With widespread layoffs of office workers underway, ConAgra Foods now is turning its cost-cutting eye toward its manufacturing plants.
Slimmed-down operations at the company’s Council Bluffs plant are just a small slice of the changes in store for the Omaha company’s thousands of manufacturing workers around the U.S.
ConAgra also will shut down a tomato paste plant near Fresno, California, in mid-March, laying off 102 workers. An egg products factory in St. Louis will close in April, putting 75 out of work. A meat products plant is being considered for cuts or closure in a northwest Missouri town where it is the largest employer, with more than 400 workers.
And other cuts could be in store, as a new supply chain executive reviews ConAgra’s manufacturing network in the face of intense industry competition, pressure from shareholders and a shifting portfolio of food products.
The company wouldn’t discuss the details, but said it is making visits to plants where changes are being considered to talk with employees about challenges in its business.
A plant supervisor in Council Bluffs told workers this winter that the plant will idle one of nine production lines to make the plant more efficient. The company said job losses aren’t expected at that plant, where about 850 people make frozen pot pies and microwave dinners.
A spokesman wouldn’t say which other plants might see cuts.
Even before a new chief executive ushered in major changes last summer — announcing he would relocate the company headquarters and break off two of ConAgra’s three business units — the company was in the midst of reorganizing its supply chain. That’s the system of suppliers, plants, transportation and distribution centers necessary to turn raw materials into packaged food on store shelves.
ConAgra as of last summer operated more than 30 plants in 14 states in support of its dozens of grocery-store food brands, such as Slim Jim, Healthy Choice and Marie Callender’s. In the Midlands, ConAgra also has a factory in Lincoln that employs about 90 and makes Fiddle Faddle and other popcorn products, and a pudding plant employing about 160 in Waterloo, Iowa.
But now, the pace of change may be picking up. Why?
Slow sales: Packaged food companies are fighting for business and shelf space as some consumers turn to startup brands and fresher food. Restaurant traffic also is growing.
“Manufacturing plants are more efficient with more volume,” said Lora Cecere, chief executive of consultancy Supply Chain Insights. “The companies are struggling on operating margins, and so they’re shutting plants.”
Earlier industry efforts — such as ConAgra closing two popcorn plants in Ohio in 2014 — haven’t been enough.
“Although most companies have already embarked on their own cost-cutting initiatives, the expectation is that greater savings must be found,” industry analyst Nick Fereday of Rabobank said in a January report. “In this tougher new environment, anticipate heads to roll” among executives if profits aren’t bolstered.
Fresh eyes: ConAgra hired former Campbell Soup executive David Biegger in October, for the new position of chief supply chain officer. At Campbell, Biegger cut salaried supply chain positions and closed several plants, including a California soup plant, a New Jersey spice plant and a South Carolina bakery.
He has a reputation for running plants with “high asset efficiency” — running machines more often, Cecere said. For example, with one line idled in Council Bluffs, the eight other lines will be running at fuller capacity.
“The more I run the machines, the more money theoretically I make from them,” Cecere said. There’s a trade-off, however, she said. Running lines at fuller capacity might mean more inventory sitting around during slower times of year — another cost for a company.
New focus: At ConAgra, Biegger reports directly to the chief executive. That’s a trend in business today, said Scott Grawe, a professor of supply chain management at Iowa State University.
“We’re starting to see more and more companies set a place at the table in the executive board room for supply chain officers,” he said.
The supply chain today is seen as a bigger asset to the company, and an area where companies can find a competitive advantage. Consider the advantage Amazon has with its two-day shipping, Grawe said. An efficient supply chain not only saves money, it ensures product is on the shelf at the time and in the condition the consumer expects it.
“When you look at the expectations customers have in terms of product arriving fresh, on time, and quickly, it takes a very well-operating supply chain to make those things happen.”
Activist shareholders: These investors are demanding big changes to drive up stock prices and profit margins throughout the industry. Cuts to plants and throughout the supply chain are just another manifestation of what Rabobank’s Fereday calls the “3G diet.”
3G is the company Berkshire Hathaway partnered with to buy Heinz in 2013; Heinz and Kraft then merged in 2015. The company is known for slashing payrolls, closing plants and requiring strict cost controls.
Competition: Not only ConAgra, but General Mills, Mondelez, Kraft Heinz and Kellogg have been shedding manufacturing plants, Fereday said. Kellogg’s Omaha plant was at risk last year but was kept open when the company renegotiated a union contract with workers.
Fewer brands: ConAgra is slimming down into a company focused solely on consumer foods, and it is considering selling its less-profitable brands. Fewer brands means fewer factories.
Different food: Meanwhile, the brands where it is investing are changing their recipes. Banquet meals now have more meat. Hunt’s is selling organic tomatoes. Egg Beaters is exploring a switch to cage-free eggs. Peter Pan launched a Simply Ground product with a different texture. All these changes shake up the supply chain, with different ingredients, production methods and packaging.
Different stores: ConAgra and its competitors are making production changes to better compete in popular convenience stores and club stores like Costco. These customers demand different types of packaging, meaning shifts in factories.
Further to go: Compared with its peers, “ConAgra has been a laggard,” said Cecere, who compares the efficiency of different companies’ supply chains. Her research finds ConAgra behind several of its peers on operating margin, inventory turnover and return on invested capital.
“That’s one of the reasons Dave was hired. He has to make tough choices to make the business more viable,” she said.
ConAgra said its attention to supply chain is nothing new.
“It’s an ongoing process that in the food industry is really required to maintain a competitive presence,” spokesman Dan Hare said. “We’ve been very successful in the past and we will continue to aggressively pursue new approaches and initiatives.”
All the attention to efficiency doesn’t necessarily mean plant closures. In fact, closing a plant may be a last resort.
“In the boardroom, that typically weighs pretty heavily on the minds of those making decisions,” Grawe said.
A company also might look to renegotiate contracts with suppliers, reconfigure packaging, load trucks with less product damage, or cut inventory.
“One of the things you can expect to see is process change,” Grawe said. “It’s not always about doing less, like closing facilities or outsourcing transportation. In some cases it could be about figuring out where your strengths are, and doing more of that.”
The changes won’t necessarily be focused in any one geographic area, though geography plays a part in making decisions when it comes to proximity to ingredients, distribution centers and customers, experts said. Some of the changes could benefit Midlands communities.
For example, ConAgra announced last year it would expand its Waterloo, Iowa, snack foods plant to add David sunflower seed production, closing two older facilities elsewhere in the country.
Local officials said construction is underway on the $50 million plant expansion, and production should begin this year, adding 50 to 60 jobs in a community hit by layoffs in ag equipment manufacturing.
But in other communities, the uncertainty is weighing on people.
Trenton, Missouri, City Administrator Kerry Samson said the ConAgra meat products plant in his community is the biggest employer, with 425 workers producing Wolf Chili, Libby’s Vienna Sausage and other products.
ConAgra officials met with workers in January to discuss challenges in the business and the possibility of changes at the plant.
Samson tries to reassure people, telling them, “It’s not time to panic.”
But they worry anyway: “We have reports of some people trying to sell their houses.”
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