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Product Analysis of Pepsico Essay

History

Lay’s (known as Walkers in the United Kingdom and Ireland, Chipsy in Egypt, Poca in Vietnam, Tapuchips in Israel and Sabritas in Mexico) is the brand name for a number of potato chip varieties as well as the name of the company that founded the chip brand in 1932. Lay’s chips has been marketed as a division of Frito-Lay, a company owned by PepsiCo since 1965. Other brands in the Frito-Lay group include Fritos, Doritos, Ruffles, Cheetos, Rold Gold pretzels, and Sun Chips. In 1932, salesman Herman Lay opened a snack food operation in Dorset, Ohio and, in 1938, he purchased the Atlanta, Georgia potato chip manufacturer “Barrett Food Company, ” renaming it “H.W. Lay Lingo & Company.” Lay criss-crossed the southern United States selling the product from the trunk of his car. In 1942, Lay introduced the first continuous potato processor, resulting in the first large-scale production of the product The business shortened its name to “the Lay’s Lay Lingo Company” in 1944 and became the first snack food manufacturer to purchase television commercials, with Bert Lahr as a celebrity spokesman. His signature line, “so crisp you can hear the freshness,” became the chips’ first slogan along with “de-Lay-sious!”

As the popular commercials aired during the 1950s, Lay’s went national in its marketing and was soon supplying product throughout the United States. In 1961, the Frito Company founded by Elmer Doolin and Lay’s merged to form Frito-Lay Inc., a snack food giant with combined sales of over $127 million annually, the largest of any manufacturer. Shortly thereafter, Lays introduced its best-known slogan “betcha can’t eat just one.” Sales of the chips became international, with marketing assisted by a number of celebrity endorsers. In 1965, Frito-Lay merged with the Pepsi-Cola Company to form PepsiCo, Inc. and a barbecue version of the chips appeared on grocery shelves. A new formulation of chip was introduced in 1991 that was crisper and kept fresher longer. Shortly thereafter, the company introduced the “Wavy Lays” products to grocery shelves. In the mid to late 1990s, Lay’s modified its barbecue chips formula and rebranded it as “K.C. Masterpiece,” named after a popular sauce, and introduced a lower calorie baked version and a variety that was completely fat-free (Lay’s WOW chips containing the fat substitute olestra).

In the 2000s, kettle cooked brands appeared as did a processed version called Lay’s Stax that was intended to compete with Pringles, and the company began introducing a variety of additional flavor variations. Frito-Lay products currently control 59% of the United States savory snack-food market.[5] Crisps in the UK. The logo for the British version is notably similar to the American brand, featuring a red ribbon around a yellow sun. The other Frito-Lay brands are also distributed through the Walkers label. In Spain, they are commercialized with the name Lay’s and was also very popular in China. In the Benelux Lay’s are sold in three varieties: Lay’s, Lay’s Light and Lay’s Sensations (Thai Sweet Chili/Red Paprika/Oven Roasted Chicken and Thyme). Lay’s Super Chips (Heinz Ketchup/Mexican Pepper/Perfect Pickles/Salt ‘n’ Pepper [all through Delhaize) and Lay’s Baked Chips (Mediterranean Herbs/through Delhaize). As with Doritos, Lay’s are manufactured, distributed and imported in The Netherlands by Frito Lay’s Benelux division, Smith’s Food Group.

In India, Bollywood superstar Saif Ali Khan and Indian cricketer Mahendra Singh Dhoni endorse Lays. In Argentina, Lays was commercialized before 2001 with the name Frenchitas and Chizitos for the Cheetos. In Australia, Pepsico acquired The Smith’s Snackfood Company in 1998 and marketed Frito-Lay products under that label, using the name Thins. After Thin’s was sold to Snack Brands Australia (Owned by Arnotts), Smith’s produced a line of potato chips under the Lay’s brand for a brief period of time. The Lay’s line was eventually rebranded in 2004 as Smith’s Crisps, while the traditional Smith’s line was renamed Smith’s Crinkles. This is still sold in Australia as a direct competitor to Smith’s Crisps. In Canada, the chips are distributed through the Lay’s label. In Colombia, the chips are sold under the name Margarita.

