Gauging the fallout as Heinz reshuffles

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Mayor John Paterson knew the H.J. Heinz Co. plant that employed hundreds of people in his community of Leamington, Ontario, was not maxing out its production lines, but he was surprised last November to hear it had been running at about 30 percent of capacity. That detail came after the Pittsburgh food company announced the Canadian plant would be closed.

Mayor Kathy Catazaro-Perry knew the Heinz plant that employed hundreds of people in her community of Massillon, Ohio, could be on the chopping block, but she also knew her city could gain jobs if the right incentives were offered. In November, Heinz announced it would expand its Massillon facility and add 250 positions to the 450 already there.

The new owners of the H.J. Heinz Co. -- which sold for about $29 billion last June -- are making a priority of getting the North American operation in shape. That's no surprise, since the division's results have been sluggish in recent years and analysts have been looking for bold steps to improve performance.

But decisions made in the board room -- decisions that look reasonable to those assigned to generate profits and trim costs -- have consequences that play out in farm fields in Canada and industrial parks in Ohio.

The Nov. 14 announcement from Heinz that three plants would be shut -- Leamington; Pocatello, Idaho; and Florence, S.C. -- while five others would pick up work, have set off varying levels of anger, assessment and negotiations across the continent.

The affected plants are all still open, but as closing dates near, officials in the markets losing their Heinz work are wrapping up negotiations over what will happen to the big facilities, figuring out how the workers will be treated and putting together pitches to try to recruit new employers and new jobs.

A Heinz town

"Totally unexpected," was how Mr. Paterson described the news that came three months ago when Heinz officials called about 10 minutes before notifying the 740-employee Leamington workforce.

That's not entirely accurate, of course. A few days earlier an email from an outside development professional had warned bad news was coming. The community braced for either a reduction of the workforce or a closing of the plant that Leamington counted as its largest single employer and a big customer for area farmers and suppliers.

This is a community where the information booth is built in the shape of a tomato.

There's something about the latitude that draws the right amount of sun to grow the "best tomatoes in the world," said Sandra Pupatello, CEO of the WindsorEssex Economic Development Corp.

That might have been one of the attractions when officials from Heinz, a company founded in Sharpsburg, showed up in the early 1900s looking for a place to process food. The company needed access to crops as well as good transportation routes -- and a good deal.

By Mr. Paterson's account, they got it. The Leamington leaders offered Heinz a closed tobacco plant to convert along with exemptions from paying certain taxes and special water rates. "It was just about perfect for them," said Mr. Paterson.

Leamington didn't do too badly either. "The town has grown up around Heinz," said the mayor, whose family lived next to the plant. He remembers being sent out to clean up tomatoes that spilled onto the lawn when the delivery trucks made the turn off Erie Street.

Over the decades, the plant expanded. The product mix ranged from beans to sauces to ketchup and vinegar, Mr. Paterson said. The whistle that sounded shift changes was heard round the neighborhood, while smells generated by the various products filled the air.

It didn't feel as if Leamington had much of a chance to battle for its legacy. The union president told Mr. Paterson he was informed five minutes before the employees were, and his offer to open up the contract to try to make the numbers work was rejected. Heinz later said it had discussions with multiple people in the Ontario government before making the announcement. "Unfortunately, nothing could be done to save the facility in Leamington," said Michael Mullen, senior vice president of corporate and government affairs.

Mourning for lost jobs and a shared history was heartfelt and agonized. There was a candlelight vigil and accusations that Canadian politicians hadn't done enough to keep the manufacturing jobs. The Ontario government said it would provide up to $200,000 to help people in the community chart a path forward.

"How really do you prepare for something so dramatic?" asked Ms. Pupatello. Heinz was part of the local identity. "It's been a part of the very fabric of every life in the town."

Mr. Paterson believes the plant was still profitable but he accepts that Heinz made a business decision based on information that only it has. "They say they are over capacity in North America," he said.

Victims of market changes

That's what Joe King heard, too. The executive director of the Florence County Economic Development Partnership in South Carolina found out that same November day that Heinz would be closing the frozen food plant it had opened there a few years ago, eliminating 200 jobs.

