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FritoLay : company profile

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Frito-Lay is the world's leading manufacturer of potato chips, with snack brands including Lay's, Fritos, Doritos, Walkers Crisps and Ruffles. The group holds the leading position in salty snacks in more than 30 countries, including all the biggest global markets. It is a global division of PepsiCo, forming a very suitable accompaniment to that group's international portfolio of soft drinks. In recent years, the group has taken several steps to improve the nutritional content of its products, and has also begun to broaden its range beyond potato, corn and tortilla chips into whole grain and even fruit and nut-based snacks.

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Brands & Activities

Frito-Lay is the biggest single brand family within diversified food and beverage giant PepsiCo. It is the clear global leader in salty snacks, holding the #1 position in 30 countries, including all of the world's 15 biggest salty snack markets. Retail sales of its lead brand Lay's were in excess of $9bn in 2011. Doritos have sales worth around $4.5bn at retail, Cheetos are worth around $3bn, Ruffles and Tostitos are both around $2bn, Fritos and Walkers in the UK are over $1bn.

The company operates through several separate business units, responsible for North America and International activities respectively. Frito-Lay North America's revenues for 2018 rose 4% to $16.3bn, representing just over a quarter of PepsiCo's combined revenues. It is the parent group's single most profitable division, with operating income topping $5bn for the first time in 2018 (almost half the group total). Frito-Lay products also accounted for large, but unspecified proportions of the revenues from PepsiCo's Latin America, Europe and Asia Middle East & Africa businesses.

In the US in 2013, PepsiCo claimed a mammoth 36.6% share of the overall "savoury snacks" sector, which includes potato chips, nuts, popcorn and crackers. Its nearest competitor, according to IRI figures, was Kellogg's with just 6.9%, following its acquisition of Pringles. Other rivals included Mondelez with just 5.6% and Kraft with 3.6%. In the salty snacks sub-group, its lead is even more impressive.

For 2016, according to IRI (52 weeks to Jan 2017, all channels, Grocery HQ), Frito-Lay had almost 59% share of the $5.7bn potato chip segment, almost six times its next-largest competitor, Kellogg's Pringles. Combined sales were almost $3.4bn. Lay's is by far the leading potato chip brand in the country, accounting for over 45% of the market by value across its various sub-brands. Regular Lay's alone accounts for 30% of sector sales, supported by Wavy Lay's (8.9%), Lay's Kettle Cooked (5.1%), Baked Lay's (1.4%) and other variants. To defuse some of the threat from Pringles the group introduced Lay's Stax in 2003, packed like the former P&G brand in cardboard "tennis-ball" canisters. In 2012, the group introduced a new marketing concept already used successfully in the UK by Walkers, asking customers to "Do us a flavor" and suggest a new permanent flavour for Lay's. The eventual winner was Cheesy Garlic Bread. The contest has been repeated several times since then. (Lay's Kettle Cooked Wasabi Ginger was the 2014 winner, followed by Southern Biscuits & Gravy in 2015). Ruffles is the US #3 potato chip (behind Pringles), with 9.5% share (sales of $542m).

In the tortilla chip segment, Frito-Lay had an even more commanding 71% share, worth combined sales of $2.9bn. Doritos accounts for just over half that sum, supported by Tostitos and Santitas. Meanwhile Cheetos dominate the cheese snack segment with 83% share (and sales of over $1.2bn). One of the few salty segments not dominated by Frito-Lay is pretzels, where its Rold Gold is #2 with 14% share. (Snyder's-Lance dominates the sector with 42% share).

The portfolio is rounded out by Frito's corn chips, SunChips multigrain snacks, Wow! fat-free snacks and Cracker Jack popcorn and nut mix, among others. As a result of the integration of the Quaker Oats portfolio, the Frito-Lay North America division was swelled in 2001 by the addition of Quaker Chewy snack bars, and a variety of toastable fruit and oatmeal and other "food-to-go" snacks. Quaker is the #2 US cereal bar brand after General Mills' Nature Valley with sales of around $396m in 2017. It also distributes the Oberto meat snacks line under contract. In 2005 the group acquired Stacy's Pita Chips for an undisclosed sum, and it launched a new healthy baked fruit and vegetable snack range in 2008 under the Flat Earth banner as well as True North nuts. It also established a joint venture with US group Strauss to operate the Sabra Dipping Company, which makes a range of refrigerated hummus and other dips to go with Frito-Lay chips. The group also produces an extensive range of other less well-known brands, including Grandma's Cookies, Smartfood popcorn and bagged combinations of its other products under the Munchies banner.