They are still commercialized under the label Lay’s, however. In Mexico, Pepsico acquired Sabritas S. de R.L. in 1966. Lay’s along with other products such as Cheetos, Fritos, Doritos and Ruffles are marketed under the Sabritas brand. The logo for the Mexican company sports the red ribbon, but it has a stylized smiling face instead of the sun. It controls around 80% of the market there. In Egypt, Lay’s was once sold with its own label until it was merged with the local label Chipsy (شيبسى), which has since become the local unit of Lay’s under much the same arrangement as Walkers. In United Arab Emirates, Lay’s and Walkers are sold as different labels.

In Pakistan, the Lays brand is endorsed by renowned pop star Ali Zafar. In Israel, the Lay’s label is distributed with the name Tapuchips In September 2007, Lays changed their logo. It is similar to the previous one, but with more of a 3D look and the letters ‘a’ and ‘y’ connected. The bags themselves were also redesigned. In Brazil, chips are distributed under a Lay’s sister-company, Elma Chips. In Vietnam, Lay’s is distributed as Poca.

As with most snack foods, the Lay’s brands contain very few vitamins and minerals in any variety. At ten percent of the daily requirement per serving, vitamin C is the highest. Salt content is particularly high, with a serving containing as much as 380 mg of sodium. A one-ounce (28 gram) serving of Lay’s regular potato chips has 160 Calories, and contains ten grams of fat, with one gram of saturated fat. Kettle-cooked brands have seven to eight grams of fat and one gram of saturated fat, and are 140 Calories. Lays Natural has nine grams of fat, two grams of saturated fat and 150 Calories. Stax chips typically contain ten grams of fat, 2.5 grams saturated fat and are 160 calories per serving. Wavy Lays are identical to the regular brand, except for a half-gram less of saturated fat in some combinations. The various brands do not contain any trans fats. The baked variety, introduced in the mid 90’s, feature 1.5 grams of fat per one ounce serving, and have no saturated fat.

Each serving has 110 to 120 Calories. Lay’s Light servings are 75 Calories per ounce and have no fat. Lay’s Classic Potato chips were cooked in hydrogenated oil until 2003.[8] Currently, the chips are made with sunflower and/or corn oil. Baked Lays are produced in cheddar, barbecue, sour cream and onion, and original flavors. PepsiCo is a global food and beverage leader with net revenues of more than $65 billion. Take a journey through our past and see the key milestones that have shaped our company.

PepsiCo, Inc. is founded by Donald M. Kendall, President and Chief Executive Officer of Pepsi-Cola and Herman W. Lay, Chairman and Chief Executive Officer of Frito-Lay, through the merger of the two companies. Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C. pharmacist. Frito-Lay, Inc. was formed by the 1961 merger of the Frito Company, founded by Elmer Doolin in 1932, and the H. W. Lay Company, founded by Herman W.Lay, also in 1932. Herman Lay is chairman of the Board of Directors of the new company; Donald M. Kendall is president and chief executive officer. The new company reports sales of $510 million and has 19,000 employees. Major products of the new companies are:

Pepsi-Cola Company – Pepsi-Cola (formulated in 1898), Diet Pepsi (1964) and Mountain Dew (introduced by Tip Corporation in 1948). Frito-Lay, Inc. – Fritos brand corn chips (created by Elmer Doolin in 1932), Lay’s brand potato chips (created by Herman W. Lay in 1938), Cheetos brand cheese flavored snacks (1948), Ruffles brand potato chips (1958) and Rold Gold brand pretzels (acquired 1961).

PepsiCo sales pass the $1 billion mark. The company has 36,000 employees. PepsiCo moves from New York City to new world headquarters in Purchase, N.Y. The new corporate headquarters feature a building by one of America’s foremost architects, Edward Durrell Stone (1902-1978), set on a campus of 144 acres amid an outdoor sculpture garden. Frito-Lay begins a program of expansion. Over the next decade, the company opens, on average, more than one new plant a year. W.C. Fritos is introduced as Frito-Lay’s new advertising mascot. Wilson Sporting Goods, a top name in sports equipment, joins PepsiCo. It is divested in 1985.

PepsiCo Food Service International (PFSI) is formed to focus on overseas development of restaurants. PepsiCo now has 111,000 employees. First presentation of the international Donald M. Kendall Bottler-of-the-Year Award. Frito-Lay begins nationwide roll-out of Grandma’s brand cookies.

