue period for Hershey’s, overall though

2014 was a successful year for The Hershey Co. According to its most recent earnings

release, Hershey's regained its market leadership in the "candy, mint, and gum"

category with a 31.1% market share in the U.S and the declining sales of the most

popular products of privately held Mars Co. helped Hershey hit the #1 market spot. In

their 2014 annual report, John P. Bilbrey, President and Chief Executive of The Hershey

Co. reports their rapid growth in sales and earnings and delivers plans on how the

company plans to retain their competitive advantage:

“Despite a challenging macroeconomic environment in 2014, I remain confident in our long-term growth strategies. We are making meaningful progress against these strategies and we saw good examples of improving performance as the year unfolded. Our U.S. seasonal performance was solid and we gained market share in all four of the traditional seasons. Additionally, in the combined Walmart, convenience store and dollar channels, our retail takeaway increased 4.4 percent. And we are building our knowledge foundation to retain our competitive advantage. We continue to refresh and update our consumer-centric confectionery demand landscape, Insight Driven Performance tools and Shopper Insights work that have been important enablers for growth. We’re also working with some cutting-edge technologies and sophisticated models offered by select companies related to demand creation and productivity.”7

6 http://clients1.ibisworld.com.libproxy.utdallas.edu/reports/us/industry/majorcompanies.aspx?entid=234#MP9049 7 https://www.thehersheycompany.com/pdfs/PDF_Proxy%20Statement_2014.pdf

MANAGEMENT TEAM

Chief Executive Officer

John P. Bilbrey Chairman of the Board, President and Chief Executive Officer

Global Leadership Team

Humberto P. Alfonso President, International Michele G. Buck President, North America Patricia A. Little Senior Vice President, Chief Financial Officer Terence L. O'Day Senior Vice President, Chief Supply Chain Officer William C. Papa Vice President, Chief Research and Development Officer Leslie M. Turner Senior Vice President, General Counsel and Secretary Kevin R. Walling Senior Vice President, Chief Human Resources Officer

D. Michael Wege Senior Vice President, Chief Growth and Marketing Officer

Waheed Zaman Senior Vice President, Chief Corporate Strategy and Administrative Officer

Recent News On April 20, 2015, Bloomberg recognized The Hershey Company (NYSE: HSY) as one of Corporate Responsibility Magazine’s 100 Best Corporate Citizens. Ranking at number 45, this is a proud moment for Hershey Co. and its employees since this is the first time the company has been in the top 50. “Since our founding, one of our core beliefs has been that true success only comes in helping others achieve a brighter future. Our employees work hard to bring goodness to the world through our beloved brands and positive contributions to creating a sustainable world,” said J.P. Bilbrey, Chairman and Chief Executive Officer, The Hershey Company. “We are honored that this core part of who we are is being recognized.”8

Hershey’s Iconic Brand For the last 120 years, the iconic brand has been loved and enjoyed by millions of chocolate lovers all over the world. Hershey’s has earned its reputation for being “America’s favorite chocolate bar”. Hershey’s owns a number of separate brands in

8 https://www.thehersheycompany.com/newsroom/news-release.aspx?id=2037855

addition to its wide range of Hershey’s products. Hershey’s category includes chocolate candy, sugar confectionary, gum and mint, baking and pantry and snacks. It has a significant number of products in addition to packaging and seasonal items. Table 1 outlines the continuous products not including seasonal items such as Reese’s Easter eggs, Valentine’s Kisses etc. The Hershey Company currently holds 31.1% of the market share.

