Amy’s Kitchen, jolted by array of economic woes, will close San Jose site

SAN JOSE — Amy’s Kitchen, jolted by an array of economic shockwaves, will close its San Jose production center for frozen pizzas, a shutdown that will wipe out hundreds of jobs, the company disclosed Monday.

An estimated 300 jobs will be lost when the San Jose factory shuts down by sometime in September, although the plant is slated to cease pizza production within days. Founded in 1987, Amy’s Kitchen is a successful producer of organic and healthy frozen foods.

“It’s very sad to have to do this, it’s brutal,” said Fred Scarpulla, acting chief operating officer with Amy’s Kitchen. “This is very emotional. I was very invested in the San Jose plant and I really wanted it to succeed.” Scarpulla also is the company’s chief culinary officer.

Inflation, skyrocketing materials costs, labor shortages and disruptions in the worldwide supply chain coalesced to doom the plant after slightly more than a year of operations. Located at 1885 Las Plumas Ave. in San Jose, the Amy’s Kitchen plant began production in March 2021.

“With the inflation that’s going on, we had a huge increase in costs,” Scarpulla said. “We had supply chain disruptions, we experienced a lot of staff turnover and labor shortages. A lot of things disrupted production and created startup problems.”

Brutal bouts of inflation alone forced expenses at the plant to jump by 20%, Scarpulla estimated.

Capital expenses, primarily fast-rising costs for building materials and equipment, were double what the company originally anticipated it would pay at the factory.

Logistics costs, mainly fuel, soared higher by 74%, the company estimated. Wheat prices, part of the collateral damage arising from Russia’s invasion of Ukraine that wiped out much of the production of the staple grain in the European country, skyrocketed by 60%. Vegetable oil prices surged to a 90% increase.

For the last six to eight months, the San Jose production center has been losing about $1 million a month, he estimated.

“It really became obvious as sales results came in that continuing in San Jose wouldn’t be possible,” Scarpulla said.

The persistent hiccups in the startup process meant the production center couldn’t scale up swiftly enough to land crucial long-term contracts to supply supermarkets, grocery stores and other retailers with the San Jose plant’s chief product, frozen pizzas.

“We ordered a crucial piece of equipment in 2021 that we really needed for production and it just showed up this week,” Scarpulla said.

In what appeared to be a final blow, demand began to fade for the more expensive frozen pizzas that Amy’s offered for $10, $11, or $12 a package. Demand cooled for the San Jose plant’s primary pizza product as the economic impacts of the coronavirus began to ease — and inflation squeezed consumers.

Demand remains robust for the Amy’s Kitchen single-serve frozen foods such as enchiladas, burritos, ravioli, and broccoli and cheese that are less costly and typically range in price from $7 to $9 each. It’s possible that with inflation now soaring, people have turned to relatively inexpensive offerings from Amy’s Kitchen and other food producers.

Ultimately, the Amy’s Kitchen plant in San Jose only managed to scale up to 5% of the companywide production capacity. Amy’s Kitchen had bet that San Jose could account for 10% of the company’s production.

Amy’s Kitchen still produces frozen food at company plants in Santa Rosa; Medford, Oregon; and Pocatello, Idaho.

The option of seeking a loan to keep the San Jose plant afloat until its manufacturing maladies could be remedied is deemed by the company to be unviable due to a steep rise in interest rates that have rendered the cost of borrowing money prohibitive.

Amy’s Kitchen executives intend to do all they can to ease the sting of the layoffs that the San Jose employees are facing.

“We will pay everyone for 60 days,” Scarpulla said. “We will conduct job fairs and provide career counseling. Maybe people will take jobs at one of our other plants.”

In the view of Amy’s Kitchen, the plant’s demise isn’t merely a cut-and-dried tale of the eye-popping cost of doing business in the Bay Area and California.

“We love California. It’s our home,” Scarpulla said. “We went into San Jose with our eyes wide open. But we’ve never seen economic challenges like this. The decision to close the plant was unavoidable.”