Health and obesity concerns have come to play an increasingly part in the strategic development of PepsiCo as a whole, and for Frito-Lay in particular. The group was the first major food company to reduce trans fats from its products, in 2003, and has also reduced salt and sugar, while adding calcium. A line of Baked! snacks offers baked not fried variants of the main brands. It launched a program in the US in 2005 designed to highlight those products which could contribute to a healthier lifestyle, under the SMART spot banner.

The group has also established a number of sports-related partnerships. Doritos has a strong association with the Super Bowl telecast because of its annual "Crash The Super Bowl" contest for ordinary customers to submit their own ads to become the company's official commercial. Tostitos are now the "official chip" of the NFL. Doritos and Ruffles are part of a group-wide food and drinks partnership with the NBA, agreed in 2015.

Outside North America, Frito-Lay brands report as part of the PepsiCo International division. The business accounts for around one-third of the global salty snack market. It completely dominates some countries, such as Venezuela, Mexico and Greece where it has more than 80% share. It has 50% or more in the Netherlands, South Africa, Brazil and Spain; and over 40% in Australia and the UK. The group's single most valuable international salty snack brand is Sabritas of Mexico, supported by Gamesa, the local market leader in cookies. Other local market products include Walkers Crisps in the UK, Matutano in Portugal and Spain, Smith's Crisps in Australia, Elma Chips in Brazil and Pehuamar snacks in Argentina.

In 2005, PepsiCo paid around $150m to acquire the Duyvis and Benenuts snack brands in Europe from Sara Lee, as well as Star Foods of Poland and Sakata rice snacks in Australia. The group acquired Brazilian snack manufacturer Lucky, whose brands include Torcida and Fofura, in 2007. In 2009, it established a partnership in Japan with local competitor Calbee Foods. That company absorbed the existing operations of Frito-Lay Japan in return for giving PepsoCo a 20% holding in the enlarged group. Combined revenues are around $1.4bn, mostly generated by Calbee's distinctively Japanese Kappa Ebisen shrimp and Saya snow pea crisps.

For several years, the group's brands in most of continental Europe were managed by Snack Ventures Europe, a 60/40 joint venture with General Mills. First founded in 1992 to merge both companies' brands in the region, it had become Europe's largest snack food company by 2004, with annual sales of more than $1bn. However it was also increasingly dominated by PepsiCo brands, and in 2004 the partners called it a day, with PepsiCo agreeing to buy out General Mills for around $750m.

Combined revenues for PepsiCo's drinks and snacks businesses outside North America were $24.75bn in 2018. The group doesn't specify a precise split, but foods are understood to account of at least two-thirds of that total.

Background

Frito-Lay was itself the result of the merger of two rival chip companies. Fritos were launched in 1932 by Texan entrepreneur Elmer Doolin, who had bought the rights to a formula for making snack chips out of corn instead of potato. He made the chips in his mother's kitchen from the acquired recipe. In the same year in Nashville, Herman Lay set up as a distributor of potato chips, subsequently buying up the companies which supplied him. Fritos and HW Lay Company merged with each other in 1961. Pepsi president Don Kendall bought the combined business four years later, explaining his strategy in simple terms: "Potato chips make you thirsty. Pepsi satisfies thirst."

Frito-Lay also continued to expand its snack interests worldwide. It purchased Mexican potato chip brand Sabritas in 1966, followed by cookie company Gamesa in 1990. In 1997, Frito-Lay bought Walkers as part of United Biscuits' European salty snacks operation, and Smith's Snackfood Company in Australia. Other purchases included Chilean business Barcel and a joint venture with Empreseas Polar SA of Venezuela. Other recent deals include the merger of its Egyptian snack business with local market leader Chipsy, and the acquisition of Saudi market leader Tasali Snack Foods, both in 2001.

Frito-Lay's chairman-CEO Irene Rosenfeld resigned in 2006 to rejoin Kraft Foods, from where she was recruited in 2004.

Last full revision 22nd June 2015

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