Frito Lays Dips

Frito-Lay's Dips

1. SWOT Analysis

Strengths:

§ Frito-Lays were a highly profitable product line and had show phenomenal sales growth in the past five years.

§ 'Shelf-stable' dips can be displayed virtually anywhere in a supermarket.

§ Frito-Lay is a nationally recognized leader in the manufacture and marketing of salty snack foods.

§ In addition to salty snack products, the company also markets a line of nuts, peanut butter crackers, processed beef sticks, Grandma's brand cookies and snack bars, and assorted other snacks.

§ In 1985, Frito-lay captured about 33 percent of the salty snack food tonnage sold in the United States.

§ For Frito-Lay's cheese dips, Frito-Lay chose to stay with the Frito-Lays name to trade off the company's equity in salty snacks and capitalize on the company's strengths in marketing and distribution.

§ The phenomenal success of Frito-Lays Dips was due to two factors: cheese dips were novel and Frito-Lays flavors were innovative, and they had the right merchandising location next to salty snacks.

§ Consumer household penetration increased from 12 percent in 1983 to 20 percent in 1984, driven largely by placing cheese dips near salty snacks. The association between chips and dips was conveyed in promotions and in shelf placement.

Weaknesses:

§ Frito-Lay's enchilada bean dip was dropped from the Mexican dip line in mid-1985 as a result of falling sales.

§ The discontinuance of the enchilada bean dip had had an unexpected effect. It had been expected that consumers would switch to Frito-Lay's other Mexican dips; but they didn't and went to competitors.

§ Total dollar sales of dips for Frito-Lays declined in 1985 and the forecasted sales of cheese dips would be unchanged from the previous year.

§ In 1985, consumer household penetration flattened, indicating a need for consumer-pull marketing.

§ It is unlikely that funds for advertising and merchandising would be increased in 1987 beyond the $4.73 million budgeted for 1986.

Opportunities:

§ Dip popularity has risen in recent years as a result of the convenience of use, multiple users, and 'grazing' trends in the United States.

§ Sour cream-based dips are the most popular in flavor and account for 50 percent of total dip sales so Frito-Lay has an opportunity to gain market share with sour cream-based dips.

§ Sales trends indicate that Mexican dips would show a 4 percent increase in sales in 1986. So Frito-lay may want to get into this market again since they discontinued the enchilada bean dip.

§ Opportunity to continue to develop in the chip dip market where it already had a strong foothold in an attempt to expand the market and build market share.

§ Opportunity to pursue the vegetable dip market using the new sour cream-based dip as a spearhead.

Threats:

§ The market for dips is highly fragmented and difficult to measure.

§ Regional chip manufacturers are Frito-Lays main competition in the shelf-stable dip market.

§ Industry research indicates that dip dollar sales are growing at 10 percent but that growth is due to inflation and no real growth is evident.

§ Much competition exists within the cheese-based dips: Kraft's Nacho Cheese Dip and Kraft's Premium Jalapeno Cheese Dip, and Velveeta's Mexican process cheese spread.

§ Kraft primarily competed in the refrigerated segment of the dip market but in late 1985 entered the shelf-stable market with Kraft Nacho Dip and Kraft Hot Nacho Dip.

§ 20% of dip volume consumed by the United States is homemade.

§ Many users substitute refrigerated salad dressing for dips, especially for vegetables. The brands that dominate the refrigerated salad dressings are Marie's, Bob's Big Boy, Marzetti's, and Walden Farms. Furthermore, retail sales of refrigerated salad dressings have been growing at a compound annual rate of 18 percent since 1978.

§ Competitive activity in the dip market accelerated in 1984 and 1985. During these two years, numerous new products were introduced and advertising expenditures increased. Industry estimates showed that dip competitors combined spend 25% more on consumer advertising in 1985 than in 1984.

§ Around 1984-1985, well-financed companies began to aggressively pursue the dip market. For example Campbell soup introduced a nacho soup/dip and expanded its vegetable dip line, and Lipton expanded its line of vegetable dips.

2. Issue Identification/Problem Statement(s)

§ In late 1986, Ben Ball, Marketing Director, and Ann Mirabito, Product Manager, had to decide where and how Frito-Lays Dips could be developed further; through aggressive promotion in its present market segment (chip dip) category, or by entering into the vegetable dip category using their recently introduced sour cream-based French onion dip.

§ Sub-Problem(s)

o How much emphasis to place on each category in 1987?

o Expense budgets would need special consideration. How to allocate the budget? More aggressive marketing would require higher marketing investment or at least a reallocation of funds, while at the same time the gross margin and contribution of dips would have to be preserved.

o Marketing mix considerations would have to be made for each category. Especially if Frito-Lay decides to go into the vegetable dip market all the marketing mix elements (pricing, product, promotion, distribution) would need to be determined. Product placement would be an important issue for the vegetable dip market since it would be placed with produce.

o Who is the target audience; will new markets need to be targeted?

o What types of advertising and promotions for each category?

3. Alternatives

A. Frito-Lay could capitalize on its foothold in the 'chip dip' market and attempt to expand the market and build market share.