ECO 201 Final Project Guidelines and Rubric
Overview
The final project for this course is the creation of a research paper. Every day, millions of economic choices are made by people—from what brand of soap to buy
to how many employees to hire for a factory. Microeconomics provides us with the tools, models, and concepts to better understand individual choices in the
marketplace and how resource allocation is determined at the micro level. The decisions made by individuals and households impact the market and influence
decisions made by firms. Firms use these tools as a way to determine pricing, output, and profit maximization. As a student of economics, you can use the
microeconomic principles to gain an understanding of how firms and individuals make decisions and also to make your own conclusions about actions we can
take to improve those decisions.
Now, imagine that you are a consultant to the firm of your choice. The firm has hired you to advise it on how it can ensure its future success as a company in its
current market. To do this, you will write a 7–9-page research paper analyzing market and business data to explain how the core microeconomic principles
impact the sustainability of the firm and what actions it can take to ensure success.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final
submissions. These milestones will be submitted in Modules Two, Four, and Five. The final submission will occur in Module Seven.
In this assignment, you will demonstrate your mastery of the following course outcomes:
ECO-201-01:
ECO-201-02:
ECO-201-03:
ECO-201-04:
Apply microeconomic models to real-world situations for informing effective business decisions
Analyze business and market data using microeconomic tools for their impact on business sustainability
Evaluate the structure of various markets for informing effective decision-making strategies
Assess the behavior and decisions of individuals and firms for their relation to the microeconomic framework
Prompt
You will work with your instructor to choose a firm for which you can find reliable data and information, both at the firm level and the industry level. The firm you
select must be a publicly traded company, must operate in the U.S. market, and must currently be in business. You will need instructor approval before continuing
on with your research paper in order to ensure you have met the necessary requirements. Publicly traded companies file reports with a great deal of data that
you will find useful for your analysis. Once you have selected a firm for your case study, you will gather information and data relevant to the firm and its industry
and use the core microeconomic principles you have learned in class to analyze the information and make a recommendation for your firm. You will compose a
7–9-page research paper in which you will analyze the market and business data to explain how the core microeconomic principles impact the sustainability of
the firm, and your recommendation will suggest the actions the firm can take to ensure success.
Specifically the following critical elements must be addressed:
I.
II.
III.
IV.
V.
VI.
Introduction
Work with your instructor to choose a firm that matches the following criteria: a publicly traded company operating in the U.S. market that is currently in
business.
a) Outline the purpose of this paper and how it will inform your conclusion.
b) Summarize the history of the firm, and provide an overview for what the firm does and what goods/services it sells.
Explore the supply and demand conditions for your firm’s product.
a) Evaluate trends in demand over time, and explain their impact on the industry and the firm. You should consider including annual sales figures
for the product your firm sells.
b) Analyze information and data related to the demand and supply for your firm’s product(s) to support your recommendation for the firm’s
actions. Remember to include a graphical representation of the data and information used in your analysis.
Examine the price elasticity of demand for the product(s) your firm sells.
a) Analyze the available data and information, such as pricing and the availability of substitutes, and justify how you determine the price elasticity
of demand for your firm’s product.
b) Explain the factors that affect consumer responsiveness to price changes for this product, using the concept of price elasticity of demand as your
guide.
c) Assess how the price elasticity of demand impacts the firm’s pricing decisions and revenue growth.
Examine the costs of production for your firm.
a) Analyze the various costs a firm faces, their trends over time, and how they have impacted your firm’s profitability.
b) Apply the concepts of variable and fixed costs to your firm for informing its output decisions. For instance, analyze how different kinds of costs
(labor, research and development, raw materials) affect the firm’s level of output.
Explore the overall market for your firm.
a) Discuss the market share of the firm and its top competitors by providing details on current percentages for each firm and describing the trend
over time. You might consider presenting the data graphically.
b) Analyze the barriers to entry in this market to illustrate the potential for new competition and its impact on your firm’s future in the market.
c) Describe the market structure for this firm, and analyze how this affects the firm’s ability to influence the market.
