Company History:
Hershey Foods Corporation
Incorporated: 1927 as Hershey Chocolate Corporation
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate; 311340 Nonchocolate Confectionery Manufacturing; 311320 Chocolate and Confectionery Manufacturing from Cacao Beans
Hershey Foods Corporation holds the top position in the U.S. confectionery market. The name Hershey is synonymous with chocolate, yet the company's founder made his first fortune by manufacturing caramel. While famous for its major candy brands--Hershey's, Reese's, Kit Kat, Kisses, Twizzlers, Jolly Rancher, Ice Breakers, Carefree, and Breath Savers--the company also markets grocery products including Hershey's baking chocolate, chocolate milk, ice cream toppings, cocoa, chocolate syrup, peanut butter, and Reese's and Heath baking pieces. Hershey operates with two main divisions, Hershey Chocolate North America and Hershey International, the latter of which exports the firm's products to over 90 countries. The Milton Hershey School Trust controls 77 percent of Hershey's voting power. In 2002, the Trust planned to diversify its holdings and, in a controversial move, announced that it was putting Hershey Foods up for sale.
Milton S. Hershey was born in 1857 in central Pennsylvania. As a young boy Hershey was apprenticed to a Lancaster, Pennsylvania, candymaker for four years. When he finished this apprenticeship in 1876, at age 19, Hershey went to Philadelphia to open his own candy shop. After six years, however, the shop failed, and Hershey moved to Denver, Colorado. There he went to work for a caramel manufacturer, where he discovered that caramel made with fresh milk was a decided improvement on the standard recipe. In 1883, Hershey left Denver for Chicago, then New Orleans, and later New York, until in 1886 he finally returned to Lancaster. There he established the Lancaster Caramel Company to produce "Hershey's Crystal A" caramels that would "melt in your mouth." Hershey had a successful business at last.
In 1893, Hershey went to the Chicago International Exposition, where he was fascinated by some German chocolate-making machinery on display. He soon installed the chocolate equipment in Lancaster and in 1895 began to sell chocolate-covered caramels and other chocolate novelties. At that time, Hershey also began to develop the chocolate bars and other cocoa products that were to make him famous.
In 1900, Hershey decided to concentrate on chocolate, which he felt sure would become a big business. That year, he sold his caramel company for $1 million, retaining the chocolate equipment and the rights to manufacture chocolate. He decided to locate his new company in Derry Church, the central Pennsylvania village where he had been born, and where there would be a plentiful milk supply. In 1903, Hershey broke ground for the Hershey chocolate factory, which would remain the largest chocolate-manufacturing plant in the world through the twentieth century.
Before this factory was completed, in 1905 Hershey produced a variety of fancy chocolates. But with the new factory, Hershey decided to mass-produce a limited number of products that he could sell at a low price. The famous Hershey's Milk Chocolate Bar, the first mass-produced chocolate product, was born.
In 1906, the village of Derry Church was renamed Hershey. The town was not simply named after the man or the company: it was Milton Hershey's creation, the beneficiary of and heir to his energy and his fortune. Hershey had begun planning a whole community that would fulfill all the needs of its inhabitants at the same time that he planned his factory. A bank, school, recreational park, churches, trolley system, and even a zoo soon followed, and the town was firmly established by its tenth anniversary. One of Hershey's most enduring contributions was the Hershey Industrial School for orphans, which he established in 1909 with his wife Catherine. After Catherine's death in 1915, the childless Hershey in 1918 gave the school Hershey company stock valued at about $60 million. In 2002, the school, which became the Milton Hershey School in 1951, continued to control 77 percent of the company's voting stock.
In 1907, Hershey's Kisses were first produced, and the next year, in 1908, the Hershey Chocolate Company was formally chartered. In 1911, its sales of $5 million were more than eight times the $600,000 made ten years earlier at the company's start.
The Hershey company continued to prosper, producing its milk chocolate bars (with and without almonds), Kisses, cocoa, and baking chocolate. In 1921, sales reached $20 million, and in 1925 Hershey introduced the Mr. Goodbar Chocolate Bar, a chocolate bar with peanuts. In 1927, the company was incorporated as the Hershey Chocolate Company and its stock was listed on the New York Stock Exchange.
