Managerial Economics Assignment

Topic- Edible Chips

Aditi Vajarekar (M22195)

Sushant Bhanage (M22018)
Sanked Katkar (M22074)
Suyash Kharche (M22082)
Rohan Nikumbh (M22123)
Introduction
Edible chips, also known as potato chips, crisps, or simply chips in some parts of the world,
are a popular snack food that has been enjoyed by people for decades. They are made from
thinly sliced potatoes that are deep-fried until crispy and seasoned with various flavors such
as salt, cheese, barbecue, and more. They are a popular and convenient snack that is enjoyed
by people all over the world, and as a result, the market for potato chips is quite significant.
In fact, according to recent reports, the global potato chips market is expected to reach a
value of over 40 billion USD by the end of 2026. This growth is driven by factors such as
increasing urbanization, rising disposable incomes, and changing consumer preferences for
convenient and portable snack foods. Additionally, potato chip manufacturers are constantly
innovating with new flavors, packaging, and branding strategies to stay competitive in the
market. With the growing demand for healthier snack options, there has also been a trend
towards developing new types of edible chips made from alternative ingredients.

History of Chips
Records show that the deep-frying technique of banana chips was first mentioned in Apicius,
a Roman cookbook, where chefs used olive oil to fry plantains. However, the plantain is a
resident of Africa and the Caribbean, and here’s where the story unravels. It is believed that
Alexander the Great from Greece discovered the plantain in northeast Africa, sometime
around 327 BC during his military campaign, and took it back with him to Europe. It
travelled with him as he conquered the eastern Mediterranean region, Egypt, the Middle East,
and other parts of Asia along the way, which includes India. Thus, began plantain cultivation
in south India.

The earliest known recipe for chips dates to 1817, when an English doctor named William
Kitchiner published The Cook’s Oracle, a cookbook that included a recipe for “potatoes fried
in slices or shavings.” And in July 1849, four years before Crum supposedly dissed
Vanderbilt, a New York Herald reporter noted the work of “Eliza,” also, curiously, a cook in
Saratoga Springs, whose “potato frying reputation” had become “one of the prominent
matters of remark at Saratoga.” Yet scholars are united in acknowledging that Crum
popularized the chip. It was in Saratoga that the chips came into their own—today you
can buy a version of Crum’s creations under the name Saratoga Chips—and in America that
they became a culinary and commercial juggernaut.

For a long time, chips remained a restaurant-only delicacy. But in 1895 an Ohio entrepreneur
named William Tappenden found a way to keep them stocked on grocery shelves, using his
kitchen and, later, a barn turned factory in his backyard to make the chips and deliver them in
barrels to local markets via horse-drawn wagon. Countless other merchants followed suit.
Production
Product Segmentation

The potato chips are one of the most common item on someone’s grocery shopping list. The
chips come in a huge variety and have a product to suit each and everyone’s taste. The top
tier products generally contain products such as Pringles, Jolo Chips, Hand made Chips, etc.
These products come with a specific characteristic which target a specific consumer base.
Pringles target the consumer that always require a uniform chip every time and a healthy
chip. Jolo Chips target the consumer that need a extremely spicy kick to their chips, whereas
the chip market also contains players selling hand made chips at a premium. Other market
players such as Lays, Balaji, Uncle chips target a larger audience through a variety of
offerings to suit each consumer and keep the prices low owing to the scale of production.
Each of these company have dozens of flavors in offerings. Recently a new product segment
has emerged in the market, where the consumer has become more health conscious and are
turning toward healthier food. The industry has come up with healthier alternatives such as
baked and air fried chips to adapt to the changes in the demand.

The Production Story

Potato chips being one of the most consumed product right from early industrialization age
there are various stories about the first production of potato chips. However, the most popular
being the chips produced by George Crum in 1853 in New York. The potato chips produced
by George Crum we also known as Saratoga Chips. Where the objective of George was to
create a thinner fries and in case produce chips which were highly appreciated by his
customers. These chips were produced manually up until 1920 when the mechanical peeler
was invented, this gave the push to mass produce chips. Going ahead with industrialization
machines were invented to assist in the manufacturing process of chips right from peeling,
washing, slicing, frying and flavoring. Incorporation of lays was one big boost in the
industry. The machines became more sophisticated and hygienic. The industry also expanded
into types of chips manufacturing such as using the extrusion method. Many great chips were
launched using this method such as Cheetos, Potato Puffs, etc. The consumer were turning to
healthier alternative to cope up with this air frying and baking process were incorporated into
chips production to create a new chips segment target the more health-conscious consumers.
The new manufacturing techniques also helped the industry to reduce on the waste produced
in this case the used oil leftover was reduced to none.
 Production Process Diagram

