Analysis on Product Development

in the Food and Beverage Industry and Frito Lay

for Directed Study

with Chip Besio

Analysis written by

Dustin Fontenot

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Introduction and Overview

As a soon to be graduate of the SMU Cox School of Business with a BBA in Marketing, I

found it beneficial to conduct an independent study on a company that I would one day like to

work for: Frito Lay. The area of Marketing that I am pursuing is Product Development. I am

familiar with Frito Lay through a case study I worked on for a Product and Brand Management

course at Cox in the spring of 2012 with Chip Besio with whom I am conducting this current

study. Since then I have been interested in the methods Frito Lay uses to seek out new

opportunities for its current products as well as potential opportunities for new products. For this

study I have provided an analysis on product development in the food and beverage industry as a

whole with some examples provided, followed by an analysis of product development at Frito

Lay and I conclude with examples of some of their newest creations including: the Doritos Taco.

New Product Development in the Food/Beverage Industry

Consumer tastes and preferences are always changing and as a result companies have to

constantly update or change their products to suit them. In the food and beverage industry this is

no exception. When trying to decide what direction to take with an existing product or whether

pursuing an idea for a new product is worth it, companies in the food and beverage industry use

innovative tools to help them make these decisions. In the past, companies in this industry have

made use of meetings, retreats and trusted vendors when it came to formulating new ideas for

products (Food Processing). However, in recent years they are bringing in “outsiders” to provide

them with ideas of their own and collaborating with them to bring these ideas to life. Included

among these “outsiders” is the consumer. Companies not just in the food industry, but in all

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industries are becoming wiser about listening to what their customers are saying and applying

what they hear when developing new products or changing existing ones. This is a process

known as crowdsourcing.

Crowdsourcing is defined as a process involving the outsourcing of tasks to a distributed

group of people (Food Processing). This means that the tasks involved in product development

are divided up into smaller tasks and completed by an on-demand workforce. Coming up with

new ideas for an existing product, let alone a new product in general, is not an easy process for

any industry. Crowdsourcing not only makes this process easier, but it also allows the company

to hear and follow-through on customer suggestions, which is the key to gaining market share,

brand equity and brand loyalty with consumers. One of the methods used in crowdsourcing is

“Sentiment Analysis,” which involves gaining an insight into a customer’s attitudes towards a

company’s brand by analyzing the variables of context, tone and emotion expressed through

social media such as Twitter and Facebook (Food Processing). Since its inception, social media

has become both a blessing and a curse for companies. Customers often express opinions on their

experiences with a particular product or service and social media has become the common

ground for it. This makes it the best source for WOM (Word-of-Mouth) marketing, and

depending on whether or not the customers are satisfied when they comment can either be

beneficial or detrimental to the company’s image. Therefore, companies need to pay close

attention to what their customers are saying.

An example of crowdsourcing is the website created by Lego called the Cuusoo

crowdsourcing platform beta-version, (www.legocuusoo.com). After spending three years

prototyping, testing and refining the concept in Japan, Lego launched the platform globally in

2008 with the objective of increasing the number of product ideas while also improving their

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customer engagement (Digital Spark Marketing). The business model for Lego’s crowdsourcing

platform is both simple and straightforward. A product design can be submitted by any user and

voted on by other users. Once that design receives up to 10,000 votes, it gets a formal state-gate

review and then moves on to production—provided that no legal issues or showstoppers occur.

Upon the product’s completion, the creator will receive a 1% loyalty fee on the net revenue

generated from the product (Digital Spark Marketing). It is not clear how many submissions fail

before reaching the production stage, but if proper feedback is provided to those who submitted

the ideas, it is possible they will continue to submit other ideas in the future.

Since the platform’s launch, Lego has enjoyed benefits not usually found in the product

development process of crowdsourcing, they include (Digital Spark Marketing):

1) A wider community which can produce more ideas than their creative design team alone.

2) A highly cost-efficient development phase: projects that fail don’t cost Lego any money

and projects that succeed only cost them a very small 1% royalty fee paid to the creator.

3) A virtually free pre-launch campaign platform that creates buzz among Lego fan bases

through its voting phase and also provides a clear picture on what those fans bases want.

