Here’s a trend producers know all too well: Corporate consolidation goes forward in the name of “efficiency,” and the end result is bad news for everyone other than management and investors.
Newsflash: The Kraft Heinz Co. just announced that the company is eliminating 2,600 jobs and closing seven processing plants. That’s on top of the previously announced elimination of 2,500 administrative jobs.
According to a statement by Michael Mullen, the company’s senior vice president of corporate and government affairs, production from those facilities will be moved to other plants across North America.
Sound familiar? It should, because it’s becoming a scenario repeated across all of the food processing industry: Mega-mergers, followed by massive layoffs, followed by sober statements from the consolidated corporate offices about the necessity of driving efficiencies across the company’s operations.
Case in point: Mullen noted that the company, which was created when Kraft and Heinz officially merged in July, is investing “hundreds of millions of dollars in improving capacity utilization and modernizing facilities with the installation of state-of-the-art production lines.” He said that the layoffs were “difficult but necessary.”
The first adjective is accurate; the second, not so much.
I doubt if any of the thousands of workers who lost their jobs, or the officials in the local communities who lost a big piece of their tax base are onboard with the “necessity” of massive layoffs and plant closures.
It’s all portrayed as good for business, good for investors and even good for consumers.
Even though by any measure, it’s not.
Even the business press demurs
But none of this corporate “right-sizing” is news, because none of it is new. Investment analysts predicted that Kraft Heinz would announce big-time job cuts even before the ink was dry on the merger papers. That’s because the driver of the merger wasn’t some desperate need for sector efficiency, but rather the opportunity to leverage capital to drive profits.
In this case, the impetus came from 3G Capital, a Brazilian investor firm that partnered with Warren Buffett's Berkshire Hathaway to merge the two companies. For the record, 3G Capital had previously eliminated 7,000 jobs after acquiring Heinz.
As one description phrased it, “3G Capital, the cutthroat Brazilian private-equity firm, which teamed up with Warren Buffett’s Berkshire Hathaway in a deal to form the new Kraft Heinz Company, is known for swift layoffs, cost-cutting — and profit.”
That’s not some commie-liberal business-hating do-gooder talking. That’s a quote from a Fortune magazine profile of 3G Capital.
In a story written back in March, Fortune’s reporter predicted that, “Kraft employees [can] expect widespread layoffs, lower budgets, new levels of austerity, and a shift in the corporate culture.”
Pretty much right on the mark.
“When 3G led InBev’s hostile takeover of Anheuser-Busch, it quickly cut 1,400 jobs from the American company (75% of them in St. Louis),” the story continued, “and brought in Brazilian executives from InBev — itself the result of a 2004 merger of Belgian beer maker Interbrew and Brazilian beer maker Ambev, which was the result of a 1999 merger between Brahma and Antarctica.”
Got all that?
This strategy of consolidation + job cuts = efficiencies is one that virtually all of the larger food processing companies are now implementing, including Campbell Soup, Kellogg and Mondelez, and the foreign capital funding it ends up transforming bigger and bigger pieces of the U.S. corporate landscape.
A growing number of once-dominant American corporations are now owned by investors in foreign countries, including Chrysler (Italy), Firestone (Japan), Holiday Inn (Britain), Trader Joe’s (Germany), movie studios Columbia Pictures and TriStar Pictures (Japan), one of the biggest U.S. meat companies Smithfield (China) — not to mention such American brands as Purina (Switzerland), Frigidaire (Sweden), Budweiser (Brazil), Gerber (Switzerland), Alka-Seltzer (Germany).
“I’ll take Foreign Owners for $800, Alex.”
If you replied, “What country now owns Jeopardy?” you’d be correct.
But let’s bring this closer to home.
In the cattle business, ideological battles over the now-pervasive use of marketing contracts instead of the once-dominant cash market system of buying livestock at local auctions have been ongoing for decades. Proponents, primarily meatpackers, argue that forward contracting increases efficiency (there’s that word again) by minimizing transaction costs involved in having cattle buyers traveling across rural America bidding on small lots of cattle at local auctions. Contracts also guarantee meatpackers a steady supply, so big packing plants can operate at maximum efficiency.
The e-word again.
The problem is that efficiency is always measured on a macro scale. System-wide, bigger plants, fewer suppliers and a consolidated marketplace does drive higher margins. But it doesn’t support consumer choice, it doesn’t foster innovation and it certainly doesn’t make life better in the communities left in the lurch when global giants start slicing off chunks of their acquired properties with the efficiency of an old-school butcher.
Small businesses and independent operators get crushed in the name of efficiency, and long-term that leads to a marketplace in which two or three mega-firms basically control entire sectors of the economy.
Get used to having only a couple or three choices in everything you ever want to purchase, because that’s the end game of this ill-advised faith in the benefits of corporate “efficiency.”
Dan Murphy is a food-industry journalist and commentator.