Industry Analysis
The chocolate and cocoa industry, in which Hershey Company operates in, can be analyzed using Porter’s five forces (Assessing the industry using Porter's five forces, 2014).
Threat of new entrants
The threat of new entrants into the industry is low. This is because of difference in products, the existence of switching costs, the existence of economies of scale, the need for a large capital requirement, lack of access to distribution channels, and the available regulations for food manufacturers.
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Bargaining power of buyers
Two factors increase the bargaining power of buyers, namely a large number of buyers and buyer’s low profits from the product ( Dobbs, 2012) . In the chocolate and cocoa industry, the bargaining power of buyers is moderate to low. This is attributed to the presence of switching costs, the industry's differentiated products, as well as the lack of threat of backward integration.
Bargaining power of suppliers
In the chocolate and cocoa industry, the bargaining power of suppliers is moderate to high. This is because there are no substitute raw materials in the industry, and therefore, suppliers are important in this business.
Threat of substitute products and services
The chocolate and cocoa industry face a high threat of substitute products and services. In light of this, the industry must compete with non-chocolate snacks, alternative cooking flavors like lemon and vanilla, as well as the retail arena. Moreover, chocolates are commonly used as gifts during occasions, and therefore, the industry faces stiff competition from alternate gifts like fruits, flowers, and jewelry.
Intensity of rivalry among competitors
The intensity of rivalry among competitors in the chocolate and cocoa industry is high. The high intensity of rivalry is attributed to the industry's high exit barrier, high storage and fixed costs, availability of numerous and equally balanced competitors, and high-quality customer service in the industry ( Dobbs, 2012) .
References
Assessing the industry using Porter's five forces. (2014). Veterinary Record , 174 (Suppl 1), 3.2-3. http://dx.doi.org/10.1136/vr.g339.
Dobbs, M. E. (2012). Porter's five forces in practice: templates for firm and case analysis. Competition Forum , (1). 22.
