Hershey Flirts with Ecommerce as It Tries to Get on With China

Written by: Rara Kinasih on November 2, 2017

THE BACKGROUND

Most people would agree that Hershey gives the best kind of kisses — the chocolate kind that is – but did you know the largest chocolate confectionery makers in the US started with a different kind of sweet before getting hooked on chocolate?

Hershey China Ecommerce
Vintage ads for the famous Hershey’s Kisses

Founder Milton Hershey was fascinated with candy ever since his apprenticeship with a candy maker as a teen in 1873. He decided to launch his own candy company and failed twice before discovering the right mix of caramel and fresh milk. In 1886, Lancaster Caramel Company was launched.

His love for chocolate didn’t start until 1893 when he saw a chocolate-making machine for the first time and bought it to make a chocolate coating for his caramels. After witnessing the intensifying demand for chocolate, Hilton sold his caramel business for $1 million to devote himself to chocolate.

The Hershey Chocolate Company was born in 1900.

“Caramels are just a fad, but chocolate is a permanent thing.” – Milton Hershey

The company found success by developing its own recipe for milk chocolate and making chocolate bars affordable to Americans that had never tasted chocolate before.

The iconic Hershey’s Kisses was launched in 1907, propelling the company to a record $5 million in annual sales by 1911.

Over the course of 127 years, Hershey has only grown bigger, adding popular brands to its portfolio including Reese’s, Kit-Kat, and Cadbury. The company leads the US market for chocolate with 44.1%, but how about the rest of the world?

THE CHALLENGE

Success in the US is a double-edged sword for Hershey as it pushed the rest of the world to the back of its mind for a long time. As the result, the company became a latecomer in grabbing the attention of the fastest growing chocolate market – emerging countries like China and India.

Hershey China Ecommerce
Hershey comes in at fifth place for top chocolate companies in the world. Source: Statista.

The company’s attempts to gain market share in China by acquiring Shanghai Golden Monkey (SGM) didn’t pay off due to issues with its distribution networks. It instead became a hindrance to the company’s growth and pushed them to cut down 15% of its global hourly workforce.

“They added thousands of employees and eventually SGM took down the company’s international business,” said David Mandel, a research analyst with Consumer Edge Research LLC. “I believe Hershey will now try to build its China business through an ecommerce approach.”

With the chocolate market in Asia Pacific expected to outgrow Europe and North America, can Hershey win the region?

THE STRATEGY

Merger and acquisition (M&A) has been the company’s not-so-secret secret to expansion, as admitted by CEO Michele Buck.

“I’m very open to mergers and acquisitions. I see them playing a key role in our growth agenda moving forward. We have an opportunity with M&As to go into spaces where our brands currently can’t travel. And that will be one way we grow,” says Buck.

But it’s careful with its decisions. Last year the company rejected a $23 billion takeover bid from Mondelez International that would have created the world’s largest confectioner.

Another channel the company has pursued to target developing markets such as China, the company turned to ecommerce.

To leverage the appeal of import products in China, Hershey launched a flagship store on Tmall in 2013 and opened another one on Tmall Global, Alibaba’s cross-border ecommerce platform.

Hershey China Ecommerce
Hershey’s store on Tmall Global.

“We found that when consumers search for confectionary online, “imported” is a frequently used search term. And when they search for chocolate, they are particularly interested in imports from US and Japan. We wanted to tap into consumer demand for premium, imported products, and an elevated consumer experience,” said Sylvia Fu, Hershey’s Ecommerce Director.

Hershey China Ecommerce
Sylvia Fu presents Hershey’s strategy at the Tmall Global launch. Source: Alizilla.

Selling on both e-marketplaces allowed Hershey to workaround regulation and trademark rights that limited the company to only selling products online that are also available offline.

“We have been able to win in-store even as ecommerce has accelerated. Right now, we’re focused on partnering with retailers and investing in capabilities to unlock growth for our brands online. I believe we are in a really good position to win in an omnichannel world,” said Hershey’s President Todd Tillemans.

THE FUTURE

Not only is the company looking outwards in terms of market expansion, the traditional chocolate company is also looking beyond its core product. CEO Michelle Buck has expressed the company’s vision to turn into an innovative snacking powerhouse.

“Consumers have lots of different snacking needs. Sometimes during the day they’re looking for a treat, and they know that confection is a treat. They see it for what it is. It’s certainly not a center of the plate category,” Buck said.

“I’m really focused on creating shareholder value, and for me that’s about driving our core brands,” she said. “It’s about making sure we bring great innovation to the marketplace because that’s what consumers are looking for.”

And with the company’s recent bid for Nestle’s confectionery business that is currently up for grab, Hershey might soon secure a sweet spot at the top.

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