By 1931, 30 years after the company was established, Hershey was selling $30 million worth of chocolate a year. As the Great Depression cast its shadow on the town of Hershey, Milton Hershey initiated a "grand building campaign" in the 1930s to provide employment in the area. Between 1933 and 1940, Hershey's projects included a 150-room resort hotel, a museum, a cultural center, a sports arena (where the Ice Capades was founded), a stadium, an exotic rose garden, and a modern, windowless, air-conditioned factory and office building. Hershey liked to boast that no one was laid off from the company during the Depression.
Though Hershey's intentions seem to have been wholly sincere, there was always some suspicion about his "company town." Labor strife came to the company in 1937, when it suffered its first strike. Though bitter, the strike was soon settled, and by 1940 the chocolate plant was unionized.
In 1938, another famous chocolate product was introduced: the Krackel Chocolate Bar, a chocolate bar with crisped rice. The next year Hershey's Miniatures, bite-sized chocolate bars in several varieties, were introduced.
During World War II, Hershey helped by creating the Field Ration D--a four-ounce bar that provided 600 calories and would not melt--for soldiers to carry to sustain them when no other food was available. The chocolate factory was turned over to the war effort and produced 500,000 bars a day. Hershey received the Army-Navy E award from the quartermaster general at the war's end. Hershey died soon after, on October 13, 1945.
After Milton Hershey's death, the chocolate company continued to prosper and maintain its strong position in the chocolate market. By the 1960s, Hershey was recognized as the number one chocolate producer in America.
With the company's growth came expansion. In 1963, Hershey broke ground for the construction of two new chocolate factories, in Oakdale, California, and Smiths Falls, Ontario. Expansion for Hershey also meant looking for acquisitions, the first of which was the H.B. Reese Candy Company that same year. Also in 1963, the company's president and chairman, Samuel Hinkle, arranged for the founding of the Milton S. Hershey Medical Center of the Pennsylvania State University in Hershey, Pennsylvania.
While the company played a hand in many developments within Pennsylvania, its main endeavor continued to be the food industry, including, for the first time, non-confectionery food. Among its acquisitions were two pasta manufacturers, San Giorgio Macaroni Inc., in Lebanon, Pennsylvania, and Delmonico Foods Inc., in Louisville, Kentucky, in 1966. In 1967, the Cory Corporation, a Chicago-based food-service company, was acquired. Due to its expansions beyond chocolate, the company changed its name in 1968 to the Hershey Foods Corporation. The name change also marked the passing of an era when in 1969 it raised the price of Hershey's candy bars, which had been five cents since 1921, to ten cents.
As the 1970s unfolded, changes in American culture forced Hershey Foods Corporation to change also. Before the 1970s, the company, heeding the words of its founder that a quality product was the best advertisement, had refused to advertise. Thousands of people who came to tour the chocolate factory each year had spread the world about Milton Hershey and his chocolate. A visitors bureau had been established as early as 1915 to handle tours of the facilities, and by 1970 almost a million people a year visited Hershey.
Word of mouth had served as a valuable source of advertising for Hershey during most of its existence. But as people became more health conscious and the consumption of candy declined, the influence of advertising became a greater factor in the candy business. By 1970, Mars had deposed Hershey as the leader in candy sales, provoking Hershey to launch a national advertising campaign. On July 19, 1970, Hershey's first consumer advertisement, a full-page ad for Hershey's Syrup, appeared in 114 newspapers. Within months, the corporation was running ads on radio and television as well. Also that year, under an agreement with British candymaker Rowntree Mackintosh, Hershey became the American distributor of the Kit Kat Wafer Bar. Hershey introduced a second Rowntree candy, Rolo Caramels, the next year.
In 1973, Hershey's Chocolate World Visitors Center was opened to educate people about chocolate-making, with exhibits about tropical cocoa-tree plantations, Pennsylvania Dutch milk farms, and the various stages of the manufacturing process. The facility was established to replace tours of the actual plant, which were discontinued in 1973 due to an overload of traffic.
Under the direction of its chief executive officer, William E. Dearden, Hershey adopted an aggressive marketing plan in 1976 to offset its shrinking market share. Dearden, who had grown up in Milton Hershey's orphanage, joined forces with his chief operating officer, Richard A. Zimmerman, to implement a campaign aimed at customers in grocery stores, where half of all candy was sold. Specialty items such as a wide line of miniatures, holiday assortments, and family packs were marketed. A national ad campaign promoting Hershey's Kisses, and the introduction of the Giant Hershey's Kiss in 1978 tripled sales of the product between 1977 and 1984. The Big Block line of 2.2-ounce bars and premium candies such as the Golden Almond Chocolate Bar were also introduced, as were Reese's Pieces Candy and Whatchamacallit and Skor Candy Bars.
