Dive Brief:

• Kellogg will be replacing their direct store delivery with warehousing, a move that is already in place for Pringles and the remainder of its North American non-snack business.
• The remaining Kellogg's 39 distribution centers will close by the end of 2017, resulting in the layoff of roughly 1,100 workers.
• The change is intended to boost a cost-savings program of $600 to $700 million through 2019, a pronounced increase from previous estimates of $425 to $475 million through 2018. However, the current disruption of closing distribution centers will make for a slow 2017.

Dive Insight:

Kellogg's decision to switch from direct store delivery to warehouse-only allows it to not only cut costs on smaller deliveries but also gives the retailer greater control over distribution. Thanks to omnichannel demand from shoppers, with products available either in person or online, both the supplier and retailer can better meet demand at the source, with the supply available to be directed where needed.

Shifting responsibility for inventory management to the retailer allows for better, more accurate product distribution. It also reflects Kellogg's awareness that its omnichannel sales were growing to the extent that managing distribution had become an inefficiency for the company. 

One of the major factors driving the shift toward warehouse delivery is the predominance of millennials, who rely increasingly on e-commerce for their shopping needs. Their shopping trends equate to more frequent purchases but in lighter volume, which puts greater pressure on inventory management. Therefore, it has become increasingly necessary for large goods manufacturers to shift the risk from their own logistics to the retailers' warehouses.