State wants to prevent closure of Lehigh Valley Kraft Heinz plant
State wants to prevent closure of Lehigh Valley Kraft plant
UPPER MACUNGIE — The news out of Kraft — then called Kraft Foods Group Inc. — in August 2013 was very different than the blow delivered by the company Wednesday, when it announced it will shutter its Upper Macungie Township plant and put 415 people out of work.
At the time, then-Gov. Tom Corbett heralded Kraft's announcement of a $35 million investment in its Upper Macungie Township facility to add four production lines pumping out products for single-serve coffee-making equipment, saying Kraft was "helping to put Pennsylvanians back to work."
The expansion, aided by a $200,000 Pennsylvania First Program grant, was expected to add at least 45 jobs.
Now, the state could claw back some or all of that grant if it can't reverse the company's decision to close the plant. Lyndsay Kensinger, spokeswoman for the state Department of Community and Economic Development, said the company, now called Kraft Heinz, will undergo final monitoring for the $200,000 grant in March, at which time the specific potential clawback amount will be determined.
But first, Pennsylvania is hoping it can change the company's mind — or at least reach a compromise.
After learning of the closure, Kensinger said, Gov. Tom Wolf instructed his Action Team, a group of economic development professionals, to meet with Kraft Heinz officials to explore opportunities to prevent the closure of the plant or establish a plan to market the facility and secure a new employer at the site.
State Rep. Gary Day, R-Lehigh, echoed that sentiment with one of his own, hoping Kraft Heinz will reconsider the closure and give state officials an opportunity to address its concerns.
"To ensure efficient and effective operations, it is my hope that they realize the strategic geographic location of Upper Macungie Township, which is located within an eight-hour drive of one-third of the country's population," Day said in a statement.
In an email, Kraft Heinz spokesman Michael Mullen said the company's goal is to identify a buyer for the facility over the next 12 to 24 months before the factory closes. According to Lehigh County property records, the roughly 1 million-square-foot facility on almost 92 acres at 7352 Industrial Blvd. in Upper Macungie has a total assessment of $12.8 million.
The plant makes a variety of products, including condiments such as A.1. Steak Sauce and Grey Poupon mustard. It also makes on-demand coffee products forKeurig and Tassimo.
Kraft Heinz brought bad news to more than just the Lehigh Valley community Wednesday. The Upper Macungie plant is one of seven manufacturing facilities in the United States and Canada that will close as part of a downsizing that will shed 2,600 jobs. The other plants slated for closure are in Fullerton and San Leandro, Calif.; Federalsburg, Md.; Ontario, Canada; Campbell, N.Y.; and Madison, Wis.
Production at those plants will shift to other factories in North America, Mullen said.
Meanwhile, in New York, Gov. Andrew Cuomo and Sen. Charles Schumer on Wednesday announced an agreement with Kraft Heinz to save three of its upstate plants. The deal includes a matching capital investment from the company and the state in the three plants.
Still, Kraft Heinz decided to close its Campbell plant but, according to New York state, will "work with state, federal and local officials to help find a strategic buyer for the facility that would keep the plant open and retain the 393 jobs."
Kraft completed its merger with H.J. Heinz in July, creating the third-largest food and beverage company in North America.
Since the acquisition closed, the combined Kraft Heinz Co. — co-headquartered in the Chicago area and Pittsburgh — hasn't wasted time in eliminating costs. Brazilian investment firm 3G Capital, which engineered the deal with billionaire investor Warren Buffett's Berkshire Hathaway, has a reputation for deep cost-cutting measures, and executives have said they expect to save $1.5 billion in annual costs by 2017.
In addition, shoppers are increasingly demanding fresher, less-processed food — putting more financial pressure on food companies.
In August, the cuts began with the company's announcing it would eliminate about 2,500 salaried jobs, including 700 in Northfield, Ill. And on Wednesday, the cuts moved to manufacturing, chopping the Upper Macungie plant that benefited from $200,000 in state funds.
Economic experts with Harrisburg think tanks such as the Commonwealth Foundation and the Keystone Research Center say subsidies to big companies like Kraft Heinz are wrong, especially when the business has no firm ties to the area.
So when hearing that Kraft Heinz made the announcement to close a plant that had received state money just two years earlier, Bob Dick, policy analyst for the Commonwealth Foundation, wasn't surprised.
"It's the risk that you run when you hand out these special subsidies," Dick said.
Even if the state recovers some or all of the $200,000 grant, it is still using resources to get back money it handed out in the first place.
Stephen Herzenberg, executive director of the Keystone Research Center, said giving subsidies to individual businesses is the wrong approach to economic development. That money, he said, could instead be spent on improving employees' skills.
"The bottom line is industrial recruitment, handing out a check to a company, might have been cutting edge in Mississippi in 1953, but it's old and bad practice in Pennsylvania in 2015," Herzenberg said.