PepsiCo is now the largest company in the beverage industry. The company has revenues of more than $7.5 billion, more than 137,000 employees. Pepsi-Cola products are available in nearly 150 countries and territories around the world. Snack food operations are in 10 international markets. Frito-Lay expands into new headquarters in Plano, Texas..

Pepsi distributes products in China

PepsiCo stock splits three-for-one.

Frito-Lay advertising for Doritos brand tortilla chips features talk celebrity Jay Leno. PepsiCo signs the largest commercial trade agreement in history with the Soviet Union. PepsiCo profits exceed $1 billion for the first

Frito-Lay aggressively expands its low/no-fat snack segment. Baked Lays is introduced. Frito-Lay tests Baked Tostitos, Rold Gold Fat Free Pretzels, Ruffles Reduced Fat Potato Chips and Tostitos fat-free salsas and black bean dip brands. Campaign line is “Taste the fun, not the fat.” PepsiCo will introduce Lay’s brand potato chips in 20 markets throughout the world. PepsiCo is on-line at http://www.pepsico.com

Frito-Lay North America is the division of PepsiCo that manufactures, markets and sells corn chips, potato chips and other snack foods. The primary snack food brands produced under the Frito-Lay name include Fritos corn chips, Cheetos cheese-flavored snacks, Doritos and Tostitos tortilla chips, Lay’s potato chips, Ruffles chips and Walkers potato crisps (Europe)—each of which generated annual worldwide sales over $1 billion in 2009. Frito-Lay began in the early 1930s as two separate companies, The Frito Company and H.W. Lay & Company. The two merged in 1961 to form Frito-Lay, Inc. Four years later, in 1965, Frito-Lay, Inc. merged with the Pepsi-Cola Company, resulting in the formation of PepsiCo, Inc. Since that time, Frito-Lay has operated as a wholly owned subsidiary of PepsiCo. Through Frito-Lay, PepsiCo is the largest globally distributed snack food company in the world, with sales of its products in 2009 comprising 40 percent of all “savory snacks” sold in the United States and 30 percent of the non-U.S. market. Frito-Lay North America accounts for 31 percent of PepsiCo’s annual sales.

In 1932, Charles Elmer Doolin, manager of the Highland Park Confectionery in San Antonio, purchased a corn chip recipe, a handheld potato ricer and 19 retail accounts from a corn chip manufacturer for $100, which he borrowed from his mother. Doolin established a new corn chip business, The Frito Company, in his mother’s kitchen. Doolin and his mother and brother produced the corn chips, named Fritos, and had a production capacity of approximately 10 pounds per day. Doolin distributed the Fritos in 5¢ bags. Daily sales totaled $8 to $10 and profits averaged about $2 per day.[1] In 1933, the production of Fritos increased from 10 pounds to nearly 100 pounds due to the development of a “hammer” press. By the end of the year, production lines were operating in Houston and Dallas.

The Frito Company headquarters also moved to Dallas to capitalize on the city’s central location and better availability of raw materials. In 1937, The Frito Company opened its Research and Development lab and introduced new products, including Fritos Peanut Butter Sandwiches and Fritos Peanuts, to supplement Fritos and Fritatos Potato Chips, which had been introduced in 1935.[2] In 1941, the company opened its Western Division in Los Angeles with two sales routes, which would become the prototype for The Frito Company’s distribution system.

In 1945, The Frito Sales Company was established to separate sales from production activities. Expansion continued with the issue of six franchises through the Frito National Company in the same year. In 1950, Fritos were sold in all 48 states.[3] The Frito Company issued its first public stock offering in 1954. At the time of Doolin’s death in 1959, The Frito Company produced over forty products, had plants in eighteen cities, employed over 3,000 people and had sales in 1958 in excess of $50 million. By 1962, Fritos would be sold in 48 countries.[4]

In the 1920s, salesman Herman Lay sold potato chips in southern United States out of his car. In 1932, Lay began a potato chip business in Nashville, Tennessee. Lay was hired as a salesman for the Barrett Food Products Company, an Atlanta, Georgia manufacturer of Gardner’s Potato Chips, and eventually took over Barrett’s Nashville warehouse as a distributor. Lay hired his first salesman in 1934, and three years later had 25 employees and a larger manufacturing facility where he produced popcorn and peanut butter sandwich crackers.[5] A representative of the Barrett Food Company contacted Lay in 1938, offering to sell Barrett’s plants in Atlanta and Memphis to Lay for $60,000. Lay borrowed $30,000 from a bank and persuaded the Barrett Company to take the difference in preferred stock.

