Kelloggs’ to close Ontario plant, lay off 500 workers

In a blow to southern Ontario’s beleaguered manufacturing sector, Kellogg’s announced today it would be closing its ready-to-eat cereal manufacturing plant in London in 2014.

The facility, which currently employs over 500 union members and managers, was already on shaky ground following last month’s announcement that 110 unionized workers would lose their jobs in January. The U.S.-based company also terminated 11 managers at that time, explaining the move was driven by softening demand amid a global trend away from prepared breakfast cereals.

“This is definitely another blow to Canadian food manufacturing,” David Sparling, Operations Management Professor and Chair of Agri-Food Innovation at Western University’s Ivey Business School in London, told Yahoo Canada Finance. “Although food is the largest manufacturing sector by employment, it has not been a priority for governments. That is changing slowly but closures like this bring home the need for action sooner rather than later.”

Shrinking consumer demand

Kellogg's, which will also be closing a snacks facility in Charmhaven, Australia Thailand, announced in its most recent quarterly report that it was launching its Project K initiative, a US$1 billion, four-year plan designed to drive efficiencies by consolidating its factories. The plan, which calls for a 7 per cent reduction in Kellogg’s global workforce, follows the three-year Kellogg’s Lean, Efficient, Agile Network (K-LEAN) initiative. Introduced in 2009, the program was supposed to save $1 billion annually, but instead resulted in higher costs as slipping quality control drove a series of product recalls between 2009 and 2013.

The London plant, which Kellogg’s purchased in 1924 to supply the Canadian market, was overhauled in 1984 in a $223 million renovation that allowed the plant to churn out 750,000 cereal boxes per day. The plant makes 27 different cereals, including Corn Flakes, Frosted Flakes, and Raisin Bran. It's output has dwindled from 104 million kilograms in 2005 to 67 million this year. It projects only 54 million kilograms of production before the doors shut for good next year.

“We have a compelling business need to better align our assets with marketplace trends and customer requirements,” John Bryant, Kellogg’s President and CEO, said in a statement. “To that end, we are taking action to ensure our manufacturing network is operating the right number of plants and production lines – in the right locations – to better meet current and future production needs and the evolving needs of our customers.”

Sparling says his school’s research into plant closings and investments illustrates an industry in transition, and one that’s restructuring to be globally competitive.

“That has involved some older plants being closed, while investments are made in new technologies and larger plants,” he said. “It’s disappointing to see Kellogg choosing to move production offshore, rather than investing in making their North American plants more efficient and cost competitive.”

Bad timing

The timing of the closing announcement is ironic, as it comes a day after Gary Goodyear, Minister of State for the Federal Economic Development Agency for Southern Ontario, was in London to launch a $200 million program designed to stimulate investment in Ontario manufacturing. The Advanced Manufacturing Fund will encourage the development of cutting edge manufacturing technologies and drive investment and competitiveness in a sector that’s lost a number of major employers in recent years, including the Ford Talbotville auto assembly facility and the Electro-Motive Diesel factory in London.

“Our Government is looking ahead to the new and innovative products or production methods that will push Ontario to the forefront of high-tech manufacturing,” Goodyear said. “With this investment, we are helping manufacturers in the province to build momentum and push to be more competitive on the global stage.”

The region is already reeling from the announcement last month that Heinz will shutter its ketchup plant in Leamington next June. The closure of the town’s largest employer and Heinz’s second-largest plant in the world erases 740 jobs and is expected to ripple through the region’s supply chain of tomato growers and distributors.

Editor's Note: Corrects to show Kellogg's Thailand plant will remain open.