The future of Hershey Co.: Does chocolate still run Chocolate Town?

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The proprietor of Johnny’s Down Under Barber Shop on West Chocolate Avenue in Derry Township, Christopher spent a quarter century working for the Dauphin County chocolate maker before deciding 13 years ago to change careers. Like today, it was a time when Hershey was the subject of sale talks, and worries about layoffs were in the wind.

He thinks Hershey’s board did the right thing on June 30 when it unanimously rejected the approach from Mondelez. Christopher feared a buyout could have meant more job cuts, a smaller footprint and a potential loss of the prestige that helped turn a rural company town into Hershey, Pennsylvania: Chocolate Town, U.S.A.

But he also is pragmatic.

“I think that somewhere along the line, someone is going to make them an offer they can’t refuse,” Christopher said.

What then?

A Hershey sale might not cause as much disruption today as it might have in years past, as the company has a smaller presence today than it did a decade ago.

And the decline in Hershey jobs has coincided with the growth of Penn State Health Milton S. Hershey Medical Center, which now surpasses the chocolate works in employment. Meanwhile, the success of Hershey Entertainment & Resorts — a separate entity from the candy company, whose properties include Hersheypark — has helped make the area a leisure destination in its own right.

And that transition from a manufacturing economy to health care, services and entertainment is a trend that is not unique to Hershey or the region, said David E. Black, president and CEO of the Harrisburg Regional Chamber and Capital Region Economic Development Corp.

“The entire world is shifting, not just the U.S.,” Black said. 

Past battles

Mondelez was not the first suitor knocking at Hershey’s door. Nearly 14 years ago, a potential deal died amid political and community opposition. What made that situation different from the one last month was that the Hershey Trust Co. — then as now the chocolate company’s main shareholder — had put the company up for sale as an effort to diversify its $5.4 billion investment portfolio.

Milton Hershey, who founded the chocolate company that bears his name, established the trust in 1905. Its board oversees the Milton Hershey School Trust, The M.S. Hershey Foundation Trust and the Hershey Cemetery Trust.

The board’s decision to explore a sale, announced in summer 2002, came from a position of strength: The company had earned record profits in the second quarter of that year — $63.1 million on sales of $823.4 million — despite the longest labor strike in Hershey Foods history between April and June, a CPBJ report stated at the time.

Any sale was predicated on finding a buyer committed to maintaining ties to the Hershey community, trust CEO Robert Vowler told CPBJ in August 2002, adding: “The health of this community is very, very important to us.”

By the end of that month, Nestlé, the Swiss food conglomerate, was leading the pack of potential buyers in a joint bid with Cadbury Schweppes worth more than $10 billion.

But other forces also were in play. In addition to intense local opposition, alumni of Milton Hershey School, which provides free education to children in need, came out against the plan. A spokesman for Gov. Mark Schweiker, meanwhile, added that he “wants Hershey Foods to remain a part of the Pennsylvania community.”

State Attorney General Mike Fisher took the battle even further, arguing in Dauphin County Orphan’s Court — which oversees matters related to the trust and other charitable organizations — that a sale would cause “irreparable harm” to the community, including more than 6,000 local workers. After Fisher secured a temporary injunction, the trust countered that the attorney general had overstepped his authority and said it would appeal.

Meanwhile, Nestlé had been outbid by the Wm. Wrigley Jr. Co., which made a $12.5 billion cash-and-stock offer.

The climax came in mid-September. At the end of a marathon 10-hour board meeting that made international headlines, the trust announced that it had voted 10 to 7 to call off any sale.

Media reports suggested that despite Wrigley’s willingness to preserve Hershey jobs, the trust was deeply divided and had been swayed by public opposition — and that it may have felt one or both offers were simply too low.

Another narrative also emerged in the media coverage, and it’s one that persists: that the trust would present a formidable stumbling block to any future sale of the candy company.

Era of restructuring

Talk of a merger with Cadbury Schweppes PLC dead-ended five years later, at which time the trust was re-organized, and anti-merger members seemed to be in the majority. Hershey also was involved in a second bid to acquire Cadbury in 2009; after Hershey backed out, Cadbury was snapped up by Kraft and now falls under the Mondelez umbrella.

Other developments would dominate the company’s agenda over the coming decade: job cuts and restructuring. Hershey would announce a three-year restructuring of its manufacturing and supply chain in the U.S. and Canada, and the expansion of production in other countries.

In March 2007, the company and the local union, Chocolate Workers Local 464, reached an agreement to cut up to 650 jobs in the area over three years. Under that deal, there would be pay increases for remaining workers and a contract extension to 2011, while the cuts would come from a mix of voluntary retirements and layoffs with severance packages. CPBJ reports suggested that expansion into overseas markets, such as India, was driving the need to become leaner, together with the increasing costs of commodities and worker benefits. Then-union president Melvin Myers also said “declining volume” was a factor.

