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THE CHEEZ WHIZ KIDS END UP ON TOP LIFE AFTER KGF FINDS DISTINGUISHED ALUMNI LEADING SMALLER FOOD COMPANIES

By Published on .

The latest restructuring at Philip Morris Cos. and its Kraft General Foods subsidiary comes as no surprise to Boston Chicken President J. Bruce Harreld.

The tobacco and food giant in late November launched a downsizing that will eliminate 14,000 jobs and close 40 plants worldwide. For KGF, it is the third round of cutbacks since Philip Morris bought Kraft in 1988 for $13 billion and merged it with General Foods Corp.

Mr. Harreld is part of an unusual generation of hotshot executives who honed their marketing skills during the 1980s under Kraft's then-President Michael Miles. The young executives roused the sleepy food giant with snazzy ad campaigns, imaginative new products and brand name acquisitions.

You could call them the Cheez Whiz Kids.

But after Philip Morris bought Kraft, some of the Kids found their playground was troubled. Mr. Harreld said he left a top post at KGF earlier this year largely because the job wasn't fun anymore.

"I didn't want to be part of a huge organization that was treading water," he said.

The grind of never-ending cost cutting wore down several of KGF's top managers. But thanks to the 1980s accomplishments of the Cheez Whiz Kids, most walked out substantially wealthier for their stay. And nearly all have landed in powerful and high-profile positions at smaller consumer marketing companies.

Consider the most recent:

Mr. Harreld, 42, who resigned as senior VP-marketing and information services in January to teach and consult. He surfaced in September as president of Boston Chicken, the fast-growing fast-food chain whose stock soared after its initial public offering last month.

Thomas Herskovits, 46, who resigned as president of KGF's frozen products and dairy groups a year ago. He became president-ceo last month of a new, $2 billion food conglomerate, Specialty Foods Corp.

Eric Strobel, 45, who left KGF in August 1992 as senior VP-external development. He was named president of ConAgra's Armour Swift-Eckrich Processed Meats Co., with sales estimated at more than $1 billion a year.

"The alums have done all right," said Miles McKie, a Russell Reynolds Associates executive recruiter in Chicago who specializes in consumer goods companies.

They were in a position to wait and pick their spots. Considering salary, bonuses and stock options, none walked away with less than $1 million before taxes, according to estimates.

KGF doesn't yet have the reputation as a training ground enjoyed by Procter & Gamble Co. Grads of KGF don't have alumni reunions. But they talk often, sharing business problems over golf or dinner.

"We're all close," Mr. Harreld said.

The cadre of all-star marketers was mostly assembled by Kraft's Mr. Miles to turn around what, by the late 1970s, had become a stodgy company with inconsistent earnings.

First came Joseph Durrett from P&G, who helped recruit colleagues Bob Morrison and Mr. Strobel. Mr. Harreld arrived from Boston Consulting Group and Joel Weiner from Seagram Co. Other members of the team were Mr. Herskovits, who came over from General Foods; James Kilts, from General Foods' Oscar Mayer unit; and Miles Marsh of Dart Group, which had merged with Kraft in 1979 to form Dart & Kraft-a merger that was reversed in 1987.

The group boosted financial results at Kraft by tightening controls and speeding inventory turnover. It repositioned old-line products. And it bought companies such as Lender's Bagels and Tombstone Pizza.

Every nine to 15 months, the executives swapped jobs to keep fresh and learn different aspects of their business.

"Kraft became the hot place to work" among business school graduates, said Mr. Weiner, who retired in late 1989. "We would have 200 to 300 kids from each school vying for two spots."

One October afternoon in 1988, Philip Morris bid $90 a share for Kraft, and many of the Cheez Whiz Kids knew that the party was over.

At first, Kraft brass fared well. The tobacco company had coveted Kraft for its management strength, hoping to tame its errant General Foods unit.

As expected, the smug Kraft team won almost all the top spots at the combined company. The one exception: Ervin R. Shames, a respected General Foods veteran, was tapped to run Kraft USA in the interest of "cross-pollinating" the two cultures.

