Nestle will lay off about 4,000 workers as it stops delivering frozen pizza and ice cream directly to stores and instead transitions to a warehouse model that’s becoming an industry standard for Big Food companies looking to trim costs. The company is shutting down its direct-to-store delivery network for products like DiGiorno and Skinny Cow. The change means the elimination of an operation that now includes 230 facilities, 1,400 trucks and 2,000 different routes. The firm was able to reduce costs but ultimately, the direct-to-store model was too expensive, reports Material Handling & Logistics (May 8, 2019).
Shipping directly to grocery stores used to be more common, as it gave suppliers like Nestle eyes on the store and helped them quickly get products to shelf. But as companies look to cut costs, it often makes more sense to ship to warehouses. Nestle USA already uses the warehouse model for its frozen meals and snacks. Nestle isn’t concerned with losing space to sell its products without its own delivery people in stores. “Every inch of the freezer is controlled very tightly,” said the CEO. “As retailers have become more sophisticated, as the retail industry has consolidated some, that bit of Wild West where you could kind of move and push your competitor to the side, that’s not the case anymore.”
In 2017, Kellogg announced plans to eliminate 1,200 distribution jobs as it exited direct-store-delivery as part of a bid to cut costs. That means the company is relying more heavily on retailers to put its products on shelves. Snack giants Mondelez International and PepsiCo’s Frito-Lay both still rely on “DSD,” arguing it helps boost sales to have employees in stores stocking products..
Classroom discussion questions:
- What are the advantages and disadvantages of DSD?
- What has changed in the retail industry that allowed Nestle to make this move?