Food-Industry Cutbacks Create Problems for Kraft Castoffs

Are Job Cuts Looming for Kraft Employees?

This might not be the easiest time for Kraft Foods Group Inc. employees to be looking for work.

As a merger with H.J. Heinz approaches, they’re bracing for job cuts just as competitors retrench amid slow sales growth.

“Most of these large food companies are not hiring,” said Brian Yarbrough, an analyst at Edward Jones. “They’re in cost-cutting mode.”

Heinz Chief Executive Officer Bernardo Hees will probably root out expenses at the combined company, just as he did at the ketchup maker, helping it produce some of the best margins among big U.S. food manufacturers. Since 2013, he’s cut employees from the management ranks to the factory floor, creating a more valuable business for Heinz’s owners: Warren Buffett’s Berkshire Hathaway Inc. and investment firm 3G Capital.

The success of that approach has put competitors on notice in an industry where the pressures are clear. The top 25 U.S. food and beverage companies as a group lost market share over the past five years to private-label producers and smaller firms, missing out on about $18 billion in sales, according to a February report from Robert Moskow, an analyst at Credit Suisse Group AG.

Food industry job openings tend to be at companies that rely on small staffs and guerrilla marketing, often selling specialty items that aren’t a strength at the major companies, said Doug Ehrenkranz, a recruiter for Boyden Global Executive Search in Houston

“We’ve finally gotten to the point where there’s nowhere left to move and make big food,” said Ehrenkranz, who previously worked at Procter & Gamble Co. and PepsiCo Inc.

‘Fresh Look’

Even before the Heinz deal was announced in March, Kraft had shuffled management to address the industry’s challenges. Tony Vernon, who led the company after its split with Mondelez International Inc. in 2012, left in December. Current CEO John Cahill took over, promising to take a “fresh look” at the business and prioritize investments.

Kraft announced the departure of top marketing, finance and research executives in February. The company, known for Oscar Mayer cold cuts, Maxwell House coffee and Miracle Whip, had about 22,100 employees as of late December, a decrease of approximately 400 from a year earlier.

Still, the merger with Heinz came as a shock, according to interviews with current and former Kraft employees who asked not to be identified to protect business relationships. The company fired executives in March and April as the foodmaker reorganized divisions, two of these people said.

Former Kraft employees said Heinz will have an easy time finding places to cut when the companies combine. They described a bureaucracy where marketing executives, for example, oversaw teams of redundant support staff.

Buffett’s Praise

When Berkshire and 3G bought the Heinz in 2013, they immediately installed a new senior leadership team that capped spending on office supplies and meals during business trips. They also started eliminating both white- and blue-collar jobs, shuttering factories in North America, and offering buyouts to staff in the company’s hometown, Pittsburgh.

Buffett has left operations to 3G, which was co-founded by Brazilian billionaire Jorge Paulo Lemann.

“Efficiency is required over time in capitalism,” Buffett said at Berkshire’s annual meeting in Omaha, Nebraska, last month. “I really tip my hat to what the 3G people have done.”

Heinz has the “utmost respect” for the Kraft brands that its employees have established, Michael Mullen, a spokesman for the ketchup maker, said in an e-mail. The merger is an exciting time for staff at both companies, which will have a brighter future together, he said. Basil Maglaris, a spokesman for Kraft, said the company’s combination of brands and talent will create a stronger company.

Campbell, Kellogg

Pinpointing the exact job losses in the food industry is tough because the largest companies have been acquiring and divesting businesses as their customers turn to more natural or organic foods. Still, Campbell Soup Co., ConAgra Foods Inc., Kellogg Co. and Mondelez shed more than 6,000 jobs combined in their most recent fiscal year for which data are available.

In a letter to staff on May 18, Cahill said that Kraft and Heinz formed an integration team with leaders from each company. One project for the group was reviewing how the combined business could adopt Heinz’s budgeting approach.

Most Kraft employees are still in the dark about what that means for their job prospects, according to two people. Heinz executives met with senior leaders and some middle managers to gather information, the people said. Companywide communication has included materials on an internal network and videos, like an April address where Hees told Kraft employees that “change is never easy.”

‘Wonderful Academy’

“It’s important to note that, until the transaction is closed, we remain two independent companies,” Maglaris said. “The work being done now is to gather data to ensure a seamless transition.”

The Kraft employees who find themselves on the job market may want to consider other industries that value experience with household brands, said Joel Koblentz, a partner at the Koblentz Group, a search firm in Atlanta.

“It’s a wonderful academy to learn a brand,” Koblentz said of Kraft. “If you’re a marketing person or a finance person, those skills are easily transferable. If you’re running a food plant, and that’s what you’ve been doing for 20 years, that could be a difficult transition.”

Then there’s the question of geography. The Chicago job market, where many executives from Northfield, Illinois-based Kraft will be looking for work, should be able to absorb workers with the right skills, said Peter Crist, chairman of the executive search firm Crist/Kolder Associates.

Several Kraft executives contacted him after the deal was announced, he said. Lately, it’s been quiet as they survey their options. Some Kraft employees will stay at the new combined company, while others, particularly those with vested equity, are ready to “pull the parachute,” he said.

His phone will start ringing again as the deal nears completion, Crist said, because “the people who are on the fence are going to get off, one way or another.”

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