As mentioned earlier, companies need to keep up with the changing tastes and

preferences of consumers. However, new product development is not easy and it is also very

risky—especially if a company is trying to enter a market that it is not already in and/or lacks the

experience needed to produce the product(s) for that market. And even if a company does have

past experiences in a new market, if those experiences were negative then the process will be

even more difficult and risky. To make sure the process is done both carefully and correctly,

companies sometimes turn to a service company called MachinePoint Food Technologies.

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MachinePoint Food Technologies helps companies come up with new and creative

product ideas as well as new recipes or other ideas for existing products by working side-by-side

with them from start to finish. This close working relationship is highly beneficial to the client as

it gives them an advantage in terms of adding value to their new creations as well as getting a

head start on the uses of new and more efficient technologies and processes (MachinePoint Food

Technologies). If companies want to get ahead and/or stay ahead of the competition they need to

implement the newest and latest technology, and the most efficient production processes.

MachinePoint Food Technologies can help.

MachinePoint also emphasizes the need of collaboration of the following areas listed

below when it comes to developing new products (MachinePoint Food Technologies):

Food Technologists : these people need to have keen knowledge of food in

general, the ingredients used, different types of cuisines, as well as knowledge of

food science and a good sense of imagination.

Technical Managers : to oversee the development of newer technologies for the

client to make the production process more efficient and give them an advantage

over the competition.

Nutritional Experts : to give sound advice on food choices when creating new

products.

Food Microbiologists : to analyze the new food product(s) for bacteria or other

microorganisms that could make the food unsafe to consume.

Lawyers : to make sure the new product complies with FDA regulations.

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Marketing, Packaging and Commercial Managers : usually from the client’s side,

to assemble the final product and create the marketing/advertising campaign to

sell it.

MachinePoint Food Technologies covers a wide range of areas in all industries in the

food and beverage market. They also cover all of the supply chain requirements: product recipe

development, process and technologies definition and plant and equipment manufacturing,

assembling and commissioning (MachinePoint Food Technologies). In the end, it depends on

who the client is and what they want. The results will vary from client to client, but the decision

will be worth it.

New Product Development at Frito Lay

In a meeting with Caitlin Horan, Marketing Analyst of SunChips at Frito Lay, I was

provided with some details on how Frito Lay’s process works when it comes to new product

development. There are three areas of innovation at Frito Lay: 1) Flavor Development, 2)

“Outside Aisle” and 3) New Uses for Current Brands.

Frito Lay is always trying to keep up with the current trends of its customers. In Flavor

Development, Frito Lay creates new flavors to add to its ever-expanding snack food product line.

To expand off the Crowdsourcing example presented in the previous section, this past year the

company launched its “Lay’s Do Us a Flavor” campaign. In a manner similar to Lego’s virtual

platform, Frito Lay asked all of its consumers across America to assist them in creating its next

chip flavor in celebration of its 75th anniversary (‘Do Us a Flavor’). Frito Lay made use of the

power of social media by teaming up with Facebook and created a page where consumers and

fans could go to submit their ideas for new flavors and vote on other people’s submissions. In

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addition, Facebook changed its “Like” button on the page to “I’d Eat That” to encourage friend

interactions as well “flavor showdowns” among contestants (‘Do Us a Flavor’). The contest, a

first in the United States, was already a major hit across the globe in over 14 countries which

resulted in some really unusual and wacky ideas for new chip flavors. Among them were: Chili

& Chocolate, Caesar Salad, Late Night Kebob and even Cajun Squirrel (‘Do Us a Flavor’).

To generate even more excitement for the contest in the U.S., Lay’s hired actress and

restaurateur Eva Longoria and Iron Chef Michael Symon (‘Do Us a Flavor’). They will assist in

judging the flavor submissions and narrowing them down to three finalists from which the

winning flavor will be deemed the new Lay’s chip flavor. After the contest concluded on

October 6, 2012 the final three flavors were chosen to compete for the crown, they are: 1)

Cheesy Garlic Bread, 2) Chicken & Waffles, and 3) Sriracha (a Thai hot sauce). Again, Frito Lay

is asking its fans to vote on Facebook for the flavor they like the most. The contest ends on May

5 of this year. Once voting concludes, the winning flavor will be announced.

