Frito-Lays Inc Case Study

Frito-Lay Inc. has a very profitable dip product line. This is not only a great deal now, but also has shown tremendous sales growth over the past few years. In 1981 their sales reached 30 million dollars, with the sales figures almost tripling by 1985, reaching 87 million dollars. However, this success brings the corporation into a very unique situation as well as bringing up a very good question of “how to develop this further?” Their options boil down to two different viewpoints. The first is the “chip dip” category or secondly, the newer and edgier “vegetable dip” category. The company in 1986 has also introduced sour cream-based French onion dip, which has an annual sales forecast of 10 million dollars and it is a bridge between the chip and the vegetable dip markets.

Nationally, 80 percent ($620 million) of the total dip sales, which is about 775 million dollars, are accounted for in supermarket sales. About 55% of the total sales by supermarkets require refrigeration, and their retail prices were typically in the $0.07 to $0.15/oz. range. In this market the major competitors are Kraft, Borden, regional dairies and store brands. The other 45% of the sales by supermarkets is considered to be shelf stable goods and these are typically sold for an average price of $0.09 to $0.20/oz. The major producers of these products are Frito-Lay and also some regional chip manufacturers.

Sour cream-based dips are the most popular flavor, and it accounts for about half of all total dip sales in the US. But the wholesale price of these products is only $0.09/oz. The second most popular segment of the market, the cheese-based dips, are taking up about 25 percent of the total market. While cream cheese-based dips are the third most popular and they take up about 15 percent of the total sales. Dips are most frequently used with salty snacks, in fact, 67 percent of all dip sales are linked to salty snack usage. On the other hand, only 33 percent of total dip sales are linked to vegetable usage. The growth in the popularity of Mexican foods in recent years has created a huge increase in the size of the dip market.

As big as the market is for dips, there is an increase in market dip substitutes. About 20 percent of the dips used in the US are homemade; nearly as many consumers use refrigerated salad dressings for dips. It is estimated that about 35 percent of refrigerated salads sold in the states is used as dips. It is also estimated that annual sales of the vegetable dip market are about 67 million dollars and the market is growing about 18 percent annually (this trend has been consistent since 1978).

Competition in the dip market is increasing very aggressively, especially in 1984-85. Not only the existing competitors releasing new products, but also many well financed companies, such as Campbell Soup, introduced their dip lines. This data indicated increasing competitors and that leads to increasing advertising expenses, in 1985 the market’s total advertising expense was 58 million dollars which was up 25 percent from the year before.

Frito-Lay, Inc. is a division of PepsiCo Inc. a New York based diversified consumer goods and services firm with annual sales over 8 billion dollars in 1985. Divisions of the parent company also include Pizza Hut, Taco Bell, Pepsi Cola Bottling, Kentucky Fried Chicken, PepsiCo Foods International. Frito-Lay is a nationally recognized leader in the manufacturing and marketing of salty snack foods and their net sales approached 3 billion dollars in 1985.

Frito-Lay’s introduced its' first two dips in the 1950’s and they had only three types of dips until 1983. However, during 1983 and '84 many other types of dips were added to their product line, due to the increasing popularity of dips. Prior to 1983 dips line was viewed as a non-promoted profit producer, but that quickly changed with the introduction of cheese dips and other very popular products.

Dollar Sales of Frito-Lay’sв Dip (in Millions of Dollars)

Year Mexican Dips($) Cheese Dips($) Sour Cream Dip ($) Total Dips($)

1986(forecast) 41 48 10 99

1985 39 48 _ 87

1984 40 55 _ 95

1983 38 5 _ 43

1982 35 _ _ 35

1981 30 _ _ 30

Frito-Lay distributes its products through 350,000 outlets nationwide. In 1985 34,000 outlets were supermarkets, where majority of the dips were sold. 47,000 other outlets were convenience stores, and 20,000 were nonfood outlets and the remainder 249,000 outlets were small grocery, liquor stores and service stations.

SWOT Analysis

Frito-Lay