Analysts Expect More Job Cuts in Food Industry : Kraft to Lay Off 250 as Result of Recent Merger

Kraft Inc. said Monday that it will lay off about 250 employees during the next two months as a direct result of its recent merger with Philip Morris Cos.

Analysts say jobless Kraft employees could have plenty of company soon as the recent wave of mergers and takeovers--such as Grand Metropolitan PLC’s acquisition of Pillsbury and the Kohlberg Kravis Roberts & Co. purchase of RJR Nabisco--in the food industry forces corporations to eliminate jobs and cut expenses.

“I do think that’s going to be the case, with Kraft and Pillsbury being the two most obvious,” said food industry analyst Craig Carver at Dain, Bosworth Inc., a Minneapolis brokerage firm.

The Kraft layoffs, which comes about two months after the company agreed to be acquired by Philip Morris for $12.9 billion, is aimed at reducing costs and eliminating redundant staff positions, a company spokesman said.

Kraft, which makes such products as Velveeta spread, Miracle Whip and Philadelphia cream cheese, said the 250 layoffs will involve employees at its headquarters in Glenview, Ill., near Chicago and in nearby offices. The company employs 46,000 workers, including 2,800 in the Chicago area.

Kraft spokesman Gene Stevenson said no further layoffs are expected as a result of the merger with Philip Morris. However, he said an ongoing cost cutting program and “aggressive” profit goals could trigger other staff cutbacks.

More Productive

Last year, Stevenson said, Kraft laid off 250 employees nationwide as a result of efforts to curb expenses and boost profits. “Anytime you are in a productivity program, that kind of thing can always happen,” he said.

Industry analysts said Monday that further layoffs at Kraft will probably be limited to corporate staff and top managers, whose jobs are duplicated at Philip Morris’ General Foods division.

“It makes them a little more productive,” analyst Roger W. Spencer at Paine Webber said of the layoffs. “That’s what counts.”

Analysts said Philip Morris has moved much more quickly to cut staff at Kraft than it did four years ago when it bought General Foods, which makes such products as Post cereals and Jell-O desserts.

“When they bought General Foods, the chairman of Philip Morris said they were going to leave it alone for two years,” said John C. Maxwell Jr., food analyst for Wheat First Securities in Richmond, Va. “This time around he made no promises. He learned his lesson. They’ve been chopping away at General Foods for the past six months,” Maxwell said.

Job cuts at Kraft will probably spread to the other food companies that have been caught up in recent takeovers, analysts said.

Maxwell predicted that more jobs will be lost if some of RJR’s divisions are sold, as expected, to other food companies.

“If they get merged with another food company, I’m sure there are going to be some redundancies,” he said.

Since salaries, benefits and other associated costs can account for 70% of corporate expenses, it’s not so surprising that takeovers often result in quick cutbacks in company payrolls, said Andrew K. Sherwood, president of Goodrich & Sherwood, a consulting firm.

Brands More Important

Sherwood said food company managers may be even more vulnerable to layoffs than most executives because brand names are often the target of an acquiring company, not current employees.

“The brands are more important than the people are,” Sherwood said. “It really does not matter who is the brand manager on Hellman’s mayonnaise. You can find someone else who is a good brand manager. But you can’t find another Hellman’s mayonnaise.”