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The Hypocrisy of Nestle's Hot Pockets Plant Closure in Chatsworth

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Image courtesy Bing Maps
The recent announcement of Swiss giant, Nestle's ($120 billion net worth) Hot Pocket's plant closure in Chatsworth displacing 360 employees and subsequent move to Kentucky was not surprising at all. It has long been known that CA's business environment is unfriendly with higher taxes, fees, regulations, labor costs, etc. which has prompted other local businesses to reconsider their business strategies for operations in the SoCal region. 

The SFV is almost a leader in this category with many former manufacturing centers providing higher paying jobs no longer in existence to be replaced by either an apartment complex or big box store. In fact, I dont think I have seen any announcements of a new manufacturing center being opened for at least the past 5 years!

The reason that this news was not surprising was because Nestle was slowly cutting employees supposedly citing weakened demand. In August 2009, Nestle cut the plant headcount by half (SFVBJ, subscription req.). I dont have a subscription so dont know the details. On January 3, 2012Nestle laid off 103 employees and cut factory hours from six days to four days citing a decrease in demand for Hot Pockets with 445 employees remaining.

The Nestle Chatsworth plant has slowly been decreasing its headcount and output probably in anticipation of this move. To shut down a plant and move it to another state doesnt happen overnight and takes months if not years as the current plant in operation needs to slowly absorb the increase in volume. 

The recent announcement for the plant closure cited plant restrictions according to spokeswoman, Roz O' Hearn:
Because of its placement in an industrial park surrounded by other businesses, that placed physical constraints on our opportunity to grow it for the future.
So this where things dont make sense. If demand was decreasing and the number of employees have shrunk by at least more than half in the past 5 years, why would Nestle need more space? Are they planning to add automation equipment which will in the end cut more employees at the new plant? Seems like a nice way of saying, CA is too damn expensive and we can make a larger profit in Kentucky. 

Lets examine the annual impact of the closure using some basic assumptions: 
  1. Nestle's owns the plant which measures 320,966 sqft with the building measuring 33,775 sqft. The property is valued at $13,643,315 with property taxes of $167,026.10 paid in 2013. 
  2. With 360 employees and assuming an average salary of $70,000 factoring in benefits, the total payroll is $25,200,000. 
  3. The utilities paid on this site which I have no way of estimating is probably at least $2 million. (Thanks to DWP increasing rates).
  4. Local vendors like food trucks, cleaning crews, security, various trade groups, etc is probably another $1 million. 
  5. Total revenue might possibly be in the $50 - 100 million range. I have no idea on this one so making a rough estimate.
  6. Local taxes, fees, etc paid might be another $1 million. 

The total economic contribution from this plant is around $100 million based on the assumptions above. But the biggest impact is the employee payroll at $25 million which goes back to the local economy and taxes. Imagine if you are a homeowner wanting to sell your home and a Nestle employee was about to purchase but changes their mind because of the layoff. This scenario is unlikely but if more companies continue scaling back in the SFV, who is going to be left with any purchasing power?

In terms of Federal taxes, not all is lost because fortunately the product is staying in the US. But the plant will probably be sold by Nestle and/or remain vacant for a few years as there arent that many companies looking to manufacture in such a large facility these days. Like I said before, when was the last time you heard about a new plant opening in the SFV?

But dont worry, we have the Village at Westfield Topanga coming in Woodland Hills. All of those factory workers earning a decent salary with benefits can work at the food court on part time pay with no benefits

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Marty Mcfly

Anything and everything about the San Fernando Valley. This blog will take you back in time when the valley was covered with dirt and orange groves to a leader in the space race to its current status as America's suburb. Come along and join me on this adventure, I guarantee you have been influenced/impacted by the San Fernando Valley in one form or another even if you have never visited or heard of the SFV.

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