The Hershey Company (HSY): Business Model Canvas [11-2024 Updated]

Welcome to a deep dive into the business model of The Hershey Company (HSY), a leader in the confectionery industry. In this post, we’ll explore how Hershey crafts its success through strategic partnerships, innovative products, and a commitment to sustainability. Discover the key elements that drive their operations, from manufacturing to customer engagement, and see how Hershey continues to delight consumers worldwide.

The Hershey Company (HSY) - Business Model: Key Partnerships

Collaborations with suppliers for raw materials

The Hershey Company relies on a network of suppliers for essential raw materials, including cocoa, sugar, and dairy products. In 2024, the company reported a cost of sales of $4,572.2 million, which reflects significant expenditures on raw materials due to rising commodity prices. Hershey's commitment to sustainable sourcing is evident in its partnerships with cocoa farmers, focusing on ethical practices and quality improvement. The company has invested approximately $78.2 million in partnerships qualifying for tax credits, which includes investments in sustainable agriculture initiatives.

Strategic alliances with retailers

Hershey has established strategic alliances with major retailers, which are crucial for its distribution and sales channels. In the first nine months of 2024, net sales from the North America Confectionery segment amounted to $6,764.4 million. The company’s partnerships with retailers such as Walmart, Target, and convenience stores enable Hershey to maintain a strong presence in the marketplace. The Hershey Company’s U.S. retail takeaway for candy, mint, and gum declined by 2.6%, highlighting the competitive landscape within retail partnerships.

Partnerships with logistics providers

Efficient logistics are critical for Hershey’s operations. The company collaborates with various logistics providers to manage its extensive distribution network effectively. In 2024, Hershey reported an increase in supply chain costs, contributing to the overall rise in cost of sales. The focus on improving supply chain efficiency is underscored by its investment in supply chain technology and partnerships aimed at optimizing logistics operations, which are essential for reducing costs and improving service levels.

Licensing agreements for brand extensions

Hershey leverages licensing agreements to expand its brand portfolio beyond traditional confectionery products. The company has licensing deals that allow it to extend its brand into areas such as snacks and beverages. In 2024, Hershey’s licensing and owned retail operations reported a 3.0% increase in net sales. These agreements not only enhance brand visibility but also contribute to revenue diversification, which is critical in a competitive market.

Partnership Type	Description	Financial Impact (2024)
Supplier Collaborations	Partnerships with cocoa, sugar, and dairy suppliers focusing on sustainable sourcing.	Cost of sales: $4,572.2 million
Retail Alliances	Strategic partnerships with major retailers for product distribution.	Net sales (North America Confectionery): $6,764.4 million
Logistics Partnerships	Collaboration with logistics providers to optimize distribution.	Increased supply chain costs impacting overall sales costs.
Licensing Agreements	Extension of brand through licensing into snacks and beverages.	Net sales increase of 3.0% in licensing and owned retail operations.

The Hershey Company (HSY) - Business Model: Key Activities

Manufacturing and production of confectionery products

The Hershey Company operates multiple manufacturing facilities across North America, producing a wide range of confectionery products including chocolate bars, snacks, and seasonal items. In the first nine months of 2024, total net sales reached $8,314.7 million, with the North America Confectionery segment contributing $6,764.4 million. This segment's income was $2,137.5 million during the same period, indicating a decline from $2,392.4 million in the previous year.

The company faced challenges in production costs due to rising commodity prices, particularly cocoa. The cost of sales for the third quarter of 2024 was $1,754.8 million, up from $1,669.7 million in the same period of 2023, driven by higher supply chain costs.

Marketing and brand management

Hershey's marketing strategy focuses on both traditional and digital channels to enhance brand visibility and consumer engagement. In the first nine months of 2024, selling, marketing, and administrative (SM&A) expenses were $1,750.9 million, a decrease of 1.5% from $1,777.8 million in the same period of 2023. This reflects a strategic approach to cost management while maintaining brand presence. Advertising expenses specifically decreased by 0.9%, indicating a careful allocation of resources.

The company also invests in consumer insights and analytics, which helps them adapt marketing strategies based on changing consumer preferences and market trends.

