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info/ Frito-Lay, Inc – Sun Chips™ Multigrain Snacks

Graduate Diploma in Marketing Management: Strategic Marketing Management

Frito-Lay: SunChips Multigrain Snacks Case Study

Group Members :

Chelest Lim Fadly Yahaya Pradeep Kelvin Lee

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Dr Dwight R.This document was downloaded from Coursework. into the US market. Sun Chips™ Multigrain Snacks required a new manufacturing process.http://www. His decision would be based on the results of the test market launch of SunChips in Minneapolis-St Paul. Sun Chips™ Multigrain Snacks.info/ Frito-Lay.coursework. Vice President of Marketing Research and New Business at Frito-Lay. Riskey.The UK's Coursework Database . Inc had to decide if it was feasible to introduce the product. Inc – Sun Chips™ Multigrain Snacks 11 September. The objective of the report will be to answer these salient questions: (a) How is the snack chip market characterized and how would Frito-Lay’s position in the market be described? (b) What specific challenges and risks does Frito-lay face in marketing SunChips? What insights can be drawn from Frito-Lay’s prior experience with multi-grain snacks? (c) What conclusions can be drawn from research on SunChips’s consumer acceptance and sales potential prior to the Minneapolis-St Paul’s test market? What is the assessment of the SunChips test market results? (d) What future actions should be recommended to Frito-Lay’s top executive? The reasons for recommending this course of action should also be explained.S markets. This report presents many of the findings that were gathering during the premarket test and well as the test market for Sun Chips™ Multigrain Snacks. to the U.coursework.The UK's Coursework Database . Minnesota. the team’s analysis of the information given as well as the final recommendations.info/ .Info .Info . There would be a huge capital investment and a huge marketing investment that could be financially justified only if it could be sustained for an extended time period. carried a new brand name. and pioneered a new snack category. Mission The purpose of this report is to evaluate the feasibility of Frito-Lay Inc launching a new product. 2004 1. Page 2 of 14This document was downloaded from Coursework. the competition.http://www. The next few chapters will describe the very competitive snack chip market. Sun Chips Multigrain Snacks.

Frito-Lay. which is approximately worth 37 billion per annum. cookies. Inc. divisions include Pizza Hut. The snack chips industry accounts for approximately 26% of the snack food industry. Kentucky Fried Chicken and PepsiCo Foods International.coursework. Inc recorded U. Cheetos brand cheese-flavored snacks. Frito-Lay – A Short Summary Frito-Lay.info/ Frito-Lay.077 billion on net sales of $17. snack chips.5 billion in 1990.This document was downloaded from Coursework.Info . capturing nearly 50% of all retail sales in this area. Inc recorded net income of $1. Doritos brand.Info . PepsiCola Company.coursework.http://www. Categories in the snack food industry include candy. Tostitos brand and Sanitas brand tortilla chips. Frito-Lay. Frito-Lay.info/ . and assorted other items.http://www.The UK's Coursework Database . and Rold Gold brand pretzels. a New-York-based diversified consumer goods and services firm. Taco Bell Corporation. Page 3 of 14This document was downloaded from Coursework. crackers. Doritos brand tortilla chips and Ruffles brand potato chips have the distinction of being the only snack chips worth $1 billion in retail sales in the world. nuts. Inc. PepsiCo. It houses wellknown brands such as Lay’s brand and Ruffles brand potato chips. Inc is known as a worldwide leader in the manufacturing and marketing of snack chips.S sales of $3. Fritos brand corn chips.The UK's Coursework Database . Inc – Sun Chips™ Multigrain Snacks 2. Inc. Besides PepsiCo.8 billion in 1990. Inc accounts for 13 per cent of sales in the United States snack-food industry. Inc is a division of PepsiCo.

http://www. Inc – Sun Chips™ Multigrain Snacks 3. Competition The snack chip industry contains mainly 3 types of competitors namely. Regional competitors consists of regional brand firm which distribute products in certain parties of the United States.coursework. include Frito-Lay.This document was downloaded from Coursework.The UK's Coursework Database . RJR Nabisco and Eagle snacks. Borden.http://www. It is reported that the new-product failure for snack chips is very high. the national brands. Procter and Gamble. The competition in the snack food industry is very intense. Most of the products are new flavors for existing snack chips.Info .Info . Private brands are produced by regional or local manufacturers on a contractual basis for major supermarkets chains.info/ Frito-Lay. Pricing is often very competitive and snack chip manufacturers often resort to price deals to attract customers. As many as 650 different types of snack chip products are introduced into the market each year by both national and regional brand companies.The UK's Coursework Database .info/ . regional brands and private brands. National brands are those that distribute products nationwide. Page 4 of 14This document was downloaded from Coursework.coursework.

