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player ready...ConAgra, manufacturer of processed food staples like Reddi-wip, Slim Jim and Swiss Miss, is cutting 1,500 jobs and moving its corporate headquarters and 700 jobs to downtown Chicago in an effort to increase profits, the company announced Thursday.
For decades, ConAgra has been based in Omaha, Neb., but has maintained a Chicago-area presence, most recently with a Naperville office that employs about 400 people. The move of corporate headquarters — which comes with state incentives — is part of the plan under new CEO Sean Connolly, who has said he aims to find greater administrative efficiencies, reinvigorate some of the company’s household brands and sell off the flagging private-label business.
Beginning next summer, about 700 employees will be in the company’s new Merchandise Mart headquarters, including the senior leadership team and employees in support of the consumer foods business — positions that are now in Naperville, where the lease is expiring, and in Omaha.
In total, the 1,500 job cuts — about 30 percent of the company’s global office-based workforce — and restructuring plan represent about $300 million in savings over the next three years, ConAgra said.
Connolly, who called the cuts “difficult but necessary,” said in an interview Thursday that relocating the headquarters to Chicago was a strategic move to house the executive team and consolidated consumer foods departments under one roof instead of in separate states.
“I want to be with the business,” said Connolly, who lives in Winnetka. “And I expect my executives to be with the business too.”
Currently, positions supporting the frozen food brands like Banquet frozen dinners are in Omaha, while “center store” brands like Chef Boyardee are supported by employees in Naperville. Going forward, the grocery, frozen and snack departments will be consolidated at the Merchandise Mart headquarters, which Connolly believes will help grow the brands.
“When you’re a young mother with young children, looking for an affordable midweek meal, you might be looking for both Banquet and Chef Boyardee,” Connolly said. “We’re not going to separate across temperature.”
Most of the 400 Naperville employees will be moved to downtown, he said, though there would be a “small” number of job cuts there too. More specific numbers weren’t made immediately available. Another 300 jobs will be relocated from Omaha to the Chicago office.
About 1,000 jobs will be cut from the Omaha office, which makes it the hardest hit, but about 1,200 jobs will remain there, Connolly said. The cuts will “unfold in an orderly fashion” over the next 12 months, he said.
Tax incentives from the state helped convince ConAgra to move. Gov. Bruce Rauner earlier this year agreed to offer EDGE tax credits to the firm in return for a promise to bring at least 150 jobs to Illinois and to keep them here for at least 15 years, according to Illinois Commerce and Economic Opportunity spokeswoman Lyndsey Walters.
The governor has since ordered a halt to such incentives until the state’s budget impasse is resolved, but the commitment to ConAgra was made before that decision and will be honored, sources said. The incentives allow ConAgra to receive tax credits equal to the state income tax withheld from the additional employees, though Walters did not say what dollar limit, if any, was placed on the deal.
“That’s certainly appreciated,” Connolly said of the incentives. “You can’t fail to have appreciation in that, particularly with the state of things in Illinois.”
In statements within the ConAgra news release, both Rauner and Mayor Rahm Emanuel hailed the move to Chicago.
“We look forward to the opportunities created by ConAgra’s decision to invest in Illinois, and welcome them to their new home,” Rauner said in a statement.
At the landmark Merchandise Mart, ConAgra will lease about 168,000 square feet on the building’s 13th floor, adding its name to a directory of corporate tenants in the Art Deco building that includes Motorola Mobility, Yelp, Regus, Publicis and the 1871 startup incubator. The building’s owners, Vornado Realty Trust, have repurposed the mart as office space since the traditional trade show business moved online and to Las Vegas.
Like other large food conglomerates, ConAgra has struggled to adapt as consumers trend away from traditional processed, packaged foods toward healthier options.
In its first fiscal quarter that ended May 31, ConAgra reported a loss of $1.2 billion, or $2.88 a share, compared with a year-ago profit of $482.3 million, or $1.14 a share. Included in the quarter was a write-down tied to plans to sell its private-label business later this fall.
First-quarter sales totaled $2.8 billion, up only 1 percent from a year ago.
Jana Partners, the hedge fund that took a stake in Walgreens last year and pushed for change, acquired a 7.2 percent stake and seats on ConAgra’s board in July.
Connolly was hired in April to turn the company around. ConAgra’s board hoped he could repeat the trick he performed at Hillshire Brands, which was bought by Tyson Foods last year after Connolly helped it expand into more fashionable areas including gluten-free foods and high-protein snacks.
The acquisition of the private-label business, Ralcorp, in 2013 under previous management has been a drag on the company’s operations, and Treehouse Foods is considered a likely suitor for it.
A Treehouse spokesman on Thursday declined to “comment on speculation.”
Gary Karp, executive vice president at market research firm Technomic, lauded Connolly’s leadership and vision with the restructuring plan, saying it would attract top talent to the new Chicago location.
“I give them high marks for courage and high marks for strategic approach,” Karp said.
In the years to come, consumers will continue to demand healthier food with greater labeling transparency and better quality ingredients, Karp said. ConAgra is poised to grow into that area of demand with its line of Healthy Choice foods, he said.
“All of these trends are going to continue, and we do believe that ConAgra is going to make it a key plank in their strategy,” Karp said.
Connolly, 50, had built a reputation for marketing and turnarounds during stints with Procter & Gamble, Campbell Soup and Sara Lee.
Sales of Prego pasta sauces and Spaghetti Os grew under his stewardship at Campbell, and he also scored a hit with V8 Fusion vegetable juice. But he also showed a willingness to stand up to health trends when they cost sales, according to Bill Perez, a former Campbell board member who was also a former CEO of SC Johnson and Wrigley.
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Connolly put a stop to a sodium reduction program that cost Campbell “share and flavor,” said Perez, who described Connolly as good at “both strategy and execution.”
“He was the guy who finally said to the board … we’ve got to sell soup for what people buy it for, and that is for good flavor and good taste,” Perez said.
Connolly’s brand-stewardship skills were seen as crucial at ConAgra, especially after the failed experiment of its $5 billion purchase of Ralcorp. Under pressure from activist investors, Connolly vowed in July to sell Ralcorp.
His plan to move more ConAgra staff from the firm’s suburban-style campus in Omaha to Chicago could help shake up a staid corporate culture that has a roster of “second-tier” brands, like Hunt’s tomato ketchup and Peter Pan peanut butter, which are outperformed by rivals.
It also may reflect Connolly’s move to switch ConAgra to zero-based budgeting, under which all expenses must be justified each year, rather than simply revising up or down existing budgets.
Invented in the 1970s, zero-based budgeting fell out of favor over the intervening decades before making a big comeback in recent years, according to consultants McKinsey & Company, who tout it as a “mindset shift that upends managers’ default assumptions.”
A zero-based approach, touted last week by Connolly, who said “every single thing in our budgets has now been zero-based,” typically leads to layoffs but can also generate savings that can be reinvested in other, potentially more profitable areas of a business, like relocation or increased branding budgets.
Other companies that have used the method include Kraft Heinz, which in August laid off 700 workers at Kraft’s Northfield headquarters, as well as brewer AB-InBev and Burger King.
In Thursday’s news release, ConAgra said about $200 million of the expected savings would come from cutting costs through “aggressively embracing zero-based budgeting, simplifying organizational structure by increasing spans of control and reducing layers, and outsourcing technology and back office functions to improve scalability.”
Another $100 million in other savings is expected.
ConAgra had 32,900 employees as of May 31.
Its largest customer is Wal-Mart Stores, which accounted for 18 percent of annual sales.
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