c-document_file17259

8/7/2019 c-document_file17259

1/8

Business DescriptionIn 1932, two young entrepreneurs independently started two separate companies that were thousands of miles apart. ElmerDoolin of San Antonio, Texas and Herman W. Lay of Nashville Tennesse, had the same objective in mind, and both sharedthe same basic business philosophy: "Provide the customer with a product of the highest quality and value; sell it for a fairprofit; and make service a fundamental part of doing business."Frito-Lay's snacks include a broad portfolio of products including chips and granola bars, dips, salsas, nuts and seeds. Thecompany's range of branded products include Lay's potato chips, Doritos flavored tortilla chips, Tostitos tortilla chips,Cheetos cheese flavored snacks, Fritos corn chips, Ruffles potato chips, Rold Gold pretzels, Sun Chips multigrain snacks,

Munchies snack mix, Lay's Stax potato crisps, Cracker Jack candy coated popcorn and Go Snacks. Frito-Lay also sells avariety of branded dips, Quaker Fruit & Oatmeal bars, Quaker Quakes corn and rice snacks, Grandma's cookies, nuts andcrackers. In addition to its extensive range of products, the company also offers extensions and limited time availableproducts that provide variety for current consumers and appeal to new consumers.Frito-Lay branded products are sold to independent distributors and retailers; which are then available via warehouseclubs/mass merchandisers; convenience stores; foodservice/vending; supermarkets/grocery stores; and other channels. Thecompany owns and leases approximately 50 food manufacturing and processing plants and approximately 1700 warehouses,distribution centers and offices.

2.0 STRATEGIC FOCUS AND PLANS2.1 Business DEFINITIONFrito-Lay manufactures, markets, sells and distributes branded snack foods.2.2 Business MISSION

The overall mission of Frito-Lay is "to be the world's favorite snack and always within arm's reach".2.3 GOALS AND OBJECTIVESFor the coming years, Frito-Lay seeks to achieve the following goals:To offer a workplace where all associates can grow and develop in an inclusive environment, leveraging individualstrengths and differences.To create a sustainable competitive advantage; thus maximizing business performance, and ensuring that Frito-Lay isrecognized as the employer of choice for all.To truly understand the needs of retail customers, and succeed in the marketplace - Frito-Lay must reflect that diversity inthrough employees, suppliersTo deliver authentic products and relevant promotions for every consumer.To maintain the brand's name to trade off the company's equity in salty snacks foodTo capitalize the company's strengths in marketing and distributionTo maintain its profit contribution in the dip market

3.0PROBLEM DEFINITIONThe major issue is where and how Frito-Lays Dips could be developed further and enhanced within the snack food market.The two main concern of the marketing department are as follows:Frito-Lay's dip line should be more aggressively promoted in it present market segment, which is the "Chip Dip" category,ORFrito-Lay should actively pursue the "vegetable dip" category which is the recently introduced shelf-stable, sour cream-based French onion dip.There are two major constraints for Frito-Lay to take into account before they decide to pursue either one of their plans.First, there are plenty of competitors in the dip market. Second, Frito-Lay had already set a limit for selling expenses, suchas advertising and merchandising expenditure. Therefore, Frito-Lay must decide on the most efficient and effective way touse the marketing budget that has been allocated by the management.


2/8

4.0ENUMERATE THE DECISION FACTORSALTERNATIVEREASONINGUNCERTAINTIESThe first possible alternative would be to remain in the production of its chip dip and take a more assertive marketingposition

With the introduction of cheese dips in 1983, Frito-Lay began promoting dips with the focus of marketing and promotiongeared toward retail-store snack food buyers.Advertising and promotion budget has been allocated for aggressive marketingFlavors were innovativeRight merchandising location next to salty snacksCustomers change of tastes and preferences. People are loyal but still want to try new tastes sometime.The novelty of shelf-stable cheese dips may pass in time.Increase in market dip substitutesLower demand by retailers, consumers

ALTERNATIVEREASONINGUNCERTAINTIESThe second alternative, Frito-Lay can opt to produce a new product line consisting of vegetable dips that will complementtheir successful cheese and picante (Mexican) dip lines.The more products you have, the more recognition you receive, and the more profits will soar. However, the gears shifted in1985 to consumer promotions such as product sampling and coupons to generate "trial" of new products.With the correct launch and positioning, Frito-Lay could penetrate and stake a claim to a large and undefined, yet extremelyviable, vegetable dip market.This vegetable dip market does not have a major competitor in a strong competitive position. There isn't a shelf-stable sour-cream based dip offered by anyone (Frito-Lay has one ready to be released).Customers acceptance although sour-cream dips are the most popular flavorThe positioning of the new sour cream dip at the supermarket, away from the rest of the Frito-Lay product may cause thenormal front-door delivery system not effective

Limited life-span of productCompetitors may introduce similar product line with variation of flavors specifically for vegetable dip.