Consumption Pattern
The global potato chips market reached a value of US$ 30 Billion. Potato chips represent one
of the most popular snack foods consumed across the globe. Chips market in India registered
a positive compound annual growth rate (CAGR) of 16.37% during the period 2016 to 2021
with a sales value of INR 165,156.48 Million in 2021, an increase of 21.34% over 2020. The
market achieved its strongest performance in 2019, when it grew by 21.77% over its previous
year and its weakest performance in 2020, when it increased by 0.58% over 2019.
In 2021, overseas shipment of potato chips increased by 9.9%, rising for the third consecutive
year after two years of decline.
The countries with the highest volumes f consumption in 2021 were China, the United States
and India, together comprising 35% of global consumption. These countries were followed
by Japan, Russia, Indonesia, Italy, Brazil, Germany, Bangladesh, Mexico, Pakistan and
Nigeria which together accounted for a further 26%.
The counties with the highest volumes of production in 2021 were China, the United States
and India, together comprising 34% of global consumption. These countries were followed
by Russia, Japan, Indonesia, Italy, Brazil, Bangladesh, Mexico, Germany, the Netherlands
and Pakistan lagged somewhat behind, together accounting for a further 26%.

Competitive Landscape:

The global potato chips market is highly fragmented with the presence of numerous small and
large manufacturers who compete in terms of prices and quality. Some of the leading players
operating in the market are:

 PepsiCo
 Kraft Foods
 Kellogg’s
 Diamond
 General Mills
 Nestle
 Growing Regional Brands Haldiram
Paper Boat

Projected growth rate of Indian Snacks Market size by IMARC

Group expects the market to reach US$ 39 Billion by 2027, exhibiting a growth rate (CAGR)
of 3.1% during 2022-2027. Keeping in mind the uncertainties of COVID-19, IMARC are
continuously tracking and evaluating the direct as well as the indirect influence of the
pandemic. These insights are included in the report as a major market contributor.

Global Chips Industry Drivers:

1- Chips are one of the most convenient food options currently available for people to keep
pace with their busy lifestyle. It shortens the meal preparation time and can be served in
the form of a quick snack or part of the meal.

2- The raw materials that are used in the manufacturing of potato chips are potatoes, oil and
salt, which are widely available in every part of the world. Hence, reliable supply of
potatoes and other materials are ensured, thereby providing the potato chips market with a
constant supply and efficient production planning.

3- Developing countries are expected to drive the global chips market in the coming years.
Earlier, the consumption of chips was largely confined to the western countries. However,
with the emerging trend of westernization of food consumption patterns in addition to
growing economy, rise in middle class population and increasing urbanization, the
consumption of potato chips in developing countries is expected to grow at a significant
rate.

4- The growth of the organized retail sector is currently having a positive impact on the
global chips market. Earlier, a number of global players were hesitant to sell their
products in emerging regions because of lack of infrastructure, storage facilities, and
 appropriate knowledge about the developing markets. However, with an increase in the
number of organized retail stores, many players are investing in these markets. This is
anticipated to eventually result in the augmented consumption of potato chips during the
next few years.

The above table gives us an overview about consumption pattern in various age groups in
India among various available brands. Some of the brands mentioned in this table are Bingo,
Lays, Ruffles and Pringles. It is observed that chips are the products which are consumed in
all the age groups. All in all 48% is demanded by age group people who are below age of 20.
From the age group of 21-30 they consume 26.6%. From the age group of 31-40 there are
14.4% consumers who consume different brands of chips in India. Apart from that it has been
observed from the study that Bingo is one of the most preferred brands amongst the Indian
consumers. It is been followed by Lays, Ruffles, Pringles and then all other available brands
in the market.

Marketing Techniques
Inbound Strategy-

The inbound tactics include several Paytm codes hidden inside the chip packets to draw
consumers. The benefits include lucky lotteries and the opportunity to meet celebrities. At
times, the cafe's complimentary packages of chips served with coke have enticed customers
to order more. Every box displays the additional number of chips it includes. It's a big draw
and a smart method to get people to purchase the chips.