As it turned out, Mr. Shames didn't stick around to play with the Kids from Kraft. He resigned in mid-1989 and became president of shoe marketer Stride Rite Corp.

In June, Mr. Shames, 53, was named chief executive of Borden Co., charged with turning around the troubled food company. He declined to be interviewed.

Resigning at the same time as Mr. Shames was Mr. Marsh, who, in the initial reorganization was heading General Foods. The South African native and one-time McKinsey & Co. consultant was offered the No. 2 post at Whitman Corp. and saw that as an opportunity he couldn't pass up.

Less than two years later, he became chairman and chief executive of Pet when Whitman spun off that food company. Mr. Marsh, 46, could earn more than $900,000 this year, not counting stock options, according to the company's proxy statement.

"My case was pretty straightforward," Mr. Marsh said. "Until the day I left [KGF], I was working flat out, enjoying it enormously."

Others would leave with a more skeptical view of the merger.

The restructuring of KGF became contentious. Messrs. Durrett, Strobel and Harreld were charged with centralizing functions to cut duplicate costs. But many managers in the trenches disagreed on when and how that should be done.

"We were thrown into an environment-it was us vs. them," Mr. Harreld said. "It was not fun anymore."

Having spent $13 billion for its prize, Philip Morris set high earnings targets at a time when food industry growth was slowing. And Kraft, which sold many commodity products such as cheese, was particularly vulnerable to the onslaught of private-label products.

In the spring of 1991, Mr. Miles won the top prize: He replaced Hamish Maxwell as chief executive of Philip Morris. Mr. Miles was replaced as head of KGF by his longtime trusted lieutenant, Richard Mayer, who had been running General Foods since the departure of Mr. Marsh.

Mr. Mayer's ascension prompted a new wave of departures. A KGF spokesman declined comment, except to say, "We have a tradition of developing strong leaders at our organization, a tradition that continues today."

Mr. Durrett, who was senior VP-sales and was grappling with ways to consolidate the Kraft and General Foods sales forces, exited in July 1992. Two months later, he was named president-chief operating officer at Advo, a fast-growing direct marketing company whose sales will approach $1 billion this year.

"No one has heard of us," quipped Mr. Durrett, 48, adding that he left because the company he joined 12 years earlier had grown "large and monolithic," and because "consolidating rather than expanding a company takes a different type of personality."

Mr. Strobel followed a month later. After a stint as exec VP-chief operating officer at Valassis Communications, a producer of newspaper ad inserts, he landed a bigger job at Armour Swift-Eckrich, where some say he is in line for the top spot. Mr. Strobel declined to be interviewed.

Some of Mr. Miles' Cheez Whiz Kids have fared well through the downsizing. Mr. Morrison now runs General Foods, and Mr. Kilts is president of Kraft USA.

But the game of musical chairs means some are left standing. That was the lot of Mr. Herskovits, whose frozen products group was dismantled last year.

Mr. Herskovits took some heat for not combining businesses fast enough.

He said it became apparent that there weren't enough synergies to justify an independent frozen foods group. He ultimately restructured himself out of a job.

"The pyramid narrowed," said the 46-year-old Mr. Herskovits. "There was not enough room for all these talented people."

After investigating several ventures, he was tapped to head Specialty Foods, owned by a consortium that includes affiliates of Texas investor Robert Bass.

Mr. Herskovits is setting up a 20-member Chicago area headquarters staff to oversee eight food companies, including cheese marketer Stella Foods and Metz Baking Co., which markets Holsum bread.

Last out the door was a discouraged Mr. Harreld.

"It's a lot easier to start clean than to re-engineer old habits," he said of his new post at the entrepreneurial Boston Chicken. Mr. Harreld hasn't done badly so far: His 25,000 shares of Boston Chicken are worth more than $900,000.

Of the exodus, Mr. Harreld said, "Mike [Miles] built a good team, but the game changed. The company was more financially oriented and not in control of its destiny. Maybe a piece of Mike is sad we're gone. But we've ended up in interesting places."M

Ms. Crown is a reporter for Crain's Chicago Business.

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