SIC 2096
POTATO CHIPS, CORN CHIPS, AND SIMILAR SNACKS



This classification consists of establishments primarily engaged in manufacturing potato chips, corn chips, and similar snacks. Establishments primarily engaged in manufacturing pretzels and crackers are classified in SIC 2052: Cookies and Crackers; those manufacturing candy covered popcorn are classified in SIC 2064: Candy and Other Confectionery Products; those manufacturing salted, roasted, cooked, or canned nuts and seeds are classified in SIC 2068: Salted and Roasted Nuts and Seeds; and those manufacturing packaged unpopped popcorn are classified in SIC 2099: Food Preparations, Not Elsewhere Classified.

NAICS Code(s)

311919 (Other Snack Food Manufacturing)

Industry Snapshot

The "salty snack" industry includes potato chips, corn chips, tortilla chips, ready-to-eat popcorn (except candy-coated), pork rinds, potato sticks, and extruded snacks such as cheese puffs. Overall, retail dollar sales for snacks during 2001 totaled $21.8 billion, an increase of 5.1 percent from 2000. Potato chips and tortilla chips controlled the snack foods market.

In the mid-1990s, private label brands of salty snacks grew at unprecedented rates. According to the Private Label Manufacturers Association, store brands reported a 15.4 percent increase compared to an 11 percent increase in sales of national brands.

Even though the salty snacks industry experienced an almost flat overall growth rate in the mid-1990s, low fat and no fat salty snacks experienced tremendous growth. Low fat and no fat potato chip sales grew 48 percent in 1995, as compared to 1994; also, low fat and no fat tortilla chips grew 67 percent in 1995, again compared to 1994. However, by the beginning of the twenty-first century, the craze for low fat and no fat snacks was on the decline.

Organization and Structure

The salty snack foods industry has a unique structure, since Frito-Lay controlled more than 67 percent of the total market share with total retail sales of about $14.2 billion in 2002. Kraft Foods Inc., with the Nabisco brand business, holds second place with total 2002 retail sales of $29.7 billion. Although the industry has some elements of a monopoly (aggressive pricing and distribution policies among chip makers), the regional presence of many large and small manufacturers keeps it highly competitive.

Numerous companies of varying size make up the snack industry. Many compete only on a regional level, although some find it difficult to price their products competitively with the larger manufacturers. Others, however, create a market niche, sometimes with a specialty product such as kettle-style potato chips or baked chips sold through health food stores. If their products meet with success among customers, the smaller makers can often charge higher prices than the biggest manufacturers. Larger manufacturers are generally full-service snack companies—those offering a full range of products, including potato chips, tortilla chips, and other salty snacks. The smaller producers are more likely to specialize.

Background and Development

The potato chip was born accidentally in 1853, when railroad magnate and naval commodore Cornelius Vanderbilt was vacationing in a popular East Coast inn. He ordered fried potatoes but disliked them and returned the fries to the kitchen, complaining that they were "too thick." The cook, a Native American named George Crumm, reacted with indignation. He sliced a potato into slivers as thin as he could, fried them, and served them to Vanderbilt.

The newly invented snack gained popularity among other customers, but remained primarily a restaurant item for several decades. This style of potatoes became known as Saratoga chips, named after the town in which they were first consumed. In 1895, William Tappenden of Cleveland began manufacturing potato chips for home consumption. Snack food innovations included the introduction of ridged potato chips in 1966 and fabricated potato chips in the 1970s.

Popcorn is perhaps the oldest salty snack food still widely consumed. Indigenous peoples in what became Peru were known to toast corn kernels over flames until they burst. This tradition was recorded as early as the fifteenth century. North American Indians also prepared popcorn, and it was believed to have been shared at the first Thanksgiving dinner in Plymouth, Massachusetts. The term popcorn became accepted around 1820. Early American settlers may have eaten it—sprinkled with sugar and doused in cream—as the first breakfast cereal. It was also used decoratively from the beginning of its history, having been strung and draped on Christmas trees during the 1800s.

