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Hershey reports a profit meltdown

Jill Barshay Jul 19, 2007

Hershey reports a profit meltdown

Jill Barshay Jul 19, 2007


Tess Vigeland: Ah, Harley wasn’t the only well-known American brand with earnings news today. Hershey has apparently been in something of a meltdown. Profits over the past three months tumbled 96 percent compared with last year.

The company is now busy cooking up a way to fix its main milk-chocolate business and expand into Cadbury and Godiva territory. Jill Barshay reports.

Jill Barshay: Hershey’s still sells more chocolate than anyone else in the U.S. But the company isn’t keeping up with changing tastes.

Mitchell Corwin is an equity analyst at Morningstar.

Mitchell Corwin: There’s sort of a shift from regular milk chocolate to dark chocolate. So in order for Hershey to keep growing, they have to be in dark chocolate. They have to have that market.

Hershey’s recently purchased high-end chocolatiers Scharffen Berger and Joseph Schmidt. The premium market is growing at double digits. Hershey’s expects it to hit $2.5 billion in the next five years. And the company wants a piece.

Bernard Pacyniak is editor-in-chief of Candy Industry Magazine. He says the problem is Hershey’s own name.

Bernard Pacyniak: Hershey’s is not regarded, in terms of the Hershey bar, as a premium chocolate. As a result, it’s hard to get a premium price for a brand that’s not considered a premium gourmet chocolate.

Hershey’s has been working hard to change its image. It’s spending heavily on ads. That’s one of the big reasons that profits are down.

Hershey’s New York store was buzzing today. But not everyone nearby is a Hershey’s fan.

Hershey Naysayer: I really don’t like Hershey’s at all. It just leaves this horrible aftertaste in your mouth. It just doesn’t even taste like chocolate.

Pacyniak says that’s the kind of reaction foreigners have to Hershey’s chocolate, too. That’s a problem for Hershey’s, which wants to expand into China and India.

Hershey’s announced today that it would use another well-known brand name: Starbucks. Beginning in 2008, Hershey’s will make artisanal Starbucks-brand chocolates for grocery stores and drug stores around the country.

In New York, I’m Jill Barshay for Marketplace.

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