ALTERNATIVEREASONINGUNCERTAINTIESConsumers are becoming more concerned over the content of the food they eat and buying enough 'substitute dip' (saladdressing) to support growth in this market. Frito-Lay recognizes the up and coming health consciousness of Americans.They have already developed an understanding for the industry as well as the technological "know-how" of survival withinit. There is no real growth in their current industry and they risk the chance of incurring significant losses by staying wherethey are.Healthy gross margin for sour cream dipsGrowth in the popularity of Mexican food

5.0SITUATIONAL ANALYSISFrito-Lay, Inc.'s biggest problem is how to further develop their dip line as to increase their company's sales and profits. To


3/8

analyze the environment, attention needs to be placed on evaluating their strengths, weaknesses, opportunities, and threatsand from there; we may draw conclusions about how each might affect the company. The following table shows the internaland external factors affecting the market opportunities for Frito-Lay in the United States.5.1SWOT AnalysisSTRENGTHSi.For Frito-Lay cheese dips, Frito-Lay chose to stay with the Frito-Lays name to trade off the company's equity in saltysnacks and capitalize on the company's strengths in marketing and distribution.ii.Frito-Lays were a highly profitable product line and had show phenomenal sales growth in the past five years

iii.Frito-Lay is nationally recognized leader in the manufacture and marketing of salty snack foodsiv.In 1985, Frito Lay captured about 33% of the salty snack food tonnage sold in the United States and this will help brandrecognizing by the customers.v.The phenomenal success of Frito-Lays Dips was due to two factors: cheese dips were novel and Frito-Lays flavor wereinnovative, and they had the right merchandising location next to salty snacks.vi.Consumer household penetration increased from 12 percent in 1983 to 20 percent in 1984, driven largely by placingcheese dips near salty snacks. The association between chips and dips was conveyed in promotions and in shelf placement.vii."Shelf-stable" dips can be displayed virtually anywhere in a supermarketviii.Very strong and expanded distribution centers that covers the entire United States

WEAKNESSES

i.Frito-Lays enchilada bean dip was dropped from the Mexican dip in mid-1985 as a result of falling sales. It had beenexpected that consumers would switch to Frito-Lays other Mexican dips; but they did not and went to competitors.ii.Total dollar sales of dips for Frito-Lays declined in 1985 and the forecasted sales of cheese dips would be unchanged fromthe previous year.iii.In 1985, consumer household penetration flattened, indicating a need for consumer-pull marketing.

OPPORTUNITIESi.Sour-cream based dips are the most popular in flavor and account for 50 percent of total dip sales. Frito-Lay has anopportunity to gain market share with sour-cream based dipsii.Sales trends indicate that Mexican dips would show a 4 percent increase in sales in 1986. So, Frito-Lay may want to getthis market again since they discontinued the enchilada bean dip.iii.No competitors have marketed sour cream dips - more opportunityTHREATS

i.The market for dips is highly fragmented and difficult to measure.ii.Not entirely patentable, constant replicability by competitorsiii.Very elastic demand, almost pure competitioniv.Change of distribution system may incur more costs - no longer normal front-door deliveryv.Home-made dips

5.2Competitors AnalysisFrito-Lay's major competitor is Kraft, specifically in the prepared dips category. Kraft Foods, majority owned by Altriagroup (formerly Philip Morris), is the largest branded food and beverage company in the US, and the second largest in theworld. It engages in the manufacture and sale of branded foods and beverages in over 150 countries including the US,Canada, Europe, Latin America, Asia Pacific, the Middle East and Africa.Kraft's segments are cheese, meals and enhancers; biscuits, snacks and confectionery; beverages, desserts and cereals, andOscar Mayer and pizza. Kraft's segments are Europe, Middle East and Africa; and Latin America and Asia Pacific. Theirbusiness spans five core sectors: snacks, beverages, cheese, grocery and convenient meals. Seven of the company's brandshave annual sales of more than $1 billion, and a total of 61 brands have sales of more than $100 million. The products fallinto four main groups. The table below illustrates the differences and similarities between Frito-Lay and its competingproducts, namely Kraft.TypeFrito-Lay's ProductsCompeting ProductsCheese, meals, & enhancersSalsa, ready-mix dips and DipsConvenient meals i.e. meats, meat alternatives, dinner kits &lunch combinationsSalad dressings & condimentsBiscuits, snacks & confectionaryGrandma's Brand cookiesDoritos


