Kellogg’s to adopt warehouse model of snacks business in US

Global cereal company Kellogg is planning to exit its direct store delivery (DSD) network in the second quarter of this year.

The cereal company intends to transition the DSD-distributed section of its snacks business in the US to a warehouse model.

This model is already being used by its counterparts in North America, including Pringles.

The company anticipates that the warehouse model would reduce the complexity, ease cost structure, and increase growth and profitability.

Kellogg chairman and CEO John Bryant said: “The consumer and retail landscape continues to change. 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.”

Expected to be complete in the fourth quarter of this year, the transition to the warehouse model will include transfer of inventory from Kellogg's distribution centres to retailers' warehouses, and the closure of its distribution centres.

Kellogg North America president Paul Norman said: "We see the warehouse model as a clear advantage for us. In fact, we realise both higher service levels and share in the US snacks categories and channels that sell through warehouse distribution already.

"By utilising 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.

"Our retail customers also have more sophisticated technology and replenishment capability. This is a strategic, forward-looking move that will transform not only our US snacks business, but also our US business as a whole."

The company said that it will be providing severance and benefits, as well as retention packages for affected employees to help ensure business continuity.