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Kellogg Idea Proposal (K)

Kellogg Idea Proposal (K)

Will Kellogg’s shift from direct store delivery to a warehouse system boost the company’s fortunes?


Report Available: September 27, 2017


Blueshift’s initial research showed K pushing a new distribution strategy to save costs and expand margins for its snacking business, while getting all its products delivered using the same system. The move is not without risk, however, as its two biggest rivals are maintaining their direct store delivery method and may be able to gain share as a result.



  1. K announced in February plans to move its U.S. Snack businesses, the largest segment in the company, from a direct store delivery method to a warehouse model used by its other U.S. businesses. The company’s aim is to leverage efficiencies in an effort to cut costs and improve margins for its cookies and crackers division. K expects 15% in cost savings with the move. This also gets all of K’s North American businesses on the same distribution model. The company said the move was made in part because of changes in how consumers shop, increasingly opting for retail outlets and online purchases. In Q2, K began closing its distribution centers, with several thousand workers expected to lose their jobs as the transition wraps up by the end of 2017.
  2. K saw Q2 earnings and revenue exceed expectations. Earnings grew 6%, though revenue fell 2.4% from a year ago. The company said the transformation from the direct store delivery system is on track and near completion with its U.S. Snack division now entirely warehouse distributed. Gross profit margin gained 30 basis points in Q2, while operating profit margin climbed 160 basis points in the quarter. Quarterly sales in the U.S. Snacks segment were the same as the prior year, outperforming K’s other staple segment, U.S. Morning Foods, which saw sales drop 6.6% year to year. K reaffirmed its 2017 outlook.
  3. The risk in the move to a warehouse model is that K’s major competitors MDLZ and CPB’s Pepperidge Farm gain share as they maintain a direct store delivery strategy, which includes salespeople going directly into stores to set up products and merchandise. This generally ensures greater care for product displays, end caps, and shelf space as the manufacturer has more control over how the shelf appears in the store. A MDLZ exec reaffirmed his company’s commitment to the direct store delivery model, highlighting the advantages of better distribution, merchandising, speed to market, and new product introduction. Meanwhile, CPB’s Global Biscuits and Snack division was a bright spot for the company’s third quarter, with sales rising 2% and EBIT up 14%. CPB also reiterated its belief in the benefit of the direct store delivery method.


How has the transition from DSD to warehouse been for K? How are price concessions and negotiations with retailers? How receptive have retail partners been?  How is shelf space changing for K and its competitors? How is K’s sales velocity trending without DSD? What will the shift to warehouse delivery look like for K over the long term? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Food distributors, Category buyers/managers at grocery chains, Competitors, and Industry specialists.


Companies: Kellogg (K), Mondelez (MDLZ), Campbell Soup Company (CPB), TreeHouse Foods (THS), J M Smucker (SJM), Pinnacle Foods (PF), General Mills (GIS), Post Holdings (POST), J & J Snack Foods (JJSF)


Research Begins: September 11, 2017