In 1885 the snack food industry received a boost from the invention of the first popping machine by a Chicago inventor named Charles Cretors. His machine used oil to pop the corn and was used for about a century until the development of the hot air popper. In the mid-1960s, the snack began to be manufactured on a mass scale by Orville Redenbacher, who then promoted his brand as a gourmet hybrid popcorn. The next major innovation came in 1986, when Pillsbury introduced microwavable popcorn.

The 1990s Industry analysts reported that the snack food industry fared well in the early 1990s, given the economic downturn. In fact, over time the industry developed a reputation for being recession proof. However, stiff competition required increasingly aggressive promotions to grab the consumer dollar, so some viewed salty snacks as a no-growth industry.

Dollar sales of savory snacks—in a broad category including pretzels and snack nuts—grew from $10.6 billion in 1987 to $13.8 billion in 1992, an increase of 30 percent. Per capita consumption jumped from 17.49 pounds in 1987 to 20.55 pounds in 1992. The field was dominated by Frito-Lay, a subsidiary of Pepsi Co., which claimed nearly half of the overall salty snack food market in 1992. But Americans' appetite for specialty and relatively "healthy" snacks kept the industry competitive. More than 400 new products were introduced in both 1991 and 1992, including several varieties of multigrain chips, flavored ready-to-eat popcorn, and diet cheese puffs.

Profits for salty snack manufacturers were 7.5 percent in 1992, representing a slight drop from the previous year. These figures included additional snacks, such as pretzels and packaged nuts, which were made by "full-service" salty snack companies such as Frito-Lay and Borden. Pre-tax profit margins for this broad category of snacks slipped from 6.8 percent in 1991 to 4.2 percent in 1992. Domestic dollar sales in 1992 were $9.6 billion—up overall from 1991 sales. Consumers bought approximately 3.6 billion pounds of salty snacks, or nearly 18 pounds per capita consumption.

Potato chips led the way in salty snack consumption in 1992, with a retail sales volume of $4.41 billion. This dollar amount represented the sale of more than 1.66 billion pounds of potato chips, which claimed 32 percent of the market for all savory snacks—including popcorn, meat snacks, pretzels, and snack nuts. Steadily increasing throughout the 1990s, by 1998 potato chips had increased 15.1 percent in sales from the previous year, with pound volume increasing 6.5 percent. The low fat and no fat lines of potato chips were behind the surge in sales, and by 1999 the category was shrinking at a considerable rate.

Tortilla chips were the second most consumed salty snack. More than $2.57 billion worth were sold in 1992—a volume of 1.06 billion pounds. This represented a 20.5 percent market share by pound volume, or 18.6 percent by dollar sales. Also popular throughout the mid-1990s, by 1998 tortilla chips were bought over-whelmingly in supermarkets—44.8 percent of all tortilla sales. Corn chips saw sales of almost $750 million in 1998, with 49 percent of that going to supermarkets. That year, Dorito's led the way in tortillas with $693 million in sales, followed by Tostito's with $526 million in sales. Frito's was the corn chip leader with $208 million in sales, followed by Frito's Scoops with $98 million. Manufactures were beginning to combine sales of tortilla and corn chips with dips and salsa, thus appealing to customers' desired convenience. Potato chips and tortilla chips combined accounted for about 50 percent of the savory snack market.

More than 40 percent of all purchases of salty snacks were made in supermarkets—food stores that reported annual sales of at least $2 million. Grocery stores—food stores with sales of less than $2 million annually—accounted for between 10 and 20 percent of salty snack sales in 1992, depending on the product. The remaining salty snacks were sold in convenience stores, mass merchandisers—large general merchandise stores that also carried grocery items—warehouse club stores, drug stores, vending machines, and other retail outlets such as delicatessens, liquor stores, and sports stadiums.

The industry experienced steady sales growth, even during the recession of the early 1990s. But pound sales volume rose faster than dollar sales volume in both 1991 and 1992 due to the keen competition that characterized the industry. The decline in price per pound was also consistent with falling retail grocery prices nationwide. The issues described by snack food companies as posing the biggest challenges to profitability in the mid-1990s included: competitive pricing, government mandated nutritional labeling, changing distribution patterns, and rising supermarket shelf fees. Although sales remained flat in the mid-1990s, by 1997 sales jumped 8.5 percent to $16.8 billion and rose another 7.3 percent in 1998 to reach $18.2 billion. By the end of the century, sales stood at $19.38 million, a 6.2 percent growth from the previous year.

