After 'agonizing debate,' ConAgra moving HQ to Chicago, cutting 1,000 Omaha jobs
Omaha already gave a valuable historic district. Nebraska gave tax breaks.
Now the city that built ConAgra Foods must sacrifice 1,300 salaried jobs and a Fortune 500 headquarters to keep the company competitive, its chief executive said Thursday.
The company said no incentives would have changed the outcome, some relief for elected officials whose last-ditch pleas failed to keep ConAgra here.
But the fact that the news, coming on the crisp first morning of October, was anticipated didn’t make it any more welcome for workers who now head into the holidays not knowing exactly whose job will be cut and when.
Next summer, ConAgra will trade the Missouri River for the Chicago River, taking its executive offices and retail food business to Chicago’s hip, historic Merchandise Mart building.
The company will take at least 300 Omaha jobs to Illinois — executive and frozen foods positions — while cutting 1,000 more. All told, more than half the company’s Omaha office jobs will be lost. Employees will learn their individual fates over the next month.
Remaining will be 1,200 people working in administration, research and product development, and supply-chain management, or those who oversee production and distribution of goods. The changes don’t affect factory jobs in Council Bluffs and Lincoln, which employ about 950.
The move, spurred by competition in the packaged-food industry and shareholders hungry for returns, was an “agonizing” decision, Chief Executive Sean Connolly said. He told employees the company had to make changes or would have change forced upon it.
“We have a responsibility to ConAgra to set it up for the long haul,” he said, “even if that means we have to do difficult things in the short haul.”
Omaha can’t opt out of larger economic pressures, Connolly told workers here Thursday morning. He tried to soften the blow, telling workers “it’s not their fault.”
But while Omaha will still be home to more of ConAgra’s workforce than any other city, it also will sustain the most cuts. Two in three of the 1,500 global workers ConAgra will fire are in Omaha. Nebraska Labor Commissioner John Albin could not recall the last time a Nebraska-based business reduced its workforce by 1,000.
“It’s a number we heard in the rumor mill, although we were hoping it would lower,” he said.
Mayor Jean Stothert and Gov. Pete Ricketts contacted ConAgra in recent days, offering help and incentives. Their efforts proved futile.
Stothert said that as far as she knew, the company didn’t want anything from Omaha in terms of incentives. “We felt like if they needed our help ... they would have reached out.”
State Sen. Heath Mello said civic interests like chambers of commerce and local and state governments should better familiarize themselves with industry trends that could become problems down the road.
ConAgra’s business troubles “didn’t just happen a week ago or two weeks ago,” Mello said.
David Brown, CEO of the Greater Omaha Chamber of Commerce, said ConAgra was not open to the competitive pitches that usually come into play when companies choose between cities and states.
“We pushed all the buttons we could,” he said. “This was clearly an internal decision that was made about where the leadership of ConAgra thought they could manage their business the best, and they essentially made a decision that Chicago was going to be it.”
Connolly told The World-Herald that the move was strictly about company strategy, not pitting one city against another. The company still will accept tax credits from Illinois.
The Illinois Department of Commerce and Economic Opportunity said ConAgra will receive standard incentives it is eligible for under the state’s EDGE program: Economic Development for a Growing Economy.
ConAgra must create 150 net new jobs over 15 years to receive credits to offset corporate income tax. The final amount of credits will be determined by employee salaries, the state tax rate and the total number of new jobs.
State Sen. Burke Harr of Omaha, who sits on the legislative committee that determines state tax policies, said the departure of ConAgra’s headquarters was “a dark day” for the city.
Harr said he didn’t think the move was inspired by Nebraska’s tax policies.
“It appears to me from everything I’ve read that this was driven more by a belief by the CEO that the company could do better in Chicago and could recruit better in Chicago,” Harr said. “It shows that business operates on more than just tax policies.”
Still, Ricketts said the news was an opportunity for the state to review its tax rates and incentive programs to ensure both are competitive.
“We look forward to the opportunities created by ConAgra’s decision to invest in Illinois, and welcome them to their new home,” said Gov. Bruce Rauner.
In Chicago, ConAgra joins significant operations of major food and packaged-goods companies including Kraft Heinz, Mondelez and Wrigley.
With innovation on Connolly’s agenda, ConAgra will open its new home office in 168,000 square feet of space it is leasing in the Merchandise Mart building, a massive art deco commercial building on the Chicago River that’s home to technology companies including an office of Yelp and Motorola Mobility, and tech incubator 1871.
Companies move to downtown Chicago seeking a cosmopolitan image and access to young, educated workers, relocation experts said.