Hershey also made plans to diversify, to lessen the company's vulnerability to unstable cocoa-bean and sugar prices. In 1977, Hershey acquired a 16 percent interest in A.B. Marabou, a Swedish confectionery company, and bought Y&S Candies Inc., the nation's leading manufacturer of licorice. The following year, it bought the Procino-Rossi Corporation (P&R), and in 1979 it acquired the Skinner Macaroni Company to add to its stable of brand-name pastas. In 1984, Hershey purchased American Beauty, another pasta brand, from Pillsbury and formed the Hershey Pasta Group.
Another 1979 acquisition, the Friendly Ice Cream Corporation, a 750-restaurant chain based in New England, tripled the number of employees on Hershey's payroll. After experiencing major structural changes owing to its 1970s expansion, the company implemented an intensive values study to pinpoint and communicate the principles inherent in its corporate culture and history.
In 1982, Hershey opened another plant, in Stuarts Draft, Virginia. The next year it introduced its own brand of chocolate milk, and in 1984 it introduced Golden Almond Solitaires (chocolate-covered almonds). In 1986, in addition to introducing two new products, the Golden III Chocolate Bar and the Bar None Wafer Bar, Hershey acquired the Dietrich Corporation, the maker of the 5th Avenue Candy Bar, Luden's throat drops, and Mello Mints. Not content with such a year--the first to top $2 billion in sales--in December Hershey purchased G&R Pasta Company, Inc., whose Pastamania brand became the eighth in Hershey's pasta group.
However, the acquisitions did not stop there. In June 1987, Hershey acquired the Canadian candy and nut operations of Nabisco Brands for its subsidiary Hershey Canada Inc. The three main businesses Hershey acquired were Lowney/Moirs, a Canadian chocolate-manufacturing concern; the Canadian chocolate manufacturer of Life Savers and Breath Savers hard candy; and the Planters snack nut business in Canada.
The biggest acquisition of all came in August 1988, when Hershey made a $300 million deal for Peter Paul/Cadbury, an American subsidiary of the British candy and beverage company Cadbury Schweppes plc. Hershey purchased the operating assets of the company and the rights to manufacture the company's brands, including Peter Paul Mounds and Almond Joy Candy Bars and York Peppermint Patties, and Cadbury products including Cadbury chocolate bars and Cadbury's Creme Eggs, an Easter specialty candy. Observers predicted that Hershey's economies of scale and clout with retailers would bring increased profitability to the newly acquired Cadbury lines. This purchase pushed Hershey's share of the candy market from 35 percent to 44 percent, and helped Hershey back to the top of the American candy business. At the same time, Hershey decided to sell the Friendly Ice Cream Corporation to concentrate on its core confectionery businesses. The company was sold to Tennessee Restaurant in September for $374 million.
The decline in candy consumption that began after World War II, as a prosperous America found its waistline expanding uncomfortably, accelerated during the 1970s as the fitness craze began. However, in the 1980s this trend reversed. Candy consumption reportedly increased from 16 pounds per capita in 1980 to 19.5 pounds in 1988, coincidentally the same period during which Hershey regained the top spot in U.S. candy through its acquisitions of Dietrich Corporation and Peter Paul/Cadbury. In the early 1990s, Hershey maintained its confectionery position in the United States through several successful introductions: Hershey's Kisses with Almonds chocolates in 1990; Hershey's Cookies 'n' Mint chocolate bars in 1992; Hershey Hugs white chocolate-covered kisses in 1993 (which had become a $100 million brand by 1995); and Reese's NutRageous bar in 1994, which quickly moved into the top 20 candy-bar list.
