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Philip Morris Consolidates North American Food Operations

January 5, 1995

NEW YORK (AP) _ In an effort to make its industry-leading food operations more competitive, Philip Morris Cos. is consolidating its Kraft and General Foods businesses beneath the Kraft Foods banner in the U.S. and Canada.

The restructuring announced Wednesday eliminates a layer of management and should facilitate decision-making involving a kitchen full of brands including Maxwell House coffee, Oscar Mayer meats and Jell-O desserts.

``These changes will produce a faster moving, more effective company, better able to deliver results at the top of the food industry,″ said James M. Kilts, named only last month to head Philip Morris’ worldwide food operations.

Industry analysts said Philip Morris has been an average performer in a food industry that has been expanding slowly. Rival RJR Nabisco Holdings Corp. gets credit for responding faster to changes in consumer tastes by developing reduced-fat Oreo cookies and the Snackwell line of treats.

Philip Morris acquired General Foods in 1985 and bought Kraft in 1988, and put them under the same divisional structure in 1989. But while combining some operations, they have continued to run independently in many respects.

John McMillin, who follows food companies for Prudential Securities, said the new managers in the food business ``are doing what the old management should have done _ fully consolidate these businesses.″

He said Philip Morris accounts for about 5 percent of branded food sold in U.S. supermarkets, more than any other single company. But he said by allowing the Kraft and General Foods businesses to operate independently, Philip Morris ``didn’t get the advantages of scale that it should have.″

General Foods USA operated with its own sales force and management from White Plains, N.Y., while Kraft USA functioned similarly from Glenview, Ill.

They each reported to the Kraft General Foods division headquarters in Northfield, Ill.

Under the new structure, the Kraft USA and General Foods USA operating units will be dissolved, replaced by a single North American organization called Kraft Foods based in Northfield. It will have a single sales force and consolidated manufacturing and distribution operations.

Kraft Foods will have 12 business divisions and a single corporate staff.

Company spokeswoman Nancy Daigler said it was expected there would be fewer than 100 management and support staff jobs eliminated as a result of the restructuring. The North American foods division employs 55,000 people.

She said the possibility of plant closings remains under review.

The Kraft General Foods division earned $2.4 billion on revenue of $21 billion in 1993. The revenue figure represented about 34 percent of Philip Morris’ total of nearly $61 billion. Philip Morris has since agreed to sell its Kraft Foodservice business that accounted for $4 billion in revenue.

Daigler said the restructuring should produce benefits both internally and in the food company’s dealings with supermarkets and grocery chains.

Post cereal brand managers, for example, will have one less bureaucratic hurdle to clear when trying to get a new product onto the market.

The restructuring will also realign responsibility for some brands that are currently handled by their old owners, Kraft or General Foods.

Kraft pourable salad dressings are currently handled by Kraft managers in Glenview, while the Good Seasons dressings brand is handled by General Foods in White Plains. Under the new structure, both salad dressings brands will be managed from the old Kraft USA office in Glenview.

Under the new plans, a sales team will be able to handle supermarket orders for unrelated products like Maxwell House coffee and Kraft cheese. Salesmen from General Foods now handle the coffee brand while salesmen from Kraft handled the cheese products separately.

Emanuel Goldman, who follows food company stocks for PaineWebber, said the restructuring may not show immediate results but will help in the long term.

``They don’t want to be an average food company; they would like to be in the top 10 percent,″ he said.

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