4/8

Cracker JackSun Chips, MunchosFristos, Tostitos, Santitas, RufflesPretzels, Chitos, Wow! ChipsCookiesCrackers & snacksBeverages, desserts & cerealsNilPowdered drinks (5 flavors)Ready-to-drink (5 flavors)

Ready-to-eat cereals (12 flavors)PizzaNilFrozen Pizza

There is a definite competitive rivalry defined between Frito-Lays Inc. and other companies. Competition in the dip marketis increasing very aggressively, especially in 1984-85. Not only the existing competitors releasing new products, but alsomany well financed companies, such as Campbell Soup, introduced their dip lines. This has indicated increasingcompetitors and that leads to increasing advertising expenses, in 1985 the market's total advertising expense was 58 milliondollars which was up 25 percent from the year before.Frito-Lay has the advantage of being a leader in the manufacturing and marketing of salty snack foods and has introducedmulti-flavored dips to the market. They are specialized in this product line. Although Frito-Lays major competitors in shelf-stable dips were Kraft, Borden and other regional dairies and numerous store brands, Frito-Lays has the competitive

advantage by locating their dips near the snack foods.6.0DECISION ANALYSISFrito-Lay Inc wants to complete their planning review for the line of dips sold. There are two different viewpointsexpressed, a "chip-dip" category and a "vegetable dip" category. For analyzing these two viewpoints, assume that Frito-Layonly did one marketing action. What would have happened if Frito-Lay increased its advertising and promotion expenses toincrease cheese dip sales (whose trend of sales is going down) without marketing sour cream dips? What would happen if itmarkets sour cream dips, which will increase its selling expenses, without increasing advertising and promotion expensesfor cheese dips? What level of sales does Frito Lay, Inc. have to achieve to maintain its $99,000,000 total forecasted sales?The answers to these questions will determine what product category Frito-Lay must emphasize in its 1987 sales planningbecause in 1986, the company has already increased its advertising and promotion expenses and also marketed its newshelf-stable sour cream dip.We will analyze their income statement structures with both alternatives; chip dip or pursue with vegetable dip as well.Assumptions are made based on their future growth opportunities respectively.

ALTERNATIVE I: Continue developing Chip Dip marketAssumptions:Target sales for 1986 $99 MillionAdministrative expense, selling and freight remain the sameConsumer advertising, promotion and trade as per Exhibit 8 (distributed proportionally); 40% Mexican, 60% CheeseGross Margin; 49% Mexican, 45% cheeseEXHIBIT AIncome Statement for Frito-Lays Dips in 1986 ('000)Mexican DipCheese DipTotal DipNet SalesGross MarginMarketing expenseSellingFreightConsumer advertisingConsumer & Trade promotionTotal marketing expenseGeneral & Administrative overheadProfit contribution46,00022,540

8,798


5/8

1,4644681,09611,8262,7817,93353,00023,850

11,0441,8257021,67815,2493,7914,81099,00046,390

19,8423,2891,170

2,79727,0756,57212,743

ALTERNATIVE II: Pursue with the vegetable dip categoryAssumptions:Target sales for 1986 $99 MillionAdministrative and freight expense not affectedSelling expense increase by 25% for Sour creamConsumer advertising, promotion and trade as per Exhibit 8 (distributed proportionally); 30% Mexican, 25% Cheese, 25%

sour creamGross Margin; 49% Mexican, 45% cheese, 45% sour creamEXHIBIT BIncome Statement for Frito-Lays Dips in 1986 ('000)Mexican DipCheese DipSour CreamTotal DipNet SalesGross MarginMarketing expenseSellingFreightConsumer advertisingConsumer & Trade promotionTotal marketing expenseGen. & Administrative overheadProfit contribution41,00020,090