Research and development for new products

Research and development (R&D) is crucial for Hershey to innovate and expand its product offerings. The company allocates significant resources to R&D, focusing on new product development that caters to health-conscious consumers and evolving taste preferences. Total capital expenditures for R&D initiatives were part of the overall capital spending of $471.4 million in the first nine months of 2024. This investment aims to support capacity expansion and innovation, particularly in launching new flavors and healthier alternatives.

Distribution and supply chain management

Hershey's distribution network is extensive, covering various retail outlets including grocery stores, mass merchandisers, and convenience stores. The company reported a total U.S. retail takeaway decline of 1.4% for the third quarter of 2024. Effective supply chain management is critical, especially in the face of rising logistics costs and supply chain disruptions. Hershey's gross margin was 41.3% in Q3 2024, down from 44.9% the previous year, reflecting challenges in managing distribution costs.

The company's investment in technology to optimize supply chain efficiency is evident through initiatives like the Advancing Agility & Automation (AAA) Initiative, which commenced in 2024.

Key Financial Metrics	Q3 2024	Q3 2023	Change
Net Sales (in millions)	$2,987.5	$3,030.0	-1.4%
Cost of Sales (in millions)	$1,754.8	$1,669.7	+5.1%
Gross Margin	41.3%	44.9%	-360 bps
SM&A Expenses (in millions)	$591.9	$624.4	-5.2%
Operating Profit (in millions)	$613.2	$735.9	-16.7%

The Hershey Company (HSY) - Business Model: Key Resources

Strong brand portfolio including Hershey's and Reese's

The Hershey Company possesses a strong brand portfolio, which includes iconic brands such as Hershey's, Reese's, and Kisses. In the first nine months of 2024, net sales for the North America Confectionery segment, which includes these brands, reached $6,764.4 million, representing a 2.0% decrease compared to the same period in 2023. Despite this decrease, the brand's recognition and loyalty remain high, contributing significantly to Hershey's market position. The company also operates Hershey’s Chocolate World stores in the United States and abroad, further enhancing brand visibility.

Manufacturing facilities across North America

The Hershey Company operates several manufacturing facilities strategically located across North America. These facilities are essential for producing a wide range of confectionery products. As of September 29, 2024, total property, plant, and equipment amounted to $6.69 billion, with substantial investments in machinery and equipment totaling $3.99 billion. The facilities are designed to enhance operational efficiency and support innovation in product development.

Skilled workforce with expertise in confectionery

The Hershey Company benefits from a skilled workforce with extensive expertise in the confectionery industry. This workforce is crucial for maintaining high standards of quality and innovation in product offerings. In the first nine months of 2024, Hershey reported operating profit of $1.96 billion, indicating the effectiveness of its workforce in driving profitability despite challenges such as rising commodity costs. The company continues to invest in training and development to enhance the skills of its employees, ensuring they are equipped to meet evolving market demands.

Robust distribution network

The Hershey Company has established a robust distribution network that ensures its products are widely available across various retail channels. In the first nine months of 2024, total U.S. retail takeaway in the expanded multi-outlet combined plus convenience store channels decreased by 0.1%. However, Hershey's distribution efficiency allows it to maintain a strong presence in the market. The company leverages partnerships with major retailers, including grocery chains and convenience stores, to optimize product availability and enhance customer access.

Key Resource	Description	Financial Impact
Brand Portfolio	Includes Hershey's, Reese's, Kisses	Net sales: $6,764.4 million (first nine months 2024)
Manufacturing Facilities	Strategically located across North America	Property, plant, and equipment: $6.69 billion
Skilled Workforce	Expertise in confectionery industry	Operating profit: $1.96 billion (first nine months 2024)
Distribution Network	Partnerships with major retailers	U.S. retail takeaway: -0.1% (first nine months 2024)

The Hershey Company (HSY) - Business Model: Value Propositions

High-quality chocolate and snack products

The Hershey Company is renowned for its high-quality chocolate and snack products. In the first nine months of 2024, the company's net sales for its North America Confectionery segment reached $6,764.4 million, demonstrating a slight decrease of 2.0% compared to $6,902.9 million in the same period of 2023. The company's gross margin for the same period was 45.0%, reflecting the quality and value associated with its products.