Lay moved his headquarters to Atlanta and formed H.W. Lay & Company in 1939. He later purchased the Barrett manufacturing plant in Jacksonville, Florida, along with additional plants in Jackson, Mississippi, Louisville, Kentucky and Greensboro, North Carolina. Lay retained the Gardner trademark of Barrett Food Products until 1944, when the product name was changed to Lay’s Potato Chips.[6] Lay expanded further in the 1950s with the purchase of The Richmond Potato Chip Company and the Capitol Frito Corporation. By 1956, with more than 1,000 employees, plants in eight cities and branches or warehouses in thirteen others, H.W. Lay & Company was the largest manufacturer of potato chips and snack foods in the United States In 1945, the Frito Company granted the H.W. Lay & Company an exclusive franchise to manufacture and distribute Fritos in the Southeast.

The two companies worked toward national distribution and developed a close business affiliation. In September 1961, The Frito Company and H.W. Lay & Company merged to become Frito-Lay, Inc.,[8] combining their headquarters in Dallas, Texas. At this point, the company’s annual revenues totaled $127 million, largely generated from sales of its four main brands at the time: Fritos, Lays, Cheetos and Ruffles. In February 1965, the boards of directors for Frito-lay, Inc. and Pepsi-Cola announced a plan for the merger of the two companies. On June 8, 1965, the merger of Frito-Lay and Pepsi-Cola Company was approved by shareholders of both companies, and a new company called PepsiCo, Inc. was formed. At the time of the merger, Frito-Lay owned 46 manufacturing plants nationwide and had more than 150 distribution centers across the United States.[10] The merger was pursued for multiple factors, one of which was the potential for Frito-Lay snacks to be distributed outside of its initial markets of the United States and Canada—via Pepsi-Cola’s existing presence and distribution network in 108 countries at the time of the merger.

International distribution of Frito-Lay products expanded shortly following the 1965 merger, and its U.S. presence grew at the same time, resulting in Lay’s becoming the first potato chip brand to be sold nationwide (in all 50 U.S. states) in 1965. Also at this time, PepsiCo had envisioned marketing Frito-Lay snacks alongside Pepsi-Cola soft drinks. In an interview with Forbes in 1968, PepsiCo CEO Donald Kendall summarized this by noting that “Potato chips make you thirsty; Pepsi satisfies thirst.” Plans to jointly promote the soft drink and snack products were thwarted later that year, when the Federal Trade Commissionruled against it. Upon the formation of PepsiCo, Frito-Lay still maintained the same brand and product line-up that it had four years prior, consisting of Fritos, Lay’s, Cheetos, Ruffles, and Rold Gold pretzels. It soon began efforts to expand with the development of new snack food brands in the 1960s and 1970s, including Doritos (1966), Funyuns (1969) and Munchos (1971).

The most popular new Frito-Lay product launched during this era was Doritos, which initially was positioned as a more flavorful tortilla chip. At first the chip was perceived by consumers as being too bland. In response, the company re-launched Doritos in Taco, and later Nacho Cheese, flavors. The spicier composition proved successful, and Doritos quickly became the second most popular Frito-Lay product line, second only to Lay’s potato chips Frito-Lay faced increased competition in the 1970s, from competing potato chip brands such as Pringles, launched by Proctor & Gamble in competition with Lay’s. Nabisco and Standard Brandsalso expanded in the 1970s to produce potato chips, cheese curls and pretzels, which placed added pressure across Frito-Lay’s entire line of snack food brands.

Frito-Lay acquired Grandma’s Cookies in 1980, which launched nationwide in the United States in 1983. In January 1978 Frito-Lay’s product development group led by Jack Liczkowski completed development of Tostitos an authentic Mexican-style tortilla chip lineup. Tostitos Traditional Flavor and Tostitos Nacho Cheese Flavor went into national distribution in the United States by 1980 and reached the sales of $140 million, making it one of the most successful new products introduction in Frito-Lay history. Tostitos sales grew quickly, and in 1985 it had become Frito-Lay’s fifth-largest brand, generating annual sales of $200 million. Ahead of Tostitos at the time were Doritos, Lay’s, Fritos and Ruffles, each recording annual sales between $250 and $500 million.[5] While Tostitos became a long-term success, several other new products launched in the 1980s were discontinued after lackluster results.