8,7981,4644681,423

12,1532,781


6/8

7,60648,00021,600

11,0441,8257022,135

15,7063,7914,35310,0004,500

2,50000761

3,26101,23999,000

46,190

22,3423,2891,1703,558

30,3596,5729,259

To summarize the analysis, as illustrated in Exhibit A ( Alternative I), it is viewed that if Frito-Lay continues to develop thechip dip market, the company must increase at least 12% sales for each Mexican dip and cheese dip respectively in order forthem to reach their $99,000,000 sales in 1986. Although their profit contribution seems to be promising, $12.7 million, butthey have to extensively and aggressively increase penetration in the congested chip dip market. There are major effort andexpense involved in order to increase their competitive advantage.On the other hand, Exhibit B (Alternative II) shows that if the company were to pursue with the penetration of vegetabledip, their total profit contribution will only reach approximately $9.2 million, lesser that Alternative I. However, theadvertising and merchandising expenses could be better spent on attacking the vegetable dips market and using the sour-cream based dip as a spearhead in the industry. Moreover, Frito-Lay has a strong competitive position with this particularproduct. They could reach their $99 million sales target by spreading and concentrating with three dips namely the Mexican,cheese and sour-cream based vegetable dip. Although the selling expenses increases by 25%, the company would still makea profit amounting to $290,000 in 1986 (sales in 1985 was $8,969,000). This is a golden opportunity for future growth thatis not to be missed by Frito-Lay, to introduce healthy "vegetable" dips to their loyal and appealing consumers.

7.0MARKETING PROGRAMProduct StrategyProduct Line


7/8

Frito-Lays newest marketing program is for the vegetable dip. This will initially include the sour-cream based flavor. Thesour-cream dips are the most popular flavor and it account for about 50% of total dip sales. Another potential vegetable dipis the French onion dip which can be pushed for promotion to the consumers. Frito-Lay might want to introduce anotherflavor for vegetable dip specifically, such as seafood flavor.PackagingProviding their consumers with easy-to-use, convenient and innovative containers are one of their top priorities. Packageintroductions they have made over the years include metal cans and required no refrigeration. The vegetable dip may bepackaged in an air-tight recyclable plastic jar which can be readily prepared and opened on the spot. With metal cans, the

dips must be transferred to another container because the metal cans cannot be sealed again. Air-tight jar is very practicalfor the whole family (consumers).Price StrategyPrice for this product should reflect the major place where it is sold; small, local convenience stores, supermarkets. Theaverage prices of dip mix were typically $0.09 per ounce. Frito-Lay shelf-stable dip retail prices were in the range from$0.13 to $0.20 per ounce. Frito-Lay is priced slightly higher than its competitors but is still in line with the majority of theindustry's prices. It would be advisable that the pricing depends on the location where the dips are purchased.

Promotion Strategy1.Publicity

Sponsor and promote health food in schools and universities around the region. Introduce the sour cream dips along withvegetables for health conscious students, teachers, and parents.Conduct a health campaign to publicize healthy living with vegetable dipsSponsor sporting events for any football teams or kids baseball team to encourage consumption of health food namely dipswith vegetables2.Advertising

Television advertisements have to be improved and improvised. Use well-known celebrities to promote this product.Consumers are easily influenced by famous icons especially teenagers and childrenColorful and attractive posters and banners in stores and supermarkets to bring attention to the new productStickers on glass doors in stores or distribute stickers to car owners at parking lots in front of supermarketsLease signboards at a stadium or along the highways3.Coupons/Sales Promotions

Give discounts to retailers to encourage volume buying

Pay high commissions for best product placements in stores e.g. near vegetablesOffer coupons to try the vegetable dip free in newspapers, magazines, recipe booksSet up a counter and give free test-taste to incoming customers especially in the supermarkets near the vegetable departmentOffer free gift with a purchase of a certain number of vegetable dip jars (e.g. Purchase 2 jars of vegetable dips, free saladbowl)

Place (Distribution) StrategyCurrently, Frito-Lay's distribution strategy is using the "front-door store delivery system" which one person performs thesales and delivery functions. Apart from distributing it to supermarkets, groceries stores and conveniences stores, thevegetable dips can be delivered toGas stations: pre-packed dips with vegetables, suitable for 'on-the-go' customersRestaurantsMovie theatersSporting events or cultural events in schools, universities, organizations: set up a boothHypermarkets


8/8

8.0CONCLUSIONIn order to make this product successful in the competitive industry of dip business, intensive advertising and promotion isthe key. If the steps outlined within these marketing plans are followed, the vegetable dip will be well-known across theUnited States region. Frito-Lay must ensure that the most populated markets are penetrated first.

Frito-Lay should have no problem acquiring market share from its leading competitor since they are the first to introducevegetable dips. The market for this product (shelf-stable sour cream dip) is not near being full yet and there are nocompetitors that have marketed sour cream dips, which mean that a golden opportunity exists for the company. Though itstotal gross margin is almost the same as cheese dip, it is the overall potential of the vegetable dip market that makes thisoption an outstanding one. Therefore, to conclude, Frito-Lay inc. should opt to extend its sales effort into the sour creamvegetable dip market.

c-document_file17259

Documents

Transcript of c-document_file17259