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Nestle USA to move headquarters from Glendale to Virginia

February 2, 2017
Consumer Packaged Goods

Food giant Nestle USA is moving its headquarters from Glendale to Virginia.

The maker of Butterfinger and Hot Pockets, which is a subsidiary of Swiss consumer products giant Nestle S.A., said its new home will be in Rosslyn, Va. The move will start later this year and be completed by the end of 2018.

Nestle has 1,200 employees in Glendale. About 90% of the workforce — or roughly 1,100 — is eligible to be relocated; 750 jobs are moving to the Washington area and 300 are moving to Ohio, said spokeswoman Edie Burge.

With the move, Nestle will become the latest major corporation to find a new home outside the Southland.

Last year, Carl’s Jr. parent company CKE Restaurants Holdings said it planned to leave its Carpinteria headquarters for Franklin, Tenn. In 2015, Irvine chip maker Broadcom Corp. incorporated in Singapore and moved its operating headquarters to San Jose. The year before, Toyota Motor Corp. announced plans to move its sales and marketing headquarters to suburban Dallas from Torrance, and Occidental Petroleum Corp. moved its headquarters from Los Angeles to Houston.

On Wednesday, Nestle said the relocation would enable the company to operate more efficiently because 75% of its factories and 85% of its top customers are located in the eastern half of the U.S.

“This location allows us to be closer to our business operations, our customers and other important stakeholders,” Paul Grimwood, chief executive of Nestle USA, said in a statement.

Nestle’s decision will be a blow to Glendale. The company has been there since the 1980s, and Glendale’s website touts it among the major companies operating within the city.

In a statement, the city of Glendale said it would have considered negotiating with Nestle to retain its headquarters but only found out about its decision through media outlets reporting the move.

“Nestle has been flirting with abandoning California for years due to its large operations to the east and the desire for consolidation,” the statement said. “For Glendale’s part, Nestle’s departure is seen as closing a chapter and opening doors to future opportunities to re-tenant the space with forward-looking businesses that have a bright future.”

Industry experts said that Nestle’s move is likely also motivated by other factors, including a desire to be closer to policymakers and a need to cut costs as its parent company struggles with slowing sales.

Nestle S.A., which raked in about $90 billion in worldwide sales in 2015, has missed its target growth of 5% to 6% for the past three years. In October, the company slashed its sales target to 3.5% from 4.2% after reporting weak growth for the first nine months of 2016. In the U.S., sales grew to $25.6 billion in 2015, up from $23.7 billion the year before.

Like other packaged food makers, Nestle is struggling with slower growth around the world, especially in emerging markets, and also changing consumer tastes, said Neil Saunders, chief executive of consulting firm Conlumino.

Companies such as Nestle, which makes well-known brands such as Lean Cuisine, Haagen-Dazs and Purina pet food, are now competing with a number of niche snack makers producing foods that are advertised as not only healthier but also with an ethical purpose (buy some granola bars, for example, and the company will donate food to a needy child). There’s also competition from budget brands, as lower-income customers seek out cheaper alternatives to save cash, Saunders said.

“They are getting the squeeze from both ends of the market,” Saunders said. “That creates a price pressure and pressure on their supply chain.”

Economists said that it makes sense for Nestle to consolidate, especially if the move centers operations in lower-cost areas with cheaper living expenses.

“Nestle hires a lot of marketing and finance people, and they might find it difficult to pay those people sufficiently for quality of life here or it’s difficult to get people to move to California because of high cost of living,” said Chris Thornberg, founding partner of Beacon Economics.

Thornberg estimates that about half of Nestle’s Glendale employees will choose not to relocate, allowing the company to hire new workers, likely at lower wages.

Some employees said they hadn’t decided whether they would move yet.

Amy Molina, who has worked in digital marketing for Nestle since 2008, called the news “challenging and emotional.”

“Change is never easy,” Molina said Wednesday.

Nestle has already moved some business out of Southern California in recent years. In 2014, the company closed a production plant in Chatsworth, shifting operations to an existing facility in Kentucky with lower costs.

After the Glendale move, some 5,500 Nestle employees will remain in the state, including its ice cream business, headquartered in Oakland, a production facility in Bakersfield and an evaporated milk factory in Modesto.

The jobs leaving Glendale for Ohio will go to the city of Solon, which has become hub for the company’s frozen and chilled food business. A few employees will also be transferred to other facilities, including St. Louis, where information technology operations are being centralized.

Sung Won Sohn, an economist at Cal State Channel Islands, said Nestle likely made the announcement ahead of the release of its 2016 annual results on Feb. 16 to assure shareholders that it is being proactive about boosting the bottom line.

“You have to tell your shareholders what you are doing to turn it around,” he said, “and cutting costs is one of the best ways to communicate that message.”

By Shan Li and Jeff Landa

Source: Los Angeles Times

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