2014

13MBA0103

AJITH JAYATHILAKAN

[AN INDEPTH STUDY OF FRITO-LAY]

 INTRODUCTION

Frito-Lay, Inc. is the division of PepsiCo that manufactures, markets and sells corn
chips, potato chips and other snack foods. The primary snack food brands produced under the
Frito-Lay name include Fritos corn chips, Cheetos cheese-flavoured snacks, Doritos and
Tostitos tortilla chips, Lay’s Potato Chips, Rold Gold pretzels, Ruffles potato chips
and Walkers potato crisps (Europe)—each of which generated annual worldwide sales over
$1 billion in 2009.[1]
Frito-Lay began in the early 1930s as two separate companies, The Frito Company and H.W.
Lay & Company. The two merged in 1961 to form Frito-Lay, Inc. Four years later, in 1965,
Frito-Lay, Inc. merged with the Pepsi-Cola Company, resulting in the formation of PepsiCo,
Inc. Since that time, Frito-Lay has operated as a wholly owned subsidiary of PepsiCo.
Through Frito-Lay, PepsiCo is the largest globally distributed snack food company in the
world, with sales of its products in 2009 comprising 40 percent of all "savoury snacks" sold
in the United States and 30 percent of the non-U.S. market. Frito-Lay North America
accounts for 31 percent of PepsiCo's annual sales.

DEMOGRAPHICS
Frito-Lay is targeting consumers from all the “demographics”.
Age: For kids there are various flavours and attractive shapes of the lays (Example includes
Lays classic). For young there is a weight loser that can decrease weight within 15 days
(Example includes Dorito’s, Nacho Cheese). For middle age people there is another kind that
keeps them strong and contains anti-ageing substances (Example includes Frito-
Lay Almonds). Lays have also released Lays Light to target customers who are health
conscious.
Gender: For women who are conscious about the fat content in their diet Frito have launched
Baked Lays.
Income: Segmented the market on the basis of income so every class of society gets benefit
from the product. With low price and variety flavours lays can target customers belonging to
all income groups.
Urban/Rural: Frito-Lays targeted all the markets both in the urban and rural. Lay’s was able
to capture a major share of the potato chips market in the rural areas.

MARKET RESEARCH
Lays having established a brand image they conducted secondary research in finding out the
tastes of the consumers in various countries. For example Lays magic masala is sold only
India and Pakistan. Now, Frito-Lay used social media to replace focus groups and survey
panels. The company has asked Facebook fans to weigh in by having them click an “I’d Eat
That” button next to suggested new flavours. Consumer tastes varied by location:
they found that a beer-battered onion-ring flavour is popular in California and Ohio, while a
churro flavour is a hit in New York.
 MEDIA
 Lays ads were very attractive and it appealed to the young generation of the country.
They were musical, adventurous and zestful. The ads positioned very well, as it
targeted youth, it got to youth.
 Frito-Lay uses a variety of promotion strategies to advertise their products. One of the
ways they promote their products is by using sales promotion. Frito-Lay had a contest
on where someone must think of the next lays chip flavour. Whoever wins the contest
will win one million dollars.
 Frito-Lay also uses eMarketing in their promotion. They put ads for their snacks on
many gaming sites such as Addicting games, Armor games, miniclips etc. Ads usually
play before the game starts, and have many commercials for Dorito’s, Lay’s, Cheetos,
etc. Most of the people around the age (12-16) play online games, so Frito-Lay is
targeting teenagers online.
 Frito-Lay uses sponsorship as a way of promoting their products. Frito-Lay is one of
the many companies that sponsored the Super-bowl. Just a 30 second commercial can
make a company an incredible amount of money. There are NFL fans, many of them
are bound to go out and buy Frito-Lay chips after seeing their commercials. In this
case, their target market is anyone who watches or goes to see football games, so
there is a wide range of ages. Adults may buy a bag of Dorito’s after seeing an ad, or
a child who liked a commercial may get their parents to buy Frito-Lay products. Frito-
Lay proves to be very effective in their promotion

PRODUCT LIFE CYCLE

Introduction Stage
 Frito Company started in 1932 and H.W. Lay and Company started in 1931.
 Cost was high. Per bag of Fritos cost 5¢.
 Sales volume was low because people were not aware of the product. The daily
sales totalled only to 8$ to 10$.
 Profits are low in this stage. Fritos produced a profit of only 2$ per day.
 Their major competitors are the popcorn industries.

