Hershey Foods Corp.

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Milton S. Hershey started Hershey Chocolate Co. in 1894 as a subsidiary of his Lancaster Caramel Co. in Lancaster, Pa. He sold his company in 1900 but kept his chocolate subsidiary and manufacturing equipment, moving them to a rural area outside his hometown, Derry Church, Pa.

While struggling to create a reliable, consistent recipe for milk chocolate, Mr. Hershey built a manufacturing plant that was completed in 1905 and opened as Hershey Chocolate Co. Adjoining his operation, he built a town that became Hershey, Pa., with modern housing, stores, schools and a park for his workers.

Affordable milk chocolate

With its ability to mass-produce milk chocolate, the company introduced the U.S. public to affordable milk chocolate with the 5ยข Hershey's bar. In 1907, the company began selling Hershey's Kisses, bite-size pieces of milk chocolate hand-wrapped in foil.

Mr. Hershey's main interest was in product development, and he considered advertising to be immaterial if the quality of the product were high. This philosophy became entrenched within the company and continued well after his death in 1945. Hershey was the only Fortune 500 company that did not have a marketing department by the mid-1960s, and the company did not fully advertise its products until 1970, when it hired Ogilvy & Mather, New York.

Hershey's conservative marketing practices can be explained in part by the fact that its primary stockholder is the Milton Hershey School through the Hershey Trust Co. The school, founded in 1909 by Mr. Hershey, cares for and educates orphans and disadvantaged children through their high school graduation; in 1918, three years after his wife's death, Mr. Hershey signed over his shares in Hershey Chocolate Co. to the school to ensure its continuation. It controls 31% of the corporation's common stock and 77% of its voting shares.

The initial campaign by Ogilvy hinged on consumers' nostalgic sentiments about the Hershey's bar. The campaign's slogan, "The great American chocolate bar," reflected the consistency symbolized by the bar's familiar silver-and-brown wrapper. The campaign for Reese's, which Hershey had acquired in 1963 for $23.5 million, was also successful. It featured comical collisions between peanut butter eaters and chocolate eaters, who accused each other: "You got peanut butter in my chocolate . . . You got chocolate in my peanut butter!"

However, the company pulled the otherwise successful campaigns only two years after they began. It cited President Richard M. Nixon's introduction of wage and price controls and the escalation of sugar and cocoa prices as reasons for its decision. The company returned to advertising in the late 1970s, adding Doyle Dane Bernbach to its agency roster in 1978.

Given the company's generally conservative marketing history, it is surprising that Hershey participated in a major marketing coup that pioneered the appearance of brand-name products in feature-length films: the placement of Reese's Pieces candy in Steven Spielberg's movie "E.T. the Extra-Terrestrial." The script had originally called for M&M's to be used to lure the film's alien from the woods, but Mars Inc. refused to participate.

Universal Studios then turned to Hershey, which had recently launched Reese's Pieces, a coated peanut butter candy that was languishing in sales. Jack Dowd, head of market research at Hershey, agreed to sponsor the movie with $1 million worth of promotions; in turn, Hershey was granted the right to use the E.T. character in ads for its product extension. The product placement was a wild success for Hershey; the film broke box office records, and sales of the candy tripled within two weeks of the film's release. By the start of the 21st century, it remained the company's most successful marketing campaign, and one of the most successful in advertising history.

Acquisitions

In 1988, Hershey acquired Peter Paul/Cadbury, the U.S. subsidiary of Cadbury Schweppes, for $300 million. The deal brought to Hershey several established candy brands, including Peter Paul Mounds, Almond Joy and York Peppermint Patty.

Under the leadership of CEO Richard Zimmerman, Hershey also focused on product extensions, including the successful Hershey's Kisses With Almonds (1990) and the white chocolate/milk chocolate kisses called Hugs (1993), which became a $100 million brand by 1995.

While expanding through overseas acquisitions in the 1990s, Hershey in 1996 bought Leaf North America's confectionary operations, including Good & Plenty, Heath, Jolly Rancher, Milk Duds, PayDay and Whoppers.

By 2001, Hershey Foods Corp. was the No. 78 advertiser in the U.S., spending $365.5 million, up from $337.1 million in 2000. Its brands' accounts were divided between DDB and Ogilvy. In March 2001, former Kraft Foods and Nabisco executive Rick Lenny joined Hershey as president-CEO.

In 2002, the company's board briefly put Hershey up for sale before taking it off the market in September amid public outcry. In 2003, Hershey began to push new product initiatives among its core brands that it backed with increased marketing investment. Among the efforts were a variety of new flavors for Hershey's Kisses, a sugar-free line, a chip-like version of its top candy bars called Swoops and a new Hershey's S'mores bar. In 2004, catering to the low-carb trend, Hershey launched a line of 1g Sugar Carb versions of its candy as well as a 50% reduced carb lineup.

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