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Kellogg’s to close distribution center in Warren

020917...R KELLOGG'S 1...Warren...02-09-17... View of Kellogg's sign and building located along N. River Rd. NW in Warren...by R. Michael Semple

WARREN — Snap, crackle and poof.

Almost five years after Kellogg Co. announced plans to move into the former Delphi building on North River Road, the cereal maker said it will close its local distribution center, along with dozens of others across the country by the end of the year.

The move will cost about 50 local jobs.

The Battle Creek, Mich.-based company, which also produces a variety of convenience foods, said it is switching its delivery method for its U.S. snacks market to align with changes in customer shopping patterns. Instead of continuing its direct store delivery network — a system of shipping products to supermarkets and big-box retailers — the company will ship products to warehouses before they move to retailers’ distribution centers. It is a system the company said it already uses for the majority of its products.

“The consumer and retail landscape continues to change,” said John Bryant, Kellogg Co. chairman / CEO. “We have to change the way we reach and communicate with consumers. 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, ultimately growing our business and our retailers’ businesses.”

The company said it will begin the transition this spring, but did not specify when it plans to shut down the local distribution center.

Warren officials said the local closure will cost the city about $49,000 a year in income tax generated from the workers.

Community Development Director Michael Keys said Kellogg moved its distribution center into the North River Road site in 2013.

“They have not contacted us locally,” Keys said. “As I understand it, Kellogg is closing its distribution centers through the end of the year, so we do not know when the company will move out of the building.”

Working with the Youngstown-Warren Regional Chamber, the city will contact companies that in the past had been looking for spaces about the size in which Kellogg is located, Keys said. The company uses about 170,000 square feet of the building.

“We do not want to lose any jobs in the city,” Keys said.

There are primarily warehousing jobs in the distribution center.

Councilman Alford Novak, D-2nd ward, a member of the Warren Commerce Park Board, said the warehouse has been nearly empty over the last several weeks.

“Kellogg’s filled nearly half of the building,” Novak said. “There was hope these would be stable jobs. However, cereal is not selling as well as it used to sell.”

Mayor Doug Franklin said he was saddened by the news of the impending closing because of the impact it will have on the company’s employees and their families.

“This decision is reflective of what is happening nationally in the cereal business, but it is affecting us locally,” Franklin said. “We can’t affect national decisions. If this was a local company, we would have done whatever we could to help them stay open.”

Franklin said the city has not yet received a WARN letter, or mass layoff notice, that typically would outline the number of employees being affected and the time line of the closing.

“We expect a WARN letter at any time now,” Franklin said.

Kris Charles, Kellogg spokesman, said on average the company’s distribution centers employ about 30 full-time workers.

He said the timing of the closures vary by location, but the company expects all 39 centers to close by the end of the year.

Charles issued this statement, “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 employees. As the distribution shifts from our network to our retailers’ networks, so too will the work. We’ve been actively engaged in conversations with some of our biggest retail partners who have expressed strong interest in hiring these employees for high-demand roles once the transition is complete. As a result, we are optimistic that our employees will find similar employment once this transition is complete so the net impact is impossible to quantify. As the affected employees work throughout the U.S., this change will not have a sizeable impact on any one community.”

Kellogg said the move will free up money for the company so it can invest in activities like advertising that more directly help boost sales.

The company said its U.S. snacks business, which includes Cheez-Its, Pringles and Special K bars, showed improvement in the quarter, though sales were down 1 percent for the year.

For the final quarter of 2016, total sales were $3.1 billion, slightly better than expected revenue of $3.07 billion. The company reported a loss of $53 million, or 15 cents per share, as it booked charges for restructuring and deconsolidating its Venezuela business. Not including one-time items, it said it earned 92 cents per share.

Kellogg cut its sales forecast for 2017, citing the discounts it gives to retailers when it does not provide direct delivery to stores. It now expects currency-neutral sales to decline about 2 percent for 2017. It previously forecast flat sales.

J.P. Morgan analyst Ken Goldman said the change could lead to problems, such as retailers being out of stock of certain items. But over the long term, Goldman said he thinks it’s the right move for Kellogg because direct delivery is “an expensive luxury.”

The Associated Press contributed to this story.

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