Social Media Campaigns

The primary aspect of smartphone campaigns is that individuals who appreciate this snack
will be able to access web images, videos, and shorts. Platforms such as Instagram, followed
by Twitter and Facebook, aid in the promotion of these goods. Ads on phones have become
more successful as people's use of mobile phones has grown. There's also the 'Flavor
excursion.' It contains an exotic flavour giveaway. It was designed for social media fans, but
anyone with a smartphone can participate.

Celebrity-Endorsed Advertisement
Celebrity branding, also known as celebrity endorsement, is a type of advertising campaign
or marketing strategy in which a personality's renown or social standing is used to support a
product, brand, or service, or to raise consciousness about a problem. Marketers employ
celebrity endorsers in the hope that the favourable image of the celebrity endorser will be
transferred to the image of the product or brand.

Outbound Strategy

This brand's manufacturing and supply network are both extensive and intricately structured.
It uses a large number of individuals in its units. In addition, the fee is dependent on reliable
vendors. This variety of crackers is available on websites such as Amazon Pantry, Reliance
Fresh, and Big Basket. An efficient transportation method and timely supply replenishment
are critical. In every nation, the units are placed under the control of reliable proprietors who
control the supply throughout the country.

Case study of a dominant chips firm, PepsiCo

Introduction:

PepsiCo is a global food and beverage company that operates in more than 200 countries and
territories worldwide. The company is a dominant player in the global chips market through
its subsidiary Frito-Lay. This case study will analyze the factors that have contributed to
PepsiCo's dominance in the global chips market.

Industry Analysis:
The global chips market is a highly competitive industry that is driven by factors such as
changing consumer preferences, innovation, marketing, and pricing strategies. The market is
characterized by a large number of players, ranging from multinational corporations to small
local players. In this context, PepsiCo's Frito-Lay has emerged as the dominant player with a
market share of around 35%.

Factors Contributing to PepsiCo's Dominance:

 Strong Brand Portfolio: PepsiCo's Frito-Lay has a strong brand portfolio that includes
Lay's, Ruffles, Doritos, Cheetos, and Tostitos, among others. These brands have a
high level of brand recognition and customer loyalty, which gives Frito-Lay a
significant competitive advantage.
 Innovation: Frito-Lay has a strong focus on innovation, which is reflected in the
company's new product launches. For example, in 2021, Frito-Lay launched the Lay's
Poppables, a new line of potato snacks that is light and crispy. This kind of innovation
helps Frito-Lay to stay ahead of its competitors and meet the changing needs of
consumers.
 Distribution and Supply Chain: Frito-Lay has a well-established distribution and
supply chain network that allows the company to reach customers across the globe
efficiently. The company has a large number of manufacturing plants and distribution
centers, which ensures that its products are available in a wide range of locations.
 Marketing and Advertising: Frito-Lay invests heavily in marketing and advertising to
promote its brands. The company's marketing campaigns are often creative and
 engaging, which helps to capture the attention of consumers and build brand
awareness.
 Pricing Strategy: Frito-Lay has a flexible pricing strategy that allows the company to
adjust its prices in response to changes in market conditions. The company offers a
wide range of products at different price points, which helps to attract customers
across different income levels.

Conclusion:

PepsiCo's Frito-Lay is the dominant firm in the global chips market, and this is due to several
factors, including its strong brand portfolio, innovation, distribution and supply chain,
marketing and advertising, and pricing strategy. As the market continues to evolve, Frito-Lay
will need to continue to innovate and adapt to meet the changing needs of consumers.
However, the company's strong position in the market provides a solid foundation for future
growth and success.

Case study of a smaller chips firm, Prataap Snacks

Introduction:
Prataap Snacks is a leading Indian snack food company that was founded in 2009. The
company produces a range of snack products, including potato chips, extruded snacks, and
namkeen. Prataap Snacks has emerged as a significant player in the Indian market for chips,
and this case study will analyze the factors that have contributed to its success, and compare
it with the dominant player in the market, PepsiCo's Frito-Lay.

Industry Analysis:

The Indian market for chips is highly competitive, and it is dominated by multinational
corporations like PepsiCo's Frito-Lay, as well as a number of local players. The market is
driven by factors such as changing consumer preferences, innovation, marketing, and pricing
strategies.

