Essay, Research Paper: Frito-Lay Tostistos
In 1932, Elmer Doolin, who was in the ice-cream business, bought a recipe for
corn chips from a Mexican man who was eager to leave the states and return home.
From him Doolin acquired 19 accounts and old manufacturing equipment in hopes to
start an entirely new industry in America. The first manufacturing plant for
Fritos Corn Chips started out in Doolin’s mother’s kitchen. With a lot of
hard work, Elmer’s sales increased and new equipment and packaging were soon
needed. After WW II he would grant H.W. Lay and Company, a source of potato
chips and snack foods, an exclusive franchise to manufacture and distribute
Fritos Corn Chips. The two companies would work close together and in 1961 they
would merge. Four years later, Pepsi-Cola Company would also combine with
Frito-Lay, but with separate operating divisions, to form a new company called
PepsiCo. Consumers in 1995 spent an estimated $13.2 billion on Frito-Lay snacks,
up $1.8 billion in 1994. (PepsiCo. 1995 Annual Report). Currently, Frito-Lay is
still expanding its sales and serves all of the US markets. In 1989 they
reconstructed their business into 4 regional divisions to strengthen its channel
distribution. Their growth has continued and as of 1991 they had 22 Sales and
Marketing areas in order to bring the decision process closer together.
Currently they are continuing to grow nationally and globally with distribution
reaching nearly 400,000 in retail, vending, and food service accounts around the
country (PepsiCo. 1995 Annual Report) They offer more than 100 product lines and
several brand names such as Lay’s, Ruffles, Doritos, Rold Gold, and Tostitos.
The overall market share for tortilla and corn chips in 1993 accounted for 25.8%
of retail sales and 27.8% of pound volume of the salted snacks market.
Frito-Lay’s market coverage involves intensive distribution by placing its
products in convenience stores, mass merchandisers, supermarkets, grocery
stores, and vending machines. Today's average for the company's distribution
amongst grocery and supermarkets has risen to about 56% (PepsiCo.1996 Facts).
Frito-Lay’s closest competition in size for snack foods is Nabisco, who doesn't'
have a snack chip to compete with Tostitos corn chip. Golden Flake Enterprises
is Frito’s biggest competitor in size and markets served that has a tortilla
chip, but they compete in an indirect way through limited product lines. Some
companies that compete serving smaller markets are Philadelphia’s Utz, Herrs,
and Bravo. They try to compete with Frito-Lay, but most of them have to add a
degree of differentiation to gain a slight competitive advantage in a market
that is to easy to copy. Companies selling in small local markets try to compete
and differentiate through targeting their audiences more directly which is hard
for Frito Lay to do. However smaller companies resources are limited, so it is
hard to compete directly with the big distributor in markets served. Frito has
also used the strategy of forward integration, which means they have used their
earnings to gain ownership or control over distributors and retailers which
makes it hard for small companies to gain distribution channels. Frito’s snack
products are available in 40 countries and believes that the majority of its
growth will come from establishing new markets. Frito-Lay owns most of their
operations but some operations are joint ventures. The company works hard at
keeping its market share and has brought in outside firms to look at their
supply chain from manufacturing to distribution, to logistics and transportation
planning. This past year the company won an award for its seasoning and
packaging program. It works to get full truckloads by utilizing unique carrier
management technology systems which are projected to save 20% in transportation
costs, reduce inventory carrying costs, and enable deliveries twice a week to
production facilities which is expected to decrease transportation time. They
are also using what is called a back-haul program to fill empty miles in
Frito-Lay's private fleet, generating over $250,000 in incremental revenue for
its traffic centers. They have also spent big money on an integrated system
which provides visibility and productivity tools to optimize Frito-Lay's
distribution network (www.markvii.com/news/frito.htm). Tostitos success is due
to Frito Lay’s capabilities to capture opportunities to enhance a competitive
advantage. Through decades of hard work and expansion, the company is moving
forward expanding its markets. Their profits are high and they've worked hard
over the years to create and maintain relationships with its channel members
which has led to their success.
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