Dive Brief:
- Hershey plans to cut 15% of its global workforce — about 2,700 jobs — over the next two years to boost profitability, the company announced in a press release.
- The cuts are part of the candy maker's "Margin for Growth" program, which plans to boost profit margins by trimming administrative expenses and streamlining the supply chain, according to Fortune. The plan aims for an adjusted profit margin of 22-23% by the end of 2019 — currently at 20% in 2016 — and could save the company $150 million to $175 million per year.
- The planned job cuts will primarily come at the expense of part-time workers outside the U.S., according to the company. MarketWatch reports some analysts believe the cuts will focus on China, where Hershey has struggled since buying candy manufacturer Golden Monkey Food Joint Stock Co. in late 2013.
Dive Insight:
Hershey's planned job cuts come as the candy manufacturer has struggled to grow its sales and expand internationally. Over the last year, Hershey's sales have only grown 0.7% — better than expectations, but leaving a lot of room for improvement. Meanwhile, Hershey has keyed in on innovation to drive growth, a strategy featuring both new products and new retail concepts.
The cuts are a strong sign that Hershey's plans to expand abroad in recent years haven't worked out. The United States and Canada have long been Hershey's dominant market, but in 2015, the candy giant announced a goal to bring in 50% of revenues from international business by 2018, up from about 30% of the company's annual revenues at the time. Outside of the U.S., Hershey has factories in Brazil, Canada, China, India, Malaysia and Mexico, as well as distribution and marketing offices in Japan, South Korea, the Philippines and the United Arab Emirates.
The company hasn't yet said precisely where the cuts will be made, but analysts have speculated they could focus on China, especially considering the company's investments and struggles in China. Hershey's most recent earnings said its international business has been suppressed by poor exchange rates and other macroeconomic headwinds — especially in China.
The company's fortunes in China especially have taken a sharp downward turn in the last few years. In 2013, Hershey planned a major expansion in the country, announcing an agreement to purchase China's Shanghai Golden Monkey for $584 million. In 2015, Chinese sales made up 4.5% of Hershey's revenue, and the company projected that its business in China would grow to $4.3 billion by 2019. Instead, sales have fallen and were down 4% in Hershey's latest earnings report. And this is actually a positive figure — the company reported a 35% tumble in Chinese sales a year ago.
At the time, analysts said Hershey might have gotten too deep into the Chinese market without first understanding it. Hershey came on the scene as several other international chocolate companies started flooding the market. Despite the investment and effort, Hershey could only boast a 12% share of China's chocolate market in 2014.
The company is slated to further explain its strategy for the future at an investor meeting on Wednesday — which is also new CEO Michelle Buck's first day on the job. Buck, an 11-year company veteran, has led the charge to expand the company's business into snacking categories. The international job cuts could signify a return to a more domestic-based strategy that is built on diversification, rather than international expansion. The two largest acquisitions Buck is credited with — Krave and barkTHINS — have both posted positive margins since they have come into Hershey's portfolio.