Nestle USA will close a San Fernando Valley production plant that makes Hot Pockets by early October, shifting operations to an existing plant in rural Kentucky where costs are cheaper.
The move will eliminate 360 jobs at the Chatsworth plant, which has been making the frozen sandwiches since 1988.
A spokeswoman for Nestle USA, based in Glendale, said Wednesday that the consolidation at the Kentucky plant gives the company more room to expand and a more centrally located distribution point.
“Our overarching goal is to run highly efficient manufacturing facilities and try to be as close as possible to the customers we serve,” said Nestle spokeswoman Roz O’Hearn.
Experts said Nestle’s decision is in line with a larger exodus of manufacturing jobs from Southern California over the last two decades.
Los Angeles County has seen a 57% decline in the number of manufacturing jobs since 1990, compared with a 31% drop nationally, according to federal and state data. As a percentage of the workforce in the county, manufacturing jobs dropped from nearly 20% in 1990 to 8.4% this year — a steeper decline than the rest of the country.
California’s high cost of living can be a serious cost consideration for firms, especially food manufacturing jobs that tend to pay low wages.
“They look at stuff like taxation, energy costs and housing costs, and it becomes a business decision,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. “In higher-skilled industries, they are hesitant to move because that labor force is not available anywhere. But for lower-skilled ones, they have an easier time leaving.”
That trend in California has the potential to leave lower-educated workers behind.
While the growth in high-skilled jobs is a bright spot for the economy, the state still has a large pool of unskilled workers that includes immigrants, said Raj Rajagopalan, a professor of data sciences and operations at USC’s Marshall School of Business.
“In the short run, there could be a lot of negative impact with the loss of these kinds of jobs,” he said.
Local business groups argued that Nestle’s decision was just the latest in a pattern of companies fleeing California for better business climates.
“It’s a significant loss,” said Stuart Waldman, president of the Valley Industry & Commerce Assn., a local business group. “But it’s indicative of the problems in the city and the state with business unfriendly practices.”
Nestle, however, didn’t cite taxes or regulations as reasons for the consolidation.
O’Hearn, the Nestle spokeswoman, said that while wages are always a factor, the main reason for the move to Kentucky was a lack of space in Chatsworth. Nestle is moving toward a round-the-clock schedule to boost efficiency, which she said often requires a revamp of the plant.
“We just don’t have the size to do what we need to do in Chatsworth,” she said.
She called California a “very important” state for the company.
In addition to its U.S. headquarters in Glendale, Nestle still has plants in Tulare, Bakersfield and Modesto. Its ice cream business is based Oakland, and it has a large distribution center in Mira Loma.
“But for this part of the business, it made better sense to move that production,” she said.
Employment at the Chatsworth plant has shrunk in recent years. Nestle laid off more than 100 workers there in 2012 amid static sales.
The frozen food industry has faced pressure as consumers increasingly look toward fresher options. Sales of frozen food products have been slowing over the past three years, according to IRI, a Chicago-based market research firm. And sales of Nestle’s Hot Pockets and Lean Pockets fell 5.9% over the past year, according to the firm.
Nestle said it will be investing $13 million in the Kentucky plant, which already produces Hot Pockets. It is also hiring 150 new workers there as it shifts operations to a 24-hour, seven-day-a-week schedule.
Joe Lilly, an executive director at the Kentucky Cabinet for Economic Development, said no new tax incentives figured into the Mt. Sterling, Ky., plant expansion. But since the early 1990s, Lilly said the company has participated in a tax-incentive program that allows the company to capture a small percentage of state income taxes paid by employees.
Nestle has not yet decided what to do with the Chatsworth plant, which it owns, O’Hearn said.
Human resources representatives were on site Friday to help employees find other jobs with the company, O’Hearn said. Those that don’t will receive severance and outplacement benefits, she said.
Although manufacturing jobs are exiting Southern California, economic development officials say the region’s broader economic base makes it easier for workers to find jobs across different sectors.
“Not all areas are like L.A. County, where we are so diverse,” said Carrie Rogers, vice president of business assistance and development at the Los Angeles County Economic Development Corp. “We have 200,000-plus business establishments, and there are a lot of opportunities where, if a company closes its doors, they can translate those skills to an equal compensation type of job.”