Transcript Hershey`s advertisements are…

The Chocolate Industry
31135
Melissa Groark, Bennet Heidenreich, Raegan Knox
and Emma Lichtenstein
Why the chocolate industry?

Interesting industry- key
players have remained the
same

Innovative

Four chocolate lovers

Want more insight
Overview
1.
Industry Overview
2.
Differentiation in the Chocolate Industry
3.
Innovation and Health Trends
4.
Prime Time Data Analysis
5.
Digital
6.
Analysis and recommendation
Chocolate Industry Overview
Industry Overview
Overview
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Product Segments
Revenue US: $15.5 bn. – Appr. 19.4%
 Growth: 0.6%
Revenue Global: $77 bn.
Industry Concentration is high
 C4: 75%


Competitors
Others,
$3,915.34 ,
25%


The Hershey
Company,
$5,406.70 ,
35%
Demand Drivers


Nestle SA,
$1,382.80 ,
9%
Lindt &
Sprungli,
$1,414.20 ,
9%

Mars Inc,
$3,397.70 ,
22%
Chocolate Bars – 45%
 Declining due to health concerns
 Dark chocolate is gaining within category
Block Chocolate – 29.8%
 Growing – Fair Trade and Organic
Boxed Chocolate – 15%
 Premium segment growing
Others

Price at retail level - Increasing
Income
Highly Seasonal for confectionary
 I.e. Holidays
Health Trends
Supply Chain and Production
Cocoa
Wal-Mart
Hershey,
Nestle, Lindt
etc.
Milk
Wholesale
Sugar
McLane
Production Process
Performance Statistics

Profit
1. Harvest

Wages
Purchases
14.6
Depreciation
9.9
53.9
3
14.1
Marketing
Rent & Utilities
Others
0%
Target
20%
40%
60%
80%
100%
Cote D’Ivoir, Indonesia, Brazil

2. Seed processing
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3. Roasting and winnowing
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4. Grinding to get cocoa “liquor”
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5. Blending and molding chocolate

Dependent on kind of chocolate,
but usually involves sugar, milk and
flavors (vanilla)
Distribution Channels
Cocoa
Milk
Wal-Mart
Hershey,
Nestle, Lindt
etc.
Wholesale
Sugar
Channels
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Wholesaling – 63%
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Supermarket & Grocery stores
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Convenience Stores
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Specialty Food Stores
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Direct
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Think Godiva stores
Target
McLane
Biggest Buyers
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Wholesale: McLane (25% of Hershey)
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Decreasing segment
Export – 11.6% of Revenue Canada as
largest buyer country

Growth in East Asia – nearly
doubled since 2009
They Hershey Company
Overview
Total Revenue: $7.1 bn.
Chocolate: $5.4 bn.
Market share: 35%
- Market Leader



Founded in 1894 with headquarter
in Hershey, PA
Sells its products in 50 countries
Two business units:
 Chocolate
 Sweets and refreshments
Marketing/Advertisement

Products
Product placement in mad
men finale
 Considered accurate
depiction of the company
* US only – Globally produced by Nestle
*
Recent Developments


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Push Brookside products
Continued global expansion
Introduction of Hershey Air Delight
Benefited from high prices, but
exposed to commodity volatility
Mars Inc.
Overview
Total Revenue: $33 bn.
Chocolate: $3.4 bn.
Market share: 21.9%
- Largest user of certified
Cocoa


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Founded in 1911 with headquarter
in McLean, VA
Privately owned
Manufactures in 21 countries
Three product categories:
 Confectionary, pet food and
beverages
Marketing/Advertisement
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Products
“You’re not you when you’re
hungry”
Recent Developments
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Reformulation of all chocolate
products to reduce saturated fat
and sodium was highly successful
Introduction of Snickers Peanut
Butter
R&D investments in cocoa farmers
Nestle
Overview
Total Revenue: $3.1bn
Revenue US: $1.3 bn.
Market share: 8.9%
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Switzerland-based premium
chocolate manufacturer
Products sold in 61 countries
Seven Segments:
 Beverages, milk products,
nutrition and healthcare,
cooking aids, confectionary,
pet care
Marketing/Advertisement

