Fifty local jobs will be lost as the Tillamook County Creamery Association looks to streamline its packaging and transportation systems, while expanding its market reach.
TCCA Board President Joe Rocha said the layoffs were one of the hardest decisions he has had to make as a board member.
“I wouldn’t want to be sitting here, if I was sitting here because that creamery failed,” he said. “Then I would feel like I failed. It’s a small town business, but it has to be a real business at the end of the day. It is a big business, and it’s easy for big businesses to fail.”
At the beginning of February, TCCA will shed approximately 50 jobs in its Tillamook packaging department. The news was announced to TCCA employees on Jan. 5. The cuts were approved by a vote of TCCA’s nine-member farmer board – evenly representing dairies in north, central and south Tillamook County – the prior day.
Some of the packaging operations currently handled in Tillamook will be outsourced to two packaging companies, Marathon Cheese in Idaho and Great Lakes Cheese in Utah.
The layoffs will affect nearly half of the approximately 110 employees in the Tillamook packaging department. Tillamook Cheese CEO Harold Strunk said the move would save “millions of dollars.”
“We’re now well over a $500 million company, and there are different expectations when you’re this size company,” Strunk said. “These are the kinds of things that our customers are demanding of us to be more user friendly. One of the things this provides is back-haul opportunity. Customers love to be driving right past your manufacturing facility, drop off their load at one of their stores and pick up your product on the way back to their warehouse.
“They don’t do that in Tillamook, Oregon. Mile-marker ‘zero’ on the West Coast is probably the most difficult place to distribute to the entire U.S.
“We still make ice cream here, we still make cheese here, it’s still going to be home to Tillamook Cheese and the visitors center,” he said. “We’ll still be running the packaging line for visitors through the weekend. The only thing that changes is we’ll be scaling back the amount of production that goes through this facility.”
But if online comments are a good indication of public sentiment, many residents think TCCA is changing – and it’s forgotten its small town roots. In the days following the announcement, a Facebook page, “I used to buy Tillamook Cheese when it was made in Tillamook” had 68 likes; “Boycott TCCA” had 10. Tillamook Cheese’s Facebook page of 191,000 fans was flooded with complaints about the decision.
That’s not counting the hundreds of negative comments on news media websites.
“It was not an easy decision,” said TCCA Board Vice President Shannon Lourenzo. “It was extremely tough. But we have to continue to do this to keep those other 450 jobs and keep these farms alive. We have to.”
WHY THIS HAPPENED
Both Rocha and Lourenzo said fuel costs were a major factor in the layoffs.
“This has probably been brought to us over the years, it’s always been on the list of opportunities we need to look at,” Rocha said. “Because it’s people that we live with in the same community that we care about, we just would always say look around, let’s find other things first... Well, all of a sudden transportation costs are the number one out-of-line cost we’re dealing with. We’re forced to deal with it. We can’t ignore the cost of fuel anymore. We continued to hope that fuel would come down. It hasn’t happened.”
In 2000, TCCA added its Boardman, Ore. facility. Boardman makes large blocks of cheese, but the packaging has been done in Tillamook.
“When we decided it was OK to continue to package here, fuel was probably less than half of what it is now,” Rocha said. “Now, anything they can make up by being efficient here at the plant, it gets sucked up double-some in trucking it back and forth. And it really isn’t about anything else except in the long term, we’re never going to be able to afford to bring all the cheese to be packaged here and moved out.”
The Tillamook plant only packages block cheese, marketed as “loaves.” TCCA currently uses the Marathon plant in Mountain Home, Idaho to shred and slice all its cheeses. Now, Marathon will also take on the packaging of block cheese to be distributed regionally around Idaho. TCCA will work with a new vendor – Great Lakes Cheese in Fillmore, Utah – to package all types of cheese destined for the Southwest. Neither Marathon nor Great Lakes uses union labor in their packaging departments, a TCCA spokesperson confirmed.
The Tillamook plant will remain the distribution center for Oregon, Washington and northern California, but will no longer be packaging the block cheese destined for the Idaho and Utah distribution centers.
“In its worst form, because our distribution network was here, we would literally make blocks in Boardman, ship them back to Tillamook to age, ship them out to Mountain Home, Idaho to be shredded and sliced, ship them back to Tillamook to be distributed, then sometimes back to Idaho to customers,” Strunk said. “So you can understand the inefficiencies that was creating… You start doing the math at more than $5 a gallon for diesel.”
Today, production of Tillamook Cheese is split roughly 50/50 between Tillamook and Boardman. All ice cream is made in Tillamook. Other Tillamook brand products, such as yogurt, butter and sour cream, are licensed products produced by other companies. All local milk is processed in Tillamook, Rocha said.
