Hershey to cut 15 percent of workforce. Is China to blame?

Sales in North America rose last year, but steep declines in its international market has prompted the Pennsylvania-based chocolatier to scale back its global work force.

First Look

Citing a decline in international sales, The Hershey Company on Tuesday unveiled a business strategy that includes plans to cut an estimated 15 percent of its global hourly workforce, primarily outside the United States. 

The new initiative, called “Margin for Growth,” aims to improve the company’s overall operating profit within the next few years by streamlining its supply chain and reducing administrative expenses, the 123-year-old chocolate company said. The company, which has eight factories outside the United States, employs approximately 16,300 full-time and 1,680 part-time workers worldwide. 

“Our objective is to ensure that we always have the right level of innovation, marketing plans and consumer and customer expertise to drive net sales growth, especially in our North America confectionery and snacks business,” Hershey’s President and chief executive officer Michele Buck said in a statement on Tuesday. “In addition, we're working to return our international businesses to profitability as soon as possible.”

While its North America sales, which account for about 85 percent of total sales, rose 3.8 percent in the fourth quarter ended on Dec. 31, the Pennsylvania-based company continued to see its global sales struggle, especially in China. Citing challenges in the microeconomic conditions in the country, Hershey said its China sales fell 16.6 percent in the quarter, compared to a 0.5-percent decline in overall international sales. 

Hoping to broaden its footprint in China, Hershey acquired a local chocolatier Shanghai Golden Monkey in 2014. Yet, the company ended up taking a huge write-down for the acquisition as its excluding sales of Golden Monkey products slid 47 percent in the first quarter of 2015. The company, at that time, attributed its dismal performance to a slowdown in China’s economy. 

Yet, analysts pointed to shifting consumer shopping habits in China and Hershey’s failure to play to Chinese consumers’ traditional tastes in its products as why its China sales continued to decrease for several quarters. 

"You can't sell the same product that you do in North America or Europe,” Berenberg analyst Fintan Ryan told Reuters. “Chinese consumers are getting sophisticated. They want their own tastes, own variance ... which you don't see here [in the United States].”

The chocolate and candy maker also tried to reduce its loss by simplifying its operations, cutting 300 jobs in 2015. 

"Removing cost and complexity from our business will make us more flexible to quickly react to changing consumer and competitive marketplace trends," Hershey’s former President and CEO John Bilbrey said in a written statement in June 2015. 

The new program is estimated to cost the company $375 million to $425 million, before taxes. While anticipating a slow start this year in its Chinese market, Hershey maintains an upbeat outlook for the full year, expecting the net sales to increase 2 to 3 percent in 2017 – approximately $7.59 billion to $7.67 billion. 

“We anticipate these investments and related consumer marketing plans will accelerate our North America sales growth versus 2016 performance, which should enable us to outpace the broader food group in this challenging operating environment,” Ms. Buck said in a statement on Feb. 3. “Our brands continue to respond positively to marketplace investments and we plan to continue with this approach.”

This report includes material from the Associated Press and Reuters.