Dive Brief:
- A group of former sub-distributors for Kellogg filed a lawsuit with the U.S. district court in the Eastern District of New York, according to an email sent to Supply Chain Dive.
- Sub-distributors claim they owned exclusive rights to sell Kellogg products in the nearby regions — routes which they maintained through 2017 under assurances Kellogg would continue operating a direct-store-distribution (DSD) model. When Kellogg transitioned away, the plaintiffs suffered "devastating losses."
- The plaintiffs are suing for financial damages, alleging Kellogg and its direct distributor, W.M. Brown, misrepresented distribution intentions to the sub-distributors.
Dive Insight:
The Kellogg case sheds light on the downstream side effects of logistics shifts otherwise meant to save costs.
In this particular case, Kellogg's decision to switch distribution models came as a result of its "Project K" cost-cutting initiative, which was first announced in 2013. Project K promised to reduce the company's headcount by 7% over the following four years and find opportunities to cut costs and reduce excess capacity within its "supply chain infrastructure."
These cost-cutting measures, it would turn out, included not just closing plants but also thinning its distribution network to rely more on retailer warehouses for distribution than Kellogg's own facilities.
By July 2017, the plaintiffs in this case had been alerted their business would be cut as a result of these shifts. At the time, the sub-distributors contested the method for closing the business, sending a letter to Kellogg and W.M. Brown demanding compensation for wrongful termination.
The question raised by the letter, and again in the case, is not whether Kellogg had the right to shift its business model, but rather, to what responsibility do companies have to alert their downstream distribution partners of strategic shifts, and did Kellogg misrepresent its business intentions to these partners?
