Mixed News From Hershey: Recession is Good - Closing Plants

Today, the Hershey company announced in an article in the Wall Street Journal (subscription required) that their "Profits Jumped 51% Amid Signs Consumers Are Trading Down but Not Giving Up Chocolate."However, yesterday in an announcement reported in the San Francisco Gate that shocked many who live in the San Francisco Bay Area it was revealed that Hershey is planning to shutter BOTH the Scharffen Berger plant in Berkeley and the Joseph Schmidt plant in San Francisco.From the article:

Hershey already makes the majority of its Scharffen Berger products in its newly upgraded plant in Robinson, Ill., said spokesman Kirk Saville from the chocolate giant's headquarters in Hershey, Pa. He said the plant closures will affect a total of about 150 employees from both facilities. Saville said Hershey intends to maintain the quality of the brands, which make up the company's wholly owned subsidiary, Artisan Confections Co."We will continue to source the world's best cacao to create our rich and distinct chocolate," he said. "We will maintain the highest quality standard for all our artisan productions."That provided little solace to Bay Area fans of the chocolate-makers. Both brands have created a strong legacy and helped increased the popularity of high-end, gourmet chocolates around the country.

What say you? Is this the beginning of the end for Artisan Confections Company brands? And what are your thoughts about how they are doing maintaining the quality of the brands?From the Wall Street Journal article:

But, as with coffee, eating out, and apparel, the recession has consumers trading down with chocolate. Supermarket sales in the premium chocolate category in the fourth quarter were flat versus last year, Hershey Chief Executive David West told analysts Tuesday.Mr. West said he expects that to continue, adding that manufacturers have been making premium chocolates faster than consumers have been buying them and that retailers probably will devote less shelf space to them.High-end chocolatiers have noticed. Katrina Markoff, president and founder of Chicago-based Vosges Haut-Chocolat, said sales slowed in the fourth quarter. People aren't splurging on offerings that cost $100 and up, she said, although sales of products in the $25-to-$50 range are growing.Last Valentine's Day, she said, people spent an average of $75 to $80 on online orders; she thinks they will spend an average of just $50 this year. "People still want to have a little taste of luxury and decadence," she said.At a Fannie May chocolate counter Tuesday in downtown Chicago, accountant Karen Martin said the recession hasn't dimmed her taste for chocolate -- but she is cutting back on price."I still indulge but not on huge items," she said. "When I want a really nice treat, I go out and buy it. It's like $2 -- maybe." Even thriftier, her friend Nora Wideikies snapped up four Santa Claus chocolates on sale for a dollar.However, Jim Goldman, chief executive of Yildiz Holding's Godiva Chocolatier Inc., said he expects sales to grow. "One of our best-selling products this holiday season was the 'Ultimate Collection,' a $130 offering of the best of Godiva truffles, chocolate and biscuits," Mr. Goldman said in an interview. Lower-priced items also sold well during the winter holidays, and he said he expects strong Valentine sales.Swiss chocolate maker Lindt & Sprngli AG, maker of premium Lindt chocolates, reported a 5.8% sales increase in 2008, saying that was at the low end of its long-term goal of 6% to 8% annual sales growth."Considering the market conditions, this result is encouraging," the company said last week in a news release.

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clay - http://www.thechocolatelife.com/clay/

updated by @clay: 04/10/15 09:00:34PM

Sigh, that's a sad development, but not unexpected. Given the way large corporates work, it is probably more of a surprise that it didn't happen earlier.A similar scenario played out here in Australia a while ago with a small manufacturer of sweets called The Natural Confectionery Company. They were bought by Cadbury principally for their recipes. Cadbury then tried to shut down their plant and absorb the production into other plants. The staff and management got together and offered Cadbury a deal: If they could make their plant the most profitable in the company within a year, then they would not be closed.Cadbury took them up on it expecting them to fail (but having nothing to loose by letting them try). One year later Cadbury were more than a little surprised to find that The Natural Confectionery plant was the most profitable in their operation. It really goes to show that a determined team of managers and staff in a small operation can compete with the big boys. Small doesn't have to mean inefficiently.I think that it is a real shame that the physical operation of Scharffen Berger, including the people who worked so hard to make the product and the brand, was given so little value by Hershey.I would expect that while the (technical) quality of the product may not suffer from the change, it is almost inevitable that the "qualities" of the product will change over time. I can't see Hershey sticking to the Scharffen Berger core values in the long term (since the core values of that business were driven by the creators of the company).Still, Scharffen Berger have shown us the way, so hats off to them for their achievement and here's more incentive for those of us following in their footsteps.Langdon

