Case Analysis - Frito Lays PDF

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Case Analysis for Frito Lay Dips...

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Case Analysis – Frito-Lay’s Dips Nature of the Industry, Market, and Buyer Behavior 1. The snack dip industry is a $775-million-dollar industry, with $620 million of these sales being accounted for in supermarkets. These dips are sold in the market in a variety of forms, ranging from prepared dips to dip/soup mixes. Salty snacks and vegetables are the main foods consumed with chip dips. Companies in this industry compete with products of various flavors. 2. Direct competitors of Frio-Lay are Borden, Kraft, Lipton, Campbell’s Soups, and regional manufacturers. Borden and Kraft are well-established in the cheese industry, and customers may choose their chip dips when searching for a cheese flavor due to the companies’ high brand awareness in the cheese market. Similarly, Campbell’s Soup has a competitive edge in soup-dip mixes since they are an established soup brand. Lipton may be the easiest competitor to square up against since their brand is mainly connected with an irrelevant industry – the tea market. Regional competitors may have higher sales than some of these brands since their focus is tight and presumably have tight trade and distribution connections in these areas. Dip substitutes such as refrigerated dressings also compete with chip dips. 3. In the dip industry, 80% of sales are made by buyers at supermarkets where the product is strategically placed (on shelves or in refrigerators) near food products to pair it with. 4. The market in this industry is segmented by whether the dip is prepared or in a base form (mix). Prepared dips make up $420 million in industry sales and can be sub-segmented into refrigerated dips ($235 million) and shelf-stable dips ($185 million). Dip bases account for $200 million in industry sales with the segment expanding into dry soup mixes ($47 million), dry dip mixes ($24 million), sour cream ($82 million), and cream cheese (47 million). The industry can also be segmented between vegetable dips and chip dips. 5. To succeed in this industry, companies must advertise (especially via radio and television commercials) to increase demand and awareness. The brands of the respective companies must have considerable shelf space in retail locations, (gained through distribution channel relationships), as physical stores are the main outlet for consumer purchases. Salesforces are also crucial in gaining shelf space for chip dips since they perform the sale and delivery of products. Branding and product packaging on the shelves must also standout from that of the competition. In-store promotions comprised of taste tests, coupons, and POP displays play a big role in attracting new customers. Most importantly, quality and flavor of the dips must always be maintained and updated to retain these customers. Quality and flavors can be maintained or improved via customer surveys, scientific research, reformulations, and product extensions/new products.

The Organization 1. The mission of Frito-Lay is to provide delicious and innovative snacks with a wide range of flavors. The objective of the company is to continue growing financially in regards to profits and market share. Frito-Lay’s distinctive competency is its name brand recognition gained from “salty snacks” and their ability of producing/selling shelf-safe snacks and dips at a high volume and effectiveness rate. 2. In the past, Frito-Lay exclusively offered chips, peanuts, and other salty snacks. Currently, the company is offering a new complimentary product – dips; and seek to push this new product line even more in the future. Since shelf-safe dips are a new product that consumers want to try, growth has been exponential ($57-million-dollar growth in five years). A recently introduced product, French onion dip, is forecasted to eclipse $10 million in 1986, and has potential to penetrate a virtually untapped shelf-safe vegetable dip market. 3. Frito-Lay wants to continue developing their new dip products but aren’t sure where and how to emphasize their efforts. Management at Frito-Lay are faced with a dilemma; to continue marketing dips as “chip dips” or market the product as vegetable dips to a new segment. 4. The continuous success and growth of Frito-Lay’s dips have made the company realize that this new product can be sustainable in the industry for years to come. Frito-Lay wants to continue capitalizing off of the popularity of their dips and want to be careful in regards to how the product should be marketed in the future. Forecasts and data show that a vegetable dip could prove to be a huge category that can compete with refrigerated dressings and dips. The overall objective for Frito-Lay is continued growth, and decisions must be made to ensure this objective is consistently met. A Plan of Action 1. Frito-Lay has the option to continue expanding on the chip dip market and build market share or to shift focus on pursuing the vegetable dip market. The company also has a third option which is to not change anything in regards to their marketing efforts in the snack dip industry. 2. In qualitative terms, each option has costs and benefits. Frito-Lay has already established dominance in the chip dip market and with their high brand awareness, not much advertising would be needed to keep sales afloat. However, studies show competition will increase rapidly and sales growth can be capped. Research also shows that consumers are beginning to grow concerned with salt content in chips and may alt for healthier options such as vegetables. The vegetable dip market would only face competition from refrigerated dips and dressings as no serious competitors offer a shelf-safe vegetable dip. However, research and development costs would increase as other flavors such as ranch would have to be introduced aside from French onion. Also, the product would have to be

placed strategically in produce sections next to fresh vegetables and the company has no experience in produce. Sales costs would increase since Frito Lay’s door-to-door sales and delivery system would have to be changed to another method (since produce section managers at supermarkets control the shelfing of products). Each option also costs and benefits in quantitative terms. Research shows that 80% of chips in US households are not eaten with a dip, showing that the chip dip industry has much more room to grow. 45% of U.S. households used dips and 97% of households consumed chips in 1985. Although there is growth potential, Mexican and cheese dips will incur $3,976,110 in advertising/merchandising expenditures in 1986. At $214.5 million in annual sales, vegetable dip accounts for 33% of industry dip sales ($650 million). Only 25% of these sales are accounted for by refrigerated dressings, bringing the annual market sales for dip mixes and refrigerated dips to $161 million. Frito Lay’s current offering for vegetable dip (French onion) would only require $761,400 in advertising/merchandising expenditures, and carry a 45% profit margin. 3. Potential Outcomes 1. With Allround being sold in more convenient retail locations, many current buyers will be retained as these spots may be closer in distance to them relative to a mass retailer or pharmacy. New buyers will also emerge as there is new shelf space in a virtually untapped retail location for Allround. Trade promotions would motivate convenience store distributors to push the products to their wide range of retailers. Competition may follow suit and attempt a similar approach of attaining convenience store shelf space next to Allround. With the development of new products, current users Allround of may want to try out the new medication if it fits their current needs. Since the Allround brand is already instilled in their mind, they may want to buy a children’s formulation of Allround for their kids, or try a new Allstar Brands product that focuses allergies rather than choosing a competitor’s allergy medication. Competition that is already selling these brands may increase their advertising budget or invest in in-store promotions to offset the attention Allstar Brands’ new products may bring to consumers. Both of these courses of action will help the ultimate goal of the organization to increase profit and market share. 2. Being sold in more convenient locations will expedite need fulfillment for buyers and distributors to these locations would be compensated monetarily for their trade promotions. Product development and extension would allow current buyers to use a trusted brand for other forms of sickness (sickness other than a cold). Both of these courses of action will help the ultimate goal of the organization to increase profit and market share. 3. Introduction to new retail locations will inflict a higher salesforce cost. In-store promotions will also incur a cost. The product is already being manufactured, so no additional costs would be present. The profit for this course of action could be similar to the profit obtained from sales in mass merchandisers. For product extension and

development, the costs will be much higher as new products have to be branded, produced, regulated, and promoted. The short-term profitability from this course of action will almost certainly be negative. However, in the long term, profits from new products can each reach up to $30,000,000 (about half of the net income of Allround). 4. These actions will most definitely help the company compete in the future. More product choices and expanded product availability is a recipe for success. These actions must be monitored as less profitable products should not cannibalize the most profitable product (which presumably would be Allround). Quality from new products should resemble the standards All Star Brands has established. Brand perception must also be monitored after the introduction of products in certain retailers can negatively affect the company’s image....