Daily Local News (West Chester, PA)
Kellogg’s new business model will cost jobs
292 workers at company’s Montco sales office will be laid off in August
HORSHAM » The Kellogg Co. is hoping to cut costs by changing the way your bright blue box of Rice Krispies and other products end up on store shelves.
The Michigan-based company is switching from direct store delivery to warehouse distribution, which will result in layoffs this summer.
According to a report the company filed this month as part of the federal Worker Adjustment and Retraining Notification (WARN) Act, 292 employees will be laid off in August at a Kellogg sales office located at 100 Witmer Road, Horsham.
Earlier reports by other sources incorrectly described the Horsham location as a distribution center, noted Kellogg Co. spokesperson Kris Charles, who explained that the move is in keeping with plans the company announced earlier this year.
“In February, Kellogg 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,” Charles said. “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. While this is the right move for the company to achieve our long-term objectives, it was a difficult decision because of its impact on employees.” As the dis-
tribution shifts from the Kellogg’s network to that of its retailers’, so too will the work, Charles allowed: “We’ve been actively engaged in conversations with some of our biggest retail partners who have expressed strong interest in hiring these employees for high-demand roles once the transition is complete. As a result, we are optimistic that our employees will find similar employment once this transition is complete.”
In an earlier release, the company acknowledged that customers’ buying habits have evolved.
“The consumer and retail landscape continues to change,” said John Bryant, Kellogg Company 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.”
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, the release noted.
“By shifting resources from the operational support of DSD to brand building, shopper marketing and pack formats that better meet consumers’ evolving needs, Kellogg can better drive growth in its Snacks business,” the release indicated. “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 is already 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.”
Paul Norman, President of Kellogg North America, added, ““We see the warehouse model as a clear advantage for us. 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 new model will benefit retailers and consumers alike, Norman explained in the release.
“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.”
The transition from the DSD network will be completed in the fourth quarter of this year, encompassing a transfer of inventory from Kellogg’s distribution centers to retailers’ warehouses and the closing of its distribution centers.
The company is providing severance and benefits, as well as offering retention packages for impacted employees to help ensure business continuity.
“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.”