Torinus

No, Walker Didn’t Lose Oscar Mayer

Company's decision to shut down Madison plant was all about cost cutting.

By - Dec 1st, 2015 09:59 am
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The Oscar Mayer Wienermobile on Brady Street. Photo by Michael Horne.

The Oscar Mayer Wienermobile on Brady Street. Photo by Michael Horne.

As Wisconsin has witnessed in the last couple of months, big corporations like Kraft Heinz and Tyson Foods with a wide footprint of facilities are forever rationalizing their physical and human resources. That’s just what they do.

To gain a couple of points on their bottom lines and meet quarterly earnings expectations, they consolidate by closing plants and departments, they streamline using Lean methods, they “right-size,” they out-source and off-shore, they automate.

They make “rational” decisions on behalf of shareholders, with the interests of other stakeholders like communities, states, local vendors and employees far down the pecking order.

Sometimes the other stakeholders come out behind, as with the closure of the Oscar Mayer plant in Madison getting the biggest headlines as its parent Kraft Heinz shucks an old plant and 1000 unionized employees. Other times, the state is a winner, as with consolidations by QuadGraphics in favor of plus jobs at its Wisconsin plants versus those in other states.

There is something to be learned here. Business and tax climate figures into the consolidation and expansion equations, but it always the operating costs that rule the decisions.

Wisconsin has done just about everything a state can do to keep and bolster its manufacturing and agri-business bases. It has exempted plant and equipment from the property tax; it has installed a right-to-work law; it has initiated a phase-out of the corporate income tax on those two sectors; it is finally out of the Big Ten for taxes, a long-sought goal of Republicans and business people. Its business regulations have been collared.

Still Oscar Mayer is shutting down its Madison plant, and Tyson is shutting down a plant in Jefferson with 400 jobs.

The wiener plant, home of wiener mobile, is multi-story, a throwback to manufacturing of yesteryear. It’s unionized. It’s old and inefficient. In short, it’s not the kind of facility that wins new investment from corporate bean counters.

Anyone who has worked those equations knows it is the operating costs – labor costs, health care, power rates, transportation factors, skilled workforce availability – those are determinants that invariably drive location decisions.

Pure real estate and building costs are usually less than 5% of a processing company’s cost structure. They are a minor line item.

The attempt by the political parties to blame each other is almost laughable. A Republican governor and a Democratic mayor both got caught off guard by the Kraft Heinz decision. Its investors, like Warren Buffet, expect a return. He may seem like a nice guy, but returns on investment are his theme song. His executives dance to that tune. He and his investment partner, 3G, will cut thousands more jobs from the Kraft Heinz payroll.

The political parties had no more to do with the Kraft-Heinz decision than they did with the Quad consolidation decisions that favored Wisconsin.

Over the long run, the improved business and tax climate ought to tip a few location decisions in our direction. But it won’t be subsidy packages that carry the day. They can’t make up for operating factors.

By example, the state and M7 recently put together a great case and an attractive set of incentives to land a new automotive plant being developed in the U.S. by a European car maker. Wisconsin made the short list, but didn’t get a site visit. Heard that story before?

Recruiting has been largely a loser strategy for Wisconsin for 40 years. We do better on expansions of existing businesses, but in most cases operating factors mitigate for expansion here, with or without the subsides.

If Madison and Wisconsin had thrown $50 million in subsidies at Kraft-Heinz, could the Oscar Mayer plant have been saved? Probably not. In a big plant, operating inefficiencies can chew up $50 million in a couple of years.

In any event, would it not be better to take that $50 million and, at $500,000 apiece, start 100 new high growth companies that could become the next Quad or Epic?

Let’s get some perspective here: Epic, a startup in the Madison area, is adding 1000 Wisconsin jobs per year. Its annual growth is offsetting the one-time loss at Oscar Mayer.

John Torinus is the chairman of Serigraph Inc. and a former Milwaukee Sentinel business editor who blogs regularly at johntorinus.com.