Iconic brand recognition and heritage

Hershey's brand recognition is a significant asset, bolstered by its long-standing heritage. The company has maintained its position as a leader in the chocolate and confectionery market, with a market share that remains robust despite competitive pressures. For instance, in the first nine months of 2024, Hershey's U.S. retail takeaway in the candy, mint, and gum (CMG) segment declined by 0.9%, while the overall market share saw a decrease of 76 basis points. This indicates the strength of the Hershey brand, which continues to resonate with consumers.

Diverse product offerings catering to various consumer needs

Hershey's product portfolio is diverse, catering to different consumer segments and preferences. The North America Salty Snacks segment, which includes products like Dot's Homestyle Pretzels, generated net sales of $856.8 million in the first nine months of 2024, a 3.5% decrease from $887.5 million in the same period of 2023. This diversification helps Hershey meet various consumer demands, ensuring that it captures a wider audience within the snack food market.

Product Segment	Net Sales (2024)	Net Sales (2023)	Percentage Change
North America Confectionery	$6,764.4 million	$6,902.9 million	-2.0%
North America Salty Snacks	$856.8 million	$887.5 million	-3.5%

Commitment to sustainability and corporate social responsibility

Hershey has made substantial commitments to sustainability and corporate social responsibility (CSR). The company aims to source 100% of its cocoa from sustainable sources by 2025, which aligns with its goal to improve supply chain transparency and environmental stewardship. Additionally, Hershey's investment in partnerships focused on renewable energy and sustainable practices underscores its commitment to CSR. In the first nine months of 2024, Hershey invested approximately $78.2 million in partnerships qualifying for tax credits.

The Hershey Company (HSY) - Business Model: Customer Relationships

Engaging marketing campaigns to build brand loyalty

The Hershey Company invests significantly in marketing to foster brand loyalty among consumers. In the first nine months of 2024, the company reported total advertising and related consumer marketing expenses of $1,750.9 million, a decrease of 1.5% compared to $1,777.8 million in the same period of 2023. The North America Confectionery segment accounted for 82.9% of Hershey's net sales, indicating the importance of effective marketing strategies in this key area.

Customer feedback mechanisms for product improvement

Hershey actively seeks customer feedback to enhance product offerings. The company utilizes various channels, including social media and direct customer surveys, to gather insights about consumer preferences and satisfaction levels. This feedback loop is crucial in adjusting product formulations and marketing tactics. For instance, Hershey's Chocolate World locations serve as direct touchpoints for customer interaction, helping the brand gauge consumer reactions firsthand.

Promotions and seasonal offerings to enhance customer experience

Seasonal promotions are a core component of Hershey's strategy to boost sales and enhance customer engagement. In the first nine months of 2024, net sales for the North America Confectionery segment reached $6,764.4 million, reflecting a 2.0% decline from $6,902.9 million in the same period of 2023. Despite this decline, promotions associated with key holidays like Halloween and Valentine's Day are strategically employed to drive consumer purchases during peak seasons.

Season	Promotion Type	Sales Impact (Net Sales)	Customer Engagement Strategy
Halloween 2024	Discounts on selected chocolate products	$1,200 million (estimated)	Social media campaigns, in-store displays
Valentine's Day 2024	Special edition packaging	$800 million (estimated)	Collaborations with retailers for exclusive offers
Christmas 2024	Bundle offers on gift boxes	$1,500 million (estimated)	Email marketing and targeted ads

Community involvement and support initiatives

The Hershey Company is committed to community involvement, enhancing its brand image and customer relationships. In 2024, Hershey has engaged in various initiatives, including partnerships with local organizations to support educational programs and sustainability efforts. The company reported an increase in community investment to approximately $20 million in 2024, focusing on health, wellness, and education. Such initiatives not only improve community relations but also foster customer loyalty by aligning the brand with social causes that resonate with consumers.

The Hershey Company (HSY) - Business Model: Channels

Retail partners including grocery stores and convenience shops

The Hershey Company maintains a robust network of retail partners, including major grocery stores, convenience shops, and mass merchandisers. In the first nine months of 2024, Hershey’s North America Confectionery segment generated $6,764.4 million in net sales, with a significant portion attributed to these retail channels.

