Heinz has announced it will cut 1900 jobs in canned food. The American food company will close its tuna operations in Puerto Rico and centralize pet food operations in Pittsburgh. The hope is that this action will reduce the drag on earnings and reduce the disparity with its more successful foodservice and ketchup divisions.
The announcement that 1900 jobs are to be axed at Heinz comes just two weeks after the release of the company’s latest profit warning, suggesting that there is still some way to go before Heinz’s substantial restructuring costs begin to bear fruit.
This latest exercise will cost the company $300 million and comes on top of $1.9 billion that the company has already spent on restructuring its operations into ‘food solutions’ themed business units, casting doubt on Heinz’s assertions that it is on course to deliver earnings growth in the near future. Heinz’s third quarter results revealed that core earnings, excluding restructuring costs and tax benefits, were flat while sales for the period actually fell 1.1%.
Heinz’s problem is that despite a belated focus on creating innovative products its portfolio is still weighted heavily to slow growth markets such as canned food, or markets where it has little ability to set the agenda.
Consumers have come to regard canned food as a commodity, with little scope for Heinz to introduce packaging innovation to make its products stand out from competitors’. In the faster growing pet food market, Heinz’s position has been weakened by Nestle’s acquisition of Ralston Purina, which together with Mars now dominates the global pet food market. In tuna the company blames low global prices, while in baby food it is facing firmer competition from European suppliers.
Heinz’s restructuring has produced some success stories, notably its EZ Squirt kids ketchup, its Boston Market HomeStyle meals and its Forever Full ketchup bottle. Growth has also been strong in its expanding food service business. But overall, too many of Heinz’s business units are underperforming and more radical surgery may be needed if the company is to guarantee its independence in the current climate of food industry consolidation.
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