Hershey

Hershey's 2024-2025 crisis exposes the fragility of vertical integration when input prices spike beyond control. The company generated $11.2 billion in 2024 revenue (up 0.3%) while maintaining 36% U.S. chocolate market share, but cocoa prices surged from $2,500 to over $11,000 per ton in 2024—a 340% increase that vertical integration can't absorb. For fiscal 2025, Hershey projects earnings per share down in the mid-30% range as commodity costs overwhelm pricing power. This is the biological cost of specialization: organisms optimized for stable environments face extinction when conditions shift beyond their tolerance range.

The company's vertical integration strategy—owning cocoa sourcing through retail distribution—provided competitive advantage for decades by controlling costs and quality. But when a single input (cocoa) experiences shock inflation, integration becomes a liability rather than asset. Hershey can't substitute inputs or shift production the way generalists can. CEO Michele Buck's $900 million cost reduction program (2023-2026) represents strategic catabolism, but even cutting $900 million can't offset $2-3 billion in commodity cost increases. The biological lesson: vertical integration creates efficiency in stable environments but reduces flexibility when environments shift.

Hershey's trust ownership structure (Milton Hershey School Trust controls 80% voting power) demonstrates how governance creates patient capital that accepts short-term pain for long-term stability. Public companies facing 35% EPS declines would face activist pressure, forced sales, or management changes. Hershey can maintain advertising investment, protect brand health, and weather the cocoa crisis because their ownership structure is optimized for decades, not quarters. This is the baobab strategy: accept years of slow growth or decline if it preserves the core organism. Buck's planned 2026 retirement timing signals confidence that cocoa prices will normalize and earnings will recover—a bet only patient capital can make. The question is whether cocoa inflation is temporary shock or permanent phase transition in commodity markets.