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Quarterly earnings

Kellogg to align with Pringles in warehouse distribution, further fueling US snack sales

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Douglas Yu

By Douglas Yu+

Last updated on 10-Feb-2017 at 13:22 GMT2017-02-10T13:22:05Z

Kellogg believes warehouse distribution systems can help grow its US snack business.  Photo: iStock/Monkeybusinessimages
Kellogg believes warehouse distribution systems can help grow its US snack business. Photo: iStock/Monkeybusinessimages

The US food giant, Kellogg, has announced it will shift its entire snack business in North America from direct store delivery (DSD) to warehouse distribution systems to meet consumers’ evolving shopping behaviors. 

The announcement came shortly before the company released its Q4 and full-year 2016 earnings results, which showed Kellogg’s Q4 and full-year net sales decreased by 1.4% and 3.8% due to “adverse currency translation.”

However, Kellogg’s US snacks segment showed growth in net sales (increasing to $767m during Q4) driven by continued growth in core brands, including Cheez-It, Pringles and Rice Krispies Treats, but also by progress toward stabilizing sales and share in wholesome snacks and cookies.

Improving cost-efficiency

Paul Norman, president of Kellogg North America, said the distribution model transition was a “difficult decision,” but one that accelerates a transformation of the US snack business, leading to better growth and profitability ahead, for both the retailer partners and the company.

Following the exit of DSD, Kellogg will invest in the technology of its customers’ and its own warehouse systems, which the company hopes to “result in greater cost-efficiency and freeing up resources to invest in future growth.”

Job loss and DSD centers shutdown

The transition will be executed during Q2 and Q3 of 2017, causing shutdown of previous DSD centers and a reduction in workforce, Kellogg added.

The company said it is providing severance and benefits, as well as offering retention packages for impacted employees.

Despite an anticipated snack sales decline in 2017 primarily due to the transition, Kellogg’s overhead savings are expected to begin to accrue in Q4 of 2017. 

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