info/ . Page 5 of 14This document was downloaded from Coursework. in the 1970s.http://www. An introduction to Sun Chips Multigrain Snacks Sun Chips Micrograin Snacks is a crispy.The UK's Coursework Database .Info . rice and oat flours with a lightly salty multigrain taste and a slightly sweet aftertaste.The UK's Coursework Database . textured snack chip consisting of a specific blend of whole wheat.http://www.info/ Frito-Lay. it is a “thoughtful. upscale classy chip.” Interestingly.Info . Both product lines were not successful and were eventually terminated. Inc executive. The chip is approximately 50 percent lower in saturated fats than chips made with other cooking oils and is cholesterol-free.This document was downloaded from Coursework. According to a Frito-lay.coursework.coursework. Frito-lay has had previous experience in marketing (i) a multi-grain snack under the ‘Pronto’ brand name and (ii) a separate corn chip snack under the “SunChips” brand name. corn. The product contains less sodium than most snack chips and is made with canola or sunflower oil. Inc – Sun Chips™ Multigrain Snacks 4.

snack chips per capita consumption was slightly less than 12 pounds. the United States bought 3.coursework. The snack chips retail market was worth US$9. (b) Since 1986 to 1990. In 1986.info/ Frito-Lay. Frito-Lay is a major power-house in the snack chips industry. Our numbers below. Inc – Sun Chips™ Multigrain Snacks 5 Case Analysis (I) The Snack Chip Market and Frito-Lay’s Market Position The snack chip industry is clearly a matured industry.coursework.This document was downloaded from Coursework. We can consider Frito-Lay to be major player. in terms of retail sales.Info .Info . or nearly 14 pounds per person.8billion in 1990. This is evidenced by the steady growth in both dollar sales as well as volume of snack-chip pounds sold.5 billion pounds of snack chips.info/ .http://www. back up this conclusion: (a) The snack chip industry has grown 5% since 1989 to 1990. 8 of them are Frito Lay brands and the top 5 selling chips are all Frito-Lay brands. if not the monopolistic leader in this category. It accounted for 50% of all snack chips retail sales in 1990.The UK's Coursework Database . showing signs of growth. Page 6 of 14This document was downloaded from Coursework.http://www. Of the top ten best selling snack chips in the United States.The UK's Coursework Database .

http://www. a poor advertising copy and appealed to too small a market.The UK's Coursework Database . The Prontos brand of multigrain snack chips was not well received and eventually terminated. It did not possess product attributes that appealed to a sufficient majority even though it was marketed towards to mainstream of snack chip consumers.This document was downloaded from Coursework.info/ . and FritoLay’s Experience with Multigrain Snacks. Page 7 of 14This document was downloaded from Coursework.Info . The possibility of a multi-grain product was explored in the early 1970s when corporate marketing research studies indicated that consumers were looking for nutritious snacks. Frito-Lay developed a multi-grain snack chip under the brand “Prontos” and it was first introduced in 1974. Inc – Sun Chips™ Multigrain Snacks 6 Case Analysis (ii) The Challenges and Risks Faced by Frito-Lay in Marketing SunChips.The UK's Coursework Database .http://www. delicious new snack made from nature’s own corn.Info . The snack was sold on the premise that it was “a different. Our team affirms that Prontos lack of success was due to: (a) A product type that was ahead of its time. (b) Poor branding – Frito-Lay executives agreed that the product had a confusing name.coursework.coursework. oats and whole grain wheat all rolled into one special recipe”. Frito-Lay’s experience with multigrain snacks and the SunChips brand in the 1970s were not successful.info/ Frito-Lay.