Recommendation
a) Develop a recommendation for how the firm can manage its future production by synthesizing the data presented.
b) Suggest how the firm’s position within the market and among its competitors will allow it to take your recommended action.
c) Describe how the firm can sustain its success going forward by evaluating the findings from demand trends and price elasticity.
Milestones
Milestone One: Introduction
In Module Two, you will submit a draft of the introduction (Section I) of your research paper, including all critical elements of Section I as listed above. In one to
two pages, you will detail the purpose of the paper, summarize the history of the firm, and provide an overview of the firm. This milestone is graded with the
Milestone One Rubric.
Milestone Two: Supply and Demand Conditions and Price Elasticity of Demand
In Module Four, you will submit a draft of the supply and demand conditions (Section II) and price elasticity of demand (Section III) of your research paper,
including all critical elements as listed above for each of those sections. Each of these sections should be one to two pages in length and should incorporate
relevant data and supporting evidence. This milestone is graded with the Milestone Two Rubric.
Milestone Three: Costs of Production, Overall Market, and Recommendation
In Module Five, you will submit a draft of the costs of production (Section IV), overall market (Section V), and recommendation (Section VI) of your research
paper, including all critical elements as listed above for each of those sections. Each of these sections should be one to two pages in length and should
incorporate relevant data and supporting evidence. This milestone is graded with the Milestone Three Rubric.
Final Submission: Research Paper
In Module Seven, you will submit your research paper. It should be a complete, polished artifact containing all of the critical elements of the final project. It
should reflect the incorporation of feedback gained throughout the course. This submission will be graded with the Final Project Rubric.
Deliverables
Milestone
1
2
3
Deliverables
Introduction
Supply and Demand Conditions and
Price Elasticity of Demand
Costs of Production, Overall Market,
and Recommendation
Final Submission: Research Paper
Module Due
Two
Grading
Graded separately; Milestone One Rubric
Four
Graded separately; Milestone Two Rubric
Five
Graded separately; Milestone Three Rubric
Seven
Graded separately; Final Project Rubric
Final Project Rubric
Guidelines for Submission: Your research paper must be 7 to 9 pages in length (plus a cover page and references) and must be written in APA format. Use double
spacing, 12-point Times New Roman font, and one-inch margins. Include at least five references cited in APA format.
Critical Elements
Introduction:
Purpose
Exemplary (100%)
Meets “Proficient” criteria and
uses industry-specific language to
establish expertise
Introduction: History Meets “Proficient” criteria, and
and Overview
choice of company is well suited
to the analysis
Conditions: Impact
Meets “Proficient” criteria and
explains in detail reasons for the
trend
Conditions: Firm’s
Actions
Meets “Proficient” criteria and is
well qualified with concrete
examples
Price Elasticity of
Demand: Analyze
Meets “Proficient” criteria and
uses research to illustrate claims
Price Elasticity of
Meets “Proficient” criteria and
Demand: Consumer reviews all factors of elasticity
Responsiveness
Proficient (85%)
Outlines the purpose of the
paper and how it will inform the
conclusion
Comprehensively summarizes the
history of the firm and provides
an overview for what the firm
does and what goods/services it
sells
Effectively evaluates trends in
demand over time and explains
their impact on the industry and
the firm
Analyzes information and data
related to the demand and
supply for the firm’s product(s) to
support recommendation for the
firm’s actions and includes
graphical representation of data
and information
Analyzes the available data and
information and justifies how the
price elasticity of demand for the
firm’s product was determined
Explains the factors that affect
consumer responsiveness to
price changes for the product
using the concept of price
elasticity of demand as a guide
Needs Improvement (55%)
Outlines the purpose of the
paper, but does not explain how
it will inform the conclusion
Summarizes the history of the
firm and provides an overview for
what the firm does and what
goods/services it sells, but
summary is not comprehensive
or overview lacks details
Evaluates trends in demand over
time, but evaluation is ineffective
or does not explain their impact
on the industry and firm
Analyzes information and data
related to the demand and
supply for the firm’s product(s),
but information and data do not
support recommendation for the
firm’s actions or do not include
graphical representation of data
and information
Analyzes the available data and
information, but does not justify
how the price of elasticity of
demand for the firm’s product
was determined
Explains the factors that affect
consumer responsiveness to
price changes for the product,
but does not use the concept of
price elasticity of demand as a
guide
Not Evident (0%)
Does not outline the purpose of
the paper
Value
6.5
Does not summarize the history
of the firm or provide an
overview
6.5
Does not evaluate trends in
demand over time
6.5
Does not analyze information and
data related to the demand and
supply for the firm’s product(s)
