Further Cuts to US Food and Beverage Innovation

The Wall Street Journal’s year-end summary of memorable news highlights the continuing de-investment in R&D and innovation in the US.  Typified by the actions of H.J. Heinz Co.’s new owners who aren’t hesitating to squeeze costs out of the ketchup maker.

Since taking over in June, Brazilian private-equity firm 3G Capital (many of the same players who formed InBev, taking over Anheuser-Bush) and Warren Buffett‘s Berkshire Hathaway have said they are eliminating 1,480 jobs, including about 600 corporate positions and the closure of three factories next year.

The unexpected takeover of Heinz, along with other activist investor pressure, has prompted other food companies to take a look at their cost structures, analysts say.

Kellogg Co. K +0.78% outlined a plan to reduce its global workforce by 7% in the next four years, including the closures of two factories in Canada and Australia next year. Mondelez International Inc., MDLZ +0.55% the maker of Oreo cookies and Ritz crackers, is building more efficient factories to replace older ones that require more human labor.

Heinz was thought to be fairly lean compared with most targets of private equity buyers since it began a multiyear cost-cutting initiative in 2006. But 3G Capital has a reputation for being especially critical of costs. When the firm bought out Burger King in 2010, it went so far as to regulate use of the color photocopier at headquarters.

3G’s approach to innovation is nearly singular focus on cost reduction.  It manifests itself not only in headcount reductions and reduction in team seniority, but in new managers who pride themselves on how little they can do (thus spending the least amount of money).  

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