Sector News

Kellogg to switch delivery model for U.S. snacks unit to cut costs

February 9, 2017
Food & Drink

Corn Flakes maker Kellogg Co said on Wednesday it would stop distributing its U.S. snacks business’ products directly to stores and switch to its more widely used warehouse model to cut costs and adapt to a changing retail landscape.

The decision reflects the shift by shoppers toward buying groceries outside of grocery stores, as well as Kellogg’s continued focus on revitalizing its snack business.

The distribution model change is part of an expanded “Project K” program, which Kellogg launched in 2013 to save up to $475 million annually by 2018 through job cuts and production optimization.

Kellogg said it will close its distribution centers and that there would be layoffs, though it declined to provide details.

“Out of respect for employees who are still being notified, we are not sharing that information at this time,” Kellogg said in a statement.

Kellogg already distributes about 75 percent of its U.S. sales through warehouses, including products in its frozen foods and morning foods businesses.

The direct-store delivery model was part of the appeal that drew Kellogg to its 2001 $3.6 billion acquisition of Keebler snacks. Kellogg used the deal as a launching pad for its snack platform, adding chip company Pringles in 2012, in a deal valued at $2.7 billion.

The U.S. snacks business, which also includes Cheez-It crackers and Special K cereal bars, accounted for about 25 percent of Kellogg’s sales in the third quarter. These sales declined in 2014 through the first half of 2016, before flattening out in the third quarter, led by core brands Cheez-It and Pringles. Kellogg, which is scheduled to report fourth-quarter results on Thursday, said it would start the transition in the second quarter of 2017 and expects to complete the move in the fourth quarter.

“We believe (the move) will help us grow the business in the long term, taking resources tied up in distribution and putting them back into the brands themselves,” said John Bryant, chairman and chief executive of Kellogg. The company, which also makes Pop-Tarts and Fruit Loops, said it would provide severance, benefits and retention packages to employees impacted by the transition.

Kellogg’s shares were marginally higher, up 0.15 percent at $73.60, in trading after the bell.

By Jessica Kuruthukulangara and Lauren Hirsch

Source: Reuters

comments closed

Related News

May 21, 2022

Cécile Béliot becomes Bel Group CEO

Food & Drink

Cécile Béliot has assumed the role of Bel Group chief executive officer, following the decision to separate the roles of chairman and CEO. The separation of the functions will enable Bel Group to develop in three areas of healthy snacking. Meanwhile, the company’s former CEO, Antoine Fiévet, has had his mandate renewed as chairman of the board.

May 21, 2022

“Corporate greed and dereliction of duty”: FDA commissioner slammed over infant formula shortage

Food & Drink

US Food and Drug Administration (FDA) Commissioner Dr. Robert Califf was grilled by lawmakers during a House Appropriations subcommittee hearing, where he was slammed over the agency’s handling of the escalating infant formula shortage.

May 21, 2022

Sweegen hails antioxidants and bitter blocking tech a turning point for sugar reduction and healthy aging

Food & Drink

Sweegen is ramping up its efforts to reduce sugar across F&B applications while simultaneously tapping into the benefits of using antioxidants and bitter blocking technology. Speaking to FoodIngredientsFirst, Casey McCormick, vice president of global innovation at Sweegen, says product developers can find a broad range of solutions in Sweegen’s nature-based sweetener systems as brands elevate better-for-you foods.