including a $22 million advertising and merchandising expenditure. Results from the premarket test were extremely unexpected. The next logical step would be a test market. 7 Case Analysis (iii) SunChips’s Consumer Acceptance Levels and its Sales Potential A premarket test was carried in April 1989 and conducted by an independent marketing research firm. Manufacturing problems contributed to the demise of the product. The estimated first-year sales volume exceeded the $100 million Frito-Lay sales goal for new products. With the product development of SunChips. It indicated that Sun Chips™ Multigrain Snacks would produce a likely first-year sale of $113 million at manufacturer’s prices given the marketing plan set for the product. Frito-Lay took the correct decision to undertake proper market testing with a test market exercise in the state of Minnesota-St Paul. Two flavors were introduced and three advertising and merchandising expenditure levels were tested.Info . The latest SunChips line of multigrain snacks would involve very large risks to Frito-Lay because of a huge capital investment (the product required a new manufacturing process) and an equally huge marketing investment (it was also a new brand) that could be financially justified only with a product that could be sustainable for an extended period.http://www. The challenges.Info . as it would give the product a more rigorous test.info/ .coursework. This would give Frito-Lay an idea of the product’s potential without extensive risks or costs.info/ Frito-Lay.http://www.The UK's Coursework Database . The Premarket test gave clear indication that there was potential for SunChips that needed further exploration.The UK's Coursework Database . Purpose of the test was to find out about consumers attitudes and usage behavior of Sun Chips.coursework.This document was downloaded from Coursework. Inc – Sun Chips™ Multigrain Snacks (c) Manufacturing problems – Production for multigrain snacks did not run as smoothly as other more established product types. The natural and French flavor combination produced the lowest cannibalization of other Frito-Lay brands. are therefore plain for Frito-Lay to see. Page 8 of 14This document was downloaded from Coursework.

in-store display. It also represented a typical competitive environment in which to test consumer acceptance and competitive behavior. Minnesota metropolitan area as the test site because it had a social and economic profile representative of the United States.Info . Sizes in terms of 7-ounce and 11 ounce were packaged accordingly. The advertising message was meant to convey subtle messages including wholesomeness. TV advertising. Advertising and Merchandising strategy The primary audience chosen was adults between the ages of 18 and 34 as they are the principal purchasers and heavy users of snack chips. fun and simplicity. Design was heavily emphasized as they wanted it to communicate a new. convenience stores and other retail accounts that already stocked Frito-Lay’s snack products. Pricing strategy Sun Chips™ Multigrain Snacks would have the same retail prices as Doritos brand tortilla chips. different and fun image. Inc – Sun Chips™ Multigrain Snacks Results of the Minneapolis-St Paul Test Market Test Market Frito-Lay executives had chosen Minneapolis-St Paul. freestanding inserts in newspapers and coupons were part of the marketing strategy.coursework. The secondary audience expanded the age bracket to 49 years of age since 34-49 years olds appeared to be more receptive to healthier snacks. 1.98 million out of the 90 households or 2.info/ Frito-Lay.This document was downloaded from Coursework.coursework.info/ . The plan was carried according to 5 different strategies.The UK's Coursework Database . A trial size of 2½ ounce was used as well.http://www. an investment in one new production line would be necessary.http://www. grocery stores.The UK's Coursework Database . Product strategy Frito-Lay executives chose both the natural and French onion flavors.Info .2% were identified as users of snack chips. Distribution and sales strategy Sun Chips™ Multigrain Snacks would be sold at supermarkets. Page 9 of 14This document was downloaded from Coursework. Manufacturing considerations Since a multi-grain product required different product and process technology than corn or potato products.

http://www. tortilla.info/ . and 41. 7 and 11 ounce packets). (b) Looking at the manufacturer’s prices of the 3 different sizes of SunChips (2¼. (a) Consumption of SunChips was measured in terms of pounds consumed. From the cannibalization results. Inc – Sun Chips™ Multigrain Snacks The test-market budget was set at $22 million on a nationwide distribution basis. Test Market Results Analysis In the test market analysis. and corn snack chips.Info . Fifty-five percent of purchases were for the French onion and forty five percent were for the natural flavor. and the 11 ounce package accounted for 38 per cent of purchases. Product Cannibalization The incidence of product cannibalization revealed that 30 per cent of Sun Chips™ Multigrain Snack pound volume resulted from consumers switching from Frito-Lay’s potato.Info .coursework.: Type of purchase It was revealed that approximately 90% of purchases were made in supermarkets and convenience stores. our team took the initiative to translate the numbers as follows. the 7 ounce accounted for 47 per cent of purchases. About one third of the cannibalization volume from Frito-Lay’s products came from Doritos brand tortilla chips.65 Page 10 of 14This document was downloaded from Coursework.The UK's Coursework Database .coursework.8 per cent of these tier households had repurchased the product at least once over the 10 month trial. Repeated purchasers purchased Sun Chips™ Multigrain Snacks an average of 2.info/ Frito-Lay. Test-Market Results The following results were obtained from the test-market. Trial and repeat rate Almost one in five households in the test market had tried the product. we calculated that the average dollar per pound is S$2. rather than dollar value purchased. Frito-Lay executives noted that the gross profit for Sun Chips™ Multigrain Snacks was higher than that for its other snack chips.9 times. The 2½ ounce package accounted for 15 per cent of purchases. Approximately 70 per cent of the budget would be spent during the first six months of the test market.The UK's Coursework Database .This document was downloaded from Coursework.http://www.

