Blog For Iowa

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DAVENPORT — The Kraft Foods Oscar Mayer plant on Second Street will be razed as its new owner, Kraft Heinz, plans to move operations and layoff much of the workforce at the long-time meat packing plant.

Wednesday’s announcement, that Kraft Heinz will close seven plants in the U.S. and Canada over the next two years as part of a downsizing that will eliminate 2,600 jobs, or roughly 14 percent of its North American factory workforce, was widely anticipated by workers.

The company plans a new Davenport facility, contingent upon government financial support, however, some view it as a devil’s bargain because the net impact will be to lose about 800 jobs.

United Food and Commercial Workers Local 431 had not been consulted about the changes.

“They threw the union under the bus,” plant employee Curtis Grant of Eldridge said in an interview with the Quad City Times.

Concessionary bargaining is nothing new to Local 431 whose members ratified a four-year contract with Kraft Foods Oscar Mayer on Nov. 13, 2014. The sticking point in those negotiations was insurance and pensions.

“Now with Heinz, the company is basically telling Davenport give us subsidies to shutter the Second Street plant and build a new facility on the north side or we will close completely and take all the work to Missouri,” said a local worker who requested anonymity via email. “Both the city and the union are painted into a corner. And now with them talking about building a new $200 million plant, the building trades are excited to get those jobs. It’s a devil’s bargain.”

In the takeover of Kraft Foods by Heinz, business partners Warren Buffett of Berkshire Hathaway and global investment firm 3G Capital hope to reduce expenses by $1.5 billion by exploiting synergies among operations and consolidating back office functions including supply chain management, accounting and administration.

On Friday, Berkshire Hathaway reported third-quarter profits more than doubled to $9.4 billion as the completion of the Kraft-Heinz merger boosted the paper value of its stake in the food giant. The deal was good for the third richest man in the world.

Thursday, the Iowa Department of Economic Development announced a $4.75 million incentive plan for the Davenport plant closing, including $3 million once the facility is razed.

“We are glad that Davenport, was able to successfully compete for a new, state-of-the-art manufacturing facility that will certainly position it for future growth,” said Debi Durham, director of the IEDA in a press release. “As major brands merge in this sector, consolidation and modernization will be the outcome.”

Durham said to the Quad City Times she is aware of the potential negative perception of providing state-funded financial assistance to a company that is downsizing its workforce both in Iowa and nationally.

“The optics are not lost on us, and believe me, the sensitivity is not lost on us. We care about people,” she said. “So we do the plays that we believe give us the greatest opportunity for the future, and I think that was what you saw here today.”

Durham said offering financial assistance to a company that is downsizing is not unique and could become more common as more large companies merge.

“We’re going to see more of this,” Durham said. “You’re seeing large mergers going on at a very high level between equals. And any time that happens and we have facilities, that’s something to watch for us.”

It appears Durham’s department has become like a turkey vulture picking over the carrion of what used to be a robust manufacturing economy and the middle class it supported.

If we consider what the Davenport plant makes – bologna, Lunchables, and other branded, highly processed meat products – this day had to come. In part, consolidation of the food industry is a reaction to the fact that tastes have changed and sales of some traditional products have declined. The processed meats industry is experiencing declining consumption of meat in general, and an interest in healthier options, according to data aggregator Statista, Inc.

The World Health Organization supports moderation of consumption of preserved meats to reduce the risk of colorectal cancer and has been doing so since 2002. On Oct. 29, WHO released a new report regarding the connection between red meat and cancer. Juxtaposition of this story with news about Kraft Foods Oscar Mayer, and Buffett’s third quarter financial results tells a broader story. Things have changed since Oscar F. Mayer immigrated from Germany and began selling sausages from his butcher shop in Chicago in 1883.

This story hits personally because not only did my maternal grandmother, my father and I work at the plant, the rise of Oscar Mayer as a global brand framed my early participation in our consumer society. I’m not alone in that.

When the Mayer family sold the company to General Foods in 1981, the Reagan revolution that resulted in decimation of the middle class had already begun. While it would have been hard to predict today’s outcome in 1981, what’s happening is not surprising in that context.

The two year transition to plant closure will hopefully enable employees to figure out what to do with the rest of their lives. Perhaps that is the best that can be expected.

Here is the entire statement provided to employees at one of the affected plants:

“Following an extensive review of the Kraft Heinz North American supply chain footprint, capabilities and capacity utilization, we are announcing the closure of seven manufacturing facilities in North America: Fullerton, California; San Leandro, California; Federalsburg, Maryland; St. Marys, Ontario, Canada; Campbell, New York; Lehigh Valley, Pennsylvania; and Madison, Wisconsin. In a staged process over the next 12-24 months, production in these locations will shift to other existing factories in North America.

We are also planning to move production from our existing Davenport, Iowa, facility to a new, state-of-the-art location within the Davenport area; and move part of our cheese production from our Champaign, Illinois, facility to other factories within our network, which will create will make Champaign a center-of-excellence in dry and sauce production. Both moves will take up to two years to complete.

Our decision to consolidate manufacturing across the Kraft Heinz North American network is a critical step in our plan to eliminate excess capacity and reduce operational redundancies for the new combined Company. This will make Kraft Heinz more globally competitive and accelerate the Company’s future growth.

We have reached this difficult but necessary decision after thoroughly exploring extensive alternatives and options. This action will reduce the size of our North American factory-based employee population by a net number of approximately 2,600 positions.

At the same time, we will invest hundreds of millions of dollars in improving capacity utilization and modernizing many of our facilities with the installation of state-of-the-art production lines.

We will treat our people with the utmost respect and dignity. At the appropriate time, affected employees will receive severance benefits, outplacement services and other support to help them pursue new job opportunities. Kraft Heinz fully appreciates and regrets the impact our decision will have on employees, their families and the communities in which these facilities are located,” Michael Mullen, SVP of Corporate & Government Affairs.

“Additionally, Kraft Heinz is announcing that in 2016 we will move Oscar Mayer and our US Meats Business Unit from Madison, Wisconsin to our co-headquarters in Chicago. The move will bring 250 jobs to the Chicago area.

Members of the Oscar Mayer and US Meats Business Unit will have the opportunity to move with the business to Chicago. The move centralizes all our U.S. Business Units to our co-headquarters of Chicago and Pittsburgh, which will drive increased collaboration and efficiency.”