The Hershey Company, one of America’s oldest and most profitable food companies, may finally experience private-label competition. Founded in 1894, the Pennsylvania-based food processor has experienced over a century of nearly unrivaled success. Today, Hershey owns about 43% of the American chocolate market, with second place Mars commanding about 25%. This dominance enables Hershey to post nearly unrivaled margins.
Part of the success is due to great products and business execution; the other part includes an industry structure that makes it largely immune from private label competition.
Hershey faces very little private label competition
Hershey doesn’t face margin pressure from low-cost alternatives. A big component of this is distribution. Unlike other private label categories, candy distribution requires refrigerated trucks and is fairly labor-intensive to stock. It’s why Walmart uses McClane, rather than ordering directly. That underlying reality is why there aren’t many investors clamoring to produce lower-margin private-label alternatives.
Here’s CEO Michele Buck talking about it in its Q1 earnings call. Buck is answering a question about how the company monitors consumers trading down to cheaper alternatives.