Outside of its chocolate realm, Hershey continued to bolster its pasta business while also attempting to capture more of the nonchocolate confectionery market. In 1990, it acquired the Ronzoni Foods Corp., yet another regional pasta brand, and in 1993 the Hershey Pasta Group opened a new plant in Winchester, Virginia. Through such moves, Hershey became the leader in dry pasta in the United States by 1995. Meanwhile, continuing fierce competition with Mars and the low inflation of the period--both of which made increasing prices untenable--put pressure on Hershey's chocolate earnings. One of the company's responses to this pressure was to increase its offerings in nonchocolate confections. Among the 1990s introductions were Amazin' Fruit gummy bears in 1992, Twizzlers Pull-n-Peel candy in 1994, and Amazin' Fruit Super Fruits in 1995. By going after the nonchocolate confectionery business, Hershey aimed to capture more market share among youthful shoppers, who generally preferred nonchocolate candy. It also made sense in the overall U.S. market, where nonchocolate candy sales were increasing faster than chocolate candy sales.
In the early 1990s, Hershey attempted to lessen its dependence on the North American market by cautiously moving into overseas markets. In 1990, the company introduced the Hershey brand to the Japanese market through a joint venture with Fujiya. The European market, a difficult market for foreign firms to penetrate given differing European tastes and such entrenched firms as Nestle, was targeted next. This venture was less than successful than Hershey's move into Japan, at least at first. In 1991, Hershey acquired the German chocolate maker Gubor Schokoladen, which in the first few years after the takeover failed to meet Hershey's expectations. In 1992, the firm purchased an 18.6 percent interest in the Norwegian confectionery firm Freia Marabou, but then promptly sold the stake the following year after it was outbid for majority control by Philip Morris. Later, in 1993, Hershey acquired the Italian confectionery business of Heinz Italia S.p.A. for $130 million, which primarily gave it the Sperlari brand, a leader in nonchocolate confectionery products in Italy. Shortly thereafter, Hershey acquired the Dutch confectionery firm Oversprecht B.V. for $20.2 million, which under the Jamin brand manufactured confectionery products, cookies, and ice cream. Although primarily distributed in the Netherlands and Belgium, Jamin gave Hershey its first penetration of the potentially lucrative Russian market when it began to distribute chocolate there after the Hershey takeover.
Meanwhile, back in North America, Hershey was being hurt by results in Canada, where too many competitors were chasing too few customers, and in Mexico, where political and economic turmoil slowed Hershey's growth. In response, Hershey announced a restructuring in late 1994, taking a $106.1 million aftertax charge. Over the next 15 months, the company cut its staff by more than 400 and consolidated its operations in the United States, Canada, and Mexico into a Hershey Chocolate North America division. Earlier in 1994, Hershey had formed a Hershey Grocery division to give special attention to the company's various baking and grocery products. These two divisions, along with Hershey International and Hershey Pasta Group, comprised the four main areas in which Hershey operated. The company also raised its prices for the second time in ten years and launched a stock repurchase program to bolster its stock price.
In the mid-1990s, Hershey added partnering to its arsenal of corporate strategies. In 1994, Hershey partnered with General Mills to introduce Reese's Peanut Butter Puff's Cereal. In 1995, a partnership with Good Humor-Breyers resulted in Reese's Peanut Butter Ice Cream Cups. That same year a cross-marketing deal with MCI offered free long-distance telephone calls to purchasers of selected Hershey's chocolate products. Having celebrated its 100th anniversary in 1994, Hershey looked forward to a bright future in its second century. By that time, Hershey had increased its share of the U.S. confectionery market to 34.5 percent, while Mars had seen its share fall to 26 percent, and Hershey's nonchocolate confectionery and pasta operations were growing.
Under the leadership of Kenneth Wolfe--named chairman and CEO in 1994--Hershey's success continued into the latter half of the 1990s. During 1996, the company launched its first hard candy product, TasteTations, and the reduced-fat Sweet Escapes product line. That year, the company acquired Leaf North America in a $440 million deal that added Jolly Rancher, Good & Plenty, Whoppers, and Milk Duds to its product arsenal.
Hershey continued its dominance of the U.S. market by continuing to introduce new, successful products, including the Reese's Crunchy Cookie Cups, Classic Caramels, and the Mini Kisses Semi-Sweet Baking Pieces. The company also revamped its business operations once again, divesting its European operations in 1996, and then selling its pasta division in 1999 to New World Pasta LLC for $450 million in cash. Wolfe commented on the sale in a 1999 Prepared Foods article claiming that "after a thorough review of our strategic direction, we have concluded that we can generate a better return for our shareholders by focusing on our confection, related grocery, and foodservice businesses."
