Supply Chain Matters provides a follow-up to the previously announced acquisition of noted consumer product goods manufacturer HJ Heinz. This multi-billion acquisition by the combination of 3G Capital and Berkshire Hathaway earlier this year sent shockwaves across CPG industry supply chains because of the ramifications.

Yesterday, Heinz announced that it is consolidating its North America production operations after previously announcing corporate restructuring impacting 1200 people.

According to a published report in the Pittsburgh Post-Gazette, Heinz management announced that it would close three plants in North America in the next six to eight months, affecting 1,350 jobs in South Carolina, Idaho and Ontario, Canada. The Leamington, Ontario production facility was making ketchup among other products for more than a century. When that plant closes next year, 740 jobs will be lost. The Florence, South Carolina plant, which employs 200 people, makes Smart Ones frozen foods and had only been open a few years. The Pocatello, Idaho, plants produces frozen entrees and snacks, and it employs 410 people.

In-turn, the company plans to shift production to five existing plants in Ohio, Iowa, California and Canada, adding a total of 470 positions at those sites. It further indicates that it intends to invest more in these remaining sites although specifics are lacking.

According to the Gazette article, Heinz trimmed 600 office positions in its North American operations, including 350 jobs in the Pittsburgh area this summer. Layoffs also have come in other parts of the global company’s operations. In September, Heinz reported in a regulatory filing that about 1,200 employees had been affected by its restructuring.

As noted in our February commentary, 3G Capital  has demonstrated a previous track record of wringing-out operational costs from previous its M&A efforts at AB In-Bev and Anheuser Busch, along with Burger King. The Heinz effort now rapidly continues with these continuing series of announcements.

Wall Street insiders conclude that previous efforts at cost cutting and headcount reductions have run their course across the CPG sector and the new path to growth lies in more industry consolidation and financial engineering. In the light of challenging revenue headwinds, CPG company senior executives, in order to ward off these threats, continue to support aggressive stock buy-back programs with available cash to potentially block a hostile takeover.

Just this week, Supply Chain Matters noted a judgment in the dispute between Starbucks and Kraft over packaged coffee distribution.  The awarded $2.8 Billion arbitration award in that case is slated to fund additional stock buy-back by Kraft spin-off Mondelez International, which is under threat from activist investors wanting to form a new global snack foods giant. The Kellogg Company has also embarked on a multi-year supply chain efficiency and effectiveness effort.

The threat of a renewed hunker-down emphasis has the potential to once again foster highly lean CPG supply chains with little flexibility or capability to respond to more demanding customers, market opportunities or global risk. It leads to a different set of dynamics where cost-cutting once again becomes the dominant force and efforts toward supply chain transformation take on more short-term orientation. Perhaps Heinz will be different- perhaps not.

Some would argue, in the spirit of Darwinism that this is the current natural order of things, and that financial engineering accomplishes transformation in far speedier manner. Some can argue effectively that the cost in employee dedication, loyalty and innovation takes an even heavier toll, especially when a chosen few reap the financial rewards while added debt burdens the victims.

It is unfortunate that this is the current state of affairs among CPG supply chains.

Bob Ferrari