Why Investors Should Stock Up on Hershey

We walked away from wide-moat

Hershey’s dominance in the U.S. confectionery space is undeniable; the firm holds about a 45% share of the chocolate aisle, versus just a 1% share for private label. When combined with the resources Hershey invests behind its brands (we forecast research, development, and marketing to average 8% of sales or $700 million annually over the next decade), we think the firm remains a valuable partner to retailers. But questions have surfaced as to whether these relationships will hold the same clout online, particularly in snacking, where impulse purchases are commonplace and small, niche startups are also vying for share. Chief digital commerce officer Doug Straton, who joined the firm about 10 months ago from Unilever, suggested that Hershey is working with its retail partners to meld its online and offline strategies, an essential undertaking, given that three fourths of the time when consumers initiate a search, it occurs on retailer websites. Evidence of the success of these efforts is in Hershey placing second (behind General Mills) in Gartner’s L2 Digital IQ Index among its U.S. food peers, illustrating that the firm understands the necessity of investing to build out this area of its business. Overall, we think these efforts support our contention that Hershey is poised to drive accelerating sales growth over time and sustain its solid competitive edge at home.

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