Direct store delivery, or DSD, has lost a lot of luster in recent years outside product categories such as beer/wine, soft drinks, some snacks and bread.
With DSD, food manufacturers operate their own delivery fleets to bring products right to individual stores, rather than shipping them to retailer distribution centers for eventual movement to retail backrooms and then the selling floor.
Supply Chain Digest Says...
|
 |
The key to Mondelez's commitment to DSD appears to be focused on the top line, driving revenue growth and margin expansion. |
 |
What do you say? |
| Click here to send us your comments |
 |
| Click here to see reader feedback |
|
The approach can ensure better freshness and sometimes improved merchandising and stock rotation (though that can be accomplished independent of delivery method) – but comes at high logistics costs.
The level of those costs have caused several major food companies to abandon DSDin recent years, leading some to question the strategy's viability outside the segments noted above.
In 2019, for example, Nestle announced it was shutting down its direct-to-store delivery network for products such as DiGiorno and Skinny Cow, beginning in the third quarter of that year. That meant the elimination of an operation that included 230 facilities, 1,400 trucks and 2,000 different delivery routes.
The unit was able to reduce costs but, ultimately, the direct store model was too expensive even once the company "reached the maximum point of efficiency," Steve Presley, CEO of Nestle USA, said - meaning previous cost cutting moves weren't enough in the end.
"You can't have that duplicative cost in the structure," Presley added, referring to both a retailer and some vendors making deliveries to stores.
Similarly, in 2017, Kellogg announced plans to eliminate 1,200 distribution jobs as it exited direct store delivery in its snack business unit to cut logistics costs. That business has now moved to a retail DC store replenishment model, as Nestle is also executing.
"Because our customers' and our own warehouse distribution systems have become more efficient and effective, we can now redeploy resources previously tied to DSD and direct them to the kinds of brand investments that drive greater demand with today's consumers," Kellogg CEO John Bryant said at the time.
Paul Norman, president of Kellogg North America at the time, said that "We see the warehouse model as a clear advantage for us. In fact, we realize both higher service levels and share in the US Snacks categories and channels that sell through warehouse distribution already."
Kellogg's move led to the closure of 39 distribution centers and roughly 1,100 layoffs.
(See More Below)
|
CATEGORY SPONSOR: SOFTEON |
|
|
| |
|
|
In 2012, after bakery snack maker Hostess went under and then was reborn under new management, it also took a hard look at its DSD model with a fresh set of eyes.
At its peak, Hostess had thousands route trucks and 600 storage depots. The new owners decided it would end DSD and ship to retail DCs, which in the end not only took out lots of logistics costs but actually led to more stable demand and better forecast accuracy.
But Mondelez International, maker of many popular snack products such as Ritz crackers and Oreo cookies, is doubling down on DSD, according to a report this week on the foodbusiness.net web site.
“The step change we've made in the supply chain is better connecting our selling organization with DSD in with our logistics arm of the supply chain," said Henry Walter, president of North America, during a June 16 presentation at the Evercore ISI Virtual Consumer & Retail Summit. “So, how can we improve service at the same time, improve efficiency, (and) reduce costs to be able to invest back in our customers and our brands? And I'm very pleased with that progress we're seeing."
 The key to Mondelez's commitment to DSD appears to be focused on the top line, driving revenue growth, market share gains and margin expansion instead of just focusing on logistics costs.
Foodbusiness.net reports that Mondelez began to see market share advances at the end of 2019 and the trend accelerated significantly when a majority of US consumers came under stay-at-home orders due to the coronavirus.
Mondelez has been analyzing consumer behaviors at store and thus able to respond to changing market conditions and implement programs to better serve retailers and consumers.
“We're also seeing that the strength of our DSD not only helps in stock condition for normal shoppers that we would all have been doing before COVID, but it's really helped us with in-stock condition to help those players as they're picking orders in stores for their omnichannel business," Walter added. “So, as a consequence, we're seeing strong growth, we're seeing market share growth. We picked up nearly three share points of growth overall in the portfolio."
Could Mondelez's success cause others to rethink ending DSD? That's doubtful, as the costs in assets an infrastructure would be huge, but it's interesting to see Mondelez find a way to make the strategy a success.
What do you think of Mondelez's DSD strategy? Let us know your thoughts at the Feedback section below.
|