Shifting Distribution Patterns. A market research study found that consumers paid an average price of $2.66 per pound of savory snacks in 1992, down 2.6 percent from $2.73 per pound the previous year. This was attributed to several factors, including the recession and the competitive nature of retail products. Another major factor was a shift in distribution patterns. Large warehouse club stores and mass merchandisers charged lower prices for snacks in order to attract customers from smaller supermarkets and grocery stores. Although supermarkets accounted for nearly 50 percent of salty snack sales, sales by dollar volume rose only about 1 percent. In contrast, warehouse clubs saw an increase of more than 50 percent in savory snack sales, and mass merchandisers also saw double digit growth. Because these larger outlets charged less per pound for snacks than supermarkets, the increased sales represented a decline in profitability.

Convenience stores historically charge the highest prices for both potato chips and corn chips. In 1992, average potato chip prices were $3.06 per pound—the only outlet where prices passed the $3.00 mark. In contrast, potato chips sold for $2.49 per pound in supermarkets and $2.44 at mass merchandisers. In that same year, corn chips sold for $2.74 per pound in convenience stores, compared with $2.44 in supermarkets and $2.00 in warehouse clubs.

Prices began a trend toward equalization in the early 1990s, however. Convenience store prices of tortilla chips, for instance, were $2.61 per pound in 1992—the highest of any outlet, although 10 percent lower than the previous year. Supermarkets, grocery stores, mass merchandisers, and drug stores saw only a modest shift in tortilla chip prices. However, the price at warehouse clubs jumped almost 30 percent to $2.27 per pound. This trend also reflected the fierce competition that kept profits low throughout the recession.

Moreover, savory snacks experienced intensely competitive pricing in supermarkets. Full-line snack companies reported spending 52 cents of each promotional dollar on price reductions. Another 25 percent of promotional expenses went toward advertising and 16 percent was used for in-store promotions. On the whole, 72 percent of full-line manufacturers reported spending more money for advertising and other promotional endeavors in 1992 than in 1991. In addition, retail shelf space increased in price during the early 1990s. On a per-store basis, the average cost per section foot paid by salty snack manufacturers leaped from $283.33 in 1991 to $342.86 in 1992.

Health Implications. The salty snack industry adapted to shifting consumer demands and perceptions throughout the last several decades. During the late 1960s and 1970s, Americans learned from health experts that they were consuming salt in greater quantities than was necessary or healthy. The average individual needed about one-third teaspoon of salt per day. High consumption of salty snacks and other prepared or processed foods resulted in more than double the recommended intake. What's more, salty snacks rose an average of 93 calories per serving from 1977 to 1996.

In more recent years, university studies linked low fat diets to reduced rates of cancer and heart disease. Research showed that low fat diets, typical of those in the Far East, were associated with low or virtually nonexis-tent incidence of cancer. This was particularly true, for instance, in breast cancer for women, which was much more prevalent in the United States and other western nations than it was in China. Moreover, when women of Chinese descent lived in the United States and adopted the high fat diet typical of Americans, the incidence of breast cancer jumped to the rate found among Westerners. Consumers were advised to reduce their fat intake, and many began to do so. Whereas in the 1960s, Americans typically consumed about one-half of their calories in the form of fat, a healthy diet was said to be one in which a maximum of 30 percent of calories was consumed through fats.

Thus, manufacturers of salty, high fat foods battled public perception that their products were unhealthy. Salty snack makers responded to changing consumer tastes by creating potato chips, corn chips, and tortilla chips that were perceived as healthy—or at least not as harmful. No-salt potato chips were developed in response to consumer demand, although in 1992 they accounted for less than 1 percent of potato chip sales. Following the unspectacular success of no-salt chips, low-salt varieties were introduced and proved more successful, showing double digit market share growth in the early 1990s.

