Frito Lay - Cracker Jack Case Analysis

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Frito-Lay Company - Cracker Jack 1. Why has Borden Foods decided to sell Cracker Jack?

Borden Foods is in the process of divesting of snack and non-food products in order to focus efforts and resources in growing their pasta and grain based meal segments. Borden management has also recognized the value and equity in the heritage Cracker Jack brand. The Cracker Jack brand currently (1996) sits in the number two position in terms of Ready-To-Eat (RTE) caramel popcorn product category market share with approximately $192 million in retail sales. With increased competition, Borden has unsuccessfully attempted to grow sales in the past five years, with the introduction of new flavor offerings. The Cracker Jack brand offerings is comprised of various packaging options, and maintains a hefty product line with 32 stock-keeping units (SKUs).

Current Borden production facilities have only 32% of space allocated to Cracker Jack products, and operate at 33% of capacity. The sales and distribution methods have come under scrutiny by management as they involve large trade expenses and products are seemingly not readily available in desired locations including warehouse and grocery stores. Management also significantly reduced investment in advertising and promotion efforts since 1993, instead attempting to rely on the brand equity of the Cracker Jack name to bring in sales and maintain a premier pricing position.

2. Why is Frito-Lay considering the purchase of Cracker Jack?

Frito-Lay Company is considering the purchase of the Cracker Jack brand as a direct result of a new division in the company, New Ventures. This division has been directed to seek or create opportunities and products where the Frito-Lay Co. strengths can be capitalized and deliver consumer food solutions with a high impact.

Frito-Lay currently is the market leader in salty snack food products and of the brands represented nine hold positions in the top ten performers. The existing product mix is comprised of chips and salty snacks, but have only limited sweet flavored offerings. The Cracker Jack product would be a natural fit in the product line, as it contains both flavor elements. In addition to the flavor profile, the long untouched packaging offers opportunities to utilize the manufacturing expertise of Frito-Lay and explore new product categories including a snack bar.

Management in the Frito-Lay organization realize the opportunities exist to capitalize on their strengths including broad product distribution network, sale representation in key channels, and a strong financial position to invest in the very much needed advertising and promotion of a new product. All of the variables above are missing from representation by Borden and is evident by the stagnant growth of Cracker Jack.

3. Create a SWOT analysis for Cracker Jack based on the assessment of the Ready-to-Eat caramel popcorn category, Borden’s experience with the brand, and Frito-Lay’s own research. What are the implications for Frito-Lay?

Internal FactorsStrengthsWeaknessesExternal FactorsOpportunitiesThreatsManagementDedicated and growth driven new team in Frito-Lay (FL), New Ventures

Borden Management has solid understanding of what is required to elevate the Cracker Jack (CJ) brand and sales.Owners of Borden Foods have diverse array of product holdings, and are an investment firm, not a snack manufacturer.

Failed attempt at a volume based pricing strategy which eroded CJ margins and cannibalized small box sales, by Borden’s management team.

Consumer TrendsSales of packaging mix for CJ are 75% family boxes, 25% single serving boxes. An opportunity for CJ to reduce the # of SKUs.

Research shows CJ products willing to be consumed in an extended timeframe and with others (Afternoon & evening with family) Popcorn products traditionally eaten only in evening and not throughout the day.

CJ related products have a low consumption and repurchase rate at less than 2x per...
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