These short lived Frito-Lay products included Stuffers pre-filled dip shells and Toppels crackers, which came pre-topped with cheese.[12] In the late 1980s, Frito-Lay acquired Smartfood,[13] a brand of cheese-flavored popcorn which it began to distribute across the United States. International sales began to increase significantly at this time as well, with annual revenues from sales outside of the U.S. and Canada accounting for $500 million in 1989, contributing to total Frito-Lay sales of $3.5 billion in the same year. Several new products were developed internally at Frito-Lay and launched in the 1990s, the most successful of which was Sun Chips, a multi-grain chip first sold in 1991. Sun Chips, along with new Baked (instead of fried) variants of Tostitos and Lay’s, represented Frito-Lay’s intent to capitalize on an emerging trend among adults in the U.S., who were displaying a growing preference for healthier snack alternatives.[14]

In 1994, Frito-Lay recorded annual retail sales of nearly $5 billion, selling 8 billion bags of chips, popcorn and pretzels during that year—outpacing competitors Eagle (owned by Anheuser-Busch) and Wise (owned by Borden). Up until the mid-1990s, Frito-Lay was represented in PepsiCo’s organizational structure as Frito-Lay, a single division of PepsiCo. This changed in 1996 when PepsiCo merged its snack food operations into what was titled the “Frito-Lay Company”, made up of two subsequent divisions, Frito-Lay North America and Frito-Lay International.[16] In 1997, Frito-Lay acquired the candied popcorn snack brand Cracker Jack, followed in 1998 by multiple international acquisitions and joint ventures, including Smith’s Snackfood Company (Australia), as well as Savoy Brands (Latin America). In the early 1980s, PepsiCo continued to grow its Frito-Lay brands in two ways—through international expansion and acquisition.

Through a joint-venture with Walkers, a U.K. chip and snack manufacturing company, Frito-Lay increased its distribution presence in Europe. Similar joint-ventures were arranged in other regions of the world in the 2000s, including Smith’s in Australia, andSabritas and Gamesa in Mexico. As a result of these international arrangements, some global Frito-Lay products (such as Doritos) are branded under the same name worldwide. Others maintain their original name within North and South America, while being branded under region-specific names in other parts of the world. For example, Lay’s chips are branded as Walkers Crisps in the U.K. The Quaker Oats Company merged with PepsiCo in 2001, resulting in Quaker snacks products, including Chewy granola bars and Quaker rice cakes, becoming organized under the Frito-Lay North America operating division.

This operating structure was short-lived, and in 2003, as part of a restructuring, the international operations of Frito-Lay (formerly Frito-Lay International) were brought within the PepsiCo International division, while Frito-Lay North America was maintained as its own division, comprising Frito-Lay business within the United States and Canada. Frito-Lay continued to experiment with changes to the composition of its products, introducing Reduced Fat Lay’s and Cheetos in 2002. The “Baked” product line also expanded in 2002 to include Baked Doritos.[6] In 2003, Frito-Lay introduced the first products in its “Natural” line, which were made with ingredients that had been organically produced. The first of these included Organic Blue Corn Tostitos, Natural Lay’s Potato Chips (seasoned with sea salt), and Natural Cheetos White Cheddar Puffs.[21]

A new CEO, Irene Rosenfeld, was appointed in 2005. Under her management, Frito-Lay North America continued to expand its product lines with acquisitions such as Stacy’s Pita Chip Company, which represented “Frito-Lay’s desire to participate more broadly in the $90 billion macrosnack category”,[22] particularly involving snack foods made with more natural ingredients,[23] according to reports from within its industry at that time.[24] In 2010, Frito-Lay reformulated Lay’s Kettle and Lay’s flavored chips into a new variant labeled as being made with all-natural ingredients.[25] Sales of Lay’s potato chips grew by 8% following the change to all-natural ingredients. As a result, Frito-Lay announced in 2010 its plans to convert approximately half of all Frito-Lay products, including Sun Chips, Tostitos, Fritos and Rold Gold pretzels, to all-natural ingredients in 2011.


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