Kellogg Co. on Feb. 8 announced it 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 its North American business.
Kellogg said the savings would be pumped into product development and marketing efforts.
"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 company statement said.
Kellogg didn't specify numbers, but Fortune magazine figured it would mean the closing of 39 distribution centers by the fourth quarter of 2017. With an average of 30 full-time workers each, that could mean the elimination of more than 1,100 jobs, the magazine estimated.
"The consumer and retail landscape continues to change," said John Bryant, Kellogg's 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."
By shifting resources from the operational support of DSD to brand building, shopper marketing and pack formats that better meet consumers' evolving needs, Kellogg said it can better drive growth in its snacks business.
The warehouse distribution model is more effective and efficient and is already used by 75 percent of Kellogg's U.S. sales, including the Pringles, frozen foods and morning foods businesses.
"We see the warehouse model as a clear advantage for us," said Paul Norman, president of 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."
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."
