Kellogg Co. is adding its name to a growing list of U.S. companies closing plants in Ontario, as its London factory becomes a victim of changing consumer appetites.
The Michigan-based food maker will shut the 89-year-old facility as part of a four-year global retooling that will also see an Australian snack factory closed and a facility in Thailand expand. The demise of the London plant, which employs about 550 people and makes ready-to-eat cereals Corn Flakes, All-Bran and Muslix, underscores the stiff challenges facing parts of Canada's manufacturing industry, despite the recent weakness in the Canadian dollar.
The loonie has been in decline for most of the year, falling 7.3 per cent since hitting its year high in January, and has recently been trading near 94 cents, its lowest level since 2010. But that is still not low enough to rescue some older facilities – many of which would have required large capital investment to keep running, said Jayson Myers, chief executive officer of Canadian Manufacturers and Exporters, an industry group.
H.J. Heinz Co. and Smucker's have recently closed food-processing plants in Ontario's manufacturing heartland. The province has shed more than 33,000 jobs in the factory sector in the past 12 months. Lance Canada Ltd.'s bakery in Cambridge is slated to close in May, eliminating 130 jobs. Kraft Foods Group Inc.'s Oakville factory is also expected to shut down.
Energy costs, which are relatively high in Ontario and going up, are a concern in Ontario, Mr. Myers said. So are labour costs, though he said the province is fairly competitive with other jurisdictions. The bigger factors are the still-elevated currency, which has put companies at a competitive disadvantage, and regulations surrounding border-crossing that drive up costs for businesses.
The big concern in Ontario is the spillover effects from a plant's closing, as the whole supply chain from agriculture to services takes a blow.
Ken Wong, a business strategy professor at Queen's University in Kingston, Ont., said it's difficult for large companies to quickly retrofit plants to suit changing consumer habits. And while Canada used to have an edge with its skilled work force and ability to produce value-added goods, "some of that skill can now be handled through automation … and frankly the quality of work done in other places has increased," Prof. Wong said.
Kellogg said last month it would shed 7 per cent of its global work force and consolidate its facilities amid falling sales of breakfast cereals. Busy lifestyles and a switch to more convenient foods such as muffins or yogurt are being blamed for the 2.2-per-cent drop in Kellogg's U.S. sales of breakfast cereals.
Consumer tastes are shifting towards more natural and organic cereals, a lucrative market, and away from traditional, high-sugar cereals that are mass-produced, said Prof. Wong. "The highly sugared cereals, in an era of childhood obesity and diabetes, have become much less popular."
Eric Hoskins, Ontario Minister of Economic Development, Trade and Employment, said he was "disappointed" by Kellogg's shutdown.
"Ontario has a strong food processing sector, and the recent announcement that [frozen pizza maker] Dr. Oetker is opening a new plant in London is an example of that. In fact, in 2012/2013, businesses in the food processing sector invested more than $503-million in their operations, creating and retaining 2,417 jobs," he said in a statement.
Kellogg, based in Battle Creek, Mich., posted a 1.7-per-cent drop in third-quarter operating profit in November and unveiled plans to shake up its global manufacturing supply chain, which is expected to cost as much as $1.4-billion. Internal net sales in its so-called U.S. morning foods division fell by 2.2 per cent in the quarter while U.S snack sales were down by 2.5 per cent. (Kellogg says internal net sales exclude the effects of currency conversions and certain other costs.)
Meanwhile, Latin American sales rose by 6.7 per cent, European sales were up by 3.3 per cent and Asian sales climbed by 2.9 per cent, led by double-digit growth in India and Southeast Asia.
Kellog's London employees were called to a meeting at a hotel on Tuesday morning and given the news, said Bob Martin, who represents the unionized workers as president of local 154G of the Bakery, Confectionery, Tobacco Workers and Grain Millers. The unionized workers make $28 to $30 an hour.
Kellogg also has a Mini-Wheats cereal plant in Belleville, Ont., which opened in 2008 and employs more than 100 people. In an e-mailed statement, company spokeswoman Kris Charles said Kellogg will shift production from London to other plants, including Belleville.
Mr. Martin said no London employees will be offered jobs in Belleville.
The Ontario government funded an expansion of the Belleville plant with a $9-million loan that the company has repaid. In 2011 the government offered Kellogg a $4.5-million grant for the facility. But an Ontario government spokesperson said the money was contingent on maintaining jobs in London and is now off the table.