If you Google : Robinson , Ill. Hershey; you'll find that Heath Confections was established in Robinson years ago and you may suspect that it makes business sense to consolidate small divisions of a large manufacturing company.That's what Hershey is, a large company with several smaller divisions.We once had a Zenith T.V. plant in a nearby town, now all televisions are made overseas. Maybe we should be happy Hershey is not moving it's small divisions overseas but to the Midwest at least for now. Just a thought.

Well, Golly! It's sure tough to put a positive spin on Hersey's buying up artisan producers and shutting them down... :-(I'm pretty sure they knew where these plants were located when they purchased them.

Clay -What do you know about Scharffen Berger's production lines? When I toured them in '06, not long after their takeover of Hershey's was finalized, it was quite clear that they didn't make all the chocolate in Berkeley even then. (I've never heard of anyone seeing anything but the plain dark chocolate bars coming off that one product line.) They made vague mention of some other facility in Napa County. Do you know where that was and when this Illinois plant started making SB products?It is sad that they won't even be keeping that "factory" location open as a lab of sorts & public education facility.(California property values are very high but the climate of the Bay Area is particularly suited to chocolate production and San Francisco/Oakland are port cities providing excellent access to the raw materials like sugar & cacao.)

Thank you for bringing that up, Gwen. I was just pointing out that there's also a reason that there are a large number of chocolate factories in the Bay Area (a lot of candy manufacture, period in California ... it's surpassed Illinois & Pennsylvania, I believe). While the shipping is a concern, so are energy costs associated with heating & cooling.Even Hershey's had a factory out here before they moved that off to Mexico & subcontracted to Callebaut. That Oakdale facility has now been taken over by Sconza, which was also based in Oakland before that. They don't plan to make chocolate from bean to bar, but are mostly a panning company.The Midwest as a manufacturing hub only makes sense if the customer base is actually evenly distributed across the country. California is a huge economy and we eat a lot of chocolate. (I'm going to have to see if I can find which state eats the most! Fun project.) For the early years of SB, I suppose that made sense, they were primarily a West Coast brand.My guess, as Frank has added some important info, is that Hershey's already owned that land/factory space. (But I'll add this - Why they didn't move to Oakdale is beyond me, I think a lot of folks would have moved, it's only 90 miles away - they've really soured people on the company.)

Hey Clay, I missed seeing your posting of this article, and so just posted another containing text for the SFGate article.I do want to comment on a point made by Cybele -- and that is Scharffen Berger as a public education facility these past few years.....In my opinion, those tours did WONDERS for the average non-"chocolate life" person's understanding of what artisan chocolate means. I dragged many a "regular" chocolate lover there for the tour, and always came away knowing that person's idea of what good chocolate is would be forever changed. It was the experience that did the trick. Most people do not read and are not as interested in chocolate as we are to sit here at our computers and forever learn more and more. A real willy wonka-like factory tour can bond a person to your products like no other experience, if done in the manner of SB, with knowledgeable docents, show and tell, product tastings, meeting the workers, and a walk on the production floor. It did it for me.And I, for one, will miss it dearly.

The following was posted by Truffles in a discussion about the Demise of the Joseph Schmidt Brand. Because I had already started this discussion I closed that one to further comments, asking people to reply here. Here is Truffles' post:

I saw the news that Hershey's was closing the San Francisco chocolate manufacturing of Scharffen Berger and Joseph Schmidt chocolates.Scharffen Berger manufacturing is being moved to Hershey's revamped Illinois plant. But no news on what's happening with Joseph Schmidt.I just spoke with a wholesale customer service representative at Joseph Schmidt and she said that the employees were just told today that the Joseph Schmidt brand was being discontinued by Hershey's and all production will stop by summer 2009.I'm so sad about this news. Joseph Schmidt is a strong brand name and made good truffles at a reasonable price point. Yes, there are other artisan chocolatiers and truffles that are superior, but Joseph Schmidt was really good for the price.Why would Hershey's kill off the brand?

