2 The closure of Cadbury's Somerdale
factory
Background
7. The Somerdale Factory is seventy-five years old
and began production when JS Fry & Sons merged with Cadbury
and subsequently moved its business from Bristol to the Somerdale
factory in Keynsham, near Bristol.[5]
On 3 October 2007, Cadbury announced its plans to close the factory
with the loss of 500 jobs.[6]
Production at the factory would be transferred both to the company's
Bournville plant in Birmingham and, by 2010, to a new plant in
Poland. The latter would produce some, if not most of, the brands
made at Somerdale including Curly Wurly, Fudge, Turkish Delight,
Fry's Chocolate Cream and Cadbury's Mini-Egg.[7]
8. On 7 September 2009, Kraft announced that it believed
it could reverse Cadbury's decision to close the factory. Irene
Rosenfeld, Chairman and Chief Executive Officer of Kraft, stated
that:
Our current plans contemplate that the UK would
be a net beneficiary in terms of jobs. For example, we believe
we would be in a position to continue to operate the Somerdale
facility, which is currently planned to be closed and to invest
in Bournville, thereby preserving UK manufacturing jobs.[8]
9. Even before the takeover, Unite the Union which
represents a large proportion of the Cadbury workforce, expressed
doubt about the authenticity of this pledge. Jennie Formby, National
Officer, Food and Drinks Sector of Unite, explained:
I have been very disappointed by the fact that
Kraft has persisted in repeating what appear to be assurances
to the people in Keynsham which, as far as I can see, are very
hollow. It has said it wants to keep a manufacturing facility
in Keynsham. I have asked what that means […] There is no
meat on the bones at all. It has said continually that it does
not know enough about it; it does not know how it is configured
inside. We have said that surely a company of its experience has
an idea of what it looks like inside because there are lots of
things in the public domain. The reality is that there is no intention
to come and save the jobs.[9]
In January, Professor Bones highlighted the fact
that Kraft had reneged on similar promises in the past—most
notably a promise to keep open Terry's factory in York when it
acquired Terry's in 1993:
whilst all good intentions are spoken about in
the process of an acquisition the track record intriguingly for
Kraft was to shut the Terry's of York factory and move production—surprise,
surprise—to Poland. Therefore, I do not look at the acquisition
commitments perhaps with a great deal of credibility in terms
of the comments made for the long term, but I appreciate that
this time the circumstances may be different.[10]
10. On 9 February 2010, one week after the takeover
was finalised, Kraft announced that it would not be able to keep
open the Somerdale factory. Irene Rosenfeld declared that:
In our recent talks with Cadbury senior management,
it became clear that it is unrealistic to reverse the closure
programme, despite our original intent to do so. While this is
a difficult decision, we have moved quickly to end any further
uncertainty.[11]
11. Following the announcement, Kraft faced a barrage
of criticism. Unite accused Kraft of "a cruel manipulation",
describing the earlier commitment as a "cynical ploy"
to gain favour for the bid.[12]
Lord Mandelson, who had met Irene Rosenfeld, was also unimpressed
with the way in which the announcement was managed:
A week ago [Irene Rosenfeld] would have known
what announcement would be made, barely six days later. It would
have been more honest if it had been more straightforward and
straight dealing with the company and the workforce and also with
the Government if she had told me what their intentions were.[13]
Kraft's explanation to the Committee
12. We questioned Marc Firestone, Executive Vice
President, Kraft Foods Inc., on the rationale and the evidence
which underpinned both the initial announcement that Kraft believed
it could keep open the Somerdale factory and Kraft's subsequent
reversal of that announcement.
13. He explained that in September 2009 Kraft believed
that it could keep open both the Somerdale factory and the factory
in Poland to service Cadbury's existing production requirements
and Kraft's expanding production needs in Europe:
When we envisioned the combined manufacturing
network of Kraft and Cadbury, we believed that we would be in
a position to maintain production in Somerdale in the UK while
also taking advantage of the new facilities that we did know Cadbury
was building in Skarbimierz in Poland […] Our capacity requirements
were growing tremendously. [14]
the combined manufacturing footprint, the growth
expectations that we had independently, the growth expectations
that we had for the combined company, would in fact support the
two facilities, one operating in the UK to service this market—Somerdale—and
one operating in Poland to service Central and Eastern Europe.
[15]
14. Marc Firestone asserted that this was a "rational
business plan" and that the factors he set out "remain
valid today".[16]
He went on to explain that Kraft reversed its intention after
the takeover had been completed because only then did it learn
that Cadbury had transferred specialised machinery to the Polish
factory which could only be used for producing certain chocolate
products aimed at the UK market:
What we did not know was while the bid was progressing
Cadbury was simultaneously operating Somerdale and installing
tens of millions of pounds of equipment in Poland; equipment that
is specific to their brands. That is not a customary process.
They engaged in a process of what is called "parallel running".
While Somerdale was producing products, they were bringing on
line in Poland the same products in parallel at tremendous cost.