Table 1: Hershey’s Branded Products

HERSHEY’S brand

REESE’S brand

KISSES brand

Other products

sold in USA

HERSHEY'S milk chocolate bar HERSHEY'S milk chocolate with almonds bar HERSHEY'S Extra Dark candy HERSHEY'S NUGGETS chocolates HERSHEY'S DROPS chocolates HERSHEY'S AIR DELIGHT aerated milk chocolate HERSHEY'S MINIATURES chocolate candy HERSHEY'S BLISS chocolates HERSHEY'S COOKIES N' CRÈME candy bar HERSHEY'S COOKIES N' CRÈME DROPS candy HERSHEY'S POT OF GOLD boxed chocolates HERSHEY'S sugar free chocolate candy HERSHEY'S HUGS candies

REESE'S peanut butter cups REESE'S peanut butter cups minis REESE'S PIECES candy REESE'S BIG CUP peanut butter cups REESE'S NUTRAGEOUS candy bar REESE'S sugar free peanut butter cups REESE'S crispy and crunchy bar REESE'S WHIPPS candy bar REESESTICKS wafer bars REESE'S FAST BREAK candy bar

HERSHEY'S KISSES brand milk chocolates HERSHEY'S KISSES brand milk chocolates with almonds HERSHEY'S KISSES brand milk chocolates with cherry cordial crème HERSHEY'S KISSES brand chocolate meltaway milk chocolates HERSHEY'S KISSES brand milk chocolates filled with caramel HERSHEY'S KISSES brand SPECIAL DARK chocolates HERSHEY'S KISSES AIR DELIGHT aerated milk chocolates

5th AVENUE candy bar ALMOND JOY candy bar ALMOND JOY PIECES candy CADBURY chocolates CARAMELLO candy bar GOOD & PLENTY candy HEATH toffee bar JOLLY RANCHER candy JOLLY RANCHER sugar free candy KIT KAT wafer bar MILK DUDS candy MOUNDS candy bar MR. GOODBAR chocolate bar PAYDAY peanut caramel bar ROLO caramels in milk chocolate SKOR toffee bar SPECIAL DARK chocolate bar

SPECIAL DARK PIECES candy SYMPHONY milk chocolate bar SYMPHONY milk chocolate bar with almonds and toffee TAKE5 candy bar THINGAMAJIG candy bar TWIZZLERS candy TWIZZLERS sugar free candy WHATCHAMACALLIT candy bar WHOPPERS malted milk balls YORK peppermint pattie YORK sugar free peppermint pattie YORK PIECES candy ZAGNUT candy bar

HERSHEY’S TIMELINE

Their latest new confectionary line called Lancaster, which was launched in 2013, was inspired by Milton Hershey’s original confection company, The Lancaster Caramel Company. Last August, Hershey’s announced a corporate brand makeover. Hershey’s is a recognizable brand that’s been around for over 100 years. The company decided it was time to for a new, modern look that fits the Hershey’s iconic brand. “The logo redesign underscores the company’s evolution from a predominately U.S. chocolate maker to a global confection and snack company”9. The new branding will impact all visual aspects of how The Hershey Company presents itself. Although Hershey’s heritage comes from a rich background, the new corporate brand will fit its modern look as well as its transition into a global company. The new corporate logo, which will be redesigned using the original chocolate bar logo, is a modern update that features a new version of the iconic shape of its Kisses brand chocolate. These changes are not overly drastic, as the company wants to still keep Milton’s roots and heritage installed in his company.

9 http://www.businesswire.com/news/home/20140829005325/en/Hershey-Company-Updates-Corporate-Brand-Unveils-Company

1876: Milton starts his first candy business, Crystal A Caramels

1893: Milton discovers the art of making chocolate

1900: First Hershey's milk chocolate bar enjoyed by Americans

1925: Mr. Goodbar candy bar is introduced

1926-28: Hershey's chocolate syrup and chocolate chips is invented

1938: Krackel comes along

1939: Hershey's miniature chocolare bars introduced

1971: Hershey's Special Dark chocolate

1989: Hershey's Symphony Chocolate bar

1994: Hershey's Cookies and Cream bar

Distribution Methods

The Hershey Co. sells their products through full-time sales representative and food brokers. Hershey’s customers are mainly wholesale distributors, chain grocery stores and mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, department stores and natural food stores. Their customers then resell their products to end-consumers in over 2 million retail outlets in North America and other locations worldwide. In 2010, sales to McLane Company, Inc., one of the largest wholesale distributors in the United States to convenience stores, drug stores, wholesale clubs and mass merchandisers, amounted to approximately 22.1% of Hershey’s total net sales. McLane Company, Inc. is the primary distributor of Hershey’s products to Wal-Mart Stores, Inc10.