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clay - http://www.thechocolatelife.com/clay/

Let's consider the phrase "Artisan Confections" - confections made by the hands of artists. Those of us who visited the Scharffen Berger facility, a factory in a funky warehouse in Berkeley with exposed red brick and bottomless samples of perfect hot cocoa, felt the artisan origins of that company. John Scharffenberger and Robert Steinberg were rebels in the chocolate industry. "Why make your own chocolate?" people routinely asked them in the early days. "Just buy it from a big manufacturer." But Steinberg in particular had a vision - he wanted to make sustainably produced chocolate in small batches the way the artisans he met in Europe made it. When he tells the story (see ESSENCE OF CHOCOLATE BY John Scharffenberger and Robert Steinberg) of his cancer diagnosis, his bittersweet exit from his job as a doctor and his turn to food for inspiration, you'll hear the voice of a very non-corporate guy. He decided to grind fresh beans in his coffee mill at home then melt the paste with a hair dryer and scour trade shows looking for used equipment to bring about a new American chocolate. Did he worry about efficiencies and shipping costs? Absolutely. Scharffen Berger was an extremely successful business. But did those concerns impinge on his product? Not too much, he made a great one.Hershey's, also founded by a visionary, bought the company as a prestige brand with a market niche they didn't control. So they'll close the Berkeley factory for efficiency sake, they'll make good chocolate, much like Steinberg & Scharffenberger made, but something will be missing. The personal choices - Robert pulling twigs out of jute sacks of cocoa beans from Venezuela or proudly smelling the day's batch in the old-fashioned conch machine - will be made by committees and robotic machines. I believe Hersheys will still make a fine chocolate. But the important point is for artisan chocolatiers - those of us poking around cacao plantations, tempering, molding, using our senses, adding a touch of sugar here, a 1/2 ounce of anise there - to continue the personal, unpredictable, passionate, artistic work of guys like Steinberg and Scharffenberger.

Well said!

I agree with John; good shot, Susie.Heres some more information on the industry, the recession troubles and the perspective from a small bean-to-bar manufacturer. http://www.news-leader.com/article/20090130/BUSINESS04/901300335/1003/ARCHIVES There are still discretionary dollars to be spent but artesian chocolate makers in their retail shops and small bean-to-bar manufacturers will have to be ever more creative in order to capture their share of those dollars. And to stay in business, watch your overhead at every turn.In a local newspaper article yesterday (1-30-09) on the release of Shawn Askinosies new chocolate bar made with cacao from the Philippines the question was asked: How do you sell an $8.00 bar of chocolate in a recession?In the current economy, how does a small chocolate factory sell $8 bars?(Askinosie Chocolate) Sales had plunged in October -- a reflection of the lack of consumer confidence, he said. Then in December, sales rose 8.8 percent over December 2007, and overall fourth quarter sales were up 40 percent from the same period in 2007.However, sales were under his target and he had to make difficult changes. He laid off three employees; others who left the factory were not replaced.He and the staff more tightly control inventory, making only what they need, when they need it."We feel people still love chocolate and will splurge to buy the little pleasures ... But we have to be careful not to take that for granted, regardless of what the statistics say."Heres another opinion from me . (not that its worth anything): Ill bet that in 5 years there will be dozens of small bean-to-bar manufacturers of very, very good chocolate. Some will supply high end pastry chefs, some will sell retail over the internet and from their specialty shops and some will process their country of origin chocolates into artesian confections for sale over the counter in their store front shops. How could there be such a radical change in a stodgy old industry as bulk chocolate processing?Heres how. As always: Economics and Demographics. The Boomers (demographics: largest population segment) are entering their retirement years but cant; due to the financial meltdown (economics). Were going to be looking to change careers; not retire. Cant afford to now.Artisanal food and beverage are very attractive. Examples: More wineries opening every day in the U.S. Now wineries in every state in the Union. Micro breweries in every medium-sized town in America. There used to be only 4 or 5 big breweries in the U.S.Coffee shops. Tens of thousands of them where beans are roasted on-site. There never used to be small , bean-roasting coffee shops when I was kid, where you can see fresh roasted beans by country of origin displayed in showcases in the store. Now, a town of 100,000 people will have several such shops. How did this happen? Well, people figured out that its not that difficult to buy small equipment and supplies and process the farm product: wine grapes, coffee, hops for beer, just a step above home hobby level; and then sell retail.Dozens of web sites sell green coffee beans to home hobby roasters http://www.sweetmarias.com/ or http://www.coffeestorehouse.com/ .For $20 you can buy a hot air popcorn popper at WalMart (trust meyou dont need a link. If you dont have one in your town, youre going to get one in about 15 minutes) and order a pound of green coffee beans off the net to roast at home. If several thousand people do this as a hobby, then some percentage of them will have the thought to scale it up and start a business selling coffee retail or wholesale.This has just in the past couple of years started in the home chocolate roasting arena. Clay Gordon would know about this better than I but Ill be there are maybe only 50 of us bean heads roasting at home. He offers some fermented beans for sale at( http://www.thechocolatelife.com/page/cocoa-beans ) as does Chocolate Alchemy .John Nanci over at Chocolate Alchemy has developed a system of small counter top machines that you can use to process home roasted cocoa beans into finished dark or milk chocolate and he also has a few countries of origin beans for sale. I predict that as more people pick up this hobby, as happened in coffee, some will get the idea to make a business of it. Not just in the U.S. but in all the consuming countries.As to travelling world-wide buying direct from farmers and giving back to them, that takes some money and dedication. There may also be more of this in my hypothetical future as these imagined small American roasters become successful and can afford to search out new countries of origin.Lets look forward to it. Im not trying to make this financial mess look good, my retirement portfolio gets smaller by the day. But I think there will be more people with good taste looking to pursue artisanal dreams. We should expect a great future for really good chocolate.Forgive me for wasting your time here, these are just some half-roasted thoughts from a neophyte bean head. All the best tasting to you.