6.5
Does not analyze the available
data and information to
determine the price elasticity of
demand
6.5
Does not explain the factors that
affect consumer responsiveness
to price changes for the product
6.5
Price Elasticity of
Demand: Pricing
Decisions
Meets “Proficient” criteria and
uses research to illustrate claims
Accurately assesses how the
price elasticity of demand
impacts the firm’s pricing
decisions and revenue growth
Assesses how the price elasticity
of demand impacts the firm’s
pricing decisions and revenue
growth, but assessment is
inaccurate
Costs of Production: Meets “Proficient” criteria and
Analyzes the various costs a firm Analyzes the various costs a firm
Profitability
provides concrete examples to
faces, their trends over time, and faces and their trends over time,
substantiate claims
how they have impacted the
but does not discuss how they
firm’s profitability
have impacted the firm’s
profitability
Costs of Production: Meets “Proficient” criteria and
Accurately applies the concepts
Applies the concepts of variable
Output Decisions
provides insight into how the
of variable and fixed costs to the and fixed costs to the firm for
firm can manage those costs
firm for informing its output
informing its output decisions,
decisions
but applies concepts inaccurately
Overall Market:
Meets “Proficient” criteria and
Discusses the market share of the Discusses the market share of the
Market Share
presents the data graphically and firm and its top competitors by
firm and its top competitors, but
over time
providing details on current
does not provide details on
percentages for each firm and
current percentages for each firm
describing the trend over time
or does not describe the trend
over time
Overall Market:
Meets “Proficient” criteria and
Analyzes the barriers to entry in Analyzes the barriers to entry in
Barriers to Entry
provides specific examples of
this market to illustrate the
this market, but does not
successful and/or failed entrants potential for new competition
illustrate the potential for new
into the market
and its impact on the firm’s
competition or its impact on the
future in the market
firm’s future in the market
Overall Market:
Meets “Proficient” criteria and
Describes the market structure
Describes the market structure
Market Structure
provides specific examples to
for this firm and accurately
for this firm, but does not analyze
demonstrate the market
analyzes how this affects the
how this affects the firm’s ability
structure and firm’s influence
firm’s ability to influence the
to influence the market or
market
analysis is inaccurate
Recommendation: Meets “Proficient” criteria and
Effectively develops a
Develops a recommendation for
Future Production relates recommendation to the
recommendation for how the
how the firm can manage its
economic principles presented in firm can manage its future
future production, but
the paper
production by synthesizing the
recommendation is not effective
data presented
or is not based on a synthesis of
the data presented
Does not assess how the price
elasticity of demand impacts the
firm’s pricing decisions and
revenue growth
6.5
Does not analyze the various
costs a firm faces, their trends
over time, or how they have
impacted the firm’s profitability
6.5
Does not apply the concepts of
variable and fixed costs to the
firm for informing its output
decisions
Does not discuss the market
share of the firm and its top
competitors
6.5
Does not analyze the barriers to
entry in this market
6.5
Does not describe the market
structure for this firm
6.5
Does not develop a
recommendation
6.5
6.5
Recommendation:
Recommended
Action
Meets “Proficient” criteria and
provides advice for how to
strengthen its position in the
market
Recommendation:
Sustain its Success
Meets “Proficient” criteria and
provides specific ideas for how
the firm can sustain its success
Articulation of
Response
Suggests how the firm’s position
within the market and among its
competitors will allow it to take
the recommended action
Describes how the firm can
sustain its success going forward
by evaluating the findings from
demand trends and price
elasticity
Submission is free of errors
Submission has no major errors
related to citations, grammar,
related to citations, grammar,
spelling, syntax, and organization spelling, syntax, or organization
and is presented in a professional
and easy-to-read format
Suggests how the firm’s position
within the market and among its
competitors will allow it to take
the recommended action, but
suggestions are not appropriate
Describes how the firm can
sustain its success going forward,
but does not evaluate the
findings from demand trends and
price elasticity in the discussion
Submission has major errors
related to citations, grammar,
spelling, syntax, or organization
that negatively impact readability
and articulation of main ideas
Does not suggest how the firm’s
position within the market and
among its competitors will allow
it to take the recommended
action
Does not describe how the firm
can sustain its success going
forward
6.5
Submission has critical errors
related to citations, grammar,
spelling, syntax, or organization
that prevent understanding of
ideas
Earned Total
2.5
6.5
100%
Running head: THE HERSHEY COMPANY
The Hershey Company
Student Name
Southern New Hampshire University
ECO 201
March 16, 2016
1
THE HERSHEY COMPANY
2
The Hershey Company
Did you know that the number one flavor in confectionery treats among Americans is chocolate?