Growth Stage
In 1961 Frito and Lays merged and formed one of the largest manufacturers in the snack
industry. They had sales in 48 states of the US. They became a national player.
In 1965, Frito-Lay merged with PepsiCo. Inc. after which Frito-Lays entered into the
International market. Large investments were put into advertising endorsed by various
celebrities.
The following graph shows the Net sales and Profit of Frito-Lays North America from 1990.
16,000

14,000

12,000

10,000
$ in millions

8,000 Net Sales

Profit
6,000

4,000

2,000

0
1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Figure 1: Net sales and Profit of Frito-Lays North America

Table 1: Net sales and Profit of Frito-Lays North America

Year Net Profit($m)

Sales($m)
1990 4,274 455
2000 4,875 546
2001 5,310 627
2002 6,351 756
2003 9,091 2,242
2004 9,560 2,389
2005 10,322 2,529
2006 10,844 2,682
2007 11,586 2,873
2008 12,507 3,067
2009 12,421 3,106
2010 12,573 3,376
2011 13,322 3,625
2012 13,574 3,684
2013 14,126 3,896

Maturity Stage
From the graph we can see that Frito-Lays reached the maturity stage in the year 2008. The
Lays used various advertising methods to attract new consumers. One of the most successful
campaigns was the contest in which the consumer could suggest a flavour and the consumers
whose flavour is taken would be given 1% of the profit they make from the sale of that
flavour. This campaign attracted a lot of new customers who wanted to make some money.
Also Lay’s was able to attract a lot of customers who were interested in the new flavours
which increased their sales.

TIME TAKEN AT EACH STAGE:

1931-1942 11years Introduction Stage
1942-2007 65years Growth Stage
2008-ongoing Maturity Stage

STP (SEGMENTATION TARGETTING AND POSTIONING)

Segmentation
 Geographic
The size of the product varies geographically. The consumers in US can get packs up to
375gm where as in India we can get only to a maximum of 80gm.
 Flavour
The segmentation is also done in terms of flavor to understand the taste of the customers in
various geographical locations. For example the Lays Magic Masala is sold only India and
Pakistan.

Targeting
 Lay's Chip targeted high schools, knowing that children were driving Frito-Lay's
growth in US.
 One of the major target markets of Lays is children and young audiences of sports and
entertainments such as consumers in theatres or stadiums even at home
 The major distribution is within teens and generation Y.
 Lays produce different style for different group. For example, women who don’t
want the fat, they make baked ones. And they make Tostitos for who don’t want
strong taste and salty.

Positioning
 “no one can eat just one”
 As a substitute for popcorn

CRM VS CUSTOMER SEGMENTATION

Customer touch points are any occasions on which a customer encounters the brand and
product – From actual experience to personal or mass communications to casual observation.
The touch points in case of lays are:

1. Website (Dillogical)
Internet has swept all the sectors and all the business by the potential of services it renders all
across the company and outside of it. Social Networking sites now have become one of the
biggest sources for consumer interaction platform especially for the youth and the middle -
aged which forms the major part of their market segmentation.
Whereas lays fails to do so, the website for the campaign Dillogical is not properly marketed.
Only 2 % of the given respondents have actually visited the website. This probably indicates
that the site lacks the element of interactivity and is not being promoted correctly on a whole.
 2. Competition-fight for your flavour
To attract the target customers from all the segments Lays launched a very unique concept
based on major interaction with the customers and then involving them for the same.
Customers were demanded their personal recipes and send it across to lays. This recipe was
supposed to launch a new flavour of potato chips in the market.
The winner recipe was the one, which got the maximum votes after a slew of choices given to
the consumers. And not only that, the winner would get a share of profit on the sales of his /
her created flavour. This strategy seemed to work for lays as large number of consumer
participated. Not only this strategy worked for the present users, but it also helped lays to
acquire new customers.
The survey indicates, as 63 % of the respondents were aware of the “fight for your flavour”
campaign. The campaign is considered as an excellent touch point as it involved direct
communication with a lot of consumers. 32% of the sample that were aware of the campaign
averred that the campaign created a personalized feeling towards the brand. This campaign
was successful in capturing attention as, 49% claimed that the idea of trying different
flavours captured their attention. Chances to win and be famous were the major reason for
around 22% to participate.