timing and competitive reaction were the key elements of the results. Revenues at manufacturer’s prices indicate that Sunchips will exceed the US$100million mark considerably if launched nationwide. This factor was calculated based on Minnesota-St/Paul’s population as factor of the United States population.Paul is immensely successful.coursework.http://www. Riskey felt that national and regional competitors were monitoring Frito-lay’s test market.coursework. Inc – Sun Chips™ Multigrain Snacks (c) A nationwide scaling factor of 45.http://www. Page 11 of 14This document was downloaded from Coursework. 8.The UK's Coursework Database .45 was used to predict the response rates of the United States’s market as a whole.The UK's Coursework Database . Our results indicate that the test market for Minnesota-St.info/ .info/ Frito-Lay. There was also a high probability that these competitors were examining the chip with the intention of developing their own version.Info .Info .This document was downloaded from Coursework. Firstly. Please refer to the appendix for the spreadsheet detailing our full analysis of the test market. a review of the findings was being presented to the management. Planning considerations After the test-market on Sun Chips™ Multigrain Snacks was conducted.

The UK's Coursework Database . a competitor might launch a similar product nationally or regionally and upstage Frito-Lay. Besides. Thus. a decision would be needed quickly to ensure adequate manufacturing capacity was in place and operating efficiently.The UK's Coursework Database . the chance to be first-to-market would be lost. He felt that if he were to continue testing Sun Chips™ Multigrain Snacks.This document was downloaded from Coursework.coursework. They believed that brand awareness would increase with additional spending and Page 12 of 14This document was downloaded from Coursework.coursework.http://www.http://www. Secondly.info/ Frito-Lay.Info . An increase in advertising and merchandising expenditure was advocated if the brand was test further or launched nationally.info/ . if an expanded test-market or a national introduction was considered. Inc – Sun Chips™ Multigrain Snacks Riskey was concerned especially with the timing factor.Info . manufacturing capacity expansion would require a significant capital investment. 9. Strategy considerations Riskey presented a few strategy options for Sun Chips™ Multigrain Snacks to the management of Frito-Lay.

Inc – Sun Chips™ Multigrain Snacks felt that spending the national introduction equivalent of $30 million could stimulate brand trial as well.The UK's Coursework Database . The option of building household repeat and dept of repeat business was also recommended.info/ . They believed that a forth. This would result in additional volume as a larger package size is being purchased. A larger package size was also recommended. 10.coursework.coursework.http://www.info/ Frito-Lay.http://www.Info . larger package could add about one-half ounce to the average annual purchase per repeat purchase occasion. it could increase the repeats per repeater to an average of 3½ times per year given greater variety for consumers. Conclusions/ Our recommendations Page 13 of 14This document was downloaded from Coursework.The UK's Coursework Database .Info . Using a flavor extension.This document was downloaded from Coursework. Some felt that another package size would only be more applicable after the brand is established in the market.

Inc – Sun Chips™ Multigrain Snacks The test market for Minnesota-St.Paul test market as a template. (b) Move with a partial launch in selected states. Page 14 of 14This document was downloaded from Coursework.The UK's Coursework Database . There was no need to extend the test market exercise as with such results. We recommend the launch to be held at another 5 states. This will give a higher rate of success as well as minimize the costs of failure.http://www. it was only a matter of time before competitors would get wind of these test results and proceed to launch a similar product.Paul was an immense success. In the light of these results.Info .The UK's Coursework Database .coursework. whose demography is most similar to that of Minnesota-St. the team recommends that Frito-Lay adopt the second option and begin a partial launch of SunChips. There are 2 possibilities that Frito-Lay has in order to capitalize on the strong test market results: (a) Move with a nation wide launch.info/ Frito-Lay. hence minimizing all possible risks of failure. Any delay in launching the product proper would result in a likely loss of the first mover advantage.http://www.info/ .Paul.coursework. using the tactics and strategies of the Minnesota-St.Info .This document was downloaded from Coursework.