Hershey Foods (NYSE HSY) is North America's largest chocolate producer with 42.5% of the US chocolate market.^[1] Hershey sells products in 50 countries under 60 brand names including, Hershey's, Reese's, and Kisses.^[2] In 2010, the company's net revenues were $5.67 billion with net income of $510 million.^[3] Additionally, Hershey maintains the right to manufacture and sell competitors' products, such as Kit-Kat bars, through licensing agreements with foreign Nestle (NSRGY) and the former Cadbury Schweppes (now part of Kraft Foods (KFT)).^[4] Although Hershey must pay for these rights, the company insulates itself from foreign competition through the agreements. With over 90% of its revenues coming from the United States, Hershey is one of the most geographically concentrated major food and beverage companies.^[2] However, the company has taken steps to expand internationally, including the acquisitions of Godrej Beverages and Foods in India and Van Houten in Singapore, as well as an agreement with Lotte Confectionery Co. to manufacture and sell chocolate products in China.^[5][6]

Rising costs are a particularly difficult challenge for Hershey. The company is vulnerable to market prices of key ingredients like cocoa, milk, sugar and peanuts, all of which saw price increases in 2009.^[7] In order to combat rising costs, the company has both lowered product weight and raised domestic wholesale prices. With the recent turmoil in the Ivory Coast, which produces 40% of the world's raw cocoa^[8], prices for this vital chocolate ingredient have risen more than 15% since November 2010. The long-term effect of the conflict on chocolate prices remains to be seen but it closely follows crop plagues in both Ghana and Indonesia which threatened the cocoa supply in mid-2010.^[9]

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