Last updated on February 10th, 2017 at 11:43 am
Kellogg Co. will begin to exit its Direct Store Delivery (DSD) network in the second quarter, transitioning the DSD-distributed portion of the company’s U.S. Snacks business to the warehouse model already used by Pringles and the rest of the company’s North American business. Kellogg says the new model will be “transformational for Kellogg, reducing complexity and cost structure while driving growth and profitability for the company and its retail partners.”
“The consumer and retail landscape continues to change,” said John Bryant, Kellogg Co. chairman and CEO. “We have to change the way we reach and communicate with consumers. Because our customers’ and our own warehouse distribution systems have become more efficient and effective, we can now redeploy resources previously tied to DSD and direct them to the kinds of brand investments that drive greater demand with today’s consumers—ultimately growing our business and our retailers’ businesses.”
The transition from the DSD network will be complete in the fourth quarter of 2017. It will encompass a transfer of inventory from Kellogg’s distribution centers to retailers’ warehouses and the closing of its distribution centers.
“While this is the right move for the future of the company, it was a difficult decision because of the impact on affected employees,” said Bryant. “We are doing everything we can to help our employees manage through this transition.”
The company says it is providing severance and benefits, as well as offering retention packages for impacted employees to help ensure business continuity. The company did not reveal how many employees would be impacted.
Changing shopping patterns
Shopping patterns and behaviors have changed significantly over the past few years, with consumers increasingly shopping in both a wider variety of retail outlets and online, says Kellogg. By shifting resources from the operational support of DSD to brand building, shopper marketing and pack formats that better meet consumers’ evolving needs, Kellogg says it can better drive growth in its Snacks business.
Warehouse distribution model
Kellogg says the highly efficient warehouse model, to which the DSD network will be transitioned, leverages scale and technology that Kellogg and its customers currently have. Warehouse distribution already is utilized by 75 percent of Kellogg’s U.S. sales, including the Pringles, Frozen Foods and Morning Foods businesses. Moving completely to a warehouse distribution system offers a significant opportunity to accelerate growth.
“We see the warehouse model as a clear advantage for us,” said Paul Norman, president, Kellogg North America. “In fact, we realize both higher service levels and share in the U.S. Snacks categories and channels that sell through warehouse distribution already.”
Driving growth
The company says that moving to the warehouse model also will allow it to reduce complexity and bring benefits to both retail partners and Kellogg.
“By utilizing one service platform, we can better leverage the first-class warehouse systems that we and our retailers have to unlock significant opportunities for joint value creation, be they in service, cost efficiencies, or scale benefits,” added Norman. “Our retail customers also have more sophisticated technology and replenishment capability. This is a strategic, forward-looking move that will transform not only our U.S. Snacks business, but also our U.S. business as a whole.”
Something here does not make sense. Kellogg’s is wleminating DSD to focus on its snack business, while the leader in snacks, Frito-Lay goes to market via a DSD distribution model. Bottom line, Kellogg’s execs don’t have a clue on how to grow their business.
Agree!
the Kelloggs company will layoff all sales rep , merchandiser on august 2017 most of the distribution are going to close all over the US. thousands of people will be out of work. the problem with the company is that they make bad decision and are very disorganize. that make the company lose money. the CEO of the company don’t have any idea that the company is disorganize in my state at least. store manager does not like the company because they have bad service. the reputation of the Keebler is store are very bad. The DM want number and they don’t care about the store. they want you to over fill the store and that make the manager of the store angry, and the lack of service does not help. their is no supervisor to see what is going on in the stores and the communication is bad. that is why the company is going down .
Very unorganized
My question is what happens to the independent Keebler distributors that service the smaller stores that sell a lot of product. If Kellogg thinks they will start buying from their warehouse I think they are mistaken. Nabisco will grab the space, Frito will grab the space, Snyder-Lance will grab the space, along with all the other DSD companies.
Kellogg’s truly does not care at all about their employees. I was very successfully in business for myself for 54 years and after selling my last business, I went to work for Kellogg’s as a PT merchandiser for 9 years. Their upper management is a joke and ALL they cared about were sale numbers. The result was overloaded back rooms,unhappy store managers, and frustrated employees. Their so called business model was a total failure and the employees are the ones paying for it.
After working for General Motors for many years I thought I saw the worst dysfunctional company ever until I came to work at Kellogg’s the heavy shoot-from-the-hip and miss the target mentality lots of trial and more error than anything
I think it will hurt at store levels by: 1) you will lose space to dsd companies hungry for shelf space. 2)you won’t get proper ordering to fill shelves that the space will slowly deteriorate. 3) Poor rotation(if any) from PT store employees will kill the freshness. 4) You will lose sales you get now from promotional displays and endcaps and wings. I just don’t see this being a good decision.
Got out of the dying DSD business several years ago, after being in it for 25 years. With the rare exceptions like Frito, Coke, and Pepsi, the DSD model is a mess. Scheduling, routing, forcasting,all of these things plague the ineffectiveness of it. It’s like they keep thinking” The wheel isn’t round enough and we need to rectify that!” Huge turnover, ineffective and petrified management and perpetual upheaval are the norm in this business.
This is the first shoe to drop, many other fringe companies will now follow.
Lets be honest, how much more labor would it take for a store to stock those 4 trays Pepperidge Farm bread or 2 boxes of Voortman cookies? The tremendous cost of maintaining this antiquated beast is staggering. Time to put it out of its misery.
Granted, the big wheels like Coke, pepsi, Frito, provide a tremendous value to the stores solely on their sheer volume of business they do. But for the rest of DSD, it’s a joke.
Kelloggs is grossly understating the numbers being let go. It is several thousand, well into the double digits persintage wise of global workforce.
A lot of independent rep’s too not employed by them they are not mentioning.
It affects a lot more people than Kellogg’s employees!
I see the change as a result of employee production results in the field as a struggle based on a various list of factors which include individual pride lacking in the field sales force. The natural choice is to eliminate the factors that move the bottom line down.
The most effictive way to move spending on the brand for growth is towards marketing. Consumers are reacting more towards the influency of media on many different levels. I believe this power thru advertising and product packaging will more than offset the DSD drop.
Ask any salesperson in field when did they last sell a full end display to a Kroger, Safeway, Acme, F.Meyer………..? Real decisions made in the field in supermarkets for floor space are determined out of the store by management of the chains.
Ask a 30 age consumer when was the last time you purchased a Keebler cookie package, box of Kellogg cereal, a can of coke or Pepsi, FLay chips……traditional snacks in a supermarket and the numbers will tell you a dramatic shift where new marketing is needed.
Bury the elf and bring out the kale crackers.