The Food Giant Is Consolidating and Restructuring Distribution, Potentially Killing Small Businesses
Kellogg Company‘s (NYSE:K) move to cut warehouses as well as sales, and support staff will likely put many small businesses out of commission as owners of the shipping routes are left out in the cold.
Despite posting lower sales in the last few years as healthier snacks have begun to siphon away consumers, Kellogg has still managed to boost profits and its share price by cutting costs, usually through labor reductions and layoffs. Kellogg recently decided to shutter 39 distribution centers and lay off thousands. But beyond those working directly for the company, many small businesses and contractors will be left in the dust as well.
Kellogg plans to ship its goods by tractor-trailers, from the factory to store-chain warehouses, cutting out the middlemen that made up these smaller businesses.
Contractors have bought distribution routes and started up companies around these routes, often putting their life savings into the move. But as Kellogg restructures, these routes will cease to exist. Therefore, the contractors will be left with nothing in the wake of the massive Kellogg’s layoffs.
This has prompted several of the route owners to join together in a class action lawsuit seeking payment from Kellogg’s for the routes. Without a settlement, many would be left out in the cold with little cash and likely facing bankruptcy.
The move to close these distribution centers drew the attention of U.S. Senator Bob Casey (D., Pa.) who wrote a letter expressing his dismay that the company was cutting so many workers and his hope that the company would maintain its routes and history of being a good employer in his district.
Some of the accusations leveraged against the company include that it is putting greed and profit over the livelihood of thousands, and that it could find other ways to stay in the black besides these massive cuts.
With few job prospects awaiting them should this class action lawsuit fail, many of the small business owners view this move as a last resort. and that there is little hope for their companies or a financially secure future without these routes or compensation for their dismissal.
“To boost profit as sales drop, Kellogg squeezes small businesses, too,” Philly.com, June 24, 2017.