The issues weren’t all in Dauphin County. In December 2008, Hershey began laying off employees as part of a plan to close a Reading plant by early 2009, a move that left about 300 out of work. That same year, Hershey also began moving more production to Mexico and investing in other properties overseas.

But the restructuring would touch Derry Township soon enough. In 2010, Hershey unveiled a $300 million plan for a new, automated facility to be built next to the West Hershey plant on Old West Chocolate Avenue, resulting in the shutdown of its iconic original plant at 19 E. Chocolate Ave. The union agreed to transfer about 650 jobs from the original plant to West Hershey facility, while reducing the overall workforce by 600 jobs.

The union’s acquiescence followed hints from management that the company would consider investing in other U.S. facilities if the local voted against the deal — a strategy that also had been used in 2004, according to CPBJ reports, when Hershey was asking the local to consider reduced salaries and higher health insurance premiums.

The East Chocolate Avenue plant closed in April 2012. Part of the complex was later demolished, with some of the space being used for corporate offices.

Efforts to contact union officials for this story were unsuccessful; a woman who greeted a reporter at the union’s office said she could not reveal any information, including the last name of the official to whom she said she would relay a request for comment. No response was received.

Numbers in context

As late as 2010, the company had more than 4,800 employees in the area, according to statistics provided by Hershey spokesman Jeff Beckman. By 2015, the figure was 4,315, Beckman said.

Nevertheless, its output has remained consistent.

“About one-third of the total pounds we manufacture across all our plants globally are manufactured in Derry Township,” Beckman said. “There has been only a slight change in the percentage over the last decade as international facilities have come on line, but the absolute pounds we make in Derry Township during the timeframe are essentially unchanged.”

The chamber’s Black said he sees positive signs for the future in the way Hershey has managed its restructuring.

“Hershey Co. has done what successful manufacturers have done — modernized, and used technology with a smaller workforce,” Black said.

“We are in an age of mega-mergers, but as we have seen over time, trends in business change and there is a certain level of agility with a Hershey Co., rather than as part of a behemoth like Mondelez,” Black added.

What vision did — or does — Mondelez have for Hershey?

The Wall Street Journal and other outlets cited sources close to the situation who said Mondelez was willing to move its headquarters to Dauphin County and retain the Hershey name. Neither Mondelez nor Hershey has commented on the terms of the deal, merely confirming its existence and rejection. Mondelez also declined comment on reports that its interest continued after the initial rejection.

A trust spokesman confirmed that talks with the state AG’s office over trust governance issues continues, but had no comment about the Mondelez proposal.

Black does not believe a sale of Hershey would be good for the region, even if the headquarters were to remain here.

“The concern locally is not just keeping manufacturing here, but the keeping the headquarters here — that includes decision makers and substantial jobs in headquarters,” Black said. “As long as Hershey is Hershey with the trust, there clearly is a partnership with the region.”

If Mondelez took over, it would probably be only a matter of time before it moved to the Chicago area, Black predicted.

Back at the barbershop, Christopher made a similar observation.

“Whenever you have an outsider who comes in, they’re going to tell you what they want you to hear,” he said. “But you know in the back of their mind they have their own vision.”

Diverse economy

As Hershey’s employment has fallen, other area employers have added jobs, with health care and entertainment filling some of the void.

Hershey Entertainment & Resorts has 1,600 full-time and 6,200 part-time and seasonal employees, spokeswoman Kathleen McGraw said.

But it’s a long-ago creation of Hershey largesse that now dominates the area’s economy.

Fifty-three years ago, a $50 million donation from the M. S. Hershey Foundation laid the groundwork for Penn State University to begin developing a medical school and teaching hospital. Penn State’s College of Medicine opened its doors in 1967, and Penn State Milton S. Hershey Medical Center accepted its first patients in 1970, according to the facility’s website.

The campus has grown from 318 to 550 acres, and total staff now exceeds 10,000.

That transformation of the Hershey-area workforce mirrors national trends. Between 2004 and 2014, manufacturing jobs dropped from 9.9 percent to 8.1 percent of the national workforce, according to the U.S. Bureau of Labor Statistics, and are on track to hit 7.1 percent by 2024. Over the same period, health care and social-assistance jobs increased from 10 percent to 12 percent, and are expected to reach 13.6 percent of all U.S. jobs by 2024, BLS studies show.

Black says the region is not immune from the change, but sees a silver lining.

“We are fortunate to have these and other more emerging industry clusters here to augment what is now advanced manufacturing, using state-of-the-art technology and machinery,” he said.