Hershey continued to add to product line in 2000 with the purchase of RJR Nabisco Inc.'s mints and gum business. The acquisition included the Ice Breakers and Breath Savers Cool Blast mints, and the Ice Breakers, Carefree, Stickfree, Bubble Yum, and Fruit Stripe gums. Wolfe retired in 2001, leaving industry veteran Rick Lenny at the helm. That year, the company sold its Luden's throat drop business and began a $275 million restructuring effort that included 400 job cuts, closure of three Hershey plants, and the outsourcing of cocoa powder production. While net income fell during 2001, sales increased by eight percent to $4.5 billion.
During 2002, Hershey dealt with a labor strike--the first one since 1980. Just as the labor issues were resolved, Hershey faced yet another blow. In July 2002, the Milton Hershey School Trust, which controlled 77 percent of Hershey's voting power, announced that it wished to diversify its holdings and that a sale of the company would be beneficial to the school. At the time, over half of the Trust's $5.4 billion portfolio consisted of Hershey stock. While Hershey's board was opposed to a sale, it agreed to work with the Trust on viable options. The announcement however, left the citizens of Hershey, Pennsylvania, in an uproar. Nearly half of the city's residents were employed by Hershey and feared a sale of the company, especially to a foreign firm, would negatively impact their jobs as well as the city. As such, the state's attorney general and potential governor filed a petition against the Trust that would call for court approval of any offers made for Hershey. The possible sale received negative reviews throughout the business world. In fact, an August 2002 article in The Economist went as far to say that "Milton Hershey must be turning in his grave."
In September, Wm. Wrigley Jr. Co. offered $12.5 billion bid for the company, outbidding Nestlé and Cadbury Schweppes, who had teamed up to make a $10.5 billion play for the company. Both offers were turned down, leaving Hershey independent for the time being. While Hershey's future remained up in the air, one thing was certain. With well over 100 years of history behind it, the Hershey name would remain a favorite among chocolate lovers around the world for years to come.
Principal Subsidiaries
Hershey Chocolate & Confectionery Corporation; Hershey Chocolate of Virginia, Inc.; Hershey Canada, Inc.
Principal Divisions
Hershey Chocolate North America; Hershey International.
Principal Competitors
Cadbury Schweppes plc; Mars Incorporated; Nestlé S.A.
Further Reading
Barrett, Amy, "How Hershey Made a Big Chocolate Mess," Business Week, September 9, 2002.
"Bitter Times for a Sweet Town," Economist, August 31, 2002.
Byrne, Harlan S., "Hershey Foods Corp.: It Aims to Sweeten Its Prospects with Acquisitions," Barron's, May 6, 1991, p. 41.
Castner, Charles Schuyler, One of a Kind: Milton Snavely Hershey, 1857-1945, Hershey, PA.: Dairy Literary Guild, 1983, 356 p.
Gold, Jackey, "How Sweet It Is," Financial World, November 13, 1990, p. 17.
Halpert, Hedy, "Face to Face: Hershey's Next Century," U.S. Distribution Journal, September 15, 1993, p. 43.
"Hershey Foods--Packaging Leader of the Year," Packaging Digest, October 1997, p. 91.
"Hershey Foods Sells Pasta Business," Prepared Foods, January 1999, p. 26.
"Hershey Foods' Wolfe to Retire," Candy Industry, October 21, 2001, p. 12.
Hershey's 100 Years: The Ingredients of Our Success, Hershey, PA: Hershey Chocolate Corporation, 1994, 24 p.
Heuslein, William, "Timid No More," Forbes, January 13, 1997, p. 98.
Koselka, Rita, "Candy Wars," Forbes, August 17, 1992, p. 76.
Kuhn, Mary Ellen, "Sweet Times in the Hershey Candy Kingdom," Food Processing, January 1995, p. 22.
A Profile of Hershey Foods Corporation, Hershey, Pa.: Hershey Chocolate Corporation, 1995, 24 p.
The Story of Chocolate and Cocoa, Hershey, PA: Hershey Chocolate Corporation, 1926, 30 p.
"Workers Strike at Nation's Largest Candy Maker," Food Institute Report, April 29, 2002, p. 1.
— Updates: David E. Salamie and Christina M. Stansell
