ARLINGTON, VA. — Nestle USA plans to exit its company-owned frozen direct-store delivery network for pizza and ice cream and transition to the warehouse model it uses for its frozen meals and snacks businesses. The phased transition will begin in the third quarter of 2019 and is expected to be completed early in the second quarter of 2020.
The company said the move will result in the closing of eight company-owned frozen distribution centers and frozen inventory transfer points.
Nestle’s frozen pizza brands include California Pizza Kitchen, DiGiorno, Jack’s and Tombstone. The company’s ice cream brands include Edy’s/Dreyer’s, Drumstick, Skinny Cow and Häagen-Dazs.
“Ice cream and pizza are growing categories in which we hold strong leadership positions,” said Steve Presley, chairman and chief executive officer of Nestle 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.”
The move is part of Nestle’s broader efforts to transform its organization and accelerate growth in a rapidly changing retail environment.
“Moving to a warehouse model has numerous benefits for us and our retail customers,” Mr. 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.”
At Nestle’s May 7 Investor Seminar, Mr. Presley elaborated on why the company is making the change now.
“There were some historical benefits D.S.D. had that just no longer exist for a variety of reasons,” he said.
Benefits he cited included improved performance on the shelf, incremental displays, better channel reach and increased speed to shelf.
“The reality is today in this consolidated retail environment the retailers have become more sophisticated in terms of controlling their space,” he said. “They have gotten really tight around planograms. So, there is no incremental space for a display.”
Mr. Presley said the warehouse model is far less capital intensive and simpler. The company’s current D.S.D. model incorporates 4,000 employees, 230 different warehouse facilities around the country and over 1,400 trucks that follow 2,000 routes and make over 3 million deliveries annually.
“This is one of the levers we have to take to drive growth in this market,” he said. “Both of these categories (frozen pizza and ice cream) are highly responsive to investment from a demand generation standpoint.”
Nestle will feel an initial financial impact from the transition. Mr. Presley said there will be approximately $500 million in restructuring costs associated with the transition. In addition, Nestle will see a $450 million reduction in sales.
“Not all of that is organic growth,” he said.
Mr. Presley called both the frozen pizza and ice cream businesses “good growth businesses” for Nestle, with frozen pizza growing at 3% and ice cream growing at 3.5% annually.
“We’ve innovated very effectively on both of these businesses,” he said. “We have more than $350 million of new item launches in the last 36 months. We know there is more growth here. We just need more investment to drive them.”