The Hershey Company (HSY) is North America’s largest candy manufacturer and also one its oldest, with a history that spans over a century. Despite the candy maker’s global span, it all began in Lancaster County, Pennsylvania. Milton Hershey started his confectionary career making caramel candies, as one day he decided to coat his caramels with chocolate. The decision was a hit and the new enterprise was named the Hershey Chocolate Company. Soon after this, Hershey began producing chocolate in all shapes and varieties.

Though Milton Hershey was gaining ground with his growing Chocolate business, he believed true success would lie in milk chocolate. In 1899, after countless years of experiments he came up with a quality milk chocolate recipe that was not only great tasting, but cheap to manufacture, making it available to the masses. In the 1920’s the milk chocolate bars expanded into other well-known products including Kisses (1907), Mr. Goodbar (1925), and Krakel Bar (1938). Its geographical location would factor into the company’s success. Lancaster is home to some of the best dairy farms, making it easy to access milk, a main ingredient in the signature bars. Hershey, PA is also between the major metropolises of New York and Philadelphia, importing cities for the world’s cocoa.

In 1927, the candy company went public and was incorporated as the Hershey Chocolate Corporation. Milton Hershey passed away in 1945, but the company soldiered on. The 1960s began a period of expansion and diversification for the corporation. Hershey forayed into pasta manufacturing with the acquisition of San Giorgio and Delmonico Foods. Hershey also expanded its business with the acquisitions of three other companies.

H.B. Reese, a former Hershey employee, started his own confectionary business out of his home in the 1920’s. Also located in Hershey, PA, Reese produced chocolate covered peanut butter cups called Reese’s Penny Cups. In 1963, seven years after Reese’s death, The Hershey Co. acquired its peanut cup-producing neighbor.  In 1977, Hershey took over Y&S candies, known for their popular licorice treats, Twizzlers. The company entered into the gum and mint category with the purchase of Nabisco’s breath freshener mints and gum business. Some of the products acquired in this transition included Ice Breakers, Bubble Yum, and Fruite Stripe gums.

The Hershey Company is still headquartered in Hershey, PA but now has a reach that extends far beyond Lancaster County. The company has operations in Japan, Mexico, and Brazil, as well as a joint venture in India with Godrej Industries Ltd. Hershey also operates Hershey’s Time Square, a 16-story interactive store featuring Hershey gifts, souvenirs, and all of their candy products.

Today, the company sells through a variety of avenues, with mass merchandisers, supermarkets, and convenience stores making up a majority of sales. In 2010, sales to McLane Company made up 22% of total revenues. McLane Company is the primary distributor of Hershey’s to Wal-Mart Stores Inc. (WMT - Free Wal-Mart Stock Report). In most markets around the world, Hershey’s competitors consist of Nestlé, Mars, and Kraft Cadbury.

Hershey has been doing quite well recently despite the unfavorable economic climate. Raw materials prices, most notably cocoa, have soared as of late. The company recently raised prices in an attempt to pass along these higher costs to consumers. Other food processors including Tootsie Roll (TR) and Campbell Soups (CPB) also followed suit.

Much of the company’s success does rely on the cost of input goods. In the past Hershey has had to overcome high price increases not only in cocoa, but in milk and sugar as well. These costs will continue to be a driving force in the company’s profitability. Hershey and confectionaries alike, run a very cyclical business, with the third quarter ushering in the highest revenue and earnings results ever. In the years to come, we would expect Hershey and other candy companies to aggressively try and take hold of market share abroad.

At the time of this article’s writing the author did not have positions in any of the companies mentioned.