Frito-Lay, Inc.: Subchips Multigrains

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Performance Analysis.
Frito-Lay has well-known brands such as Lay’s®, Ruffles® potato chips, Fritos® corn chips, Doritos®, Tostitos®, Santitas® tortilla chips, Chee•tos® cheese-favored snacks, and Rold Gold® pretzels (see Exhibit 1). Eight of those snacks are in top ten best selling in the U.S. Frito-Lay’s business spans every aspect of snack-food production. It has 39 plants, 1600 distribution facilities and 10,000-person route sales teams serving over 400,000 retail customers each week national wide. In 1990, Frito-Lay has fulfilled over $3.5 billion sales in U.S. market. The new product line of Sun-Chips™ Multigrain snacks will benefit from the excellence of Frito-Lay’s sales performance along with the current trend of “low-carbohydrate” craze. Based on the pre-market test analysis (PMT), national snack chip users are expected to purchase more than 31 million pound of Sun-Chips™ (see Exhibit 2). The sales price is $2.7 per pound (see Exhibit 3), the contribution margin is $1.3 per pound, therefore, the total contribution will be over $40 million; exclude the effect of 30 percent of canonization rate, which accounts for $2.3 million loss, (see Exhibit 4), the brand contribution of Sun Chip™ is over $38 million (see Exhibit 5). Determinants of Strategic Options

Frito-Lay considers timing and competitive the big strategic issues so that quick decisions, operational efficiency and high capital investment are critical for Sun-Chips™ Multigrain snacks to take advantage of first markets. Frito-Lay introduces two package sizes with distinctive package design for each flavor. It does not charge a premium price in order to be consistent with consumer reference prices for snack chips. The primary target of Sun-Chips™ is people between the ages of 18 and 34 because they represent the principal purchasers and heavy users of snack chips. The secondary target is people who bracket to 49 years old. Sun-Chips™ will be supported by television advertising,...
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