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Kraft on a Diet After the Cadbury Feast - How Many Union Jobs Lighter?

19 February 2010 News
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News Release
Kraft Foods Starts New Year 150 Million Pounds Lighter
NORTHFIELD, IL (January 27, 2010) – A few years ago, Kraft Foods decided to lose a lot of weight.

Financial News Release
Kraft Foods Succeeds in Offer for Cadbury Plc
NORTHFIELD, IL (Feb 02, 2010) -I warmly welcome Cadbury employees into the Kraft Foods family and look forward to meeting many of them in the days and weeks ahead. This combined company has a phenomenal future, and I firmly believe it will deliver outstanding returns to our shareholders.
- Kraft Foods CEO Irene Rosenfeld

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Kraft Foods' Code of Conduct is introduced by a vintage advertisement for Kool-Aid, a powdered sugary beverage: You loved it as a kid. You trust it as a mother.

This is accompanied by an inspirational message from CEO Irene Rosenfeld, The  Kool-Aid ad,  according to Rosenfeld, "beautifully captures the essence of trust that has been our way of doing business for more than 100 years."  Trust, the Code informs us, is Kraft's most "essential" value: "Trust means that others can rely  on us to speak  truthfully, to honor our commitments, and to treat people fairly." The reader also learns that  "Trust is fragile…Selling a contaminated product, misleading consumers, lying in our financial statements; any one of these acts would destroy trust." Loss of trust means that "Mothers will not believe our ads…"

Nestlé is gambling that mothers still trust the Kraft frozen pizza that was recalled in 17 US states last August due to the presence of an undeclared potential allergen. In January they shelled out USD 3.7 billion in cash for the frozen pizza business, giving Kraft some much-needed cash to pay for the Cadbury takeover.

The UK's Unite recently got a lesson in truthful speaking and fair treatment  when Kraft, under public pressure from a British public with strong memories of Kraft's acquisition and subsequent closure of the famous Terry's chocolate factory in York, cynically encouraged hopes that Cadbury's UK Somerdale factory, scheduled to be closed by Cadbury, might remain open in the event of a takeover.

Kraft, according to a Unite press release of February 9, "ignored repeated requests for meetings and discussions over the future." Unite noted that "Even as senior management were on site in Somerdale preparing to make their statement to our members, a Kraft director was assuring Unite that they had not made any decision yet but we would be the first to know. This sends the worst possible message to the 6,000 other Cadbury workers in the UK and Ireland.  It tells them that Kraft care little for their workers and have contempt for the trade union that represents them."

For decades, Kraft workers in the US have been downsized, subcontracted and outsourced out of their jobs, as Kraft responds to every pending investor call and quarterly report with new announcements of layoffs and closures. When they hear "growth", they know what to expect. But the Cadbury Somerdale story is not unique in the UK, or at Kraft Europe.

The GMB union officer who negotiated the closure of the Terry's plant called it "death by stealth", recalling that " We were being told privately by Kraft that they were looking for a more adaptable site in York. It transpired that they were always planning to move production to Eastern Europe."

Kraft built its European expansion on the 1990 acquisition of Jacob Suchard and the takeover of Scandinavian confectioner Freia Marabou three years later. Since Freia Marabou was registered in Norway, Kraft was legally obliged to spell out its business plan in order to gain government approval.

So to do the deal Kraft made explicit commitments to maintain the company's 5 product categories. In rapid succession, these were sold off, outsourced or transferred abroad; today only chocolate remains. Kraft stated that a key reason for the acquisition was to increase the volume of chocolate production; it was steadily whittled down through production transfers and subcontracting. The Nordic head office was to remain in Oslo; it was quickly moved to Stockholm. Kraft promised to safeguard company tradition and culture; it has been processed like cheese spread beyond recognition.

Of course Kraft always cited, and continues to cite, changing circumstances for these sudden about-turns. When now ex-Cadbury Chairman Roger Carr announced on January 19 that the price was right for Cadbury to sell he belatedly discovered Kraft's commitment to  "our heritage, values and people throughout the world" just 5 days after publicly deriding the company as an underperforming "unfocused conglomerate."  Circumstances clearly had changed. But Carr could cash in his stock options and bonuses and move on. Kraft workers have no such options, and are understandably anxious about their position within a company whose acquisition bulimia has left it heavily in debt and with little credibility when it comes to something as essential as… trust.

When Kraft bought Danone's European biscuit business, Rosenfeld announced they were financing the acquisition by taking on new debt in order to continue using cash to fund the share buyback program. Choking on debt, Kraft had to put the buybacks on hold. Kraft invested heavily in reaching out to investors to convince them the company was healthy (and laid off additional thousands to show its commitment to "shareholder value"). The investors remain unconvinced, but at least they get their conference calls. Unite couldn't get a meeting – and Kraft has rejected calls by unions around the world to meet with them and the IUF as their global counterpart.

The Somerdale lesson won't be easily forgotten. Kraft would be well advised to consider that trust is indeed essential for healthy industrial relations, and that it requires more than Kool-Aid and not-so-Krafty lies.