Kraft Heinz Co. announced Wednesday morning that it is cutting 2,500 jobs in North America, over 5 percent of its workforce, as the conglomerate begins to consolidate after lackluster returns in its first quarter and a broader field of competition from growing niche-food companies. The company will lay off 700 workers at Kraft's corporate headquarters in Northfield, Illinois, in a measure that industry experts and workers long expected as part of a restructuring aimed to cut $1.5 billion from the company's budget by 2017.
The food conglomerate revealed Monday that sales fell 4.9 percent at Kraft and 4.1 percent at ketchup maker Heinz last quarter before the merger was completed. The decline in sales has been attributed in part to negative brand image surrounding the pre-packaged food company as part of a growing stigma of preservatives and industrial-processed foods. The company hopes to streamline some of its operations to fit into a more competitive market.
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"This new structure eliminates duplication to enable faster decision-making, increased accountability and accelerated growth," said a spokesman for Kraft Heinz, reported the Wall Street Journal.
As sales figures for Kraft Heinz fall, niche companies preaching organic values and natural ingredients have chipped away at the global conglomerate's revenue. Organic food sales grew 11 percent in 2013, according to data from the Organic Trade Association.
"If you were to ask, 'What's the core thing you associate with these two brands,'" said Hugh Tallents, a partner at management consultancy cg42, to the Washington Post, "healthy eating would not be in the top things anyone says."
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Kraft Foods Group Inc. and H.J. Heinz Co. merged last month in a deal made by 3G Capital Partners LP and Berkshire Hathaway Inc.'s Warren Buffett, who took control of Heinz just over two years ago.
"As we work to build something special at the Kraft Heinz Company, the leadership team has examined every aspect of our business to ensure we are operating as efficiently and effectively as possible," said Michael Mullen, Kraft Heinz's senior vice president of corporate and government affairs, in an email to the Chicago Tribune Wednesday about the layoffs.
The money that Kraft Heinz Co. will save through the layoffs is expected to be redirected into developing a more healthful image. It has already removed artificial coloring from some of its cheeses, according to the Washington Post.
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While younger snack-food competitors promoting a more healthy image have begun gaining a sizable share of the market -- Amplify, a company owning the popular SkinnyPop popcorn brand, was valued at a staggering $1.1 billion at its IPO last week -- the massive brand recognition and size of Kraft Heinz suggest that the company isn't in trouble.
"There is still a good part of America that fills their pantry with these products, to the tune of tens of billions of dollars a year," said Bruce Cohen, a partner at consulting firm Kurt Salmon specializing in retail private equity and strategy practice, to the Washington Post. "As much as my kids like organic crackers, they really still love ketchup."