Dive Brief:
- Hershey is making its cocoa supply more resilient by diversifying sourcing and building stronger supplier relationships, according to Chief Supply Chain Officer Jason Reiman.
- That effort is being supported by growing cocoa production beyond market leaders the Ivory Coast and Ghana to other countries of origin, such as Ecuador and Brazil, giving Hershey more ways to keep its supply chain robust, Reiman said during Hershey’s Investor Day last month.
- "Once we have a resilient supply network, we can turn it to how we think about an agile network," Reiman said, noting the company is also evaluating cocoa alternatives. "And when I think about agility, I think about making sure that we have the right capacity for growth."
Dive Insight:
Hershey is sharpening its focus on sourcing resilience following soaring cocoa prices in recent years, which have put pressure on earnings at both Hershey and rival Mondelēz International.
To keep cocoa costs in check, Hershey has locked in prices through hedging contracts while relying on a disciplined commodities governance framework to avoid outsized risk, Reiman told investors.
"We have a sophisticated tool set for hedging," Reiman said, noting Hershey combines derivatives, market intelligence and formal oversight of its commodity positions to reduce volatility and maintain prices that are competitive versus its competitors.
Beyond these financial tools, Hershey utilizes social initiatives to help secure long-term, affordable cocoa supplies, Reiman said. For example, the company's Income Accelerator Program, used with farmers in the Ivory Coast, promotes good agricultural practices, higher productivity, and improved family income.
Additional levers for securing supply include research and development on cacao tree resilience to disease and drought, Reiman said.
Hershey is also investing in “chocolate resiliency” by modernizing production, Reiman said, noting that the company opened its first "fully digitally integrated facility" last year.
The 250,000-square-foot chocolate processing facility in Hershey, Pennsylvania, is part of a multi-year, $1 billion investment in the company's North American facilities. The investment includes adding 13 production lines and upgrading 11 existing lines.
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