When Brazilian private-equity firm 3G Capital and Warren Buffett's Berkshire Hathaway bought Pittsburgh-based Heinz two years ago, they cut about 400 headquarters employees, or about a third of the company's corporate staff in Pittsburgh, within the first six months. If they follow the same playbook in Northfield—which seems likely, insiders say—as many as 700 of Kraft's 2,300 local employees could be out of a job by the end of the year.
That would be the largest mass dismissal locally since 5,600 Dominick's employees lost their jobs in December 2013 when the supermarket chain closed all of its stores. Before that, American Airlines cut 987 jobs in 2012 as part of a bankruptcy reorganization, according to state data.
Kraft Heinz, whose products will include a basket of grocery staples from Oscar Mayer meats and Kraft Macaroni & Cheese to Heinz ketchup and Ore-Ida Tater Tots, will be run from Pittsburgh and the Chicago area, the companies have said, though they have not said which functions will be retained here. Kraft has been struggling to boost sales and profit since it split from Deerfield-based Mondelez International in late 2012.
This year's cuts likely would be only the start.
Kraft and Heinz project annual cost savings from the combination to reach $1.5 billion by the end of 2017, which executives said would be achieved through increased scale, operational efficiencies and cost reductions. While neither company publicly has acknowledged layoffs as part of the mix, Kraft CEO John Cahill told employees in a video shortly after the merger was announced that “cost-cutting will be a focus. I do want to be candid.” And the combined company's prospective CEO, Bernard Hees, told Kraft employees in April that “change is never easy.”
LOOK TO PITTSBURGH
That certainly has been true in Pittsburgh.
Since 3G and Omaha, Neb.-based Berkshire Hathaway closed the Heinz deal in June 2013, the company has slashed more than 7,000 jobs, a component of ruthless cost-cutting measures that helped boost its 2014 profit to $657.1 million, according to the company's annual report filed in March. In its first full year under new ownership, Heinz's managers cut expenses by 19 percent through restructuring, layoffs, plant closures in the U.S., Canada and Europe, and other initiatives aimed at generating $250 million in annual savings.
“When 3G and Berkshire take an ownership stake, they reduce costs, and that almost always includes significant layoffs,” says Wade Pierson, founder of staffing firm Impact Talent Ventures in Medford, N.J. “It's pretty widely known among the circles of folks in my business and others who cover the (industry) that they're coming, but what we don't know yet is how many and what positions.”
At Heinz, the layoffs came in several waves and included workers at every level. The first cuts came about six weeks after the deal closed and took out some 600 workers in Heinz's North American operations, including about 350 office workers in Pittsburgh. Five months in, the new company had cut a total of 2,000 corporate and field positions through the closure and consolidation of manufacturing facilities and corporate offices. Weeks after those cuts had concluded, Heinz announced it would close three plants in North America and dispatch about 1,350 more employees.
Buyouts and layoffs continued in 2014. By the end of last year, Heinz had 24,500 employees worldwide, down from 31,900 when the company announced its takeover by 3G and Berkshire Hathaway in April 2013.
Because Heinz already has been through the efficiency wringer, it's likely that the preponderance of cost-cutting and layoffs will target the Kraft side of the business, analysts and company insiders say.
MAKING THAT LIST
Those cuts are likely to target positions in corporate functions like human resources, accounting, finance and marketing. They could include members of sales teams who call upon the same accounts as their new colleagues at Heinz. There also could be efforts to streamline distribution and possibly production, raising the specter of plant closures, or “manufacturing rationalization” as it's known in industry parlance.
“Across the board, obviously, 3G has shown a penchant of taking a more heavy hand with regards to operating costs, and we think they will employ that stringent focus when looking at the combined operating cost structure of Kraft and Heinz together,” says Erin Lash, an analyst at Morningstar in Chicago. “Like other (consumer packaged goods) companies, Kraft has been working to streamline costs even prior to this announcement, but we expect those efforts will occur at an even more pronounced level when the businesses are combined.”
Senior teams from Kraft and Heinz have been meeting regularly since the merger was announced in March to identify areas of overlap between the two food giants, but they have not disclosed plans to anyone outside senior and executive level teams, sources say. No job cuts are expected before late August, insiders say, but some midlevel workers have begun independent job searches ahead of potential layoffs, staffing firms, current and former employees say.
Pierson, the staffing firm executive, says that in combinations involving companies as large as Kraft and Heinz, executives from both companies “are literally mapping out each department, each position and trying to figure out where there's overlap and where do certain (workers) fit within the (merged) company.”
In addition to layoffs, Pierson says, a significant number of workers likely will be asked to take on new roles, potentially in different locations. “There will certainly be disruption, but these are both well-managed companies.”
COMMITTED TO CHICAGO
Michael Mullen, a Heinz spokesman, cautions that many details about the new organization have not yet been determined. “This includes finalizing and announcing the new leadership team who will lead the company and integration of Kraft and Heinz,” Mullen says in an email. “Our priority will be to communicate with all employees openly, honestly and often throughout this process.
"Many things will stay the same, and we remain committed to our hometowns with our co-headquarters in Pittsburgh and Chicago.”
While Heinz CEO Hees will lead the new company, the remainder of the Kraft Heinz executive team has not been identified. The new team “will lead the new company including the ongoing integration efforts,” says Basil Maglaris, a Kraft spokesman. In a regulatory filing yesterday, Kraft says Heinz executives have spoken with some members of Kraft's senior management team about remaining with the combined company following the merger. (Cahill, for instance, will stay on in a diminished role as vice chairman.) Kraft says no other final decisions have been made.
Kraft's shareholders are expected to approve the combination in a meeting scheduled for July 1. The companies expect the transaction will close as soon as the next day.
“It's important to note that, until the transaction is closed, we remain two independent companies,” Maglaris says. “The work being done now is led by an integration team comprised of both Kraft and Heinz executives, including Kraft senior leaders representing every function and discipline in the company. They're gathering information to ensure a seamless transition, including critical details to inform the longer-term structure of the company and value-creation opportunities.”