And the demand for chocolate in the global market is expected to have an “annual growth rate
approaching 3 percent. Demand in Asia is a major source in the growth of sales, and is expected
to rise to a 20 percent share in the global market by 2016” (Bradford, n.d.). As a consultant for
one of the “top ten global confectionery companies” (The Chocolate Industry, 2015) in the
industry, it’s essential that the core microeconomic principles be examined to ensure the firm’s
sustainability and future growth in the market. As the demand for chocolate grows, so does the
demand for cocoa, the key ingredient needed to make chocolate. The cocoa farming industry is
struggling to keep up with the rising demand primarily due to the lack of resources and monetary
earnings by “small-scale family farmers who grow 90% of the world’s cocoa” (Goodyear, n.d.).
As a result, many farmers are leaving the industry for higher-paying work. This is a pressing
issue for the chocolate industry, as there is high probability that the company will not be able to
sustain future growth in the market if the key ingredient is no longer available. Hershey will need
to support and invest in the cocoa farming industry if they want to continue in the chocolate
confectionery market.
History
The founder of the Hershey Chocolate Company, Milton S. Hershey, faced several
challenges prior to becoming one of the most successful entrepreneurs around the world. He was
born in Derry Township, Pennsylvania. As a teenager with no formal education, he chose to
enter a four-year apprenticeship program with a candy maker located in Lancaster, Pennsylvania.
In 1876, after completing the apprenticeship program, he opened his own candy business that in
the end failed after six years of hard work. He went on to pursue work with a confectioner in
THE HERSHEY COMPANY
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Denver and learned the trade of making caramels using fresh milk (Hershey's History, n.d.). He
then moved to New York to open his second candy business, which also failed. Still determined
to make a go of the caramel business, he moved back to Lancaster, where he first learned the art
of making candy, and in the end he finally found his niche to succeed. In 1893, while attending
an exposition in Chicago, he became intrigued by the technique used to make chocolate and
purchased some German machinery so he could start producing “chocolate coatings for his
caramels” (Hershey's History, n.d.).
In recognizing the high demand for just chocolate, he started the Hershey Chocolate
Company and eventually sold the caramel business so he could devote all his time to making
chocolate. As his empire grew, so did his generosity of giving back to the community by
providing “employee housing, schools, parks, recreational facilities, and a trolley system”
(Hershey's History, n.d.). He and his wife gave the majority of their fortune—including
ownership of his enterprise businesses—to the Hershey Trust that is held for the Hershey
Industrial School for orphans. In 1945, after his passing, “the company, town and institutions that
bear his name were well positioned to grow” (Hershey's History, n.d.). And today, the “Hershey
Chocolate Company has evolved into The Hershey Company” (Hershey's History, n.d.), which
offers a large selection of products and notable attractions.
