The Hershey Company is a leading snack food company and the largest North American manufacturer of quality chocolate and nonchocolate confectionery products, as well as chocolate-related grocery products. Is The Hershey Company a good investment and how does it fit Mungers’ notions?

Simplicity

There is simplicity in The Hershey Company business. Everyone can understand how this company works. They buy quality cocoa beans, use quality milk, and have an old and proven recipe. It is simple. They made the same chocolate many many years ago. Even the machines are the same. Their distribution system is a well working vehicle of the company. All of this means it is a simple business. There is no high tech research needed here. The best investments are companies that have trademarks. Hershey’s has a strong trademark; it is a simple and understandable business. Everybody likes chocolate! If one knows a good formula, all he has to do is just put it on the shelf of a store and wait.

Milton S. Hershey, who is the founder of The Hershey Company, spent several years working day and night to produce exactly the right flavor. The other important thing is that Hershey’s uses the same formula today.

Maths

Let’s work with numeric fluency to see our target for the next 30 years. It is clear that Hershey’s numbers can show us the possibilities. The last six years tell us that the company’s sales grew 4.8%. To understand the attractiveness of the stock, one has to know that the yearly dividends where 11.5%. Dividends reached $4,835 billion in 2005. If the increased dividends are continuous, one can assume a reasonable target for 2036 would be $18.83 billion.

Think In Reverse

If we think in reverse, we can realize that The Hershey Company manufactured their chocolates with the same machine 30 years ago. This fact helps us to understand that they don’t have to invest in new technology to keep up their production. They can use their old technology because their magic is in the Hershey’s flavor and not in its extravagant equipment. Added to that fact, if we are thinking about investing in Hershey’s, we don’t have to be afraid of a war or a recession because the past has shown that during the world war the company produced the same amount of chocolate and sold it for a higher price. During those years in war time people who lived in the United States saw the price of sugar go up to the sky. Hershey’s just raised the prices of their chocolate and people were still buying the ultimate joyful resource.

Force Of The So Called "Lollapalooza Effect"

The next thing to consider is how to solve the problem of growth during the next 30 years. We have to like the possibilities of The Hershey Company. I think after looking at the shelves of the stores in Europe where I live this brand has huge growth potential. On the other hand, we need to notice the possibility of a “lollapalooza” effect in the sales of Hershey’s chocolates. To see this possibility we have to go back to the Hershey trademark. We need to understand the essence of the business in elementary academic terms. Munger knows from his psychology courses that Hershey’s is doing business by producing chocolate and maintaining conditioned reflexes through operant stimulating and conditioning. The packaging of the chocolate and the name Hershey’s is the stimulator. The buying and eating of the chocolate is the desired response.

The Hershey’s product has to have the elements that can effect this conditioning. These elements are the quality of the cocoa beans, the sugar and the milk. Hershey’s cares about all parts of the product. For example, they built their own milk-processing plant. The other operant conditioning category is the shape of the chocolate and its texture. The Hershey’s packaging could condition most buyers. Munger would agree that to get a ‘lollapalooza’ result we would need to compete with the best from every category. As long as Hershey’s can continue to create a permanent obsession for its product, the company’s growth will continue.

Conclusion

Considering these factors, we can get a better understanding of the many important factors of The Hershey Company. The conclusion is that it is a good investment (if the price is reasonable). This company manufactures and sells ‘pure joy’ in an eatable format. The product is very good and the company can deliver it to many people.

The constant use of its advertising vehicle can stimulate the potential buyer perfectly. Of course, one has to see the numbers himself and I encourage him to do so. One will find that Hershey’s can easily pay back its debt and that the company pays a fantastic dividend. It is growing year after year and doesn’t have to spend money on new technology or upgrading its current machines. It has used the same machines for twenty years and will use the same ones in the future.

For the next 30 years the product can captivate new markets and Hershey’s has a huge potential to become a legendary firm which can present the purchaser with its delectations in the future.