3. BAV Model: Brand Asset Value Generator

Brand Asset Valuator is a database system managed by Young & Rubicam Advertising
Agency. It collects a data about the brand perception of the subjected brand. It enables
company to improve, sustain or modify their marketing strategy based on the result form this
model.
Brand Asset Valuator model delivers relative measures of numerous brands across different
countries and of various categories based on their equity value. This can be also referring as a
strategic brand management tool, which is used for designing various plans and strategy for
the brand asset implications.

4. Ad Campaigns and Celebrity Endorsement

Lays take their advertising campaigns very seriously; it is evident by how much resources
they spend on these campaigns. Once they build the image, they easily could price a premium
from its customer. Lays with cola easily took over Tea and Samosa in the youth segment of
the country. Initially the market sentiments were against the pricing of lays, but gradually
they adapted to the change with the market scenario.

PRESENCE IN THE MARKET

1932 Herman Lay opened the snack food operation in Dorset, Ohio.
1942 Lay introduced the first continuous potato processor, resulting in the first large scale
production if the product
1950 “The Lay’s Lay Lingo Company” went national and soon was supplying products
throughout United States
1961 Frito (founded by Elmer Doolin) and Lay’s Merged making them to form Frito-Lay a
snack food giant which soon took over the international market with celebrity endorsers.
1965 Frito-Lay merged with PepsiCo.Inc.
 MARKET SHARE

