Most of us would like to imagine that even though our processed foods are not the healthiest, they are at least produced in an advanced way. This would ensure that health standards, such as temperature controls and contaminants, would be limited. Unfortunately, this had not been the case at Kraft Food Group’s Oscar Meyer plants. While the issues they encountered in this article were not in the health standards field, outdated processes still contributed to their struggles to remain competitive within the processed meat industry.
Prior to being purchased by 3G Capital LLC, a Brazilian company that specializes in taking over and optimizing companies, Kraft Food Group had produced their meat in a factory dating back to 1872. Within this antiquated environment, “A typical turkey breast required four rides between floors to get from raw meat to packaged slices. Breakdowns could slow production to a crawl.” These inefficiencies, along with shifts in consumer demand, had led to a 21% decrease in Kraft’s stock price.
Upon acquiring Kraft in 2015, 3G decided to redesign the company’s supply chain. The new factory they designed is outfitted with top of the line technology, cutting out the potential for the delays that had handicapped Kraft’s production in the past. Tellingly, the new plant can produce “17% more than the old factory, while employing 500 fewer people.” Reinvestments have also improved the technology used in curing meats, taking the throughput time from two days to a much more preferable two to eight hours, depending on the exact product. 3G has also introduced some lean aspects to the supply chain, such as holding less inventory for repairs to reduce costs. In a broader supply chain redesign, “the company used computer modeling to analyze where it sourced ingredients, where it needed to ship finished products, and the cost and availability of labor and other resources. The model spit out ideal locations for factories and warehouses.” By reducing the cost of logistics along the supply chain, Kraft and 3G are naturally able to save a lot of money. They also shifted production of products to different factories depending on similar inputs.
Despite these improvements to the supply chain, which have contributed to Kraft having “the highest operating profit margin among its peers in the U.S. food industry,” managing their demand is still a struggle. Many consumers are leaning away from processed meats in favor of locally sourced or naturally certified options, in other words, meat that is actually sliced and not simply pressed to look like it is sliced. According to Sarah Schmansky, a professional in the meat industry, “What’s on the label matters – 68 percent of consumers are willing to pay more for foods and drinks that do not contain undesirable ingredients. And lunchmeat companies are taking that seriously.” While the market for processed meats shrinks, efficiency improvements can only do so much. Looking to the future, Kraft will have to consider how they can adapt to changing consumer preferences. Certainly, being able to provide naturally produced meats at their current levels of efficiency will be a challenge. It may even require further supply chain alterations. But if they hope to keep up their market share, Kraft will have no choice.