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 Product Segments
Revenue US: $15.5 bn. Appr. Chocolate Bars 45%
19.4% Declining due to health concerns
Growth: 0.6% Dark chocolate is gaining within
Revenue Global: $77 bn. category
Industry Concentration is high Block Chocolate 29.8%
C4: 75% Growing Fair Trade and Organic
Competitors Boxed Chocolate 15%
Premium segment growing
Others
Others; $3,915.34 ; 25% Demand Drivers
The Hershey Company; $5,406.70 ; 35%
Price at retail level - Increasing
Income
Nestle SA; $1,382.80 ; 9%
Mars Inc; $3,397.70 ; 22% Highly Seasonal for
Lindt & Sprungli; $1,414.20 ; 9% confectionary
I.e. Holidays
Health Trends
 Supply Chain and Production
Wal-
Cocoa
Mart
Hershey,
Wholesal
Milk Nestle, Target
e
Lindt etc.
Sugar McLane

Performance Statistics Production Process

1. Harvest
Others
Rent & Cote DIvoir, Indonesia, Brazil
Utilities
Marketing
14.6 9.9 53.9 3 14.1
2. Seed processing
Depreciation
Purchases 3. Roasting and winnowing
Wages
Profit
4. Grinding to get cocoa
0% 20% 40% 60% 80% 100% liquor
5. Blending and molding
chocolate
Dependent on kind of
chocolate, but usually
Distribution Channels
Wal-
Cocoa
Mart
Hershey,
Wholesal
Milk Nestle, Target
e
Lindt etc.
Sugar McLane

Channels Biggest Buyers

Wholesaling 63% Wholesale: McLane (25% of
Supermarket & Grocery stores Hershey)
Convenience Stores
Decreasing segment
Specialty Food Stores
Export 11.6% of Revenue
Canada as largest buyer
Direct country
Think Godiva stores Growth in East Asia nearly
doubled since 2009
 They Hershey Company
Overview Products
Total Revenue: $7.1 bn.
Founded in 1894 with
Chocolate: $5.4 bn.
headquarter in Hershey, PA
Market share: 35%
Sells its products in 50
- Market Leader
countries
Two business units:
Chocolate
Sweets and refreshments *

Marketing/Advertisement Recent Developments

Product placement in Push Brookside products
mad men finale Continued global expansion
Considered accurate Introduction of Hershey Air
depiction of the Delight
company Benefited from high prices,
but exposed to commodity
volatility

* US only Globally produced by Nestle

 Mars Inc.
Overview Products
Total Revenue: $33 bn.
Founded in 1911 with
Chocolate: $3.4 bn.
headquarter in McLean, VA
Market share: 21.9%
Privately owned
- Largest user of
certified Cocoa
Manufactures in 21 countries
Three product categories:
Confectionary, pet food
and beverages

Marketing/Advertisement Recent Developments

Youre not you when Reformulation of all
youre hungry chocolate products to
reduce saturated fat and
sodium was highly
successful
Introduction of Snickers
Peanut Butter
R&D investments in cocoa
farmers
 Nestle
Overview Products
Total Revenue:
$3.1bn
Switzerland-based
premium chocolate
Revenue US: $1.3
manufacturer
bn.
Products sold in 61
Market share:
countries
8.9%
Seven Segments:
Beverages, milk
products, nutrition and
healthcare, cooking
Marketing/Advertisem
aids, confectionary, Recent
ent pet care Developments
Kit Kat: Share your
Stagnating chocolate
Goodness sales, but sales of core
Advertising more
brands remained strong
concentrated in
Chocolate made 11.2%
Europe and East Asia of total company
revenue
Mostly in Europe
 Lindt & Sprungli
Overview Products
Revenue: $1.4 bn.
Switzerland-based food
Market share:
manufacturer founded in
9.1%
1845
Two manufacturing
locations in the US:
Stratham, NH and San
Leandro, CA
Fastest growing in the
US through strong
Marketing/Advertisem
demand in the premium Recent
segment
ent Developments
Pushing Swiss premium
2014 Acquisition of Russel
segment with a focus on Stover for $1 bn.
Largest Acquisition in
the tradition of chocolate
manufacturing company history
Financial Performance
Marketing
Advertisement
Brand Equity
Placement

Chocolate
Industry
Financial
Trends/Demand Performan
Disposable Income
Health concerns ce Sugar and sweetener
Foreign specialty consumption
manufacturer Price of sugar and inputs
International Currency fluctuations
Consumption
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($m)
Domestic Demand($m)
15,000.00
Per capita disposable income($)
10,000.00

5,000.00

0.00
20052006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Growth segments and

drivers
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 1905 1920

The Hershey Company was Two companies merged to become Mars, Inc. was officially founded
founded; the Hershey plant and the Nestle & Anglo-Swiss
process are born Condensed Milk Company
1930-1940
1900 The first Snickers, 3 Musketeers,
1930-1948 Mars bars are sold
The first Hershey Milk Chocolate
Bar is sold The company merges with a Swiss M&Ms introduced and sold
Corporation that has operations in commercially
the U.S.; makes chocolate a large
1907 priority & introduces Crunch bar
First Hersheys Kisses hit the 1979
market Twix bar introduced in the U.S.
1980s
Improves bottom line and acquires
1941 even more chocolate brands
The first Reeses Peanut Butter
Cup is sold
1960s
Hersheys begins advertising on
TV