Categories: Business, Politics, Torinus

8 thoughts on “Torinus: No, Walker Didn’t Lose Oscar Mayer”

  1. Karl says:

    It seems to me Walker was totally unaware of the impending departure. Wouldn’t it behoove both him and Wisconsin if he made it his business to know more about the business climate? Perhaps be more aware and make some visits to companies rather than to Iowa?

  2. WaukAnon says:

    @Karl
    It’s all down to what the businesses are willing to share and tell the outside world in a lot of cases. Think of GE in Waukesha too – there was no outward indication to anyone they were going to pull up stakes and shutter the facility there either.

  3. Tim says:

    WaukAnon, you’re right that the GE decision was out of the hands of Walker.

    That’s only because the decision was directly the result of the U.S. Export-Import Bank being shut down, which provided financing for many of GE’s products from that plant in Waukesha. It’s because republicans like James Sensenbrenner & Paul Ryan didn’t allow the Export-Import Bank to continue operations.

    Walker sits around taking credit for job gains at places like Epic, it’s partisan bias to avoid giving credit for the loss of Kraft’s presence to Walker.

  4. mots says:

    Walker believes that holding a photo op to hang an “Open for Business” sign at the Illinois border is job creation. If Walker were serious about job creation he would have accepted $800M to rebuild and enhance Wisconsin’s rail infrastructure. Walker would accept $200M of our federal tax dollars to expand Medicaid to our most vulnerable citizens so they can have the same healthcare that Walker enjoys. Walker would fund our university system properly rather than pass tax breaks for business. Austerity and trickle down economics do not work when the economy is contracted. Walker was too busy focusing on his political future to care about job creation and business retention in Wisconsin.

  5. Doug Swanson says:

    John, you said, “In any event, would it not be better to take that $50 million and, at $500,000 apiece, start 100 new high growth companies that could become the next Quad or Epic?” The problem with that idea is that the folks in the creative class, those that start high growth businesses are exactly the types of folks that don’t like the political climate of this State. They are, largely, social progressives and would much rather locate a business in Minnesota than here where open carry, transgender bathrooms, opposing gay marriage – I could go on and on and on – are the most important issues. Too many in the creative class quality of life issues matter. They want clean air, clean water, parks without traps, bike paths and mass transportation. Is there a snowball’s chance that Scott Fitzgerald or Robin Vos will be making those a priority?

  6. Big Al says:

    So John, you’re saying that the state can’t do anything about it? Then why do we even have WEDC? Those funds could be better spent on retraining workers from Oscar Mayer, the paper mills up north, the JCI employees about to be laid off in Glendale.

  7. scooter's an idiot says:

    This has to be the weakest apology for the failure of the Crook’ n Chief. It is almost comical as John tries to throw the mayor of Madison in the mix. Oscar Meyer leaving here destroys WEDC and all it’s talking points and supposed agenda. John maybe you should write an article calling for the end of WEDC because it’s all it is a slush fund or as a business executive you would think you would write an article about the corruption and crony capitalism in this stateinstead of being an apologist for the Crook’ n Chief.

  8. Barb- West Bend says:

    In Madison, WI Oscar Mayer shuts their factory and moves out of State. 1000 jobs gone. Lawmakers have all but eliminated state taxes on mfg. and agriculture. Job creators shouldn’t be required to pay taxes…right? By the time this administration became aware of the factory closing it was a done deal. As of Oct. 30 of this year Wisconsin lost 9000 jobs due to mass layoffs or plant closings. Wisconsin is trying to move people off welfare into jobs. Yet, corporate welfare is here to stay.

    In Davenport, Iowa Kraft-Heinz closes and demolishes its Oscar Mayer bologna plant that employed 1400 workers, replacing it with a $200 million state-of-the-art plant which will employ 475 workers. The state of Iowa is giving $4.75 million to Kraft-Heinz. Iowa taxpayers will give an additional $750,000 in R & D tax credits. Davenport Mayor said, “It’s a sad commentary on modern day capitalism that you have to give up your property tax money, which is used to pay for schools, for jobs. But if you don’t do it, we don’t have jobs to pay our taxes.” A loss of 925 jobs, and taxpayers are providing financial assistance to Kraft-Heinz! Corporate blackmail?

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