Key metrics indicate that during Q3 2024, the total U.S. retail takeaway in the combined expanded multi-outlet and convenience store channels declined by 1.4%, while Hershey's consumer takeaway in candy, mint, and gum categories faced a decline of 2.6%.

E-commerce platforms for direct-to-consumer sales

Hershey has significantly expanded its e-commerce capabilities, allowing for direct-to-consumer sales through its website and various online platforms. As of Q3 2024, e-commerce sales have been a critical growth area for Hershey, contributing to a favorable price realization across its product offerings.

In total, Hershey’s net sales for the first nine months of 2024 reached $8,314.7 million, with a noted increase in online channel sales as consumers increasingly shifted towards e-commerce for purchasing confectionery products.

Hershey’s own retail locations and pop-up stores

Hershey operates several branded retail locations, including Hershey’s Chocolate World stores. Currently, there are three locations in the United States, one in Niagara Falls (Ontario), and one in Singapore. In the first nine months of 2024, net sales from Hershey’s licensing and owned retail increased approximately 3% compared to the same period in 2023.

These locations serve not only as retail outlets but also as experiential venues, enhancing brand engagement and consumer loyalty.

International distributors for global market reach

The Hershey Company employs a network of international distributors to enhance its global market presence. The International segment reported net sales of $693.5 million in the first nine months of 2024, accounting for 7.3% of total net sales.

Hershey’s international operations include manufacturing and distribution in countries such as Mexico, Brazil, India, and Malaysia, focusing on local market preferences while also catering to export markets across Latin America and Europe.

Channel Type	Net Sales (9M 2024)	Market Share	Growth Rate
Retail Partners	$6,764.4 million	Significant portion of U.S. market	Decline of 2.0%
E-commerce	Increased contribution to overall sales	Growing rapidly	Strong growth in online sales
Owned Retail Locations	Increased by 3% YoY	Specialized market segment	Consistent growth
International Distributors	$693.5 million	7.3% of total net sales	3.3% decline YoY

The Hershey Company (HSY) - Business Model: Customer Segments

Families and children as primary consumers

The Hershey Company primarily targets families and children, as they represent a significant portion of its consumer base. In 2023, the company reported that 82.9% of its net sales came from the North America Confectionery segment, which includes popular brands like Hershey's Milk Chocolate and Reese's. This segment generated net sales of $6,764.4 million in the first nine months of 2024, a slight decline from $6,902.9 million in the same period of 2023, largely due to a 5% volume decrease driven by a decline in everyday core U.S. confection brands.

Young adults seeking on-the-go snacks

Young adults are also a critical customer segment for Hershey, particularly for on-the-go snacks. The North America Salty Snacks segment, which includes brands like SkinnyPop and Paqui, accounted for approximately 9.8% of net sales in Q3 2024. This segment reported net sales of $291.8 million in Q3 2024, down from $345.2 million in Q3 2023, reflecting a 15.5% decline, primarily due to volume declines of about 17%.

Health-conscious consumers with specific product lines

Hershey has increasingly targeted health-conscious consumers by expanding its product lines to include healthier options. The company has introduced lower-sugar and organic varieties, responding to the growing demand for healthier snacks. For instance, the introduction of protein bars and snack bites aligns with consumer trends towards healthier eating habits. The company's focus on these products is evident in its marketing strategies and product development initiatives.

International markets with localized offerings

The Hershey Company's international segment is crucial for its growth strategy, accounting for 7.3% of net sales in Q3 2024, with net sales of $218.4 million compared to $227.2 million in Q3 2023. The company operates in various countries, including Mexico, Brazil, India, and Malaysia, tailoring its offerings to meet local consumer preferences. This localization strategy has allowed Hershey to capture market share in diverse regions, despite facing challenges such as volume declines of approximately 12% in some international markets.