Products
Kit Kat: Share your Goodness
 Advertising more
concentrated in Europe and
East Asia
Recent Developments

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Stagnating chocolate sales, but
sales of core brands remained
strong
Chocolate made 11.2% of total
company revenue
 Mostly in Europe
Lindt & Sprungli
Overview
Revenue: $1.4 bn.
Market share: 9.1%
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Switzerland-based food
manufacturer founded in 1845
Two manufacturing locations
in the US: Stratham, NH and
San Leandro, CA
Fastest growing in the US
through strong demand in the
premium segment
Marketing/Advertisement

Products
Pushing Swiss premium
segment with a focus on the
tradition of chocolate
manufacturing
Recent Developments

2014 Acquisition of Russel Stover
for $1 bn.
 Largest Acquisition in company
history
Financial Performance
Marketing
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
Trends/Demand
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
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Health concerns
Foreign specialty manufacturer
International Consumption
Advertisement
Brand Equity
Placement
Chocolate
Industry
Performance
Financial
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Disposable Income
Sugar and sweetener
consumption
Price of sugar and inputs
Currency fluctuations
Market Expectations
Growth
45,000.00
40,000.00
35,000.00
30,000.00
Revenue ($m)
25,000.00
Exports ($m)
20,000.00
Imports ($m)
15,000.00
Domestic Demand ($m)
Per capita disposable income ($)
10,000.00
5,000.00
0.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth segments and drivers
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Annual growth of 2-3 percent
Strongest Growth in premium, dark, organic and fair trade chocolate
Continued consolidation is likely to drive profitability, increase profitability and stabilize input costs
Revenues in 2019 expected to be $17.6 bn.
Differentiation in the Chocolate Industry
A history of chocolate

Pre-Hershey:
Chocolate used to be a luxury for only the rich.
The chocolate-making process was a safely
guarded Swiss trade secret.

Enter Hershey: The First Mover
Milton Hershey worked for years to discover the
right combination of milk, sugar, and cocoa and
the ideal operations to make chocolate.

An Industry Re-Imagined: Chocolate for the
Masses
Hershey was able to mass-produce chocolate that
was tasty, fresh, and affordable. Chocolate
became a “daily luxury” that everyone could
enjoy!
A history of chocolate
1894-1899
The Hershey Company was founded; the
Hershey plant and process are born
1900
The first Hershey Milk Chocolate Bar is
sold
1907
First Hershey’s Kisses hit the market
1941
The first Reese’s Peanut Butter Cup is sold
1960’s
Hershey’s begins advertising on TV
1960’s
Hershey’s begins advertising on TV
1905
1920
Two companies merged to become the
Nestle & Anglo-Swiss Condensed Milk
Company
Mars, Inc. was officially founded
1930-1948
The company merges with a Swiss
Corporation that has operations in the
U.S.; makes chocolate a large priority &
introduces Crunch bar
1980’s
Improves bottom line and acquires even
more chocolate brands
1930-1940
The first Snickers, 3 Musketeers, Mars bars
are sold
M&M’s introduced and sold commercially
1979
Twix bar introduced in the U.S.
Comparing brands
Brand Values
 Hershey: classic, simple, joyful
 Mars: funny, strong personality
 Nestle: repetitive, derivative
Pricing
Product
Company
Average Price/Unit
Butterfinger
Nestle
$0.95
Snickers
Mars
$1.04
Reese’s
Hershey
$1.21
The Hershey brand

A high quality product = high quantity sales
“Give them quality – that’s the best advertising
in the world!” -Milton Hershey
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A commitment to chocolate
Hershey sold his previous company, Lancaster
Caramel Co., to focus solely on chocolate

Hershey’s Happiness
“Bringing sweet moments of Hershey happiness
to the world every day!”
 Hershey chocolate is an experience good
All you need is love