Low-oil potato chips proved more successful, making up 3.7 percent of chip sales by volume. From 1991 to 1992 alone, this category of potato chip jumped by 24.3 percent. Other specialty chips were baked rather than fried, and another manufacturer sold chips that were cooked in the potato's own juices, resulting in a fat-free chip. Similar innovations were found in the tortilla chip industry in the early 1990s. Low salt and low oil tortilla chips combined to make up about 9 percent of overall volume.

Despite manufacturers' responsiveness to consumer demand for healthier products, the desire to eat foods lower in fat nevertheless affected the salty snack industry. Among industry products, popcorn consumption virtually exploded in the late 1980s and early 1990s. Multigrain snacks also showed remarkable growth for the first few years after their introduction. Other foods that competed with potato chips and similar snacks included pretzels and snack nuts, both of which gained market share much more rapidly than potato chips and tortilla chips in the early 1990s. Double-digit growth was observed in both ready-to-eat popcorn and in pretzels from 1991 to 1992—12 percent and 15.5 percent, respectively. This was due at least in part to consumer perception of pretzels and nuts as having more nutritive value than potato chips. Even low oil chips contained more fat than pretzels, for instance, which were baked rather than fried. Snack nuts contained relatively little salt and oil and featured nutrients such as protein and minerals not found in potato or tortilla chips.

Flavor Variety. The development of flavored chips and snacks throughout the 1980s and 1990s was generally successful in keeping snack consumption on the rise. Small manufacturers introduced kettle-style potato chips—cooked in kettles as done previously. Many larger manufacturers followed suit, either developing their own versions of kettle chips or buying smaller companies that developed them for regional markets. In 1992, kettle style chips made up 5.5 percent of pound volume consumed.

Regularly shaped chips made up 46.2 percent of pound volume, and ridged chips of all flavors accounted for 34.4 percent in 1992. Fabricated chips represented 13.9 percent of the market for potato chips in that same year. Flavored potato and corn chips also multiplied, accounting for many of the new product introductions during the late 1980s and early 1990s. In addition to barbecue flavored potato chips, consumers purchased sour cream and onion, ranch, and other flavors.

Tortilla chips experienced the most success of any salty snack food with the introduction of flavor varieties. Regular flavored chips made up 61.4 percent of the tortilla chip market in 1992, whereas cheese flavored tortilla chips accounted for 26.3 percent of the market. The third most popular flavor that year was ranch, which represented just under 8 percent of the market. Other varieties included salsa, spicy hot, jalapeno, chili, and oat bran flavors. In addition, white corn tortilla chips were introduced in the early 1990s and found favor with consumers.

Ready-to-Eat Popcorn. Ready-to-eat (RTE) popcorn grew in popularity during the late 1980s and early 1990s. Dollar sales jumped from $248 million in 1987 (including caramel-coated) to more than half a billion dollars in 1992. This was in contrast to more sluggish growth in the microwavable popcorn category, in which sales remained flat from 1990 to 1992 after booming during the 1980s. Analysts attributed this slowdown to market maturation—almost 90 percent of consumers owned a microwave oven by 1990.

Whereas caramel-coated RTE popcorn made up the largest market share of any individual type—39.2 percent in 1992—noncoated popcorn accounted for 60.8 percent of total RTE popcorn consumption. Regular flavor had the largest share of sales after caramel, with nearly 20 percent of the market. White cheddar and cheese combined made up more than 17 percent of the market, with butter flavor accounting for nearly 12 percent, and cinnamon and other flavors combining to total about 2 percent. Sales of all varieties grew in double digits from 1991 to 1992, except for white cheddar flavored popcorn, which dropped 13.2 percent in the latter year. Low-salt RTE popcorn sold well, claiming 6.3 percent of pound volume in supermarkets.

