After two decades at the helm, Michele Buck will step down as CEO of Hershey, transitioning the company beyond its traditional focus on chocolate and candy.
Nevertheless, Buck’s departure comes at a time when the United States-based company grapples with significant strategic challenges.
On Friday (10 January), Hershey disclosed that Buck, a seasoned company veteran, had notified the board of her intention to leave in June next year. Plans for her exit signal a pivotal moment for the company.
Victor Crawford, the group’s lead independent director, remarked that Buck had “made innumerable marks on Hershey,” emphasizing her role as “the key architect of the company’s expansion into broader snacking categories.”
Promoted from COO to chief executive in March 2017, Buck swiftly initiated a move to acquire US savory-snacks maker Amplify Snack Brands for $1.6 billion. This acquisition brought the SkinnyPop popcorn brand under Hershey’s umbrella. Even following the divestiture of other assets from that acquisition, Hershey’s appetite for savory snacks remained robust.
A year subsequent, Hershey expanded by acquiring B&G Foods’ Pirate Brands for $420 million, adding the Pirate’s Booty brand. In 2021, Hershey invested a combined $1.2 billion for two US pretzel suppliers: Dot’s Homestyle Pretzels and Pretzels Inc. Additionally, the company announced a smaller deal involving the acquisition of two popcorn plants from Weaver Popcorn Manufacturing.
Notably, Hershey maintained its sweet tooth during Buck’s tenure. The company made headlines in 2021 by acquiring US business Lily’s Sweets, reflecting its commitment to enhancing its offerings in lower-sugar treats.
Apart from mergers and acquisitions, Buck focused on boosting performance and profitability across Hershey’s international operations, a segment that historically posed challenges for the company.
Analysts have highlighted the investments the company made in innovation and data analytics to bolster its growth trajectory.
“Buck created significant value during her tenure by expanding the portfolio and upgrading internal capabilities,” remarked TD Cowen analyst Robert Moskow on Friday after the announcement of Buck’s impending departure.
However, the next CEO will face formidable challenges, including declining chocolate sales in the US, price-sensitive consumers seeking value, potential political scrutiny on unhealthy foods under the forthcoming second Trump administration, and ongoing fluctuations in cocoa prices.
In November, Hershey revised its forecasts for net sales and earnings per share in 2024, citing “a challenging consumer environment.”
Hershey, which plans to report its full-year results next month, now anticipates flat net sales this year, a downgrade from earlier projections of around 2% growth. The forecasted reported EPS also indicates a potential decline of up to 9%.
During a November discussion with analysts, Buck noted that Hershey encountered intensified competition both domestically and internationally. Domestically, the surge in competition stemmed from smaller players and private labels, while overseas, Hershey observed that global rivals were adjusting pricing significantly.
In North America, where more than $10 billion of Hershey’s total $11.2 billion in net sales for 2023 is generated, the new CEO’s focus will remain paramount. Buck emphasized the need to offer the right product mix and total value proposition.
“Where we are really focused is how do we really have the right offerings, the total value proposition,” Buck stated in November. The company faces fierce competition from smaller players showcasing “competitive velocities” (sales by distribution point).
Market observers express concern that companies like Hershey may encounter a fundamental shift in domestic consumer behavior, with more shoppers prioritizing value. Following significant cost inflation in 2022 and 2023, major consumer packaged goods (CPG) companies managed to implement price increases. However, growing volumes post-price hikes now represent a significant hurdle.
“We believe many food and beverage brands will need to adjust their pricing and margin structures downward to enhance their value perception among consumers,” Moskow stated.
A week from now, President-elect Donald Trump will take office for a second term. With industry critic Robert F. Kennedy stepping in as US Health Secretary, considerable apprehension surrounds the potential for greater scrutiny on the processed food sector, particularly regarding the nature of their product portfolios. Several states have already signaled they are prepared to act.
The new Hershey CEO will also need to navigate additional health-related challenges, including the rise of GLP-1 medications, which are under close observation for their potential impact on various product sales. A study by Cornell University and consumer insights group Numerator found that users of GLP-1 drugs in the US reduced their grocery spending by an average of 5.5% within six months of beginning treatment, with varying impacts by category.
Furthermore, the chocolate industry faces heightened scrutiny regarding cocoa prices. Cocoa futures contracts reached new highs in December, presenting challenges for chocolate manufacturers coping with rising costs.
Adverse weather conditions in key cocoa-growing areas of West Africa have exacerbated supply shortages, extending a three-year stockpile deficit. Cocoa prices had already been set on an upward trajectory for 2024 due to poor harvests.
During November’s forecast adjustments, Buck noted that Hershey’s year-to-date performance was impacted not only by “a challenging consumer environment” but also by “historically high cocoa prices.”
At that time, CFO Steve Voskuil indicated that while Hershey was “well hedged for 2024,” they anticipated a “significant step-up” in costs associated with cocoa beans and ingredients such as cocoa butter and cocoa liquor.
Recently, Bloomberg reported that Hershey sought approval from the US derivatives regulator, the Commodity Futures Trading Commission, to purchase more than 90,000 metric tons of cocoa through the New York exchange.
“Hershey’s quarterly share in the US candy, mint, and gum sectors has consistently declined since 2022. Combined with limited traction from category innovation, likely structurally elevated input prices, and increased government focus on processed foods, Hershey could encounter a turbulent journey in the forthcoming years,” remarked John Baumgartner, an analyst with Mizuho Securities. “We aren’t particularly surprised by Ms. Buck’s timing.”
Notably, Baumgartner pointed out that there is no “clear, internal successor” to Buck.
Recent developments saw Michael Del Pozzo, president of Hershey’s US confectionery unit, leave the company, prompting Buck to temporarily assume direct control of the division.
December also saw Hershey becoming a topic of takeover speculation. Bloomberg reported that Mondelez International had made a “preliminary approach” for Hershey, renewing its interest in the US rival after previously declining in mid-2016.
While both Mondelez and Hershey remained tight-lipped regarding the matter, the report led to a rise in Hershey’s stock prices (at the expense of Mondelez) and sparked discussions among Wall Street analysts regarding potential future movements.
Alongside announcing a new share buyback initiative, Mondelez articulated its acquisition strategy, focusing on “bolt-on assets” akin to its recent purchases of Greece’s Chipita in 2021 and Mexico’s Ricolino a year later.
When examining the potential rationale for Mondelez’s renewed interest in Hershey, analysts have noted various factors, including ambitions to expand within the US chocolate market and broader sugar confectionery segments, as well as ongoing concerns regarding cocoa price volatility and Mars’ acquisition of Kellanova earlier this year.
However, the dynamics surrounding Hershey’s ownership and its licensing agreements with Nestlé brands may present potential complications for any prospective Mondelez/Hershey deal.
While it is uncertain whether Mondelez will revisit the acquisition table, the possibility that Hershey remains an attractive target only amplifies the uncertainty surrounding the company’s future direction as it seeks a new CEO.