Current Goods and Services
The company manufactures more than 80 brands of products, with known classics such
as Hershey Kisses, Reese’s, Almond Joy, Kit Kat, Mounds, York, and many more. They also
produce non-chocolate candy, gum, mints, baking goods, pantry goods, drink mixes, dessert
toppings, and snacks. In addition, they make products to meet the dietary needs of consumers
who are gluten-free, kosher, or sugar-free (Our Brands, n.d.).
THE HERSHEY COMPANY
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Areas of Operation
The company’s manufacturing plants are located in Pennsylvania, Illinois, Virginia, and
Guadalajara, Mexico, with each location designed to produce specific brands. They have a global
presence with their international retail stores located in Canada, Mexico, Brazil, China, Japan,
Korea, and India, as well as their U.S. retail stores located in Times Square, New York, and
Chicago (Hershey's Manufacturing, n.d.). But the largest operating facility and famous tourist
attraction, Hershey’s Chocolate World, is located right in the heart of Hershey, PA (Hershey's
Chocolate World, n.d.).
Supply and Demand
With the demand for chocolate rising and its growing popularity in the international
markets, it’s important that we analyze and understand the supply and demand trends to
determine how Hershey can best align its firm’s product to sustain future growth in the
confectionery market. In addition, we need to evaluate pricing along with revenue growth to
understand the impact it will have on consumer responsiveness by utilizing the price of elasticity
of demand as our guide. As noted in my initial introduction, the demand for chocolate in the
global market is expected to have an annual rate increase of about 3 percent, with Asia being the
major source in the growth of sales and “expected to rise to a 20 percent share in the global
market by 2016” (Bradford, n.d.).
As illustrated in the graph below, Hershey has shown tremendous growth in sales over
the last 5 years and has received much of its growth from “a nearly 10% price increase that was
phased in over the last couple of years” (Wismer, 2013).
THE HERSHEY COMPANY
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Figure 1. Hershey’s Revenue and Cost of Goods Sold (COGS incl. D&A) data for the past 5
years. Adapted from HSY Annual Income Statement - Hershey Co. annual financials (n.d.)
The company also had a strong, aggressive business strategy that included special promotions,
brand extensions, new products, and acquisitions of candy makers that offered diversity in
product textures and unique flavors. With a solid rank in the U.S. market, the company is now
positioned to expand its operation into key international markets to improve global sales
(Wismer, 2013).
In 2013, the company expanded into China and acquired 80% of renowned candy maker
Shanghai Golden Monkey. The established company is recognized in its home market with
supported net sales growth in the double digits, making it the ideal partnership for Hershey to
expand its footprint and gain access to an emerging demographic market (De La Merced, 2013).
The acquisition resulted in a good deal, with Hershey growing its sales to $7.4 billion in 2014
and China being responsible for 4.5 percent of those earnings. According to Reuters (2015), “the
chocolate consumption growth in the emerging markets closely tracks GDP growth, suggesting
China’s increasing urban population would drive chocolate consumption.” Based on these facts,
the demand for chocolate by the urban population in China is expected to grow to $4.3 billion by
THE HERSHEY COMPANY
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2019. That would be almost a 60 percent increase from the $2.7 billion sales in 2014 (Reuters,
2015).
As the popularity of chocolate grows, so does the increased demand for cocoa, which is
the main ingredient needed to make chocolate. There are many factors that influence the price of
cocoa, with the most serious being lack of resources and monetary earnings by the “small-scale
family farmers who grow 90% of the world’s cocoa” (Goodyear, n.d.). This has resulted in low
production, with many farmers leaving the industry due to low wages and poverty in their
community. “Demand for cocoa is predicted to rise by 30% by 2020 but without . . . investing in
small-scale farmers, the industry will struggle to provide sufficient supply” (Goodyear, n.d.).
Price Elasticity of Demand
A shortage in the supply of cocoa would have a significant impact on the confectionery
market and its input costs, leading to a major shift in retail pricing for chocolate. As a result, and
with few alternatives, consumers craving the taste of chocolate will not be able to replace the
desirable treat with another confectionery product, making the demand for chocolate inelastic.
