BUSI 400 Week 4 Individual Case Analysis 1 Example

Inside Hershey: Ratios, Resources and an Internal Factor Evaluation

Financial Ratio Analysis

The figures are calculated from Hershey's reported net sales, gross profit, net income, total assets and stockholders' equity (The Hershey Company, 2026). Sales grew modestly, by about 4 percent in 2025, in part through price increases. The striking change is in profitability: gross margin fell by almost 14 percentage points in one year as cocoa costs reached record levels, and net income fell by about 60 percent. Return on equity remains respectable even after the decline, partly because Hershey uses substantial debt, which magnifies returns in good years and risk in bad ones. Advertising spending stayed near $600 million a year, about 5 percent of sales, showing that management protected brand support even as margins fell.

A Functional Audit

David and David (2017) recommend auditing each functional area of the business. In marketing, Hershey's strength is plain: well-known brands, steady advertising and strong positions at retail checkouts and in seasonal aisles give it pricing power that helped protect sales in 2025. In finance, the picture is mixed; the company remains profitable and generates cash, but lower earnings and higher liabilities reduce its flexibility for acquisitions or for absorbing another year of high cocoa prices. In production and operations, Hershey runs large plants that make high volumes efficiently, yet it cannot control the price of its main ingredient. Research and development spending is small relative to sales, a little over $60 million in 2025, which suits a business built on established recipes but limits breakthrough innovation (The Hershey Company, 2026). In management information systems, investments in data and forecasting matter more than before, because better demand forecasts reduce waste and help the company decide how much cocoa to buy forward. Management's main challenge is cultural as much as technical: a company long built on chocolate must learn to manage salty snacks and lower-cocoa products with equal skill.

Testing Hershey's Resources

Barney (1991) argued that a resource yields lasting advantage only if it is valuable, rare, costly for rivals to copy and backed by the firm's organization. Hershey's iconic brands, such as Hershey's and Reese's, pass every test: they create value through pricing power, few competitors own brands with comparable heritage in North America, and decades of consumer memories cannot be copied. Its distribution relationships with retailers and its dominant share of seasonal candy are similar. By contrast, its manufacturing capability is valuable but not rare, and its cocoa supply offers no advantage at all, since rivals buy from the same markets. Hershey's advantages are in the minds of consumers, not in its supply chain.

Internal Factor Evaluation Matrix

At 2.48, Hershey's internal position sits just below the 2.5 midpoint. Strong brands offset weak cost and geographic positions, but not by much in the current environment. The two most heavily weighted weaknesses, cocoa dependence and the margin decline, are closely linked, so progress on cost protection would lift both ratings at once. If cocoa prices eased and margins recovered toward their 2024 level, the same matrix would likely total above 2.8, which shows how much of Hershey's internal position currently depends on one external price.

Diagnosis and Recommendations

Hershey's internal position rests on brands that are durable advantages and on a cost structure that is exposed to a single volatile commodity. Three actions follow. First, broaden cost protection through longer hedging programs, recipe innovation that reduces cocoa content in some products without disappointing consumers, and productivity savings. Second, continue building the salty and better-for-you snack portfolio, which uses the company's distribution strength while reducing cocoa dependence. Third, grow international sales selectively in markets where Hershey brands are already known, rather than spreading resources thinly. Each action should carry a measurable target, such as gross margin restored above 40 percent within three years, salty snacks reaching a larger share of sales and international sales growing faster than domestic sales, so that later strategy evaluation has clear benchmarks.

References

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108

David, F. R., & David, F. R. (2017). Strategic management: A competitive advantage approach, concepts and cases (16th ed.). Pearson.

The Hershey Company. (2026). Annual report on Form 10-K for the fiscal year ended December 31, 2025. U.S. Securities and Exchange Commission. https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000047111&type=10-K