Whereas total popcorn sales slid downward 4.2 percent to $1.4 billion in 1992, RTE popcorn sales (including caramel-flavored) increased 12 percent to $510 million that same year. Measured in pound volume, sales grew 15.4 percent between 1991 and 1992, with 154.2 million pounds consumed. Many RTE brands were air popped, making them virtually fat free. Moreover, RTE popcorn could be purchased and eaten immediately, making it even more convenient than its microwavable competitors. RTE varieties appeared to be causing the demise of a second competitor, unpopped popcorn, for which dollar sales slumped 11.3 percent to $117.4 million in 1992. This trend suggested that RTE popcorn would eventually split the market with microwavable brands, whereas unpopped popcorn would become a supermarket dinosaur.

Showing similar pricing and distribution patterns to potato and tortilla chips, RTE popcorn commanded the highest price in convenience stores in 1992—$3.46 per pound. The lowest price, $2.28 per pound, was found in the warehouse club stores, which nevertheless saw an 11.8 percent price increase over the previous year. As of the early 1990s, RTE popcorn was produced by only a few manufacturers, but as others took note of its popularity and profitability, new companies began marketing their own products.

Extruded Snacks. Extruded snacks is the industry term for cheese puffs, corn puffs, and onion rings. The largest segment of this snack category—about 96 percent—was controlled by cheese-flavored products. Sales of extruded snacks remained flat relative to other salty snacks from 1987 to 1992. Dollar volume was $694.3 million in 1987 and $774 in 1992, having dropped from its peak of $813 million in 1991. Like other savory snacks, extruded snacks were characterized by the introduction in the late 1980s and early 1990s of many flavor varieties. A diet company even introduced individual-serving size, low-calorie cheese curls. But the new varieties failed to bring as much growth as expected to the industry overall. By 1998 extruded snacks had sales of $810 million, up just 1.4 percent from 1997. The leaders for this category were Cheetos with $228 million in sales, followed by private-label brands with $45 million. Extruded snack manufacturers continued to try to pump up the segment, experimenting with urban and ethnic lines. The top flavors for extruded snacks were cheese and spicy hot.

Extruded cheese snacks, although no higher in fat content than potato chips and corn chips, suffered from a consumer perception that they were highly processed and not as healthful as related snack foods. Throughout the 1990s, consumers showed a preference for more natural, less processed foods—including snack foods. Although consumers wanted convenience, there was nevertheless a trend toward the use of whole foods rather than refined foods, which might have implications for the extruded snack industry.

Pork Rinds. The pork rind segment of the salty snack industry grew steadily from $163.4 million in 1987 to $236 million in 1992. Double-digit sales growth in the late 1980s slowed to about 5 percent annually in the early 1990s. One reason for growth in this segment was that the industry leader, Frito-Lay, increased its focus on pork rinds in its promotions—particularly in the southern United States. The South represented more than 50 percent of total pork rind consumption, with Pacific states totaling another 20 percent. The New England and mid-Atlantic states had virtually no market, with only 4 percent of national pork rind sales. Pork rinds resurfaced late in the 1990s, as sales of $420 million in 1999 reflected its status as a trendy diet snack. Sales that year grew faster than any other snack food segment except jerky.

Reduced Fat and Fat-Free Products. When Frito-Lay introduced Wow! fat-free potato chips, they were well received and the industry recognized the fat-free line as the best selling new product in 1998. That year sales of Wow! chips were $350 million, and some analysts predicted future sales of about $500 million a year. However, by 1999 the company said it expected only about $250 million in annual sales from the fat-free line. Although the fat-free line of potato chips had been heavily anticipated, by the time Frito-Lay got them to the market, interest in fat-free snacks, cakes, and cookies had dropped considerably among consumers. Nutrition experts hurt sales when they appealed to the Food and Drug Administration (FDA) for labels on the products warning consumers of possible gastrointestinal side effects of the fat substitute olean and that the chips had been fortified with vitamins A, D, E, and K because olean prevented their absorption.

Supermarkets sold only 18 percent of pork rinds in 1992, and grocery stores—the smaller volume of the two types—saw 27 percent of the snack's sales. Convenience stores, which charged the highest price for pork rinds—$6.12 per pound—accounted for 18 percent of sales. Boosting this snack's popularity was the introduction of microwavable brands in 1992. The new product offered a 60 to 70 percent reduction in fat—undoubtedly a source of appeal to consumers. In addition, pork rinds, like other salty snacks, appeared in flavor varieties including Cajun, jalapeno, barbecue, and chili.