Outside Aisle is Frito Lay’s second area of innovation. Caitlin says that this is all about

creating new beachheads—meaning anything outside of the salty snack/chip aisle. For example,

if Frito Lay wants to expand a product into a store’s Deli section or its cracker aisle, then the

Outside Aisle is where they develop new and unique products to help them achieve that goal or

even discover inventive ways to view and place existing products in a new light outside of their

current aisle placement. This area is critical to Frito Lay’s past, current and future success in the

market. If Frito Lay wants to continue growing its market share and its incrementality—

increasing its marketing to attract more consumers--then it needs to innovate new products

outside of the salty snack aisle.

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The third and final area of new product development is New Uses for Current Brands.

This is where Frito Lay tries to go beyond the basic chip. One example is the Top n’ Go. The

Top n’ Go consists of an ordinary bag of chips tipped on its side. This allows the user the “top

off” the chips with any of their preferred topping(s) such as a meat, salad, chili or any other

desired food. Currently, this product is still in development.

The Doritos Taco

To expand on Frito Lay’s third area of innovation, New Uses for Current Brands, I will

now talk about their most recent creation: the Doritos Taco. This product, which was three years

in the making, was created out of a co-branding partnership between Frito Lay and Taco Bell.

Taco Bell was looking for ways to “highlight the better Bell” meaning they wanted to make the

taco shell better and at the same time do something really innovative to celebrate their 50th

anniversary (McCombs Today). The idea for the Doritos Taco originated when Greg Creed, Taco

Bell Corp.’s President and CEO called on his research team to create the “[fast-food] industry’s

next big thing.” After trying the prototype he knew the company had created something special.

In a quote to Restaurant magazine, Creed called the idea “simple” and “brilliant…a flavor

pairing just waiting to happen (TIME).”

As luck would have it, Frito Lay was also looking for new ways to improve its brand.

After considering which brand of chips would work best as a taco shell, it was decided that

Doritos would be the chip of choice. The reason Doritos was chosen was because the brand was

targeted at millennial males between the ages of eighteen and twenty-four. This group was

labeled “the risk takers,” those who want to live life to the extreme, take chances and try

something new and unusual. In addition, Doritos is Frito Lay’s most successful brand of chips

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and the one most advertised. The Doritos Taco would be very similar to the ordinary crunchy

taco and have the same choice of toppings: ground beef with shredded cheese, sour cream,

tomatoes, lettuce, and choice of hot sauce: mild, hot or fire. The only difference would be the

Doritos Taco would have an orange-colored shell made from the same formula as the Doritos

Nacho Cheese chip. In addition, to add appeal to the product Frito Lay had the Doritos brand

name imprinted on a taco holder and used the Doritos bag in its advertisements (see the images

below).

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At midnight on March 8th 2012, Taco Bell officially launched the new Doritos Locos

Taco. From the very beginning it was clear that both companies had struck gold. Taco Bell sold

200,000 Doritos Locos Tacos on the first day! Since its launch, the Doritos Taco has become a

major success for both Frito Lay and Taco Bell. In its first ten weeks on the market Taco Bell

sold more than 100 million, setting a new record and making the Doritos Locos Taco the most

popular new product it has ever released. Taco Bell spokesman Rob Poetsch stated that the

Doritos Locos Taco had officially dethroned the company’s previous big hit: the Crunch Wrap

Supreme released back in 2005 (TIME). To put perspective on just how impressive this sales

record is, Taco Bell pointed out that McDonald’s sold its first 100 million burgers back in 1958

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—18 years after McDonald’s opened its first burger stand and three years after Ray Kroc started

the first McDonald’s franchise (TIME).

When Taco Bell first launched the Doritos Taco, it had planned to only serve it through

the spring months of 2012. However, when it quickly became a multi-billion dollar success just

days following its release, they quickly reconsidered pulling the product. Instead, they turned

their focus on creating another Doritos Taco—the Cool Ranch Taco.

Since the first Doritos Taco was extremely successful upon its release it made perfect

sense that Taco Bell would attempt to continue their newfound success by turning Frito Lay’s

other Doritos brand: Cool Ranch, into a taco. In addition, many of its consumers were eagerly

hoping they would follow the original with a Cool Ranch version. Finally, Taco Bell answered

those hopes on March 7th of this year when they officially launched the Cool Ranch Doritos

Taco. Like the original Doritos Taco, the Cool Ranch Taco has the same choice of toppings and

has the Cool Ranch chip flavored shell (see images below).