But if a particular brand of chocolate goes up in price, then the consumer could substitute their
choice by switching to another brand, such as milk chocolate instead of dark chocolate, making
the demand for the brand of product elastic. “The biggest fear surrounding the chocolate industry
right now is that the supply situation leads to further retail price increases which create
conditions where chocolate is seen as a luxury item” (Maduri, 2014). When a product is viewed
as a necessity, such as gas, milk, or bread, the quantity demanded will not change in response to
price fluctuations. But when a product is seen as a luxury, the price change will influence the
quantity demanded, as consumers with less disposable income will do away with the purchase
THE HERSHEY COMPANY
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altogether. The possible thought behind this fear is that chocolate, once viewed as an affordable
treat, could now be considered too expensive by the average consumer (Maduri, 2014).
Since 2012, chocolate retail prices have increased by 60%, prompting Hershey to
implement a pricing strategy focused on consumer responsiveness (Maduri, 2014). To diminish
the shock of rising retail prices, Hershey gradually increased the costs on its retail products by
adding a certain percent over time in order to avoid interruptions with consumer demand. Thanks
to this strategy, consumers continued to buy their brands instead of avoiding the purchase
altogether, leading to increased sales and revenue growth over the last couple of years (Maduri,
2014). As an example, in 2012, the company “increased its prices on products by 6% on average,
which resulted in a 2% increase in sales volume, a 140 basis point increase in gross margins, and
a 14% year-over-year increase in EPS” (Asad, 2014). In recognizing the impact that the supply
cost of cocoa would have on its input costs, Hershey was able to sell its products with less price
elasticity by gradually increasing the costs of its retail products by a certain percent over time,
making the consumer view the product as still affordable. This approach had a positive impact on
sales and company margins.
Cost of Production
If supply costs increase, so will the cost to manufacture products, which changes the
company’s profit margins if costs are not adjusted according to product demand and projected
sales. The price of cocoa, the key ingredient needed to make chocolate, has climbed “more than
45% since early 2013” (Ferdman, 2014). Hershey’s pricing strategy is not designed to pass
fluctuating supply costs onto the consumer: The company factors “the volatility into their
pricing, assuming that pinched profits today will be followed by swollen profits tomorrow”
(Ferdman, 2014). The root cause behind the rising cost of cocoa is that farmers are not able to
THE HERSHEY COMPANY
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keep up with the demands from the emerging global market as the popularity and consumption
of chocolate grow. In 2014, Hershey had to “[raise] the price of its chocolate to compensate for
the abnormally high cocoa prices. . . . The price increase . . . amounted to roughly eight percent”
(Ferdman, 2014). The decision was based on the increased cost of production and the influence it
would have on the company’s margins, which were already down from the previous year’s
quarterly earnings of 46.1% to that year’s earnings of 43.8% (Gasparro & McCarthy, 2014).
The company’s fixed costs, such as advertising, insurance, and property taxes, do not
change with the level of output. But the variable costs needed to make chocolate, such as
commodities, will fluctuate based on production activity. When the output activity is high,
supply spending increases, and when the output activity is low, supply spending decreases. When
the company foresees a decline in sales, the production schedule is adjusted to reduce output,
which decreases the company’s variable costs. The devised plan is meant to maximize profits,
and when the company does not adhere to this arrangement, the added costs impact profit
margins. This level of error was one of the factors in why the company’s margins dropped from
the previous year’s earnings. The company did not “adjust its production schedule as quickly as
they should have in light of how sales were changing” (Gasparro & McCarthy, 2014).
Overall Market
The confectionery market consists of about 150 U.S. candy makers with “Mars and
Hershey [controlling] around 75 percent of the national chocolate market, and 60 percent of the
US candy market overall” (Kahn, 2013). As illustrated in the graph below, Hershey is shown as
the top leader, with 44.2% of the U.S. market share.
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Figure 2. U.S. Chocolate Market Share, 2014. Adapted from U.S. market share of chocolate
companies, 2014 (n.d.)
In the global market, Hershey is one of the top ten leaders, with continuing efforts to expand into
the emerging global market to support consumer demand and improve international sales.