Shredded and sliced cheese destined for Oregon-area markets will continue to be shipped to Idaho for packaging, then returned to Tillamook for regional distribution.
“One of the things we are now looking at is, can we bring shredding and slicing equipment here?” Strunk said. “That’s a longer term view, that’s not immediate, and we don’t know how many people that will bring back when we get to that point. But we have it on the drawing board. We’ll see if it comes to fruition.”
Rocha said future plans also call for the construction of a whey processing facility in Boardman, modeled after the existing facility in Tillamook. That would be a handful of jobs in Boardman, but it wouldn’t replace the 50 lost.
Asked if there would be more layoffs, Rocha said, “I hope not, but I’m also going to tell you that we’re going to have to continue to do everything we can, as efficient as we can.”
NEXT FOR EMPLOYEES
The TCCA has not announced to employees exactly which workers’ positions will be affected or what severance packages will be offered, pending negotiations with the Teamsters Local 58, which represents the packaging department’s employees.
Union spokesperson Walter LaChapelle said the average job affected pays about $16 per hour.
In a release, the Union called the TCCA’s decision “disappointing.”
“One of the local union’s first orders of business in response to this matter includes meeting with TCCA officials in an effort to ascertain answers regarding the complete basis for their decision,” a release stated. “Our hearts go out to these employees who are anticipating the devastating effects of losing these family and community sustaining jobs resulting from TCCA’s decision to outsource their work out of state.”
Union and TCCA officials are meeting this week to discuss what benefits and services will be provided to employees.
“We have in mind the package we would want to be able to offer to them of assistance and transition, but it has to be approved by the union,” Strunk said. “We haven’t been able to give people the details at this point. It’s approximately 50 positions, that doesn’t necessarily mean 50 people, but it’s 50 positions because we’ve been trying, through attrition, to get that number down as much as we possibly can.”
Struck added that layoffs were not anticipated for TCCA’s drivers, though their routes and work schedules may change.
The layoffs come at a time when TCCA is spending roughly $15 million to upgrade and expand the Tillamook plant. Strunk said the main purpose of the renovations was to replace aging equipment that was “absolutely mandatory.”
The renovations are also adding offices, a central lunch room and locker rooms. The latter is required to keep the facility within SQF (Safe Quality Foods) compliance, similar to an ISO rating for a manufacturing business. Many of TCCA’s customers require that the plant have a Safe Quality Foods certification.
“Those locker rooms were added for SQF certification purposes because we had no place for employees to change from street clothes into their work clothes to go into the production environment,” Strunk said. “This gives us certification that our customers are looking for, to signify that we make safe, quality products for their consumers.”
Rocha said the upgrades show that TCCA is committed to staying here in Tillamook.
“We’re spending money here for quality reasons and for safety reasons, and this really is about updating the plant and keeping it,” he said. “It’s a pieced together plant that started in the 1950s.”
THE TILLAMOOK BRAND
If Tillamook Cheese wasn’t farmer owned, Rocha said there probably wouldn’t be a Tillamook plant at all.
Lourenzo cited the dairies farther south on the Oregon coast – Myrtle Point, Coquille – that couldn’t stay competitive with the dairies closer to I-5.
“It was a huge dairy area, now there’s 16 farms left,” he said. “They just cannot compete, but we’ve been fortunate enough to have Tillamook.”
He’s talking, specifically, about the brand. Both Rocha and Lourenzo said Tillamook Cheese has been able to survive “only because of the brand, one hundred percent.”
And that’s why so much money has been poured into marketing.
Last year, Tillamook Cheese took on an aggressive advertising campaign that included TV, social media, print advertising and a strong PR presence. A May 2011 New York Times article said the TCCA planned to spend $12 million in marketing last year – the largest amount in the co-op’s history.
Despite that marketing effort, Lourenzo said sales of Tillamook products have been flat the last three years.
“Since the recession hit, our numbers have actually been flat. Is that the new up? Probably,” Rocha said.
Where did that $12 million go? Part of it was the “Love Loaf” tour, which traveled the country in converted Volkswagen vans designed to look like loaves of cheese. A large chunk was also spent on television ads.
“We did TV in most of the western U.S., with the exception of Oregon and Washington where we’re really strong,” Strunk said. “And this year, it’s shown enough promise that we’re going to do that in Texas as well, and with that, hopefully gain some distribution and gain some volume.”
Rocha believes Tillamook’s growth will be based upon reaching a national, high-end market.
