Texas A&M University - Commerce
About The Hershey Company
The Hershey Company (Hershey) was founded in 1894 in Lancaster, Pennsylvania to produce chocolate. Using mass production, chocolate moved from being a luxury item to a product available to all (Hershey, 2012 Hershey’s History). While Hershey was ranked as one of the top one hundred advertisers in the United States during 2011, during the first sixty-plus years the company conducted no consumer advertising (Lamme, M. O. & Parcell, L. M. (2013). Promoting Hershey. Journalism History). This corporation was selected because their products are within one general product line, and are purchased regularly within the forecaster’s household for personal and professional use.
The forecast hypothesis is that increases in raw material costs and currency pressures will continue to place pressure on Hershey to increase prices. Prices increases will result in a slowing of sales. However, such downward pressures will be offset by introduction of new product lines and international expansion. Quarterly sales data was obtained from the Hershey Company annual reports (Hershey Company. (2004 - 2012). Investor Information Annual & Quarterly Reports). Hershey chocolate is mass produced, and according to the annual reports pricing is a consideration for sales. Two key determining factors in the chocolate pricing are the price of cocoa and the price of sugar (Hershey, 2012). X factor data has been collected on cocoa and sugar prices. Figures 2 and 3 provide a visual representation of the rapid upward trend in these commodity prices. As indicated in Figures 4 and 5, sales and raw material prices follow similar patterns. This data does not, however, reflect in reduction in net income due to narrowing margins created by commodity pricing pressures.
Because the commodities are purchased internationally, the currency exchange rate factors into the pricing of the product, additional X factor data has been collected for exchange rates.
Pricing alone cannot adequately determine sales revenue trends for Hershey. The financial well-being of consumers in the United States is a potential factor influencing sales (MarketLine. (2012, November 30). Company Profile: The Hershey Company.). Chocolate is not a necessary item, and therefore may not be purchased when personal finances are limited. Statistics of income from the IRS has not yet been published for the entire period under examination and therefore this factor will not be studied other than in a judgment manner. Annual sugar and sweets expenditures and money income data from the Bureau of Labor Statistics is available and may be incorporated into the quantitative analysis.
Other factors potentially influencing sales of Hershey products include the increased obesity rate in the United States, along with the related focus on healthier snacks (MarketLine, 2012). The Hershey Company maintains a robust research and development focus, including the Hershey Center for Health and Nutrition (MarketLine, 2012). While Hershey faces increased competition within the United States market, the completion of the acquisition of Godrej Hershey in India in 2012 brings opportunities for revenue growth (MarketLine, 2012).
Qualitative Economic/Sales Forecast
As shown in Figure 1, quarterly sales data for Hershey indicates a steady upward trend, with distinct seasonal spikes in the third and fourth quarters of each year. With the early signs of improvement in the United States economy there is no indication that this trend would not continue. In addition, the expansion into the Indian market has the potential to bolster sales. This India-based increase would offset any recession impact. The United States spikes in third and fourth quarters reflect the cultural norms of the population in celebrating certain holidays with candy and chocolates.