Concept Marketing
Hershey was the first to link chocolate to
love with the advent of Hershey’s Kisses
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Strategic Packaging
Kisses were individually wrapped with a
tissue paper flume
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Commercializing a Holiday
This caused the product to be a Valentine’s
Day staple – buying your loved one Kisses
became a commonly-accepted romantic
gesture
All you need is love
America’s sweet-heart
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An American Tradition
From when the company started
advertising in the late 1960’s, Hershey
branded itself as being “the great
American chocolate bar”
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A Nostalgic Favorite
A Hershey bar was timeless, as people
passed it down from generation to
generation
Hershey’s The Great American
Chocolate Bar
Overall strategy
Hershey’s advertisements are…
•
Persuasive & Memory-Jamming
We know the products, we know the brand –
but they remind us of the positive experience
associated with the chocolate
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Peripheral & Sensory
They focus on vibrant colors and an overarching story rather than nutritional facts or
explicit information
•
Emotional & Nostalgic
If we can feel good about the advertisements,
then we can feel good about the product
•
Classic & Simple
Just like Hershey’s chocolate!
Bringing Hershey happiness to life
Hershey is the only company in the industry
that has its own theme park!

Founded as a place of play
“Ye who enter, leave dull
cares behind!”

Rapid expansion
New amenities included rides,
a bandstand, shops/restaurants,
a petting zoo, water slides, and
other amenities

A World of Chocolate
Visitors immerse themselves in how
Hershey’s chocolate is made
Innovation and Health Trends in
The Chocolate Industry
Innovation/Health
Overview

Go hand in hand!

New Major trend: people are
becoming more health conscious

Push towards dark chocolate

Chocolate with vegetables
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Chocolate and fruit

Chocolate and nuts
Chocolate Innovation
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Valor Dark Chocolate with
Almonds
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Hershey’s Sugar Free Chocolate
Bars
Health Effects of Chocolate
Why dark chocolate?
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Higher level of antioxidants
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Vegetable fat rather than milk fat
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73% consumers know this is healthier

93% increase in dark chocolate
launches
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2013: 51% of consumers prefer milk but
35% prefer dark
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More common with adults
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Yearly expenditures equal $1.3 billion
Chocolate and Fruit
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Fruit has become very popular to pair with chocolate
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We have seen this with popular ingredients, such as
strawberry
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Looking to incorporate more types of fruit, such as peaches
How has Hershey incorporated fruit?
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Brands with fruit inside
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2011: Hershey acquired Brookside
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Brookside- chocolate covered real fruit juice
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Creative products that have been patented
Trending Chocolate Patterns:
Chocolate with Nuts
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Common ingredient within chocolate
for a long time
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Pistachio on the rise
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Source of healthy fats

Better for the health conscious
consumer
Chocolate with Vegetables
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Not very common in United States

Becoming popular in other countries

Could be source of a competitive
advantage
Hershey’s Nutty Products
Hershey “healthy” products
Hershey Promoting Health
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Health and Wellness Advisory Board
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2006: Developed New Hershey Center for Health and Nutrition
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Tour de Pink
Prime Time Advertising Trends in the
Chocolate Industry
The Ad Code
1. All Advertisements Must Promote a Healthy Lifestyle
2. Cannot encourage excessive snacking
3. No advertising to children
Creative Strategies to Abide by The
Ad Code
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Commercials are Mature in Nature
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May Encourage Sharing (Kit Kats)
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Adult Sporting Events/Adult only Characters (Snickers)
Property Advertisements by
Month
Number of Chocolate Bar
Advertisements
80
73
60
40
20
59
27
33
21
52
33
40
26
34
34
21
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
Number of Advertisements
Number of Advertisements
Seasonality
35
30
ABC
25
CBS
CW
20
FOX
15
NBC
10
5
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Number of Advertisements
 Most advertisements in October because of Halloween
 Creation of spurious product differentiation
 Representation of Prisoner’s Dilemma
 Spike in persuasive advertisements in June
 Goal: Make demand more inelastic
 Lowest amount of advertisements in February and December
 Demand is more inelastic at this time
Month
Who and When
Takeaways
Number of Advertisements
Company
Lindt (6%)

