UPDATE: Hershey outlines how the company is finding ways to comfort the world during the coronavirus pandemic. For more information, click here.
Hershey said it’s expecting to face a number of challenges as a result of the current COVID-19 global pandemic, including a reduced demand for products, reduced availability of its products, and issues with the supply chain, among other things.
That’s according to a Securities Exchange Commision report the company filed publicly on March 25. Hershey said these concerns express a worst-case scenario and not necessarily issues that are currently happening. (UPDATE: The company also recently released a list of ways it is working to successfully navigate the pandemic, which Candy Industry wrote about here: "Hershey: Chocolate is the top quarantine comfort snack.")
"Risk factors in an 8-K or a 10-K [form] give companies an opportunity to let investors know what the impact could be if certain things go wrong or otherwise do not work out as planned," Hershey said. "They do not reflect a company’s actual expectation that the scenarios outlined in the risk factors will occur. Rather, risk factors provide insight that a company has thought through alternative or unplanned outcomes and help investors understand the potential impact of those scenarios."
In the form they said there could be a variety of potential issues.
“Our business and financial results may be negatively impacted by the failure to successfully manage a disruption in consumer and trade patterns, as well as operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics or similar widespread public health concerns,” the company said.
Specifically, in the SEC report, the company said it is concerned about:
- Changes in demand: "Significant reductions or volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our products, or pantry-loading activity; if prolonged, such impacts may further increase the difficulty of planning for operations and may negatively impact our results."
- Changes in availability: Significant reductions in the availability of one or more of our products as a result of retailers, common carriers or other shippers modifying restocking, fulfillment and shipping practices;
- Meeting customer needs and cost targets: "The inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing operations or supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or finished product components, transportation resources, workforce availability, or other manufacturing and distribution capability."
- Managing promotion and advertising: "An inability to effectively modify our trade promotion and advertising activities to reflect changing consumer viewing and shopping habits due to the cancellation or postponement of major sporting and entertainment events, reduced in-store visits, travel restrictions and a shift in customer advertising priorities, among other things."
- Issues with third parties: "The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, distributors, contractors, commercial banks and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may negatively impact our operations."
- Political changes: "Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could negatively impact our results."
“The Company's efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any disease outbreak, as well as third-party actions taken to contain its spread and mitigate public health effects,” Hershey said.
In an announcement on the Hershey Corporate website, the company also said that its manufacturing facilities and distribution centers are modifying their production and staffing schedules to pace with customer and retailer demand.
“Each facility will be determining work schedules and adjusting work teams to maximize social distancing while helping to maintain food security and supply,” the company said.
All of Hershey’s corporate and commercial U.S.-based employees are working virtually, until April 15 or until further notice, and the company has restricted all non-essential employee business travel.
When it comes to sales, Hershey said, they continue to work closely with their retail partners.
“We have implemented flex work schedules to allow our teams the ability to implement social distancing while continuing to aid retail stores to remain open with stocked shelves,” Hershey said.
Hershey's Chocolate World locations closed
Hershey also temporarily closed Hershey’s Chocolate World in Hershey, Penn., Times Square in New York, Las Vegas and Niagara Falls.
“These closures allow us to take extra precaution in our experiential facilities for our employees and guests in line with local public health guidance,” the company said.
However, the locations in Singapore and Hong Kong remain open until further notice, which Hershey said is in line with the situation in those local communities.
In a letter posted on the Hershey corporate site, CEO Michele Buck said that food companies play a critical role in the crisis and that Hershey will get through this.
“The Hershey Company has more than 125 years of experience managing through tough, fast-moving and unprecedented moments in time – two World Wars, economic depressions and recessions, and other momentous events. Each time, we planned. We took action. We learned and adapted. And we kept our focus on making the best decisions for our employees, our partners, our communities, and the consumers that we serve,” Buck wrote in her letter. “This moment in time is no different. It calls us all to be our best— working together, with compassion and understanding, to do what’s best for our global society. We appreciate your partnership and patience and believe our shared resilience will only make us stronger in the days and years ahead.”