Has there been any news about what's happening to the factory? I sure hope another chocolate maker moves in there! It's such a great space.

Heres another opinion from me . (not that its worth anything): Ill bet that in 5 years there will be dozens of small bean-to-bar manufacturers of very, very good chocolate. Some will supply high end pastry chefs, some will sell retail over the internet and from their specialty shops and some will process their country of origin chocolates into artesian confections for sale over the counter in their store front shops. How could there be such a radical change in a stodgy old industry as bulk chocolate processing?

I agree that there is an untapped market for small, local, artisan chocolate makers. Few of these will provide couverture as it takes a great deal of skill to make chocolate with consistent workability.Why is this happening? People are becoming more interested in supporting local food businesses, people are interested in knowing more about the food they eat, people are more interested in origins, people are more interested in experimenting, people are interested in sharing experiences.Why do brew-pubs exist when there are all these big breweries? The big breweries obviously don't meet some needs. Same with chocolate.However - and this I caution everyone who wants to start making chocolate to sell - comparing chocolate making with roasting coffee, or brewing beer or making wine doesn't work. The processes are very different.Three things are holding up the movement:1) Educational infrastructure2) Easy access to small-scale equipment3) Easy access to quality beansI am working an all three and it's taking a lot longer than I thought to put things into place.


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clay - http://www.thechocolatelife.com/clay/