Multigrain Chips. Of all the salty snacks manufactured and sold in the early 1990s, the type that demonstrated the greatest growth was the multigrain chip. Although only a $198-million industry in 1992, this sales volume represented a growth of 76.5 percent from the previous year. The first-year sales of Frito-Lay's multigrain product, Sunchips, totaled $115 million.

Introduced in 1990 by Frito-Lay, multigrain chips grew quickly enough that industry observers expected the product to become a substantial segment of the salty snack industry. Two competitors introduced their own versions of multigrain chips, but Frito-Lay still cornered the market in 1992 with $192 million in sales—nearly all of the product's volume. The success of multigrain chips was attributed to the perceived health value of the snack, which was made of grains and was relatively low in salt and oil.

By contrast, the decline in sales for four straight years signaled a maturing market for corn chips. In 1987, the corn chip industry saw $560 million in sales, but by 1992 that figure had grown to only $598 million. The introduction of flavor varieties did not boost sales—which peaked in 1989 at $668 million and slid each year thereafter. Efforts by Frito-Lay to bolster sales through redesigned packaging and new marketing campaigns met with consumer apathy. Nevertheless, corn chips represented 4.3 percent of the overall snack market.

Industry Challenges. In a 1993 survey of salty snack manufacturers, increased government regulations were cited most often as the biggest challenge facing the industry in the mid-1990s. This concern arose from the passage of the Nutrition Labeling and Education Act of 1990 (NLEA), which required that all food manufacturers list nutrients in greater detail beginning in May 1994. In addition, the NLEA required manufacturers to list nutritional components of foods by serving sizes determined at the discretion of the government. Previously, food makers determined portion size and listed vitamins, protein, minerals, fat, and calorie content accordingly.

The trend mentioned second most frequently in the survey was the increasing consolidation of the industry. Growing consumer emphasis on the health value of foods was cited as the third most important challenge in the mid-1990s. Other trends noted were increasing retail shelf space fees, continued intense pricing competition with other manufacturers, demographic changes, and rising environmental concerns.

Current Conditions

Sales for the snack food industry reached $21.8 billion in 2001, up 5.1 percent from 2000. Sales in all markets—food, drug, and mass merchant—rose in 2001. Much of the continued strength of the snack industry in the face of a wounded economy was attributed to the desire for "comfort foods" following the events of September 11, 2001.

Potato Chips. Potato chips increased 7 percent in sales from 2000 to 2001, with more than $6 billion. Pound volume also increased 3 percent to 1.85 billion pounds. New flavor introductions accounted for the rise in sales along with a continuing increase in the snack trend in general. Spicy flavors such as jalapeno and Cajun seasonings had become a popular and profitable trend in potato chips in the early 2000s. Frito-lay also introduced the market's first gourmet chip in 2001—Lay's Bistro Gourmet Potato Chips—with a variety of gourmet flavors. Prepackaged chip-and-dip snacks, convenient for on-the-go consumers, also became an important trend in chips, including Frito's Tostitos Chips & Salsa kits, as well as a chili and cheese dip version of its Frito Sloppy Joe and Scoops.

Tortilla and Corn Chips. Tortilla chips showed an increase of 5 percent in sales for 2001, standing at 4.15 billion. Pound volume rose 1.3 percent that year, to 1.5 billion pounds. Corn snacks sales rose 2.1 percent that year. Flavor introductions were also a trend fueling tortilla chips, along with changes in shapes and textures. Frito-Lay's Doritos Extreme line of generously spiced chips enjoyed considerable success in 2001. The company also developed Doritos Ranchero and Doritos Salsa Verde tortilla chips, Fritos Sabrositas lime and chili corn chips, and Churrumais fried corn strips with chili and lime seasonings. Whereas Doritos held the top spot in tortilla chip sales in 2002 with $677.7 million, Frito-Lay's second-place Tostito line is one of the fastest growing tortilla chip brands. For the year ending October 2002, Frito's was also the corn chip leader with $176.6 million in sales, followed by Frito's Scoops with $128.6 million.

