Markets & Finance

Hershey's Global Gambit


The chocolate giant is pressing ahead with joint ventures in India and South Korea as it announces layoffs at a U.S. plant

As Hershey (HSY) works on letting go of 250 U.S. employees from the 1,500 who are destined for pink slips, the chocolate giant also announced plans on Apr. 3 to bring products like Hershey's Syrup to India.

The Pennsylvania company, which owns various other brands ranging from Reese's to Twizzlers, has had disappointing sales during recent months after years of reduced promotional spending. Meanwhile Hershey's faces tough competition from rivals such as the Swiss food behemoth Nestle. One problem Hershey faces is that so far, Americans are the main buyers of its products.

In an effort to push ahead and grow its business globally, Hershey entered an agreement with the Indian consumer goods and confectioner Godrej Beverages and Foods, Ltd. to form a joint venture that generates around $70 million in annual net sales. Hershey gets a 51% ownership stake in the deal, which is intended to combine Godrej's manufacturing and distribution network with Hershey's branded products. They'll start with Hershey's Syrup and introduce other sweets over time.

"India is an important growth market with tremendous long-term potential for our company," said CEO Richard H. Lenny in a statement Apr. 3.

Investors bid up Hershey's stock by 0.3% to $55.70 per share on the New York Stock Exchange Apr. 3.

Kirk Saville, a spokesman for Hershey's, said that the Indian joint venture doesn't have any impact on Hershey jobs in the U.S.

Not that Hershey's U.S. workers don't have other worries. On Feb. 15, the company announced a three-year restructuring plan that involves 1,500 layoffs; as part of that plan, the company said Apr. 3 that it will cut 250 people who work at its Reese factory in Pennsylvania. The company is planning to outsource its production as it builds a facility in Monterrey, Mexico. Hershey thinks that program will cost between $525 million to $575 million to implement over the next three years, but then the company also hopes to save around $170 million to $190 million annually by 2010.

"The long-term benefits will include a significant, sustainable increase in investment behind Hershey's iconic brands and new product innovation, as well as targeted, profitable international expansion," COO David J. West said in a statement Feb. 15.

The company has taken other steps to grow internationally as well. On Jan. 28, for example, Hershey's announced a manufacturing joint venture in China with the Korean confectionery and ice cream maker Lotte Confectionery Co.

With unspectacular U.S. sales growth and more stateside layoffs on the horizon, Hershey is pinning its hopes that people in Asia will develop a liking for what a long-ago ad campaign called "The Great American Chocolate Bar".


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