Cybele:One of the things that I had hoped would happen with the expiration of John's and Robert's contracts would be more transparency about the history of Scharffen Berger. Here's what I "know" from piecing things together from many sources. It many not be 100% accurate but in general it checks out.In the very beginning, John and Robert approached Guittard to produce chocolate for them and, in fact, the earliest SB chocolate was produced by Guittard. Very quickly, Guittard backed away from the business, I think for several reasons, including they did want to create their own competitor, and people were heaping praises on the SB chocolate that they never heaped on Guittard.Guittard really missed the boat here. By not entering the market aggressively after giving up the SB business, they let SB determine what "good" chocolate tasted like. I think that this has overall been a bad thing for the artisan chocolate maker business here in the US because there are more flavors in chocolate than red fruit and most SB chocolate (to my taste) has a pronounced acidic red fruit bias. This bias is not surprising given John's background as a champagne blender for Veuve Clicquot.If you study carefully the plant in SF, it becomes very evident very quickly that the numbers don't match up. There is no way SB can produce the amount of finished chocolate they needed to reach the sales numbers they were quoting. In particular, the reliance on a single small (250kg) melangeur and two small (1tonne) conches tell the real story of their production capacity.You will also notice that there is no cocoa butter press, so they were buying both butter and powder, and there was no filling machinery, so someone else was packaging their powder and nibs. Also missing was any wrapping machinery, so the vast majority of that was outsourced as well.As near as I can tell, the only products reliably produced from bean to bar in the SB factory were the limited edition bars. The entire plant is geared towards that production, from my perspective.I did have a long talk with John about production capacity about 8 months before the Hershey announcement. From that talk I gleaned a couple of nuggets:The capacity of the plant, running a single shift, five days a week, was about 20 tonnes of LIQUOR. SB shipped this liquor to others to finish. Among these other companies was Blommer, an industrial manufacturer. In particular John told me that they searched long and hard for the milk used in their first milk chocolate bar. Because the SB Berkeley plant is certified kosher pareve there is no way the milk product was being made there.If you taste the SB milk chocolate against most European milks, and even the Guittard Orinoco, you'll notice that the SB milk has a distinct sour taste that mirrors the taste of Hershey milk. It is my conclusion that the milk chocolate was a deliberate attempt to update and upmarket a "grown-up" version of plain old Hershey milk chocolate.As far as the factory closing is concerned. Hershey is a public company that is under pressure to perform up to analysts' expectations. Hershey has an army of accountants and others who analyze all of the (money) variables around decisions to move production and close plants. The decision to move production from Berkeley to Illinois instead of keeping it in Berkeley or moving it to another Hershey facility nearby was made as a result of examining hundreds of different factors. In the end, the one that was "cheapest" in the long run is the one they went with.Of course, straight financial decisions like these never take into account that intangible known as "good will." Examined from that perspective, the decisions to close down and move may cause irreparable damage to the brands. And not just SB, but Schmidt (which is being shuttered entirely) and Dagoba as well as the Artisan Confections brand. This is a disastrous move for Hershey and a lesson for the entire artisan chocolate industry.When I learned about Hershey's acquisitions I opined that they were good for the industry because they were an indication that if someone built a thriving business that there was an exit strategy. These moves indicate the downside of giving up control - the potential to completely destroy a business that took years (decades in the case of Schmidt) to grow.PS. Ironically, two days after the news I received an envelope with two new SB bars. A 68% milk (that high because it contains nibs) and a new Brazilian origin bar.


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clay - http://www.thechocolatelife.com/clay/

I'll never forget when I was studying the candy industry in business school finding out that Utah is the biggest consumer of sweets. It totally made sense after I read that...a great vice! I haven't followed up recently to see if that applies to chocolate or if it's just candy in general.

After I saw Gwen's comment about buying artisan chocolate, I told Clay about Foodzie, where I work, and that I thought it might be useful to talk about in the context of this thread...so I hope it is!Foodzie is a new online artisan food marketplace that wants to connect great small food companies with less price sensitive foodies ... the ones who are going to keep consuming artisan made chocolates during a "dip" like this one.It's been interesting to see a few things :1) The chocolatiers on Foodzie have had brisk sales both during and after the holidays...especially the companies with interesting/unique and high quality products at a variety of points. I'm sure all the news of Obama's love of sea salted caramels didn't hurt either.2) Wales are coming from literally all over the map, not just the areas you would typically think of as affluent.FYI these are the current chocolate companies. http://foodzie.com/categories/chocolate For launching a chocolate business, Foodzie would be useful as an easy and cost effective way to test the marketability of various products with a food lover/connoisseur audience, beyond the local farmer's market or your own website. Feel free to ping me if you'd like to chat about this and perhaps I will start another discussion if there's interest.As an aside, in the last year I've literally seen a different indi confectioner at each farmer's market in the San Francisco area...and cookie businesses are popping up equally as quickly it seems. I can list the companies if you like.

I just got an anonymous comment on my blog that this person got an official notice from Artisan Confections that confirms that Joseph Schmidt is ceasing production completely.Has anyone else heard anything? They were just displaying his wares at the Fancy Food Show in San Francisco.

Good tip on Foodzie...thanks!

