Frito Lays Case Analysis

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Recommendation: It is recommended that Frito-Lay’s (FLD) aggressively promote its current line of shelf-stable, “chip dip” products and should not enter the “vegetable dip” market until a future date.

Problem Statement: Should Frito-Lay’s, the sales leader in the shelf-stable dip category, take an aggressive approach promoting its “chip dips”, or pursue the vegetable dip category?

Facts:
Market Conditions:FLD’s 1985 market share was 32.7% with sales of $135 million in that year. Total sales for the industry topped $620 million. (Refer to Attachment 1)

Industry research shows that dip sales are growing at 10% per year. However this growth in 1985 is due to price increases throughout the industry. It is relevant to note that all growth was a result of cheese-based dips sales.

67% of total dip sales are linked to salty snack usage. The popularity of Mexican food has fueled the growth of cheese-based dips as well. In 1985 85% of cheese-based dips sold was linked to chip use.

Competitive Situation: A number of new products have been introduced between 1984- and present day. While FLD maintains the largest market share, other major players introduced shelf-stable dips such as Kraft and Velveeta.

Total dollar sales dropped for FLD in 1985 due largely in part to increased activity among competitors.

Large, well-financed companies are beginning to advance in the dip market. Campbell Soup has introduced a nacho soup/dip as well as a line of vegetable dips. Lipton has also expanded its line of vegetable dip mixes and gave its packaging a facelift in 1985. Coupled with companies such as Borden as well as the aforementioned Kraft and regional chip manufacturers, have “drastically altered the competitive environment for chip dips in the past two years.”

Marketing: Consumer advertising and promotion expenditures have increased dramatically from 1983-1986. Industry sources estimated that dip competitors combined, spent $58 million for consumer advertising alone in 1985. Currently FLD spends $1.17 million on TV and radio advertising up from $0 in 1983, and $3.389 million on product sampling and coupons up from $22,322 in 1983. As evidence the gap is closing.

Prior to 1983 FLD’s dip line was a nonpromoted product. With the introduction of cheese dips in 1983 FLD began to appeal towards retail-store snack food buyers. FL product manager Ann Mirabito said initially the goal was to gain distribution and shelf space, but now with penetration flattening, a need for consumer- pull marketing is on the horizon.

Distribution Strategy: FLD are distributed through 350,000 outlets nationwide. In 1985, 34,00 outlets were supermarkets, 47,000 convenience stores, and 20,000 were non-food outlets. The other 350,000 outlets range from a variety of outlets.

FLD has covered the United States with a distribution system in each zone, housing over 10,000 employees.

FL uses a “front-door delivery system” which one person performs the sales and delivery functions. During a visit the driver performs a number of tasks associated with the sales and distribution process. Most large chain-store accounts require aid of a Region or Division manager.

Assumptions:
(1) For purpose of final decision making, costs given will be the same for 1986. (2) The environment is assumed to be increasingly competitive. (3) The only growth found is due to price increase.

(4) FLD will not be able to fund both an increase in promotions and a venture into another dip category at this present time

Analysis:
After becoming consistently used to seeing numbers in the black at year’s end, FLD saw a slight regression in total sales in 1985. FLD management suggests the loss of revenue is due to a combination of a plateauing effect of market penetration, a dramatic increase of competitor activity and initiative, and lastly the cancellation of Enchilada Bean Dip, which by all accounts produced an unexpected effect....
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