Frito Lays Case Study

Frito-Lay’s Dips Case Write Up

Ans 1. Opportunities:

• Their French onion dip was an ideal accent for potato chips and data indicates that 50% of salty snacks in United States are consumed as Potato chips.  
• Only 20% of chips are eaten with dips and only 45% of US households using dip are still 45% whereas salty snacks consumers are 97%, Promotion of dips with snacks provides an opportunity to rebuild the penetration.
• They had not advertised the chip dips previously their A/S ratio is 2.7% for 1985 which give them more budget for promotion in 1986.
• The average number of times shelf stable dips were purchased by households was four, and on pack coupon offers would encourage repeat sales.
• Vegetable Dip Penetration: Frito Lay could pursue vegetable dip market using the new sour cream-based, shelf-stable dip with following opportunities:

1. People are moving towards vegetable dips because of health consciousness giving sour based cream dip to flourish its market.
2. No competitor has promoted sour based cream shelf stable dip in the market, giving Frito lay’s chance to become pioneer of market.
3. Sour cream based dips are more popular than cheese dips in the vegetable market.
4. A cost analysis showed that Frito lay’s sour cream dip’s gross margin was 45 percent and would be unaffected

Threats:

• The increased competition from firms like Campbell Soup and Lipton along with Borden Kraft and regional chip manufacturers began to pursue dip market with cheese and vegetable dip as well as dip mixes giving head to head competition in this segment. The dip market has accelerated with new products and increased advertising.
• Nearly 20% of dip consumed in US households are homemade and 35% of refrigerated salad dressing is used as dip.
• If Frito lay’s dip promotes French onion sour cream based shelf stable dip as chip dip, then it would miss an opportunity in produce market since most sour cream dips complements vegetables.
• If Frito lays promotes sour cream dip as vegetable dip, then it would have to “go-alone.” As it can’t be promoted jointly with chips and dip campaign, the Frito lay’s halo effect would not carry to vegetable dips.
• More than one, single flavor dip would need to be manufactured for it to take a place in the market, and product line extensions are costly, especially in unfamiliar territory due to research, development and promotion expenses.

Entry into vegetable dip market would be beneficial as they will be the pioneer of market and already people are moving towards it due to health benefits. Also it will be in produce section of market from where 33% of refrigerated dips are used then introducing a shelf stable dip in that section will definitely give them profits.

Also their brand name will provide them extra benefits as they are already established and have people trust in them.

Ans. 2

Strengths:

• They are makers of Mexican-style dips called Frito-Lay’s Jalapeno Bean Dip and Enchilada Bean Dip to complement Fritos corn chips, and soon after added Picante sauce dip to go with Tostitos tortilla chips in 1978. In 1983, they extended their dip product line to include several cheese-based dips, such as Mild Cheddar, Cheddar and Herb, Cheddar and Jalapeno, and Cheddar and Bacon.

•  Their packaging of products and shelving them, the products being packaged in shelf-stable, nine-ounce cans, sold under the Frito-Lay’s brand name, and strategically displayed in the salty snack section.

• Their shelf stable innovation in 1986, Frito-Lay introduced the first sour cream-based, shelf-stable dip to be displayed with the rest of the product line in the salty snack section of supermarkets. The introduction of the French onion flavor complemented the company’s line of potato chips, and could also be used as a vegetable dip.

• Their Distribution and sales effort, Frito-Lay’s, Inc., distributes its product lines to 350,000 outlets nationwide consisting of supermarkets, convenience stores, non-food outlets, small grocery stores, liquor stores, service stations, and institutional customers. The company uses a “front-door store delivery system,” where one employee performs both the sales and delivery functions taking orders, unloading the product, stocking and arranging shelves and handling in-store merchandising. This system is well-suited for 270,000 of the company’s non-chained outlets serviced by Frito-Lay.

• Their marketing strategy, in 1985, the company shifted promotion emphasis from retail-store buyers to consumer promotions through sampling, couponing and television and radio advertising to generate trial of new products. They jointly promoted their dip and salty snacks as a complementary product, and an “association was made in promotion and in shelf placement”.

• Halo-Effect: Frito-Lay’s Dips had success being promoted jointly with the company’s chip line in the past. Potential for the new sour cream-based dip to carry the same recognition as the cheese-based dip was likely to extend to various salty snacks, especially chips.

Weaknesses:

• They lost their consumers in mid-1985, when they dropped the Enchilada Bean dip from the Mexican dip line after falling sales, and it was attributed to the novelty of shelf-stable cheese dips having passed, but the competitive activity increasing slowed Frito-Lay’s Dip volume growth. Discontinuance of Enchilada Bean Dip had an unexpected effect and instead of customers switching to another Mexican dip, they left the product line all together.

• Their Supermarket produce distribution: Frito-Lay’s distribution system was not accepted by super markets who preferred vegetable suitable dips be handled by their warehouse managers. Frito-Lay’s front-door delivery system would put the company in uncharted territory, and it was estimated that selling expenses would rise due to increased training of how drivers and salespeople conduct practices in the produce sections.

Ans 3. Pros of Entering vegetable dip market with sour cream:

• This category is more fragmented so less difficult to enter into it as no major competitors are there.
• As sour cream based dips are already more popular than cheese dips and generate more revenue.
• Nutritional value and salt content of dips are becoming concern of consumer these dips are likely to attract them more.
• Till now no major competitor has promoted sour cream based shelf stable dip in the vegetable market. They will be the pioneer of the produce market as well.
• 33% of dip sales are linked to vegetables and majority of them come from salad dressings and dip mixes so bringing innovation to it by introducing dip will be beneficial for them.
• A cost analysis showed that Frito-Lay’s sour cream dip’s gross margin was 45 percent and would be unaffected.

         Cons of Entering vegetable dip market with sour cream:

• The new sour cream-based, shelf-stable vegetable dip would be displayed along-side the refrigerated dips and have little to no differentiation.

• Vegetable dips would have to “go-it-alone.” Unlike the previous jointly promoted chips and dip campaign, the Frito-Lay’s halo effect would not carry to vegetable dips.

• More than one, single flavor dip would need to be manufactured for it to take a place in the market, and product line extensions are costly, especially in unfamiliar territory due to research, development and promotion expenses.

• The vegetable dip distribution requires Frito-Lay’s to change their distribution system who preferred dips to be handled by their warehouse managers. Frito-Lay’s never dealt with these individuals in past, and it was estimated that selling expenses would rise due to increased training of how drivers and salespeople conduct practices in the produce sections.

By above points I think that they should not pursue vegetable dip market as instead entering into new territory with so much cost involved they can focus on their strengths and go for aggressive advertising and marketing campaign. They already had made their reputation in salty snacks market so they can go ahead with it and they should aggressively advertise their new sour based shelf stable dip in chip dip category. Even though people are becoming health conscious, I believe that a large portion of these snack foods have been and will continue to be eaten primarily by children and teens, but perhaps more refined flavors could be directed toward adults in the future. It is always wise to purse an ethnic audience attracted to the Mexican-style dips, as they make up a large amount of the product line.

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