Frito Lay

Case #2 |

Frito-Lay, Inc

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Sun Chips Multigrain Snacks |

BUAD 6300University of ToledoDr. Michael L. Mallin |

Meagan Frances Ayers

Spring 2011

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Strategic Issue

After a test-market for Sun Chips has been successful in Minneapolis, Frito-Lay is now trying to determine what to do next: continue the test, expand the test to other geographical areas, introduce the product nationwide, or modify the strategy.

Analysis and Evaluation

Snack Food Industry and the Snack Chips Segment

Snack chips are a segment of the snack food industry. The products in this category are made up of potato, corn and tortilla chips, pretzels, and ready-to-eat popcorn. The snack food industry includes snack chips but extends to all kinds of snacks including but not limited to: candy, cookies, crackers, nuts, etc…

Impressively, in 1990, the United States purchased 3.5 billion pounds of snack chips which equated to 14 pounds per person. The snack chip segment, in 1990, brought in $9.8 billion in retail sales.

Competition

The category of snack chips is a highly competitive segment of the snack food industry with highly competitive pricing and heavy reliance on price deals to attract customers. On average (according to the case), 650 snack chip products are introduced each year consisting mainly of new flavors for existing products. However, regardless of the high amount of new products introduced each year, the failure rate is extremely high. For example: less than 1% of new products in this segment produce more than $25 million of sales in the first year.

There are three distinct types of competitors for the snack chips category: (1) National brand firms (such as Frito-Lay, Proctor & Gamble, RJR Nabisco, Keebler, etc…), (2) regional brand firms, and (3) private brand firms (i.e. Kroger brands).

Frito-Lay

Frito-Lay is very strategically positioned within the snack food industry. They account for 13% of sales in the United States snack...