Frito-Lay TostistosFrito-Lay’sTostitos
In 1932, Elmer Doolin, who was in the icecream 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 dosen’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. Thier profits are high and they’ve worked hard over the years to create and maintain relationships with its channel members which has led to thier success.
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