Nestle’s forthcoming dismantling of its direct-store delivery network for its frozen pizza and ice cream businesses will help it generate needed investment in those product categories while better serving supermarkets now keeping a closer eye on their in-store real estate.
Nestle said this week it is transitioning distribution of frozen DSD items from its current system of route drivers into its existing frozen warehouses, which currently distribute its frozen meals and snacks. The change will commence in the third quarter and is expected to be complete early in the second quarter of 2020.
The change follows a trend among some CPG brands to scrap such methods of distribution, including Kellogg’s, which dropped DSD for its cookies and crackers business in 2017, and frozen food manufacturer Schwan’s.
Speaking at a presentation this week in Arlington, Va., Nestle U.S. CEO Steve Presley said that historical advantages of DSD for the manufacturer “no longer exist,” including speed to shelf and the opportunity to build displays. The move also responds to changes in how its largest customers are approaching merchandising.
“The reality today is that retail environments have consolidated, and retailers have become more sophisticated at controlling their space,” Presley said “They have really gotten tight around plan-o-grams so there’s no incremental space for display. And the unique thing for frozen that people with ambient DSD don’t have to deal with is that we need a freezer for display. We can’t just go build displays around the store.”
The move will break down a massive network Presley described as “highly complex and extremely costly,” including 4,000 employees, 230 warehouse facilities and 1,400 trucks making about 3 million deliveries a year. The savings will free up cash that can be invested back into the products, he said. “Both of these items are highly responsive to investment from a customer demand standpoint so this will enable that.”
Rick Shea, president of Shea Food Consultants, Minneapolis, told WGB in an interview that DSD would not likely disappear from all categories in the store, noting that faster-moving items with short self lives such as bread, or concerns with product weight, including beverages, would likely remain using route delivery. But cost concerns sweeping the CPG industry and changes in how retailers go to market have rendered DSD too inefficient to be effective.
Brands affected by the Nestle switch include California Pizza Kitchen, DiGiorno, Jack’s and Tombstone pizzas, along with Edy’s Dreyer’s, Drumstick, Skinny Cow and Haagen-Dazs in ice cream and frozen novelties.
“Moving to a warehouse model has numerous benefits for us and our retail customers,” Presley said. “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. This change is a win-win for Nestle and our customers.”
The change will result in the closure of eight company-owned frozen distribution centers and hundreds of frozen inventory transfer points, and about 4,000 layoffs. “These employees have worked incredibly hard to serve our customers. Treating them with respect through this process is a top priority for us, and we are committed to doing all we can to provide them information, resources and support,” Presley said.