Why labor issues are adding pressure to food marketers' profit margins

Soaring demand for packaged foods and a tight labor market are giving food industry workers something they haven’t had in decades: bargaining power. A weeks-long strike at Mondelēz International’s Nabisco bakeries ended recently with workers winning pay hikes and bonuses while refusing to yield on benefits. At Chicago tortilla-maker El Milagro, employees are pushing back on production demands and seeking higher pay. Other food manufacturing giants, such as Conagra and Kellogg, can expect similar challenges as employees flex their newfound negotiating muscle. Workers are using the leverage they’ve gained as packaged food companies scramble to meet still-high demand and struggle to fill vacancies amid a tight labor market. The shift means potential improvements in pay, benefits and working conditions for people who bake cookies, package snack foods and more. The packaged food companies, for their part, face at least a temporary setback in their long-standing campaign to squeeze labor costs. In the short run, losses at the bargaining table could put more pressure on profit margins at a time when other costs are rising. “We’re at a tipping point,” said Michael LeRoy, a professor of labor law at the University of Illinois at Urbana-Champaign. “People are walking off of their job, and they have no concern that the employer’s going to hire a replacement for them.” Like employers in other industries, packaged food companies are doing what they can to appeal to potential workers, adding benefits and upping pay. Food manufacturing wages were up 4.6% in July over last year, but such raises have had little effect on the industry's growing labor gap. According to industry group Consumer Brands Association, the consumer packaged goods industry—including food, beverage, personal care and household items—has 143,000 job openings but added only 6,000 workers last month. “That is barely chipping away,” said Katie Denis, VP of research and narrative at the association. “Employees have the upper hand right now because there are so many job openings.” At the same time, demand for the products made at the understaffed facilities has remained high. Sales of packaged products have dipped only once in the past 18 months, Denis said. In the second quarter of 2021, sales were up 8.7% over the year prior. That’s “crazy” growth, considering the run on toilet paper and other packaged products that dominated the second quarter of 2020, she said. Many food manufacturing workers feel like they have borne the brunt of the pandemic. Some have watched colleagues get COVID-19 and felt they’ve risked their own lives coming to work while their employers rake in revenue. “Workers have just had enough,” said David Woods, international secretary-treasurer at BCTGM, the union representing the Mondelēz employees who recently went on strike. “Not just here, but I think it’s across the country, and I think it’s growing. The labor market is slammed right now.” More than 1,000 workers went on strike at Mondelēz facilities, including a bakery in Chicago’s Marquette Park neighborhood. Ultimately, they approved a four-year contract retroactive to March that promises a 2.25% raise followed by annual 60-cent hourly wage increases, $5,000 signing bonuses and a doubled 401(k) contribution. As important as the raises were, the union’s biggest success was in blocking cost cuts the company sought to impose, Woods said. Mondelēz backed off demands to curtail generous health care coverage and premium pay for weekend work. Mondelēz issued a statement on the new contract, saying it marks a “significant step forward for both the company and its employees.” It added that it will be well positioned to increase capacity as it anticipates additional volume growth. The union has other big food companies in its sights. BCTGM represents workers at facilities operated by ADM, Conagra, Kellogg and other packaged food giants. “We’ve got a lot of contracts opening up right now, and it’s the same fight. The companies are going after the same things,” Woods said. “They want to work the workers longer and pay them less. . . .The workers are going to say enough is enough.” Workers have reached their breaking point, said Laura Garza, worker center director for Arise Chicago, the workers’ rights nonprofit helping the nonunionized El Milagro workers. Garza says 85 of the company’s employees have contracted COVID, and five have died. Workers want to be valued, she said. They know there’s power in collective action, especially as El Milagro tortillas remain in short supply at grocery stores throughout Chicago. El Milagro, which did not return requests for comment, has not agreed to meet with workers. El Milagro employee and Spanish speaker Irma Gonzalez said through a translator that the company needs to incentivize longevity and pay its longtime workers more. “Without enough personnel to meet production goals, you’re going to see shortages of products like tortillas,” she said. “If we want to address the shortage, that’s where it has to start.” The challenge during this new era of labor negotiations is for unions and workers not to overplay their hand, said LeRoy at U of I. “It’s a generational inflection point,” he said. “This requires a new way of thinking for management, and labor is going to have to rethink how to harness their power.”

Why labor issues are adding pressure to food marketers' profit margins

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