Competitive Environment Hershey demonstrates the strength of its brand with strong sales and growing profits

compared to its competitors. Hershey realizes they compete in a time when the global

confectionery packaged goods industry is intensely competitive. Their competition is

based on product innovation, product quality, price, brand recognition and loyalty,

effectiveness of marketing, promotional activity, the ability to identify and satisfy

consumer preferences, as well as convenience and service11. Hershey’s 3 top major

competitors are Mars, Incorporated, Nestle, and MONDELEZ INTERNATIONAL, INC12.

In addition to its confectionary products, Hershey’s Food Corporation reported a Total

Revenue increase by 3.53% in the first quarter of 2015, while most of its competitors

had a revenue loss of -3.53% in that same quarter (compared with PepsiCo, Inc.,

Mondelez Internaitonal Inc., GENERAL MILLS INC., etc)13.

The Hershey Company has installed many implementations and tactics to differ itself

from other competitors. Its brand is sold in about 70 countries all over the world and is

reaching out to other international regions as well. Aside from its food products,

Hershey’s has also developed and maintained its own town- Hershey, Pennsylvania,

and created a chocolate factor (Hershey’sPark) which is still operating today.

10 http://www.sec.gov/Archives/edgar/data/47111/000119312511039789/d10k.htm 11 https://www.thehersheycompany.com/pdfs/PDF_Proxy%20Statement_2014.pdf 12 http://www.hoovers.com/company-information/cs/competition.THE_HERSHEY_COMPANY.41159547e6950ee8.html 13 http://csimarket.com/stocks/competitionNO9.php?code=HSY

Regional Reach

They Hershey Company focus its business in 3 regions. The US is the company's

largest market. The Americas, its second region, consists of Canada, Mexico, Brazil,

Central America, Puerto Rico, and global exports. Hershey also operates a third region

in Asia, Europe, the Middle East, and Africa. The company markets its products in about

70 countries worldwide. While the business receives most of its revenue from the US,

sales outside the US from developing regions have contributed about 17% of its total

revenue14.

Legal Agreements

Hershey’s holds license agreements to a few other confectionary branded products as

well. In 1988, Hershey’s acquired the rights to manufacture Cadbury chocolate products

in the United States. In addition, Hershey’s holds the rights to manufacture and sell its

competitive product Kit-Kat, through licensing agreements with Nestle.

Brand Analysis

Hershey’s top 3 products are Reese’s Peanut Butter Cups, Kit Kats King Size, and

Reese’s Sticks King Size. Chocolate is loved by everyone and either Hershey’s or Mars

is in their favorite category of chocolate brands. Last year, Hershey’s had sales of over

$7 billion dollars. In the IBIS industry report, Hershey’s is number 2, right behind Mars

inc. in leading confectionary whole sales with a 15.2% in market share. Mars Inc. is

number one with 21.4% in market share followed by Hershey’s, then McLane Company

Inc. with 7.3% and Core-Mark Holding Company Inc. with the lowest market share of

2.0%. Pricing for confectionary and snack items is relatively inexpensive ranging from

$2-$3 for a 1.38 oz package. Last year, Hershey’s announced an 8% increase in

wholesale prices. These changes were made to offset the price changes of their inputs

and hope it helps their overall financial reports for the following year.

Consumer Profile

Hershey’s demographic consumers are everyone! Hershey’s iconic brand was originally

created for any consumer of any age. The company strives and believes in providing

their consumers with the best quality and ingredients in their products. Consumers can

range from children to senior citizens. There is a product for everyone in The Hershey

Company. However, majority of their consumers range from ages 18-25. Hershey

products are sold continuously throughout the year at an even range but have the

highest sales during holiday seasons. Hershey products can be purchased at grocery

stores, convenient stores, gas stations, or any food retail store. Hershey’s is a product

14 http://www.vault.com/company-profiles/food-beverage/the-hershey-company/company-overview.aspx

that is recognized all over the world by almost anyone. Consumers have a favorable

and positive attitude for Hershey products. These attitudes and feelings are important

because they play a vital role to keep high sales for the company. Buying decision of

the consumers are influenced by Hershey’s strong product portfolio, installing their

brand image into the mind of the consumer, variety of taste available, and marketing

efforts.

