Hershey's move to Mexico

OAKDALE, Calif. - On a warm May weekend in this Central Valley town, the irony was thick.

As usual, the annual Chocolate Festival was drawing hordes of fun-seekers. But Hershey Co., Oakdale's biggest employer and the nation's biggest candy company, is closing its plant here, eliminating all 575 jobs. The company will open a factory in Monterrey, Mexico, to handle the production.

One man at the festival wore a T-shirt that said on the front: "Where did 'the great American candy bar' go?" Asked for the answer, he whirled around to display the back: "Mexico!"

For Hershey workers in Oakdale, globalization is no longer an abstraction.

Like many Americans, they suddenly face questions as immediate as how to make a living and as far-reaching as whether 20th-century manufacturing skills will count for much. Production at the plant here is to be phased out by the end of the year.

When she heard the news, Mabel McNaught, a school custodian, wondered how her family would recover. Her husband, Philip, 50, is a forklift driver at the plant, and she figures that finding another job nearby with similar pay and benefits won't be easy. "I was devastated," she said. "I just started crying."

The 113-year-old company has described the plant shutdown as part of a "global supply-chain transformation." Overall, about 3,000 of Hershey's 13,000 workers will lose their jobs, including as many as 900 in the company's hometown of Hershey, Pa. By 2010, Hershey says, the moves will save shareholders as much as $190 million annually.

"The financials are compelling," chief executive officer Richard H. Lenny told a meeting of market analysts in February, saying labor costs in Mexico are 10 percent less than in the United States.

Asked about the negative publicity that would come with the plant closures, he said the decisions were "gut-wrenchingly difficult - but in the best interests of the business."

Hershey has been an Oakdale fixture since 1965. Over the years, the plant on the edge of town has churned out nut-studded chocolate bars and uncounted millions of chocolate Kisses.

At times, the community of 18,000 is infused with the scent of chocolate, although it competes with the aroma of tomato sauce from the ConAgra processing plant down the road.

This month, the company lowered its projected 2007 earnings, citing high dairy prices. And, like other domestic candy companies, Hershey complains about government agricultural supports keeping the price of sugar at least double the level in foreign markets.

"The candy business has been laboring under this burden for a number of years," said Ray Jones, a director at Dechert-Hampe, a marketing consultant specializing in candy and confections.

In addition, Hershey has old plants that are tough to overhaul - "inefficient legacy infrastructure," in the words of Lenny, the chief executive. The company sees lucrative markets in places such as China, where it has introduced green-tea-flavored Kisses, and in Mexico, where it plans to feature "locally relevant nut flavors" in its Reese's Peanut Butter Cups.

None of that is good news for Oakdale, said Jones, the marketing consultant.

"Do you invest in revamping U.S. plants when you're faced with higher sugar prices, higher labor costs, and a more global business?" he asked.