PEST Analysis of the Hershey Company: Major Setbacks and the Step into A.I.

If you’ve ever enjoyed the classic Hershey’s, Kit Kat, or Reese’s Peanut Butter Cups, then you’ve been a consumer of the Hershey’s Company. The Hershey’s Company is the largest chocolate manufacturer in North America and yet they’ve hit major setbacks both politically and economically. This PEST analysis of the Hershey Company examines these issues, as well as their relationship with consumers and the use of cutting-edge technology.

Political factors: The politics and policies of chocolate

Hershey’s came under fire in 2011 for using cacao from Ivory Coasts in Africa. It’s a huge moral and ethical issue because the Ivory Coast is known to enforce child labor. Although the African government created an audit system to monitor child labor, it’s not easy to prosecute offenders — offenders like the Hershey Company.

Chocolate harvested from cocoa trees is susceptible to pests, diseases, and pesticide use. But it’s cheaper to use than organic chocolate, which is pesticide-free, GMO-free, and synthetic fertilizers-free. The use and consumption of raw organic chocolate are growing in popularity in the raw food and vegan scenes. It requires less temperature and energy to produce (unlike non-raw chocolate), and that’ll also bring a smile to the faces of eco-friendly consumers.

An even better option is Fair Trade Chocolate. It speaks out against child labor and slave labor, while also using sustainable practices for the environment. The Hershey’s Company hasn’t adopted this approach just yet, likely because it would increase costs. And although they’re doing better financially in 2018 compared to the disastrous year of 2015, the company is not on the hunt to increase expenses just yet.

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Economic factors: All problems, all the time

In 2015, the Hershey’s Company surfed upon a sea of negatives. Sales were down only slightly, and the CEO John Bilbrey, as well as CFO Patricia Little, blamed everything for it. Mostly the unusual “macroeconomic winds” and generic “challenges” caused sales problems.

Then they scorned the dollar. Which dollar? The American, Brazilian and Chinese dollars. In each of these locations, the sales were weaker. Tax rates were also terrible, according to Mr. Bilbrey.

Maybe all of these things were issues; shares were down 20 percent in that first quarter so something was definitely off. Perhaps it was also the consumers, who (according to Hershey) weren’t going to stores. Called “consumer trips” by the company, buying in stores went down by 2 percent that year.

Luckily for the company, things turned around in the first two quarters of 2018. Net sales ($1,751.6 million) were an increase of 5.3 percent. Foreign currency exchange rates were insignificant in the second quarter. The full-year net sales increased by 1 percent, even though the four-quarter net sales dropped by 1.6 percent.

Hershey’s current Company President and Chief Executive Officer, Michele Buck, has said the company will continue to invest in their core bands and build upon strategies to further drive growth. With so many chocolate options and new additions for 2018, Mr. Buck seemed confident in the variety they offered, as well as the new marketing campaigns launched for the products.

Social factors: A dedication to social responsibility and favor

Hershey’s has dedicated commitments in social responsibility. One such act is called “Shared Goodness”; the company promises to keep communities, children, and the planet aligned with their business. As such, they’re looking to bring more good into the world by “building thriving communities” and becoming “better stewards of the planet”.

In doing so, they’re committed to being more transparent about the ingredients. While also keeping the ingredients simple to maintain environmental sustainability. They also have the “Nourishing Minds” program, designed to provide children with basic nutritional needs.

Although the company is clearly attempting to bring social good into the world, it doesn’t stop them from blaming consumers when sales are declining. In 2015, the company blamed American consumers for not buying more chocolate.

To them, Americans have the luxury of buying several “premium” chocolates. Those that can’t afford it are also a problem because… well, they’re not buying the chocolate. Add if they’re not, then poor sales are obviously their fault… right?

All of this is rudimentary and basic, but playing the blame game doesn’t leave a savory taste in consumers’ mouths.

Technological factors: The step into A.I

The Hershey Company is adopting new technology to create better treats. They’ve adapted Microsoft-powered artificial intelligence (A.I) in their Pennsylvania factory. It’s installed specifically for their Twizzler candies. Temperature greatly affects the condition of the licorice; too much heat makes it heavy, while too much cold makes the candy lighter. When too heavy, additional ingredients go to waste.

The A.I transmits data to the cloud. It factors in temperature, rotations, pressure, and other necessary measurements to make the perfect candy. In doing so, the company’s machinery learned to adjust itself throughout the day. This means less error in product development and packaging, possibly saving the company millions in expenses and product waste.

This technology could be adopted for Hershey’s other products, particularly with chocolate. Chocolate ingredients are more expensive. If they were to save money here, it’d be a higher return. If possible, the company plans to add this A.I technology to every one of their lines.

Hershey’s also adopted technology to move people further down the grocery aisle. As an experiment, the company used a kiosk powered by Affectiva’s technology to encourage consumers to smile into the machine for a free sample.

Although it took up aisle space, if it leads to creates even one sale, it’s worth the price to retailers and Hershey’s. This is an out-of-the-box usage of technology that hands Hershey’s a competitive advantage.

Conclusion

Hershey’s has experienced a fair bit of controversy. First with the consumer pushback against their usage of the Ivory Coast (and potentially child labor). Then with the “blame game” where everything was the culprit for poor sales in 2015.

The company has attempted to make amends by creating socially-conscious programs to help children in need. And to also use simpler ingredients for planet sustainability. But it’s still a business at the end of the day; higher returns are most important for its survival. This is why they’re using A.I to improve their products and encourage more sales.

Photo by Madison Kaminski on Unsplash