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While the Cool Ranch taco has proven to be another success for Taco Bell and for Frito

Lay, it may not enjoy the same success that the original Doritos Taco did. Some reasons for why

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this may be the case are: 1) despite it tasting just like the Cool Ranch Doritos chip, the Cool

Ranch Taco looks too similar to Taco Bell’s original Crunchy Taco. 2) Food bloggers have

commented that the Cool Ranch flavor is too light compared to rest of the taco and is barely

noticeable. In addition, they mention that the seasoned beef in the taco drowns out any Cool

Ranch flavor that existed in the taco shell (Man Reviews Food).

Despite the Cool Ranch Taco not getting quite the same hype as the original Doritos

Taco, Frito Lay and Taco Bell show no signs of slowing down with the success they have

enjoyed since the release of both products. The two companies have continued building on their

success with the release of Doritos Locos Tacos Flavored Chips on April 8th of this year. These

chips come in the same flavors as the original Doritos: Nacho Cheese and Cool Ranch, but with

one major difference—they taste like the Doritos Taco. PepsiCo, Frito Lay’s parent company,

decided to release the chips for a limited-edition line to ride the wave from the success

accumulated from the Doritos Taco (International Business Times).

In closing, Frito Lay and Taco Bell are now entering the second year of their partnership.

Currently they are developing more new and exciting products including another Doritos Taco.

There is no word yet on what the next Doritos chip to be made into a taco shell will be, but with

the success that both companies have experienced so far there is undoubtedly another great

product combination on the horizon.

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References

Curtin, Stacy. "‘Do Us a Flavor’: Lay’s Launches $1 Million Chip Flavor Contest." Yahoo! Inc..

Yahoo Finance, 20 July 2012. Web. 27 Apr. 2013.

<http://finance.yahoo.com/blogs/daily-ticker/us-flavor-lay-launches-1-million-chip-

flavor->.

DeNinno, Nadine. "Doritos Locos Tacos Flavored Chips To Hit Grocery Stores April 8, Plus A

Contest To Win The Taco Bell Chip Spawn Before Release." International Business Times. IBT

Media Inc., 27 Mar. 2013. Web. 5 May 2013.

<doritos-locos-tacos-flavored-chips-hit-grocery-stores-april-8-plus-contest-win-taco-bell-

chip-spawn>.

"Innovative Tools Help Food and Beverage Processors with Product Development Ideation."

Food Processing. Ed. Dave Fusaro. Putman Media, 15 Feb. 2013. Web. 21 Apr. 2013.

<http://www.foodprocessing.com/articles/2013/product-development-ideation>.

"New Food and Beverage Product development." MachinePoint Food Technologies. Machine

Point,2013.Web.22Apr.2013.

<http://www.machinepoint.com/foodtechnologies/machinery.nsf/beverage_technology/

new_food_and_beverage_product_development>

Reding, Shawna. "The Strategy Behind America's New Favorite Taco." McCombs Today.

University of Texas at Austin, 14 Aug. 2012. Web. 5 May 2013.

<http://www.today.mccombs.utexas.edu/2012/08/the-strategy-behind-americas-new-

favorite-taco>.

"Review: Taco Bell Cool Ranch Doritos Locos Taco." Man Reviews Food. Wordpress, 8 Mar.

2013. Web. 5 May 2013.

<http://www.manreviewsfood.com/foodreviews/review-taco-bell-cool-ranch-doritos-

locos-taco/>.

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Rosenfeld, Everett. "Taco Bell's Doritos Locos Tacos Are an Insanely Huge Hit." TIME News

Feed. TIME, 5 June 2012. Web. 5 May 2013.

<http://newsfeed.time.com/2012/06/05/taco-bells-doritos-locos-tacos-are-an-insanely-

huge-hit/>.

Schoultz, Mike. "Lego Innovation: An Example of Crowdsourcing Design." Digital Spark

Marketing. Digital Spark Marketing, n.d. Web. 27 Apr. 2013.

<http://www.digitalsparkmarketing.com/innovation/crowdsourcing-design/>.

i Image from sogoodblog.com

ii Image from articles.latimes.comiii Image from yelp.comiv Image from abcnews.go.com