“Chicago’s workforce has depth and it’s growing,” said Jonathan Zeitler, tenant advisor in the Chicago office of Transwestern, a commercial real estate firm. “Other consumer-products companies have been moving all or a portion of their area operations to Chicago in pursuit of college-educated millennial talent, which is abundant in Chicago.”
Connolly said that there are a lot of talented people in Nebraska and that the move is not an indictment of Omaha. But with the spotlight on ConAgra’s consumer-foods business, he said, it made sense to combine all consumer brand employees in one place. More of those workers already are in the Chicago area. The frozen-food unit of the consumer division, now is in Omaha, will move to Chicago.
“Chicago is an environment that offers us access to innovation and brand-building talent,” he said.
He also wants the executive team to be “intimately” involved in that business, working under the same roof.
The move also is the latest job loss for suburban Chicago. ConAgra will move downtown most of the 400 workers it employs in the Chicago suburb of Naperville. Some of those jobs will also be cut. The suburban office will be closed.
Connolly’s own previous company, Hillshire Brands, moved from the Chicago suburbs to downtown in 2012 after the business spun off from Sara Lee Corp. He said he preferred the open floor plan with space to collaborate.
The leap to Chicago is a big one for ConAgra, born in 1919 as a group of four Nebraska flour mills. The company has called Omaha home since 1922. Sales surpassed $10 billion for the first time after an acquisition spree in the 1980s, and hit $16 billion in 2015, good for No. 173 on Fortune magazine’s list of the biggest U.S. companies by revenue. Its departure leaves Omaha with four companies on the list.
In the late 1980s, ConAgra toyed with moving to Tennessee, which offered corporate incentives, but stayed after Nebraska countered with its own incentives. ConAgra moved to its current campus in 1990, after winning a bitter fight against historic preservationists to demolish more than 20 buildings in landmark Jobbers Canyon, just east of the Old Market business and entertainment district.
The demolition was the largest-ever of a designated U.S. historic district. It still holds that record.
Since then, executives have shaped the company into a marketer of middle-class kitchen staples. It sells more than 50 brands, including Pam cooking spray, Peter Pan peanut butter, Reddi-wip topping and Marie Callender’s frozen pies, along with value-priced labels like the Banquet TV dinner franchise.
The Great Recession and today’s trend toward fresh, healthful foods battered consumer loyalty to packaged-food brands at ConAgra and elsewhere, to the point that executives lamented having to buy their sales with coupons and deals at the expense of profits.
ConAgra’s fortunes sank further when its 2013 purchase of private-label business Ralcorp failed to achieve promised gains, instead delivering a sales slump and huge losses on paper. Chief Executive Gary Rodkin, who engineered the deal, left the company this spring.
Connolly took over and had begun mapping ConAgra’s path forward when an activist investor announced a big stake in the company in June, demanding changes that would boost share value. The firm, Jana Partners, gained two seats on ConAgra’s board of directors, and two longtime board members from Omaha stepped down.
Connolly put the Ralcorp business up for sale and now is slashing costs just like its competitors, including Berkshire Hathaway-backed Kraft Heinz, which is laying off 2,500.
Connolly said the job and budget cuts announced Thursday will save $200 million a year. The company will trim another $100 million in marketing dollars paid to grocers. Some of that savings will be reinvested in developing new products and refreshing others.
It’s unclear what severance pay, if any, will be available to workers. ConAgra said it would continue its philanthropic work in Omaha, focusing on preventing childhood hunger.
Thomas Warren, president and CEO of the Urban League of Nebraska, worried about a long-term loss.
“Any time you lose a corporate giant or a Fortune 500 company, it will have a significant economic impact on your local economy,” he said.
There may be some upside for Nebraska, hiring experts said. Businesses looking to grow in the state with the nation’s lowest unemployment rate will be able to pick up some of ConAgra’s highly skilled workers.
Albin, the labor commissioner, is confident that his department will be able to handle the workers’ re-employment needs. New unemployment insurance benefit requirements that went into effect Thursday require job-seekers to attend a group orientation meeting, participate in one-on-one coaching session and contact at least five employers a week in order to receive jobless benefits.
“In Nebraska’s employment climate, we’re hopeful there will be a good match between the jobs employers have available and the displaced workers,” he said.
Ricketts said the Labor Department “stands ready to assist Nebraskans seeking re-employment.”
Rep. Jeff Fortenberry, R-Neb., said he had no advance warning about the company’s decision.
“I think Nebraska’s been very good to ConAgra, so this is very sad,” he said. “Let’s get busy, let’s bring some small-business dynamics and replace those jobs. They’ve got to go? They want to go? Goodbye.”
World-Herald staff writers Steve Jordon, Russell Hubbard, Janice Podsada, Cole Epley, Joseph Morton and Roseann Moring contributed to this report.