Dive Brief:
- Layoffs have begun related to Nestlé's transition away from a direct-store-delivery (DSD) model to a warehouse model affecting the company's ice cream and frozen pizza brands. The company will close eight frozen warehouses by Q2 2020, it announced in May.
- On August 16, Nestlé submitted Worker Readjustment and Retraining Notifications (WARN) to labor authorities in at least five states including Arizona, Colorado, Kansas, Washington and Florida forewarning layoffs of 56-85 workers per state. This will include sales and supply chain staff and adds up to 360 layoffs announced thus far. The layoffs, which will reach roughly 4,000, begin taking effect October 18 and continue through the end of the year, according to the notices.
- The CPG giant announced the move away from DSD in May by Steve Presley, CEO of Nestlé USA. "As we continue to focus on driving long-term profitable growth, leveraging a simpler route to market unlocks resources we can use to fuel our efforts in demand generation, such as product innovation and brand building," Presley said in a statement.
Dive Insight:
Nestlé is on a mission to streamline its operations. Beyond distribution, the company is simplifying recipes and its manufacturing footprint in order to cut $1 billion in procurement and operations costs. Globally, the company closed 24 factories in the last two years.
Nestlé expects to spend about $500 million in transition costs to move away from DSD. Abandoning the DSD operational strategy is certainly a more cost-effective, simpler way to work with retailers going forward, but it requires brands to relinquish some control of the shelf. In A DSD operation, Nestlé employees deliver directly to stores, interact with store-level buyers and staff and often restock the shelves. Through these tasks, they gain first-hand knowledge of store operations and issues.
| State | Number of layoffs |
|---|---|
| Arizona | 85 |
| Colorado | 56 |
| Kansas | 85 |
| Washington | 67 |
| Florida | 67 |
In the new modus operandi, Nestlé trucks will deliver to grocery chain warehouses and the retailers will deliver the goods to stores and stock the shelves themselves.
"By taking advantage of the unmatched breadth and depth of our existing frozen warehouse network, our retail customer partners can better leverage their existing networks," said Presley in his May statement. "This change is a win-win for Nestlé and our customers."
The CEO said the decision to lay off thousands of workers — roughly 8% of the company's U.S. workforce, according to Bloomberg, came after "careful consideration." All affected personnel have already been notified of their separation dates, according to the WARN notices.
