EVOLUTION AT HERSHEY

JOHN KAROLEFSKI

HERSHEY, Pa. -- In some ways, business has not changed over the years at Hershey Foods Corp. Two products, Hershey's Kisses wrapped in silver foil and the classic milk chocolate bar, were there in the early days. They are still here today. The company even operates in the same small town. But as Hershey celebrates its 100th anniversary this year, the business is very different.

Through innovation and acquisition,

Hershey has evolved into the country's No. 1 confectioner. In addition, its empire now consists of four divisions: Chocolate U.S.A., Grocery, Pasta and International. A new management team took control Jan. 1 following the retirement of Richard Zimmerman as chairman and chief executive officer after 35 years of service. Kenneth Wolfe succeeded him. Joseph Viviano became president and chief operating officer. In the day-to-day operations, category management and Efficient Consumer Response strategies are being scrutinized and will gradually be incorporated into Hershey. The details involved in a business serving a dozen classes of trade continue to mount. Viviano knows how too many details left undone can amount to one big headache. He learned this lesson during stints as head of the pasta and chocolate businesses over the last two decades. As he looks to Hershey's second century, Viviano has a healthy appreciation of the past on which he hopes to help build Hershey's future. "When you look at other companies that have survived -- and I use that word specifically -- survived 100 years, most of them are selling something different. Totally another business. Generally not related to their point of origin. I think the unique thing about this company is that we've still got the things that got us here. We are still doing what we do best. "It's not only being 100 years old; it's being in the same business with the same values and principles," he says in an interview with Brand Marketing. The keys to the success of Hershey over the years, he says, have been its diverse and innovative products, the implementation of details and the commitment of its people. "We have a unique series of products with some rather strong and unique brands," he says. "I think a lot of people would be disappointed if I didn't mention product quality. We, in fact, pride ourselves on product quality, as I'm sure a number of companies do. "But what I think really is contemporary is value. We are an often-purchased product, and 5 cents is a big difference in our price. We strive to keep our costs constant," he says. Viviano gives the example of raising the price of a bag of Hershey's Kisses in 1992. The previous price increase was in 1984. Indeed, Hershey has raised the price only eight times in the last century. "We take our value extremely seriously," he says. Product innovation has been an important part of Hershey in the last few years. Chocolate U.S.A. has launched Hershey's Cookies 'n' Mint chocolate bar, Hugs chocolates and Amazing Fruit gummy bears. The grocery division introduced semisweet chocolate raspberry chips, Skor toffee bits and Hershey's holiday bits, a candy-coated, semisweet chocolate. The pasta division's regional marketing has helped sales of such brands as Ronzoni, San Giorgio and Skinner. "We have made new products a strategic thrust for our business," says Viviano. "We have concentrated on it. We have improved execution and we've been successful, which has a tendency of breeding self-confidence in the system." That's essential when operating in a very competitive marketplace, according to Viviano. There are three types of competition to deal with: from other brand marketers, between several classes of trade, and to win over consumers. "It's incredibly competitive because what you're talking about is a snacking occurrence. So it's not only a confectionery or chocolate. It's nonchocolate. It could be gum. It could be a mint, and it could be a snack, whether it's a salted snack or a sweet cookie snack. "Also, the competition is not just in one class of trade. We've been selling in the multiple classes of trade for at least 50 years, maybe 100. We have been doing business with nine, 10, 11 classes of trade for a long, long time," he says. Operating in this environment means juggling several details at once. Consequently, Viviano lists "implementation" as another key to success for Hershey. He defines this as "simply getting the product from the source into the retailer's hand in a high-quality fashion at the right time." Implementation is important "because of our multiple classes of trade, and because of our seasonal business. Anybody who's involved in seasonal business knows it's really difficult," he says. "Call it seasonal execution if you want to, but I call it implementation. We take that very seriously around here, and we do it very well. A lot of nitty gritty -- the small, everyday details."

Viviano said the ability to roll out new products today is as complex as he's ever seen, and implementation is key.

"Today, the execution of the little details, quite honestly, is what separates success from failure," he says. "Today is faster. Today is more complex. Our customers are expecting and demanding more from us. The consumer is demanding more from us," he says.

"We do the little things extremely well around this place," he says, crediting his people with executing these details.

"When you want to talk about the million decisions, I think you've got to talk about the people who are involved in making those decisions," he says. "We've got a rule around here: If you're going to live with a decision, you've got to be able to make them first. I know it sounds cliched, but we are very much into our people." Hershey's people are now making the transition to doing business with category management and ECR practices. As a category leader, Viviano says, Hershey understands the demands and relationships of the retailer and the consumer. "There is a responsibility to grow the category and add excitement to the category. You do that by creating new products, and by keeping a balance with implementation and the value in the brands. We are big believers in our brands and keeping our brands viable and re-energized," he says. An important piece is relating to and working with nearly a dozen classes of trade, he points out. Partnerships are essential. "We start with a very broad product line. We cover the market segmentation of the U.S. consumers. We try very hard to have various offerings, pack types, sizes, so that we can, in fact, appeal to those various classes of trade. We have a level playing field and we're very pleased that we have the same price to all of our customers," he says. Hershey looks at the link between retailer and consumer in terms of category management. "The consumer now has started to shop categories," Viviano says. "They don't shop stockkeeping units; they shop categories. What we've tried to do is develop a strategy for the category. In laymen's terms, it's managing the mix. It's more of the implementation. It's, as I call it, a 360-degree view of retail and the consumer, not a 90-degree. Again, it's how consumers shop."

Understanding the flow of products from the supplier to the consumer, Viviano says, is what ECR is all about. Hershey is taking steps to be part of this change in the way of doing business. "People have to understand that ECR really means the whole chain. Ninety-five percent of what I read talks about from the manufacturer to the wholesaler/retailer. It's more than that. It's the entire food chain. And what we're looking at is from source to the consumer, and all the pieces in between," he says. This presents opportunities for savings, according to Viviano. "I'm talking about from the source to the consumer. The system has enormous opportunities. I think what you're going to find is companies that are now talking about their customers are going to start working with their suppliers. And the suppliers with their suppliers. I see some real benefits there. I think if there's something that I see occurring in the next three to five years, it's the benefits that might be realized from this," he says. He lists the main benefits as cost reduction and allowing a relationship to eliminate the complexities. That means "more efficient operations in literally everything you do," he says. "The obvious: better utilization of your assets, primarily warehousing and inventory."

Viviano acknowledges that, like most packaged goods companies, Hershey is looking into various ECR-type strategies and techniques. "But it's a lot harder to do than talk about," he says. "We're there, but we know we've got a lot of work to do."