BATTLE CREEK, Mich. — Kellogg (K) could lay off more than 1,100 employees because of its decision to use grocers' warehouses rather than directly deliver many of its foods to store shelves.
The company said Wednesday it plans to begin exiting its direct store delivery network in favor of retailers' warehouses in the second quarter of this year. As a result, the company will close 39 of its distribution centers.
Those sites average about 30 full-time workers, Kellogg spokeswoman Kris Charles said. That's the equivalent of about 1,170 jobs.
Closures are expected to be completed by the fourth quarter of this year. The change comes as the grocery industry itself is changing: Online sales of staples are increasing and national retailers such as Walmart and Target have focused more on food sales.
"While this is the right move for the company to achieve our long-term objectives, it was a difficult decision because of its impact on some sales and distribution employees," Charles said in an email statement.
Kellogg — which makes Eggo frozen waffles, Kashi products, Keebler cookies and crackers, MorningStar Farms meatless foods, Pop-Tarts and Pringles in addition to its cereals — already uses the warehouse system for some of its products, including Pringles and its frozen foods. But its cereals, cookies, crackers and crisps most often are delivered through direct sales teams, according to the company's 2015 annual report.
The closures "will not have a sizable impact on any one community," including Battle Creek where Kellogg has its headquarters, Charles said. The company did not immediately provide a list of communities affected but about half are identifiable because of an online presence:
• In Cicero, N.Y., the company will close a distribution center with 30 workers, The (Syracuse, N.Y.) Post Standard reported.
• In Hagerstown, Md., its distribution center, also on the shutdown list, employs 85 people, The (Hagerstown, Md.) Herald-Mail reported.
• In Warren, Ohio, a Kellogg distribution center will close by the end of the year, The (Youngstown, Ohio) Vindicator reported.
Online job boards show that Kellogg was advertising openings at distribution centers in Elmhurst, Ill.; Hartford, Conn.; Loudon, Tenn.; Oklahoma City; Orlando; and San Antonio. Additional distribution centers are in Atlanta; Augusta, Ga.; Auburn, Maine; Breinigsville, Pa.; Fontana, Calif.; Franklin, Mass.; Jackson, Tenn.; Menomonee Falls, Wis.; Muncy, Pa.; Omaha, Neb.; Phoenix; San Jose, Calif.; and Sharonville, Ohio.
Detroit is the company's only distribution center in Michigan, Charles said.
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The move reiterates "how serious we are at creating a more competitive and a faster-growing snack business," said President Paul Norman of Kellogg North America on the company's investor call Thursday. The decision frees up money for other areas such as brand building, Norman said.
"(It's) a very difficult decision," he said. "We firmly believe this is the right move for our business as we look forward to changing consumer and shopper trends."
Kellogg's core cereal sales have been under strain as consumers find themselves rushed to get out of the house in the morning and store brands that families turned to during the recession eat into market share for the big brands: Kellogg, Post and General Mills.
Kellogg's cost-cutting program, dubbed Project K and first introduced in 2013, will be extended into 2019, said Ron Dissinger, outgoing Kellogg chief financial officer. Project K, designed to promote efficiency and reshape the business, has resulted in a number of layoffs, including last month's decision to cut 250 North American jobs.
It had been scheduled to end this year.
On Thursday, the company reported a loss of $53 million in the fourth quarter although profits were up 28% to $1.4 billion for the year. Adjusted earnings for the quarter were 92 cents a share, $3.74 for all of 2016, surpassing Wall Street expectations.
It's stock price was up about 4% to $76.47 a share in Thursday afternoon trading.
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