Factors Contributing to Prataap Snacks' Success:

Innovation: Prataap Snacks has a strong focus on innovation, which is reflected in its new
product launches. For example, the company has introduced new flavors of chips, such as
Tangy Tomato and Cheese Onion, which have been well-received by consumers.

Distribution and Supply Chain: Prataap Snacks has a well-established distribution and supply
chain network that allows the company to reach customers across the country efficiently. The
company has a large number of manufacturing plants and distribution centers, which ensures
that its products are available in a wide range of locations.

Marketing and Advertising: Prataap Snacks invests in marketing and advertising to promote
its brands. The company's marketing campaigns are often targeted towards regional
audiences, and they are effective in building brand awareness.

Pricing Strategy: Prataap Snacks has a flexible pricing strategy that allows the company to
adjust its prices in response to changes in market conditions. The company offers a wide
range of products at different price points, which helps to attract customers across different
income levels.

Comparison with PepsiCo's Frito-Lay:

While Prataap Snacks is a smaller player in the Indian market for chips compared to Frito-
Lay, it has emerged as a significant competitor in recent years. Compared to Frito-Lay,
Prataap Snacks has a more regional focus, and it has a strong presence in certain regions of
the country. Prataap Snacks also has a more diverse range of products, including extruded
snacks and namkeen, which sets it apart from Frito-Lay's focus on potato chips. However,
Frito-Lay has a larger marketing and advertising budget, and it has a more extensive
distribution network, which gives it an advantage over Prataap Snacks.

Conclusion:

Prataap Snacks has emerged as a significant player in the Indian market for chips, and this is
due to several factors, including its focus on innovation, distribution and supply chain,
marketing and advertising, and pricing strategy. While Prataap Snacks is a smaller player
compared to Frito-Lay, it has carved out a niche for itself in certain regions of the country
and has a loyal customer base. As the market continues to evolve, Prataap Snacks will need to
continue to innovate and adapt to meet the changing needs of consumers, but its strong
position in the market provides a solid foundation for future growth and success.

Policy recommendations to ensure equitability in market

To ensure equitability in the market for edible chips, the following policies can be
recommended that promote fair competition and consumer protection.

1. Enforcement of Food Safety Regulations: It is crucial to ensure that all edible chips
sold in the market meet the required food safety standards. This can be achieved
through regular inspections, testing, and certification by relevant food safety
authorities.

2. Labelling Requirements: Clear and accurate labelling of ingredients, nutritional

information, and allergen warnings should be mandatory for all edible chips sold in
the market. This will enable consumers to make informed decisions and avoid health
risks.

3. Anti-Trust Laws: To prevent monopolistic practices and promote fair competition,

anti-trust laws should be enforced in the market for edible chips. This will help
prevent any single company from dominating the market, and enable smaller
businesses to thrive.

4. Fair Trade Practices: Companies should be encouraged to use fair trade practices in
the production and distribution of edible chips. This will help ensure that farmers and
workers involved in the production of raw materials are treated fairly, and that they
receive a fair price for their products.

5. Consumer Education: Educating consumers on their rights, as well as healthy eating

habits, will go a long way in promoting equitability in the market for edible chips.
This can be done through public awareness campaigns, nutritional labeling, and
providing information on healthy snack choices.
6. Price Transparency: Companies should be required to disclose their pricing strategies
to prevent price gouging and to promote price transparency. This will enable
consumers to compare prices easily and make informed decisions.

7. Sustainable Practices: Edible chip manufacturers should be encouraged to adopt

sustainable practices in the production and distribution of their products. This includes
using eco-friendly packaging, reducing waste, and using renewable energy sources.

8. Local Sourcing: Encouraging companies to source their ingredients locally can help
support small-scale farmers and local economies. It can also reduce the carbon
footprint associated with transportation and promote sustainability.

9. Fair Labor Practices: Companies should be required to follow fair labor practices in
their production process, including providing a safe and healthy work environment,
paying fair wages, and avoiding the use of child labor or forced labor.

10. Incentives for Healthier Options: Governments can offer incentives for companies that
produce healthier edible chip options, such as those made with whole grains or low -fat
ingredients. This can encourage companies to create healthier snack options and make them
more affordable for consumers.