Hershey’s HSY Business Risk Report

I. Market Risks

A. Fluctuations in raw material prices: Hershey’s is subject to volatility in prices of raw materials such as cocoa, sugar, and dairy products. These fluctuations can impact cost structures and profit margins, challenging the company’s ability to maintain consistent pricing.

B. Changes in consumer preferences: There is a growing demand for healthier and ethically sourced products among consumers. Hershey’s must adapt to these changes to retain and grow its customer base, or risk losing market share.

C. Intense competition in the confectionery industry: Hershey’s operates in a highly competitive sector with numerous global and local brands. Competitive pressures may impact market share, pricing, and profitability.

II. Operational Risks

A. Supply chain disruptions: Hershey’s global supply chain could face disruptions arising from factors such as natural disasters, trade restrictions, or logistic inefficiencies, which can in turn affect production and distribution.

B. Product recalls: Product recalls can incur substantial financial costs and affect consumer trust. Past incidents within the food industry highlight the importance of maintaining high quality and safety standards.

C. Manufacturing inefficiencies: Inefficiencies in manufacturing can lead to increased costs and reduced production capacity. Hershey’s must continually optimize its production processes to maintain competitiveness.

III. Financial Risks

A. Foreign exchange rate volatility: Given its international operations, Hershey’s faces risks associated with currency exchange rate fluctuations, which can affect its overseas earnings and import costs.

B. Increasing interest rates: Rising interest rates increase the cost of borrowing. This can affect Hershey’s ability to finance new projects or refinance existing debt at favorable rates.

C. Revenue fluctuations due to seasonality: Hershey’s sales are subject to seasonal fluctuations, with significant peaks around holidays such as Halloween and Christmas. This creates variability in cash flow and revenue generation.

IV. Regulatory Risks

A. Changes in food safety regulations: Hershey’s must comply with stringent food safety regulations. Changes in these regulations can lead to increased compliance costs or adjustments in operational processes.

B. Compliance with advertising and labeling laws: Advertising and labeling laws are constantly evolving, requiring Hershey’s to closely monitor and adapt its marketing strategies to remain compliant and avoid legal penalties.

C. Legal risks related to intellectual property infringement: As a company with a portfolio of popular brands, Hershey’s faces risks related to the protection of its intellectual property, including trademarks and patents.

V. Strategic Risks

A. Mergers and acquisitions integration challenges: Hershey’s may face integration challenges following mergers or acquisitions. These include cultural assimilation, systems integration, and realizing projected synergies.

B. Failure to innovate and adapt to changing market trends: Hershey’s must continue to innovate in its product offerings to meet changing consumer demands and technological advancements in production and distribution.

C. Dependence on key distribution channels: Hershey’s relies heavily on certain distribution channels, including major retailers. Changes in retailer strategies or conflicts can significantly impact Hershey’s market access and sales.

VI. Reputational Risks

A. Negative publicity impacting brand image: Hershey’s could face reputation damage from negative publicity, which can arise from issues like product recalls or unethical practices in the supply chain.

B. Social media backlash: In the digital age, negative feedback can rapidly spread on social media, potentially harming Hershey’s brand reputation and customer loyalty.

C. Stakeholder perception of ethical practices: Stakeholders are increasingly attentive to the ethical aspects of Hershey’s operations, including sourcing and labor practices. Failing to meet these expectations can lead to reputation damage.

VII. Mitigation Strategies

A. Diversification of suppliers: Hershey’s mitigates supply chain risks by diversifying its supplier base across different geographies, thereby reducing dependency on any single supplier or region.

B. Quality control measures and contingency plans for recalls: Hershey’s invests in stringent quality control measures and has contingency plans in place to swiftly address product recalls and minimize associated risks.

C. Hedging against currency risks: Hershey’s employs financial instruments to hedge against foreign exchange risk, thereby stabilizing its financial projections from international operations.

D. Regular compliance audits and legal counsel: Hershey’s conducts regular compliance audits and retains expert legal counsel to navigate regulatory changes and mitigate legal risks.

E. Research and development for product innovation: Hershey’s invests in research and development to innovate its product offerings and respond to market trends, enhancing competitiveness and consumer appeal.

F. Crisis management and communication strategies: Hershey’s has robust crisis management plans and communication strategies to address potential negative publicity and maintain stakeholder trust.

G. Strengthening stakeholder engagement for positive brand perception: Hershey’s actively engages with stakeholders through transparent reporting, community involvement, and sustainable practices to maintain and enhance brand reputation.