Marketing Strategies

Hershey did not use radio, newspaper, or television to market its products for the first 75

years of their existence. Milton Hershey used windows, posters, and trains to advertise

his company’s products. His first products had advertising slogans such as “More

Sustaining than Meat” and “A Sweet to Eat.” These slogans helped promote his

products.

This year, Hershey’s has appointed Arnold Worldwide to realign their marketing

communications and advertisement to reach a wider and larger demographic. Hershey’s

is known for their slogans and funny advertisements like for their Reese’s Peanut Butter

Cups ad.

In 2014, Hershey’s marketing expenditure was $517.22 million dollars, $12.13 million

less than the previous year15.

15 http://www.statista.com/statistics/294536/hershey-company-advertising-expenditure/

Promotions

Hershey’s promotions include candy sales, special offers, seasonal items, limited time

special items, Reese’s NCCA March Madness deals, and more! This year Hershey’s

and Coca Cola have partnered together to promote a bundle offer for their consumers to

enjoy. These special offers and promotions help increase sales and sustain loyalty

relationship with their consumers.

Social Media

All of Hershey’s information can be found on their website:

www.thehersheycompany.com. On their site you can find their history, brands and

product lines, ingredient information, promises, annual reports, and news. You can find

Hershey’s on Facebook and Twitter as well.

16

Brand Value

Hershey’s ranked number one in CoreBrands study followed by Coca Cola and

Campbell Soup a new study done by CoreBrands which evaluates relationships

between brand equity and market cap in the US17.

Brand Exploratory

In a self-conducted study, 5 participants were asked the same questions about the

brand and their feelings toward the brand.

Have you had any Hershey products before – 5/5 yes

Did you enjoy this product – 5/5 yes

If you saw a Hershey’s advertisement, would you feel a craving to purchase one

of their products – 3/5 were enthusiastic about saying yes, however two people

16 https://www.google.com/search?q=hersheys+advertisements&biw=1366&bih=631&source=lnms&tbm=isch&sa=X&ei=S0hEVfzgFIvDggS28oD4Dw&ved=0CAYQ_AUoAQ#imgrc=0aZvapHShBiqBM%253A%3B79Kg7gsHNy1yFM%3Bhttps%253A%252F%252Fjane315blog.files.wordpress.com%252F2012%252F01%252Fad_225.jpg%3Bhttp%253A%252F%252Fimgarcade.com%252F1%252Fhershey-chocolate-advertisements%252F%3B547%3B747 17 http://247wallst.com/investing/2010/02/09/brand-value-and-stock-value-soft-drinks-candy-soapand-soup/

really didn’t feel like they would be tempted enough to go buy a Hershey’s

product after seeing a commercial or online ad for it.

Would you purchase Hershey products for a friend, family member, or co-worker

– 5/5 said yes and insisted they have made multiple purchases as they are quick

and easy gifts that they know will be enjoyed.

What kind of people do you think would enjoy Hershey products – answers

varied from children, teenagers, and elderly consumers. However, all agreed

Hershey’s is a product that can be enjoyed by everyone.

How often do you purchase Hershey products – 2/5 answered every week while

the others had the same answer of 2-3 times a month due to either wanting to cut

down on sugar or health conscious reasons.

Recommendations

Through this analysis it is evident that Hershey’s brand is a successful company with

successful diversified product lines. Hershey’s aims to satisfy their consumers’ wants

and needs are constantly working on ways to progress and continuously keep their

customers happy. The company understands the values of brand image and brand

awareness. However Hershey’s does not seem to have been able to translate that same

brand awareness as successfully to Canada or the rest of the world. Hershey’s is reaching

a wider international market which will help their future sales. Other recommendation

factors:

Promote ethical chocolate; be more vocal about fair trade and promoting social

responsibilities.

Strengthen their associations with flagship products other than Kisses such as Reese’s, Twizzlers or Jolly Ranchers by more prominently branding these products as Hershey’s.

Increase involvement with education. This can help extend promote and extend their

brand image.