29
Dove (.2%)
1

Hershey (45%)
Number of
Advertisements
206
Mars (50%)
50
100
150
200
Number of Advertisements
250
Brand Advertisements by Property
140
Number of Advertisements
Many of their advertisements come in the form
of comparative advertising

Mars advertisers pretty consistently on all properties

The Hershey’s Company targets mainly to audiences of
CW and Fox
217
0
120
100
80
Hershey's
60
Mars
40
Dove
20
Lindt
0
ABC
Mars, the second leading market shareholder accounts
for about 50% of advertisements
CBS
CW
Property
Fox
NBC
Length of Advertisements
Percentages of Advertisements
by Seconds in Length
14%
15 Second
Advertisements
30 Second
Advertisements
86%
Takeaways
• Most advertisements tend to be 15
seconds
• This is because they are humorous
in nature
• Goal: Quickly capture
attention
Digital Advertising Chocolate Industry
Hershey Brand Equity Calculation
HSY FINANCIALS (in '000 of $)
2010
2011
2012
2013
2014
Total (current) assets
2,005,217
2,046,558
2,113,485
2,487,334
2,247,047
WACC 10%
$200,522
$204,656
$211,349
$248,733
$224,705
Net income
509,799
628,962
660,931
820,470
846,912
Economic Value Added EVA)
$309,277
$424,306
$449,583
$571,737
$622,207
RBI (Brand Earnings) = 40% of EVA
$123,711
$169,722
$179,833
$228,695
$248,883
1.09
1.1881
1.295029
1.41158161
1.538623955
$113,496
$142,852
$138,864
$162,013
$161,757
Discount rate
9%
Discount factor
Discounted Earnings
Value until the year 2009
$718,982
Terminal value
$2,310,812
NPV of Brand
$3,029,794
Value of the DELL brand: ~ 3.030 billion
dollars
Online Ads are Most Shared Ads
M&M Sexy and I Know It:
544,013 Shares
Cadbury Eyebrows: 344,845 Shares
Hershey (US) & Nestle (Europe/
Asia) Kit Kat Squirrel: 322,406
Shares
Snickers Halloween Grocery
Store: 144,912 Shares
Online Advertising Medium
Growing Quarterly Revenues


Rising Number of Social
Media Followers
Over $ 12B in Quarterly Rev
$43B in Annual Rev

Hershey’s has 6.2mm followers
Advertising Budget Percentages
Key Industry Statistics


16% of TV ads generate a positive ROA
48% of Online Ads generate a positive
ROA
Advertising Budget
Spent on TV Ad
Advertising Budget
Spent on Online
Ads
Cadbury’s “Chocolate Charmer”
https://www.youtube.com/watch?v=kIwI
dzTedts
Takeaways

7% of Budget in Online Advertising

20% of Sales generated from video

4 Times more ROI than TV
Cadbury Online Advertising Results
ROI Results
Historic Online Revenues
Reach
Demand Drivers
Pay-Per-Click: The Importance of
Keyword Selection
 PPC is the most popular
payment method
 “Chocolate” is too generic
of a term
 Need to be specific with
keyword bidding
Pay-Per-Click Case Study
Charles Chocolates
Lake Champlain Chocolates
Results
Results


Spent $3,000 on PPC Advertisements
Sold Fewer Than Five Boxes
Strategy


Search and Content Advertising
Did not alter text to match specific
Keywords

Sold 30,000 pounds of Chocolate from
PPC Advertising
Strategy



Only Search Advertising
Developed a list of 70,000 Keywords
Created list of where ads should NOT
appear
Analysis and Recommendation
Recommendation
Trends



Keep up with innovation and trends (e.g. Health)
Focus on Seasonality and Holidays
Manage online advertisement
Competition




Avoid price wars
 Differentiation and brand equity drive profits
Continue consolidation
Global expansion – global exports especially East Asia
Manage input costs
Questions about The Chocolate Industry