Normally when companies switch over from one factory to another
they will build up stock in one and then open the other. During
exactly the same time as our bid all of these tens of millions
of dollars of new machinery specific to products such as Curly
Wurly and others were going into the factories in Poland. No amount
of resources would have given us access to a physically secured
site that was operating in a confidential manner. Sir, I have
seen it myself.[17]
However, he acknowledged that there were a significant
number of factors that were unknown to Kraft at the time it made
public its intentions:
What we were not aware of were the plans for
the internal structure of the building. We were not aware of the
status of the machinery going into that facility. We were not
aware of the products that Cadbury was designing to make in that
facility.[18]
15. Despite those unknown facts, Marc Firestone believed
that Kraft had carried out significant research on the Polish
factory:
Sir, we did Google it. We had satellite images
of it and what those could only show was the exterior of the facility,
they could not show the enormous investment in bespoke equipment
that Cadbury was putting into that plant. It was confidential,
and I believe Richard [Doyle] and Trevor [Bond] will back me up
that that was not known to us or knowable to us publicly.[19]
16. When asked why Kraft chose to make its statement
about Somerfield without first gathering firm evidence to prove
the feasibility of the proposal, Marc Firestone asserted that
Kraft had a "sound basis for believing we would be in a position
to operate Somerdale and we made that statement in that way.[20]
He continued to assert that Kraft had acted responsibly:
We made the statement based on sound commercial
logic and are terribly disappointed that we are not able to carry
on, first, as I said earlier, because the workers were disappointed
but, second, it was not what we had hoped commercially. Purely
from a commercial perspective we indeed wanted to be able to use
the greenfield facility in Poland for our existing requirements
for Kraft's large chocolate business in Central and Eastern Europe.
We had a sound commercial reason for that, but that is not possible
because unbeknownst to us while the bid was progressing equipment
was going into the Polish factory.[21]
17. Marc Firestone did, however, acknowledge the
damage that this had done, both to Kraft's reputation in the United
Kingdom and to its relationship with the Cadbury workforce. He
expressed regret over how the situation had been handled:
I would like to take this opportunity before
this Committee, to Parliament, Unite and my colleagues to say
we fully understand that for over two years employees and colleagues
at Somerdale had been through a closure process and that our statement
of 7 September that […] created uncertainty about the plans
and on 9 February, when we announced that we would be unable to
carry forward, hopes and expectations were dashed, as I said earlier,
and we are terribly sorry about that. I personally am terribly
sorry about that. I was asked earlier what role I had. I was there
in the room when that statement was drafted and I do sincerely,
personally, express my apology that we have created that uncertainty
and we are not able to carry forward with that.[22]
18. We are unimpressed with Marc Firestone's explanation
of the events surrounding the closure of the Somerdale factory.
Kraft's lack of knowledge about the advanced state of the Polish
factory should have inspired caution, not least because public
information readily available to the company had clearly stated
that the Polish plant factory would be ready in 2010.[23]
Furthermore, we find it curious that Kraft decided to highlight
the future of just one of Cadbury's 64 manufacturing sites located
across the world.[24]
19. We believe that Kraft acted both irresponsibly
and unwisely in making its original statement that it believed
that it could keep Somerdale open. A company of Kraft's size and
experience ought simply to have acted with better judgement. By
making its announcement and the subsequent reversal Kraft has
left itself open to the charge that either it was incompetent
in its approach to the Somerdale factory or that it used a "cynical
ploy" to cast a positive light on Kraft during its takeover
of Cadbury. We can neither prove nor discount either conclusion.
We are aware of speculation in the press that the Takeover Panel
is examining this issue. We would expect this to be the case;
such serious questions deserve the detailed scrutiny that only
the Panel can give.
20. What is clear is that Kraft's actions in respect
of Somerdale has undoubtedly damaged its reputation in the United
Kingdom and has soured its relationship with Cadbury employees.
It will now have to invest significant time and effort into restoring
both.
5 BBC archives, Fry's chocolate factory is not about
to be bombed, A letter from 1940 Back
6
Cadbury Press Release, Cadbury Trebor Bassett Proposes Restructuring
of UK Chocolate Manufacturing, 3 October 2007 Back
7
The Independent, Strike threat over Cadbury's plans to move
to Poland, 13 November 2007 Back
8
Kraft's Takeover Proposal document, 7 September 2009 Back
9
Q 63 Back
10
Q 2 Back
11
The Independent, Kraft to close Cadbury factory near Bristol,
10 February 2010 Back
12
BBC News, Dismay at Cadbury's closure plans, 10 February
2010 Back
13
BBC News, Dismay at Cadbury's closure plans, 10 February
2010 Back
14
Q 232 Back
15
Q 232 Back
16
Q 232 Back
17
Q 238 Back
18
Q 256 Back
19
Q 240 Back
20
Q 238 Back
21
Q 241 Back
22
Q 231 Back
23
October 2007; The Independent, Strike threat over Cadbury's
plan to move to Poland, 13 November 2007; FCO article, UK
in Poland, Cadbury's chewing gum factory in Skarbimierz,
18 February 2009 Back
24
http://www.cadbury.com/ourcompany/ourbusiness/ourbusinessunits/Pages/default.aspx Back
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