Market Share of snack food industry – 9.45%

Sales
Frito-Lay

Other Snack
Foods

Market share in Snack Chip Industry – 44.2%

Sales

Frito Lays

Other Snack
Chip

PRODUCT PORTFOLIO

1. Product Width and Length

 LAY’S
o LAY'S® Barbecue Flavoured o LAY'S® Honey Barbecue
Potato Chips Flavoured Potato Chips
o LAY'S® Cheddar & Sour Cream o LAY'S® Lightly Salted Potato
Flavoured Potato Chips Chips
o LAY'S® Cheesy Garlic Bread o LAY'S® Limon Flavoured Potato
Flavoured Potato Chips Chips
o LAY'S® Chile Limon Flavoured o LAY'S® Oven Baked Barbecue
Potato Chips Flavoured Potato Crisps
o LAY'S® Classic Potato Chips o LAY'S® Oven Baked Original
o LAY'S® Deli Style Original Potato Potato Crisps
Chips o LAY'S® Oven Baked Sour Cream
o LAY'S® Dill Pickle Flavoured & Onion Flavoured Potato Crisps
Potato Chips o LAY'S® Pico de Gallo Flavoured
o LAY'S® FLAMIN' HOT® Potato Chips
Flavoured Potato Chips o LAY'S® Salt & Vinegar Flavoured
o LAY'S® Garden Tomato & Basil Potato Chips
Flavoured Potato Chips
o LAY'S® Simply Sea Salted Thick
Cut Potato Chips
o LAY'S® Sour Cream & Onion
Flavoured Potato Chips
o LAY'S® Sweet Southern Heat
Barbecue Flavoured Potato Chips
o LAY'S® TAPATIO® Limon
Flavoured Potato Chips
o LAY'S® AIR POPS™ Barbeque
Flavoured Air Popped Crisps
o LAY'S® AIR POPS™ Original
Potato Air Popped Crisps
o LAY'S® AIR POPS™ Salt &
Vinegar Flavoured Air Popped
Crisps
o LAY'S® AIR POPS™ Sour Cream
& Onion Flavoured Air Popped
Crisps
o LAY'S® Kettle Cooked Jalapeno
Flavoured Potato Chips
o LAY'S® Kettle Cooked Lattice
Cut Aged Cheddar & Black Pepper
Flavoured Potato Chips
o LAY'S® Kettle Cooked Lattice
Cut Roasted Garlic & Sea Salt
Flavoured Potato Chips
o LAY'S® Kettle Cooked Maui
Onion Flavoured Potato Chips
o LAY'S® Kettle Cooked Mesquite
BBQ Flavoured Potato Chips
o LAY'S® Kettle Cooked Original
Potato Chips
o LAY'S® Kettle Cooked Reduced
Fat Applewood Smoked BBQ
Flavoured Potato Chips
o LAY'S® Kettle Cooked Reduced
Fat Jalapeno Cheddar Flavoured
Potato Chips
o LAY'S® Kettle Cooked Reduced
Fat Original Potato Chips
o LAY'S® Kettle Cooked Reduced
Fat Sea Salt & Vinegar Flavoured
Potato Chips
o LAY'S® Kettle Cooked Sea Salt &
Cracked Pepper Flavoured Potato
Chips
o LAY'S® Kettle Cooked Sea Salt &
Vinegar Flavoured Potato Chips
o LAY'S STAX® Cheddar
Flavoured Potato Crisps
o LAY'S STAX® Hot'n Spicy
Barbecue Flavoured Potato Crisps
o LAY'S STAX® Mesquite
Barbecue Flavoured Potato Crisps
o LAY'S STAX® Original Flavoured
Potato Crisps
o LAY'S STAX® Pizza Flavoured
Potato Crisps
o LAY'S STAX® Salt & Vinegar
Flavoured Potato Crisps
o LAY'S STAX® Sour Cream &
Onion Flavoured Potato Crisps
o LAY'S® Wavy Au Gratin
Flavoured Potato Chips
o LAY'S® Wavy Hickory Barbecue
Flavoured Potato Chips
o LAY'S® Wavy Lightly Salted
Potato Chips
o LAY'S® Wavy Original Potato
Chips
o LAY'S® Wavy Ranch Flavoured
Potato Chips
o LAY'S® Wavy Roasted Garlic &
Sea Salt Flavoured Potato Chips
o LAY'S® Classic Potato Chips - 6
Count Singles
o LAY'S® Classic Potato Chips - 12
Count Singles
 DORITO’S
o DORITO’S® COOL RANCH®
Flavoured Tortilla Chips
o DORITO’S® DINAMITA® Chile
Limon Flavoured Rolled Tortilla
Chips
o DORITO’S® DINAMITA® Fiery
Habanero Flavoured Rolled
Tortilla Chips
o DORITO’S® JACKED™ Ranch
Dipped Hot Wings Flavoured
Tortilla Chips
o DORITO’S® JACKED™ Spicy
Chipotle BBQ Flavoured Tortilla
Chips
o DORITO’S® Locos Tacos COOL
RANCH® & Crunchy Taco
Flavoured Corn Chips
o DORITO’S® Locos Tacos Nacho
Cheese & Crunchy Taco Flavoured
Corn Chips
o DORITO’S® Nacho Cheese
Flavoured Tortilla Chips
o DORITO’S® Oven Baked Nacho
Cheese Flavoured Tortilla Chips
o DORITO’S® Salsa Verde
Flavoured Tortilla Chips
 TOSITOS
o TOSTITOS® ARTISAN
RECIPES® Baked Three Cheese
Queso Flavoured Tortilla Chips
o TOSTITOS® ARTISAN
RECIPES® Grilled Red Pepper &
Tomato Salsa Flavoured Tortilla
Chips
o TOSTITOS® ARTISAN
RECIPES® Roasted Garlic and
Black Bean Tortilla Chips
o TOSTITOS® ARTISAN
RECIPES® Toasted Southwestern
Spices Tortilla Chips
o TOSTITOS® Bite Size Tortilla
Chips
o TOSTITOS® Cantina Thin &
Crispy Tortilla Chips
o DORITO’S® Spicy Nacho
Flavoured Tortilla Chips
o DORITO’S® Spicy Sweet Chili
Flavoured Tortilla Chips
o DORITO’S® Taco Flavoured
Tortilla Chips
o DORITO’S® TAPATIO®
Flavoured Tortilla Chips
o DORITO’S® Toasted Corn
Tortilla Chips
o DORITO’S® Nacho Cheese
Flavoured Tortilla Chips - 6 Count
Singles
o DORITO’S® Nacho Cheese
Flavoured Tortilla Chips - 12
Count Singles
o DORITO’S® DINAMITA®
Nacho Picoso Flavoured Rolled
Tortilla Chips
o DORITO’S® FLAMAS®
Flavoured Tortilla Chips
o DORITO’S® JACKED™
Enchilada Supreme Flavoured
Tortilla Chips
o TOSTITOS® Cantina Traditional
Tortilla Chips
o TOSTITOS® Crispy Rounds
Tortilla Chips
o TOSTITOS® Hint of Lime
Flavoured Tortilla Chips
o TOSTITOS® Multigrain
SCOOPS!® Tortilla Chips
o TOSTITOS® Multigrain Tortilla
Chips
o TOSTITOS® Original Restaurant
Style Tortilla Chips
o TOSTITOS® Oven Baked
SCOOPS!® Tortilla Chips
o TOSTITOS® SCOOPS!® Fajita
Flavoured Tortilla Chips
o TOSTITOS® SCOOPS!® Tortilla o TOSTITOS® Queso Blanco Dip
Chips o TOSTITOS® Restaurant Style
o TOSTITOS® Simply Blue Corn Salsa
Tortilla Chips o TOSTITOS® Salsa Con Queso
o TOSTITOS® Simply Yellow Corn o TOSTITOS® Smooth and Cheesy
Tortilla Chips Dip
o TOSTITOS® Cantina Chipotle o TOSTITOS® Zesty Bean &
Restaurant Style Salsa Cheese Dip
o TOSTITOS® Cantina Roasted o TOSTITOS® Zesty Taco Dip
Garlic Thick & Chunky Salsa
o TOSTITOS® Cantina Salsa Verde
o TOSTITOS® Chunky Salsa - Hot
o TOSTITOS® Chunky Salsa -
Medium
o TOSTITOS® Chunky Salsa - Mild
o TOSTITOS® Creamy Spinach Dip
o TOSTITOS® Monterey Jack
Queso