Figure 3. Top Ten Global Confectionery Companies. The symbol * includes the production of
non-confectionery goods. Adapted from The Chocolate Industry (2015)
In the 1960s, when consumers wanted to purchase chocolate, they would head down to
their local candy maker. The owners had such passion for making chocolate that they would
spend long hours coming up with unique, original recipes specific to their shop. As the market
grew, so did the pressure to compete against the big players. The neighborhood candy makers
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slowly found themselves being bought out by these big companies. In 1963, Hershey purchased
Reese’s and then Almond Joy. Nestle jumped on board and bought Goobers and Baby Ruth. The
local shops that resisted the takeover were now struggling to stay afloat (Kahn, 2013). In the
1970s, a popular candy named Heath Bar caught Hershey’s interest, and when the company
offered to buy them, Health declined. Hershey ended up buying the “original recipe from another
company and introduced the Skor Bar to compete head-on” (Kahn, 2013). As a result, Health
sales plunged, and in the end, Hershey bought the company. It was through strategic planning
and financial leverage that the big players were able to consolidate the market by bringing the
number of candy makers down to around 150 producers (Kahn, 2013). Now, with only a few
companies dominating the market and little motive to create new products, the confectionery
industry is viewed as an oligopoly market structure.
It’s not easy for small candy makers to enter the marketplace, mainly because they lack
the funds and leverage needed to promote their products on store shelves. Also, they are not in
the financial position to offer discounts or deals, which is often expected by the retail chains
(Kahn, 2013). Hershey is the dominant player in the U.S. market and is working towards gaining
more market share in the international arena. The company is now opening a new facility in
Malaysia, one of the fastest-growing regions for its products, and they invested $250 million
USD, representing the “single largest investment in Asia during the company’s 18-years history
in the region” (“Hershey Building,” 2013). The new facility location was deliberately chosen to
provide “easy distribution access to more than 25 markets across Asia” (“Hershey Building,”
2013). To keep up with consumer demand, the company will utilize proprietary equipment and
systems designed specifically for their production needs. The company’s strategic plan for global
THE HERSHEY COMPANY
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market success is to “produce high-quality products tailored to local taste preferences and to
meet rapidly growing demand” (“Hershey Building,” 2013).
Recommendation
As Hershey continues to execute its business plan to increase its global market share,
there’s growing concern about whether the cocoa farmers will be able to sustain enough supply
to meet the company’s needs. Without cocoa, the company will not be able to manufacture
chocolate, as there is no other ingredient that can be used to manufacture the product. The
majority of the world’s cocoa is supplied by small-scale family farmers who use “out-dated
farming methods and lack resources to invest in fertilisers or in replacing ageing trees past their
peak productivity” (Goodyear, n.d.). With low wages and inadequate funding for their crops, the
farming community is living in poverty. As a result, the farmers are starting to leave the industry,
and future generations have no incentive to take over the cocoa farms, so they are moving into
jobs in higher-paying industries. Many manufacturing companies are realizing the urgency that
“no cocoa farmers = no chocolate bars” (Goodyear, n.d.).
The recommendation would be for Hershey to support and invest in Fair Trade certified
cocoa organizations, which encourage long-term business relationships with cocoa farmers by
ensuring higher wages and proper resources to produce long-term quality products. By aligning
with and buying its supplies from Fair Trade certified farmers, the company would be
strengthening its business relationships and investing in the most crucial ingredient for the
company’s products: cocoa. Without this ingredient, the company would no longer have a
functioning chocolate confectionery business. The resources and funding would go towards
“investing in replacing old cocoa trees to increase productivity, or investments in better facilities
for crop collection, storage, transport, or processing. . . . business or organisational development,
THE HERSHEY COMPANY
12
or to support improvements in production and processing” (Goodyear, n.d.). The investment
would sustain future growth of cocoa farmers and supply the essential ingredient needed to make
chocolate.
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13
References
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Bradford, C. (n.d.). How large is the chocolate industry? Chron.com. Retrieved from
http://smallbusiness.chron.com/large-chocolate-industry-55639.html
China chocolate market seen growing to $4.3 bln by 2019 – Hershey. (2015, February 18).
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