Gwen, what you are suggesting is a lame excuse for Hershey.Scharffen Berger were able to ship their product to the east coast of America prior to being bought out by Herchey, after all, they opened a shop in New York in 2004 (have a look at the press release http://www.scharffenberger.com/NEart13.asp ). So claiming that a giant like Herchey can't is a bit rich.The decision to close the California factory isn't an economic imperative, it is about rationalisation and making bigger profits. Is this evil? I hadn't thought of it that way until you brought it up, but considered in the light of the sub prime mortgage crisis and the misery that is causing, perhaps it should be.I find it sad to see a company like Scharffen Berger (or the Natural Confectionery Company) swallowed up and any values they may have had (like loyalty to the community, or staff that made their business possible) thrown out the window just because transport costs eat into profit.

Hershey had a plant in Oakdale, CA for decades. I may be wrong but I believe they may have produced more chocolate there than in PA. Why? Proximity to many of the raw materials sources: almonds, milk etc.Now that they've moved the plant to Mexico, I wonder if they're getting all the raw materials from Mexico, except for the almonds. Hmm. At least they're closer to the cacao sources perhaps.

There is historical precedent for this. In the first third of the 20th century hundreds of small chocolate makers, chocolatiers, and candy makers were bought out and closed down - deliberately to eliminate competition - by the Hershey, et al. I don't think that was the case with these three, however.I am sure that all of the people who reaped the rewards of the buyout packages (like Mr Schmidt in Gwen's comment below) have mixed feelings. They are sad to see the companies they worked so hard to build falter or fold. On the other hand, they have been rewarded well and the companies' current difficulties are no fault of their own.Personally, I would have liked to see Schmidt offer to buy back the company for 10% of what Hershey paid for it and continue it for what it is: a strong local player that was never strong enough to go national on the scale that Hershey, as a public company, needed it to be.


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clay - http://www.thechocolatelife.com/clay/

updated by @clay: 06/10/15 08:14:18AM

I think you have highlighted my point nicely Gwen. Joseph Schmidt got his golden handshake deal and walked away to do whatever he chose. But what about the staff and customers who helped to get him that deal? What do they get other than redundancy?As a business owner I feel a sense of responsibility to the people who help to make me successful. I wouldn't sell out and walk away knowing full well that my employees will end up redundant.We set up our business in a small town in a rural area because we want to make a difference to this community (which has an unemployment rate of around 40%). I would not take a big buy out and walk away knowing what that would do to the community. That's just my personal ethic Gwen.Perhaps Joseph Schmid did do something for his staff to mitigate the inevitable. I certainly hope so.

Hi Clay,Could you give me information on where to access small scale cacao processing equipments such as stone grinders capacity (20 kg per batch) are they the same as melangeurs? And equipments for cocoa butter extracting? We make chocolate tablets (100% ground cacao nibs) in the Philippines called tablea.Thanks in advance.

"1) Educational infrastructure"Not only for the chocolate maker, but also the customers. Chocolate tasting instructions. In my market, people eat chocolate so fast that is impossible to taste anything but sugar. When a representative of Vahlrona came to Israel and tasted Israel's chocolate company his response was "they use high quality sugar"! The public needs to be reintroduced to the concept of chocolate.For 2 & 3 thanks for helping Clay.Jo

why did SB and Schmidt sell to Hershey's to begin with ?I cant speak for joseph but john scharfenberger told me shortly after the sale...''They paid me so much money I dont care if they break my baby"It was honest.

Tell me if it is more practical to produce and ship from a central location in the US then why has Hershey after 50 years in Canada closed every single manufacturing facility and sent this production including all the jobs to Mexico.Even when shipping and production cost are lower in Canada than the US and sugar prices in Canada are cheaper than Mexico, not to mention Canada has some of the purest milk on this planet.Please explain how evil and greed are not the culprit here, and I do understand Hershey`s ways as I worked for them for 20 years.

Hershey did not consolidate small divisions of their business, they closed 7 out of 23 plants many of which were making huge profits for this company, the Smiths Falls plant in Canada made a consistent profit for this company for 44 years that why Hershey sunk $50 million in this facility in the past 5 years.The former CEO Rick Lenny ( the hackett man that he is ) made a huge mistake and moved American and Canadian jobs to Mexico, that's why Hershey`s stocks have been in the "loo" for the past 2 years and consumer are ticked off with this company.