Case Study - Hershey Foods 2u3z73

CASE STUDY ANALYSIS GROUP 5- SECTION C- PGP 2009-2011 AKANSHA SINHA BHAGIRATH KAUSTUBH TIWARY PIYUSH KHURANA RITIKA SINGH SRUTHI SOUNDARARAJAN

HERSHEY FOODS: “It’s time to kiss and make up” HERSHEY FOODS: A BIRDS EYE VIEW •

The story of Hershey foods is a captivating tale that describes the determination of a young pioneer from Pennsylvania who went on to build an international Company, a town to go with it and a chocolate and confectionary sensation.

•

Milton Hershey was born in 1857 and spent his youth primarily in New Orleans and New York but returned to Pennsylvania and formed the Hershey Chocolate Company in 1894.

•

Hershey foods were founded in 1905 and went public in 1927. The company can be classified into 3 primary product groups: the chocolate and confectionary group, restaurant operations and other food products and the services group.

•

The chocolate and confectionary group is the most well known of the three and offers products such as Kisses, Kit Kats, Tweezers, Ice Breakers and the Bliss Chocolate.

•

Through unceasing technological modernisation, strategically astute acquisitions and new product development, the company has grown spectacularly.

•

Today, the company is a leading snack food company and the largest American manufacturer of Chocolate and non chocolate confectionary products.

CHIEF EXECUTIVE OFFICER - RICHARD LENNY AND HIS CONTRIBUTION •

Richard Lenny became CEO of Hershey foods in 2001 and with this post also became the first outsider to ever run the company.

•

Lenny managed to increase profits by 10% in 2002 which had a mixed response from the employees and the citizens since even though the company’s turnover increased it was due to a lot of cost cutting schemes such as cocoa production outsourcing. This is also resulted in a 44 day strike- the longest in company history.

•

As Lenny continued to remain the driven CEO, worker discontent also grew within the company.

SUBSIDIARY INSTITUTIONS OF THE COMPANY A] Hershey Trust Company •

The Hershey Trust company began in 1905 as the community’s first bank. A few years later the company was re-established as the Hershey Industrial School.

•

The biggest challenge for the company arose when Milton Hershey invested his entire $60 billion into the company.

•

The Trust is currently headed by a 17 member board with CEO Robert Vowler.

B] Milton Hershey School •

In 1909, The Milton Hershey School was founded for orphaned boys with a view of training young boys for various occupations and a bright future. Soon, issions were open to various minorities and girls as well.

•

The school is located on 10000 acre campus and has modern facilities that enable the underprivileged to have equal opportunities and currently houses around 1200 students.

COMMENCEMENT OF THE RIFT AND REACTIONS TO IT •

With the death of Milton Hershey in 1945 began the issues within the company.

•

Townspeople objected to the Trust’s gift of $50 billion to Pennsylvania State University to construct a medical school and teaching hospital.

•

Hershey’s stock as dividends experienced a sharp drop in the early 1970s

•

Chocolate company lost its leading position in the market to Mars.

•

Ongoing feud at the Milton Hershey School with the appointment of William Lepley to the Trust board.

•

In 2001, the idea of diversifying the holdings to gain a better position was born.

•

In 2002, the trust voted 15-2 to diversify its portfolio by selling Hershey Foods Corporation

•

Even though Richard Lenny was initially against making selling the company, he was forced into it by Trust CEO Vowler.

•

In July 2002, the company announced publicly its desire to put Hershey Food Corporations up for sale.

•

The reactions were immediate and averse to this decision. Investor Speculation increased Hershey Foods share price by 20 percent. Protests were organised by more than 500 citizens and school alumni to show their disdain against such a decision.

•

There were protests at the grass root levels which included an online petition and a union organised protest.

•

In august, there were reactions from the Government and the Legislative point of view as well.

THE SALE AND ITS WITHDRAWAL •

Bidding for the company began in August 2002 and left Hershey’s with two options

•

Nestle and Cadbury Schweppes formed the first of the parties and the second was Wrigley’s Jr, Company

•

The latter was accepted and the $12.5 billion bid was a combination of cash and stock for a new company to be known as Wrigley Hershey

•

Negotiations were made and the factories and workforce was to be retained in Pennsylvania.

•

Wrigley also promised to make Hershey the “chocolate capital of the world”

•

Suddenly, mid September the Hershey board had a change of heart and decided to reject all bids.

•

Markets reacted terribly to this piece of news since share prices were down to their lowest in 15 years.

•

Richard Lenny made an announcement stating that Hershey Food Corporations was, as always, going to continue to build its brand and capitalise on its strengths.

LONG TERM FINANCIAL HEALTH OF HERSHEY FOODS AND HERSHEYS SCHOOL •

With effective repositioning of the Hershey’s Food brand it would be possible to maintain the same level of confidence that the public has expressed in the company and its various subsidiaries throughout.

•

If there were appropriate solutions thought out and a level of dignity maintained as it were before the death of Milton Hershey, Hershey Chocolate factory would regain its position as market leader

CONSTITUENTS THAT MUST BE ADDRESSED DURING THE REPOSITIONING OF HERSHEY FOODS •

Lenny as CEO of Hershey Food Corporations must try and reassure the citizens of Hershey that the indecisive nature of the company that was seen during the sale process would not be seen again.

•

Efforts must also be made to ensure that conflict within the company is managed in a civil and quiet manner and not exposed to the public.

•

Hershey Foods must make its intentions of recapturing the market very clear to not only the public but more importantly the investors as the latter will be very sceptical about investing in the company that suffered such great losses.

RESPONSIBILTY OF HERSHEY FOODS TOWARD SOCIETY •

Hershey Foods has always managed to maintain an acceptable level of Social Responsibility with the existence of Schools for the under privileged.

•

With the reestablishment of the Hershey Junior college, the Hershey medical centre, community swimming pools and other municipal services, Hershey Corporations would be able to carry out its societal obligations in Pennsylvania.

POSSIBLE OUTCOMES OF SALE OF THE COMPANY •

With sale of Hershey foods to Wrigley’s, there could be mixed outcomes.

•

If Wrigley’s had indeed taken over Hershey’s, it is possible that they would have run the company and taken it to great heights by increasing productivity with modern technology. It is also possible that the fissures

that had begun to develop with the death of Milton Hershey would have dissolved •

The withdrawal of the sale was favoured since Milton Hershey’s company is in its intended location with his dreams being carried out by the citizens of Hershey itself. It is also having been favourable to the citizens and alumni since they are still the original chocolate capital of the world. There is no unemployment and discontent among the citizens of Hershey.