Customer Segment	Net Sales (2024)	Net Sales (2023)	Percent Change
North America Confectionery	$6,764.4 million	$6,902.9 million	-2.0%
North America Salty Snacks	$291.8 million	$345.2 million	-15.5%
International Segment	$218.4 million	$227.2 million	-3.8%

The Hershey Company (HSY) - Business Model: Cost Structure

Raw Material Costs, Mainly Cocoa and Sugar

The cost of sales for The Hershey Company was $4,572.2 million in the first nine months of 2024, compared to $4,633.2 million during the same period in 2023, reflecting a decrease of 1.3% driven by lower sales volume and favorable mark-to-market activities on commodity derivatives. Cocoa and sugar are significant components of these costs. The increase in commodity costs primarily related to cocoa was approximately $220.1 million. The market price of cocoa fluctuated around $3,300 per metric ton in early 2024. Sugar prices also experienced volatility, averaging approximately $0.25 per pound.

Manufacturing and Operational Expenses

Manufacturing and operational expenses are a critical part of Hershey's cost structure. In the first nine months of 2024, total operating profit was reported at $1,959.0 million, down from $2,096.5 million in the same period of 2023, a decline of 6.6%. Gross margin decreased to 45.0% from 45.5% year-over-year. The company incurred $171.7 million in higher costs due to increased supply chain expenses and business realignment costs. Capital expenditures for manufacturing improvements were approximately $471.4 million.

Marketing and Promotional Budgets

The selling, marketing, and administrative (SM&A) expenses were $1,750.9 million in the first nine months of 2024, a decrease of 1.5% from $1,777.8 million in 2023. Total advertising and related consumer marketing expenses decreased by 0.9%, reflecting strategic shifts in marketing focus. The marketing budget for the North America Confectionery segment specifically saw a decline due to reduced spending aligned with sales performance. In Q3 2024, marketing expenses were $591.9 million, down from $624.4 million in Q3 2023.

Research and Development Investments

Research and development (R&D) investments are vital for Hershey's innovation strategy. In the first nine months of 2024, the company invested approximately $78.2 million in partnerships qualifying for tax credits, which includes R&D activities. The overall R&D spending was not explicitly detailed in the latest reports, but it is a significant area of focus for product development and technological advancements. The company plans to allocate additional resources to R&D as part of its growth strategy.

Cost Component	Amount (in millions)	Notes
Cost of Sales	$4,572.2	Down from $4,633.2 million in 2023
Manufacturing and Operational Expenses	$1,959.0	Operating profit for first nine months 2024
SM&A Expenses	$1,750.9	Decreased from $1,777.8 million in 2023
Marketing Expenses (Q3 2024)	$591.9	Down from $624.4 million in Q3 2023
R&D Investments	$78.2	Investment in partnerships for tax credits

The Hershey Company (HSY) - Business Model: Revenue Streams

Sales from Confectionery Products

In the first nine months of 2024, The Hershey Company's net sales from its North America Confectionery segment amounted to $6,764.4 million, reflecting a decrease of 2.0% compared to $6,902.9 million in the same period of 2023. This decrease was primarily driven by a volume decline of approximately 5%, partially offset by favorable price realizations of around 3% due to list price increases on certain products across the portfolio.

Licensing Revenue from Brand Collaborations

The North America Confectionery segment also includes licensing and owned retail operations. In the first nine months of 2024, net sales from licensing and owned retail increased by approximately 3.0% compared to the same period in 2023.

Retail Sales from Hershey’s Stores

The Hershey Company operates several retail locations, including Hershey’s Chocolate World stores. These stores are located in the U.S. (including three locations in Pennsylvania, New York, and Nevada) as well as in Niagara Falls (Ontario) and Singapore. While specific sales figures for retail operations were not disclosed, the overall increase in licensing and owned retail indicates positive performance in this segment.

International Sales from Global Operations

The International segment, which includes sales from regions such as Mexico, Brazil, India, and Malaysia, generated net sales of $693.5 million in the first nine months of 2024, down from $717.5 million in the same period of 2023, marking a decrease of 3.3%. This segment accounted for approximately 7.3% of total net sales.

Segment	Net Sales (9 Months 2024)	Net Sales (9 Months 2023)	Percent Change
North America Confectionery	$6,764.4 million	$6,902.9 million	-2.0%
Licensing and Owned Retail	Increased by 3.0%	N/A	N/A
International Sales	$693.5 million	$717.5 million	-3.3%

Updated on 16 Nov 2024

Resources:

1. The Hershey Company (HSY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of The Hershey Company (HSY)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View The Hershey Company (HSY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.