"I think the reason is that they only need one frozen food facility to serve North America," Mr. King said recently, not long after he'd met with Heinz representatives to discuss the plant and the company's responsibilities in light of the closing.

That rationale would fit with trends seen before the company was sold last June to the joint venture of 3G Capital and Berkshire Hathaway.

Heinz had been watching sales grow in emerging markets for years, as newly middle-class consumers in places such as India and China exerted their buying power. Analysts said the company would eventually need to do something about its slower growth markets, including North America.

The frozen food business was a particular concern. Last year, in a report issued that February day the sale was announced, Bernstein Research analyst Alexia Howard told her clients the move from being a public company to a private one might make it easier to dispose of the company's U.S. frozen food operation.

Whether Heinz is preparing that particular division for sale or just trying to make it more profitable, the strategy represents a shift from just a few years ago when the South Carolina plant was opened. In 2008, Florence County won a competition for the 225,000-square-foot plant that promised to create 350 jobs and produce Smart Ones and Boston Market frozen entrees.

Then the market started to change. And then the company ownership changed. Even the leadership of the Heinz North America division changed recently, meaning that division has had three different leaders within the last year with the newest, Eduardo Luz, taking the job just a few weeks ago.

Mr. King's main concerns at this point are that Heinz make good on claw-backs associated with special bonds sold to support the project -- "We have to protect the taxpayers" -- and that it sets a price for the plant so it can be sold quickly. "I'm confident we will reach a solution that will be a win for both parties," he said.

Mayor Brian Blad is also losing hundreds of jobs in his community of Pocatello, Idaho, where Heinz is closing a plant that employs 410.

Heinz executives told him, too, they didn't need all the capacity they had. Ohio won out because of a location that could serve the company's markets more efficiently than the Idaho plant. "It's just geographically not where they want to focus," he said.

Like other local officials, Mr. Blad said there have been inquiries about the plant, but nothing can be done until Heinz decides what it will do and puts a price on the facility. "We will push forward and start finding someone to take the plant."

Winners and losers

The minutes of the Massillon City Council meeting Nov. 18 recounted a discussion by the council members of the news that had broken out around North America, with the elected officials trying to strike a balance between sympathy and excitement over the promise of 250 new jobs.

"We benefited from these other people's problems, but I think it shows Ohio is becoming a very competitive area," said Councilman Paul Manson, according to the transcript.

At the next meeting, the city passed an ordinance authorizing the mayor to enter into a deal to give Heinz a municipal job creation tax credit agreement "to assist the company in expanding its operations in Massillon, and declaring an emergency." Mr. Manson told his colleagues that Heinz planned to invest another $28 million there.

That was the first time the city had approved such a tax credit, something that can be done if the state offers assistance to a project. Ohio approved a 65 percent, nine-year job creation tax credit to assist Heinz in creating a total of 275 jobs in Massillon and in Fremont, Ohio, where the company has a large ketchup plant.

"We were just one of the cities in the running," said Ms. Catazaro-Perry. She felt the call could have gone either way and Massillon could have lost 450 jobs if it hadn't been competitive. "We had to put our best faces on."

A few hundred miles to the north, the community around Leamington, Ontario, is starting to wind down its longtime relationship with Heinz. The union last month accepted a deal that included funds for retraining and gave workers severance pay and some health benefits.

In late January, the Ontario Processing Vegetable Growers group announced it had reached an agreement with Heinz that would compensate 43 growers at a rate of $9 a ton based on what they'd supplied in 2013. The company contracted about 200,000 tons of tomatoes last year. The grocers thanked Heinz for being a "good corporate citizen in the region."

Getting new jobs is now the priority.

WindsorEssex moved quickly to gather information on Heinz suppliers, identifying areas of expertise and capabilities so they can be networked with other businesses. The group identified more than 70 businesses, said Ms. Pupatello. The organization also hired an American to help reach across the border to show companies the advantages of working in Canada.

There's some hope that Heinz might allow other companies to use some of the lines at the plant. Whatever happens, local officials want to know as soon as possible.

"We need," said Ms. Pupatello, "to get over it and get on with it."


Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018.

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