 CHEETOS
o CHEETOS® Crunchy Cheddar Jalapeno Flavoured Snacks
o CHEETOS® Crunchy Cheese Flavoured Snacks
o CHEETOS® Crunchy FLAMIN' HOT® Cheese Flavoured Snacks
o CHEETOS® Crunchy FLAMIN' HOT® Cheese Flavoured Snacks & DORITO’S®
DINAMITA® Chile Limon Flavoured Rolled Tortilla Chips
o CHEETOS® Crunchy FLAMIN' HOT® Limon Cheese Flavoured Snacks
o CHEETOS® Crunchy XXTRA FLAMIN' HOT® Cheese Flavoured Snacks
o CHEETOS® FANTASTIX!® Chili Cheese Flavoured Baked Corn & Potato Snacks
o CHEETOS® FANTASTIX!® FLAMIN' HOT® Flavoured Baked Corn & Potato
Snacks
o CHEETOS® Mix-Ups Cheezy Salsa Flavoured Snack Mix
o CHEETOS® Mix-Ups Xtra Cheezy Flavoured Snack Mix
o CHEETOS® Oven Baked Crunchy Cheese Flavoured Snacks
o CHEETOS® Oven Baked FLAMIN' HOT® Cheese Flavoured Snacks
o CHEETOS® Popped Corn Bites Simply White Cheddar Flavoured Corn Snacks
o CHEETOS® Puffs Cheese Flavoured Snacks
o CHEETOS® Puffs Reduced Fat Cheese Flavoured Snacks
o CHEETOS® Puffs FLAMIN' HOT® Cheese Flavoured Snacks
o CHEETOS® Puffs FLAMIN' HOT® Reduced Fat Cheese Flavoured Snacks
o CHEETOS® Puffs Simply White Cheddar Cheese Flavoured Snacks
o CHEETOS® Crunchy Cheese Flavoured Snacks - 6 Count Singles
o CHEETOS® Crunchy Cheese Flavoured Snacks - 12 Count Singles
o CHEETOS® Crunchy FLAMIN' HOT® Cheese Flavoured Snacks - 12 Count Singles
 MISS VICKIE’S
o MISS VICKIE'S® Jalapeno Flavoured Potato Chips
o MISS VICKIE'S® Sea Salt & Cracked Pepper Flavoured Potato Chips
o MISS VICKIE'S® Sea Salt & Vinegar Flavoured Potato Chips
o MISS VICKIE'S® Simply Sea Salt Potato Chips
o MISS VICKIE'S® Smokehouse BBQ Flavoured Potato Chips