“It’s going to be expansion into new markets with high-end products, not two-pound baby loaves,” Rocha said. “It’s going to be chunks of three-year-old cheese that we do great. The kind that you would be used to going to the cheese counter or deli and paying $10-$12 a pound for. But to do that, you’re selling trunk-loads of cheese instead of truck-loads of cheese. And you have to make up a lot of trunk-loads to displace a truck-load.”
And TCCA’s growth probably won’t lead to more jobs in Tillamook, he said. For effective distribution purposes, growth will be with warehouses and plants in more central points. As an example, TCCA thinks there could be a greater market for ice cream. But what gives ice cream its creamy texture is tiny pockets of air – and it doesn’t travel well over high-altitude mountain ranges.
“No, we’re not going to grow this facility here because, one, we don’t have the milk supply, and two, everything’s got to be trucked in and trucked out,” Lourenzo said. “This plant serves this area perfect the way it is.”
“Expansion isn’t probably going to happen here,” Rocha added. “This cheese factory was set up to continue to serve the farmers here. If the farmers go away from here, there isn’t going to be a plant here anymore because it’s the most inefficient place to have dairy processing because of location. It’s just expensive.”
HEALTH OF THE COMPANY
The layoffs have also led to questions about the overall health of TCCA.
“This move is to make us more viable,” Strunk said. “We are very viable, this makes us more viable.”
Over the last decade or so, Strunk said the TCCA has lost about 75 dairy producers. And yet, the amount of milk production remains relatively steady. That’s because, he said, a tough economy has made it difficult for smaller operations to stay in business.
“There’s economies of scale that need to be met and some people just either retire or just economically don’t think it’s viable any more,” he said.
In December 2010, there were 24,315 milking cows in Tillamook County and 108 producers. Last month, those numbers dropped slightly to 24,140 cows and 105 producers.
“For the majority of dairy farmers, it’s probably been the toughest times. You can make a living, but as a rule, I think the margins have been the skinniest the last few years,” Rocha said. Farmers think, “If 40 percent of my milk check is going to pay for what my animals are eating, I can live.” Some farms are now spending 70 percent of their milk check on feed alone.
But the company itself is profitable. Without giving specific numbers, Strunk said, “you or I would love to own this company.”
Compared to other artisan cheese makers, TCCA is huge. At any one time, Lourenzo said TCCA is sitting on 10 percent of the nation’s cheese inventory. But compared to, say, Kraft products (not all of which is classified as “cheese,” by the way) TCCA is a tiny competitor.
“We are a tweener for sure, any way you try to cut it, that’s where our company is stuck and it’s unfortunate,” Rocha said. “The board of directors, way before we got involved, figured out that we could not sell the milk that we produced here turned into cheese and keep everybody happy and keep it a little artisan place. We were too big for that... So we already knew that the Safeways of the world would have to sell our cheese. Well, the problem is the Safeways of the world want you in all of their stores, or they don’t want to deal with that kind of thing. So we have to supply those people.”
When asked if other local employers could absorb the 50 cut positions, Rocha said, “I’m afraid that they can’t, and that was the hardest thing about making this decision.”
The Tillamook Cheese Factory currently employs 483 people, making it one of the largest employers in the area.
The industry, in general, also provides some of the higher-wage jobs in Tillamook County. According to WorkSource Oregon, in 2010, food manufacturing employed 822 people county-wide, had payroll of more than $32 million, and average wages of $39,333 annually.
While the community has other food manufacturing employers – Tillamook Smoker, Pelican Brewery, Pacific Seafood and other seafood processors – Shawna Sykes, analyst with WorkSource Oregon, doubted the existing businesses could employ another 40 to 50 people.
“I think the folks that are in those positions are going to need to look at other opportunities in different industries, because there’s really no substitution for those specific jobs in the Tillamook area,” Sykes said. “They’re going to have to look beyond what they’ve been doing and look at re-training opportunities.”
Tillamook County’s unemployment rate in November 2011 (the last date for which numbers are available) was 7.6 percent. That’s lower than the state average of 9.1 percent and lower than the county’s November 2010 rate of 10.1 percent.
County unemployment figures for January won’t be released until March 12. Still, Sykes said of the layoffs, “I don’t think it’s going to change (unemployment rates) a lot.
“The unemployment rate is based on a household survey, so it really depends on how many of those people end up in the survey,” Sykes said. “Even though it’s one of the most widely publicized statistics we put out, it’s also, frankly, inaccurate. It’s a very small sample. So what we really look at as analysts is what happens to that number over time.
“The Tillamook unemployment rate has kind of edged up in the last few years, so that’s kind of concerning, but it’s typically below the statewide rate on a regular basis, which is great. Not a lot of rural counties can say that.”