1960s
Hersheys begins advertising on
TV
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
Reeses Hershey $1.21
 The Hershey brand

A high quality product = high quantity

sales
Give them quality thats the best
advertising in the world! -Milton Hershey

A commitment to chocolate
Hershey sold his previous company,
Lancaster Caramel Co., to focus solely on
chocolate

Hersheys 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
Hersheys Kisses

Strategic Packaging
Kisses were individually wrapped
with a tissue paper flume

Commercializing a Holiday
This caused the product to be a
Valentines Day staple buying your
loved one Kisses became a
commonly-accepted romantic
gesture
All you need is love
Americas sweet-heart
An American Tradition
From when the company started
advertising in the late 1960s,
Hershey branded itself as being
the great American chocolate
bar

A Nostalgic Favorite
A Hershey bar was timeless, as
people passed it down from
generation to generation
Hersheys The Great
American Chocolate Bar
 Overall strategy
Hersheys 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

Peripheral & Sensory

They focus on vibrant colors and an over-
arching 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 Hersheys 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
Hersheys chocolate is made
Innovation and Health Trends in
The Chocolate Industry
 Innovation/Health
Health Effects of
Overview
Chocolate
Go hand in hand!

New Major trend: people are

becoming more health
conscious
Push towards dark
chocolate
Chocolate with vegetables
Chocolate and fruit
Chocolate Innovation
Chocolate and nuts

Valor Dark Chocolate with

Almonds
 Why dark chocolate?
Higher level of antioxidants
Vegetable fat rather than milk fat
73% consumers know this is
healthier
93% increase in dark chocolate
launches
2013: 51% of consumers prefer
milk but 35% prefer dark
More common with adults
Yearly expenditures equal $1.3
billion
Chocolate and Fruit
Fruit has become very popular to pair with
chocolate
We have seen this with popular ingredients, such
as strawberry
Looking to incorporate more types of fruit, such as
peaches
How has Hershey incorporated
fruit?
Brands with fruit inside

2011: Hershey acquired Brookside

Brookside- chocolate covered real fruit juice
Creative products that have been patented
 Trending Chocolate Patterns:
Hersheys Nutty
Chocolate with Nuts
Products
Common ingredient within
chocolate for a long time

Pistachio on the rise

Source of healthy fats

Better for the health conscious

consumer

Chocolate with
Vegetables
Not very common in United
States

Becoming popular in other

countries

Could be source of a
Hershey healthy products
Hershey Promoting Health

Health and Wellness Advisory Board

2006: Developed New Hershey Center for Health
and Nutrition
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

Commercials are Mature in Nature

May Encourage Sharing (Kit Kats)
Adult Sporting Events/Adult only Characters (Snickers)
Who and When
Number of Advertisements Takeaways
Lindt (6%)
29 Mars, the second leading market
shareholder accounts for about 50% of
Dove (.2%)1 advertisements
Number of
Company Hershey (45%) 206 Advertisements Many of their advertisements come in
the form of comparative advertising
Mars (50%)
217
Mars advertisers pretty consistently on all
0 50 100 150 200 250 properties
Number of Advertisements The Hersheys Company targets mainly to
audiences of CW and Fox

Brand Advertisements by Property

140
120
100 Hershey's
80 Mars
Number of Advertisements 60 Dove
40 Lindt
20
0
ABC CBS CW Fox NBC

Property
 Length of Advertisements
Percentages of Advertisements by Seconds in Length

15 Second
Advertisement
14%
s
30 Second
Advertisement
s
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

Discount rate 9%

Discount factor 1.09 1.1881 1.295029 1.41158161 1.538623955

Discounted Earnings $113,496 $142,852 $138,864 $162,013 $161,757

Value until the year 2009 $718,982

Online Ads are Most Shared
Ads Hershey (US) & Nestle
M&M Sexy and I Know It: (Europe/ Asia) Kit Kat
544,013 Shares Squirrel: 322,406 Shares

Cadbury Eyebrows: 344,845

Snickers Halloween
Shares
Grocery Store: 144,912
Shares
Online Advertising Medium
Growing Quarterly Rising Number of
Revenues Social Media Followers
Over $ 12B in Quarterly Rev
$43B in Annual Rev

Hersheys has 6.2mm followers

Advertising Budget
Percentages
Key Industry
Statistics Advertising Budget
Spent on TV Ad
Advertising Budget
Spent on Online
16% of TV ads generate a Ads
positive ROA Advertising Budget
Spent on Other
48% of Online Ads generate a
positive ROA
Cadburys Chocolate Charmer

https://www.youtube.com/watch?
v=kIwIdzTedts

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
ROI Results
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
Lake Champlain
Charles Chocolates
Chocolates

Results Results
Spent $3,000 on PPC Sold 30,000 pounds of
Advertisements Chocolate from PPC Advertising
Sold Fewer Than Five Boxes
Strategy Strategy

Search and Content Advertising Only Search Advertising

Did not alter text to match Developed a list of 70,000
specific Keywords Keywords
Created list of where ads
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