 FRITO-LAY NUTS AND SEEDS

o FRITO-LAY® Almonds Roasted Salted
o FRITO-LAY® Cashews Whole
o FRITO-LAY® Deluxe Mixed Nuts
o FRITO-LAY® Peanuts Salted In-Shell
o FRITO-LAY® Pistachios Salted
o FRITO-LAY® Praline Pecans
o FRITO-LAY® Trail Mix Nut and Chocolate
o FRITO-LAY® Trail Mix Nut and Fruit
o MUNCHIES® FLAMIN' HOT® Peanuts
o MUNCHIES® Honey Roasted Peanuts
o MUNCHIES® Salted Peanuts
o NUT HARVEST® Dark Chocolate Butter Toffee Flavoured Almonds
o NUT HARVEST® Lightly Roasted Almonds
o NUT HARVEST® Milk Chocolate Amaretto Flavoured Almonds
o NUT HARVEST® Nut & Fruit Mix
o NUT HARVEST® Sea Salted Whole Cashews
o SABRITAS® Japanese Style Crunchy Coated Peanuts
o SABRITAS® Salt & Lime Flavoured Peanuts
o SABRITAS® Spicy Flavoured Peanuts
o FRITO-LAY® Sunflower Kernels
o FRITO-LAY® Sunflower Seeds
o FRITO-LAY® BBQ Flavoured Sunflower Seeds
o FRITO-LAY® Dill Pickle Flavoured Sunflower Seeds
o FRITO-LAY® FLAMAS® Flavoured Sunflower Seeds
o FRITO-LAY® Jalapeno Ranch Flavoured Sunflower Seeds
o FRITO-LAY® Ranch Flavoured Sunflower Seeds
o FRITO-LAY® Salt & Pepper Sunflower Seeds

 FUNYUNS
o FUNYUNS® Chile Limon Flavoured Onion Flavoured Rings
o FUNYUNS® FLAMIN' HOT® Onion Flavoured Rings
o FUNYUNS® Onion Flavoured Rings
o FUNYUNS® Onion Flavoured Rings 12 Count Singles
  MATADOR BEEF JERKY
o MATADOR™ Original Beef Jerky
o MATADOR™ Peppered Beef Jerky
o MATADOR™ Sizzling Sweet Beef Jerky
o MATADOR™ Smokin' BBQ Beef Jerky
o MATADOR™ Teriyaki Beef Jerky
o MATADOR™ FLAMIN' HOT® Snack Stick
o MATADOR™ Mild Snack Stick
o MATADOR™ Original Snack Stick

2. Product depth
The products are provided in three sizes namely Individual, Family and Party pack. The size
or weight of the pack changes geographically. For example in India the sizes of LAY’S is
32gm and 80g. In US on the other hand is 42.5gm, 283gm and 397gm.

BUYER BEHAVIOUR
Frito-Lay’s was able to attract customers belonging to all “demographics” irrespective of age,
gender, income and urban/rural. A large part of the sales went to the consumers belonging to
the age 15-25.

CONCLUSION
Lays from the early stages itself had a good marketing strategy that made them to come up as
the largest snack chip industry in the world. The varieties of flavours, cheap pricing and easy
availability of the product made to consumers get attached to the product easily. These
defensive and offensive strategies made Lays a billion dollar snack industry with the largest
number of consumers.