Extruded Snacks. Cheese snacks were up 3.7 percent in 2001, with more than $1 billion in sales. Flavor intensification also ruled this segment, with makers introducing zesty new flavors and lively packaging. In 2001, Frito-Lay launched Flamin' Hot Cheetos and Mystery Colorz Snacks Cheetos, which featured a color-changing additive to turn the consumer's tongue blue or green.

Reduced Fat and Fat-Free Products. Continued negative publicity caused sales of many fat-free snacks to plummet in 2001 and 2002, with Frito-Lay pulling its fat-free Wow! Chips off the shelves of some retailers after a 10.6 percent decrease in sales.

Regional Competitors. Frito-Lay is the undisputed leader in the salty snack category, with more than 67 percent of industry sales. The company has a firm grip on premium shelf space, outspends every other company in marketing and merchandising, and has a superior distribution system. Independent companies in the industry continued to consolidate or go out of business and, by 1998, there were 111 snack companies. One exception is Utz Quality Foods Inc., which in 2001 became the third leading maker of salty snacks in the United States. The family-owned, $200 million company is making headway in the segment commanded by Frito due to marketing on the Internet. With a small investment in software, the company experienced a 12 percent rise in sales to supermarkets and convenience stores—three times the industry's growth.

Industry Leaders

The Frito-Lay Company reported sales of more than $14 billion in 2001. The Frito-Lay Company is based in Plano, Texas, and has 30,000 employees. Because of its 67-percent market share, Frito-Lay's activities and innovations reverberated throughout the salty snack food industry. Sales from the manufacturer accounted for 60 percent of the total of its parent company Pepsi Co. A competitive battle for market share during the early 1990s prompted Frito-Lay to carry out a reorganization, which included repricing products and laying off 1,800 executives. In addition, 2,000 employees were shifted from administrative positions into sales jobs.

For years large corporations tried to challenge Frito-Lay's dominance in the snack business. Anheuser-Busch, Keebler, and Borden all tried and, after battling the giant in advertising and merchandising dollars, all decided to get out of the salty snack business. The closest brand to competing nationally against Frito-Lay was Eagle, a brand owned by Anheuser-Busch for 20 years. After losing about $75 million on the brand, Anheuser-Busch sold the division to Proctor and Gamble (P&G).

P&G, a leader in packaged goods, has the money and the stamina to take on Frito-Lay, a fight analysts will be watching closer. Some analysts look to P&G's development of Pringles as a sign they're in for the long haul. P&G stuck with Pringles, a relatively new type of chip, and in the late 1990s, 30 years after its introduction, Pringles was generating $1 billion in sales each year and sales were growing at about 20 percent a year.

P&G bought the Eagle brand in 1996 and waited until 1998 to begin test marketing the brand, beginning in Portland, Maine. Frito-Lay has cause for concern. Before the Eagle brand began its testing, P&G's share of the snack market had started climbing—from 5.8 percent to 7.4 percent.

Kraft Food Inc., the leading food producer in the United States, acquired Nabisco, the largest cookie and cracker company in the world, in 2001 and reported snack sales of more than $5 billion in 2001 and 2002. The company is ranked second in the snack industry.

America and the World

The snack market worldwide reached $55 billion in 2001. U.S. export growth slowed that year, totaling $1.28 billion, relatively unchanged from 2000. The largest markets were Canada and Mexico, which accounted for 52.1 percent of the U.S. export market with exports valued at $667.2 million, a 6.2 percent increase from 2000. Other export markets included Latin America, with $117.9 million, up 2.15 percent from 2000; Western Europe, with $128.9 million, up 19.83 percent; Eastern Europe, with $2.7 million, down 4.49 percent; Japan/Chinese Economic Area, with $117.3 million, down 16.37 percent; elsewhere in Asia, $109.5 million, down 16.43 percent; Australia/New Zealand, with $20.3 million, down 42.65 percent; the Middle East and North Africa, with $47.8 million, up 17.31 percent; elsewhere in Africa, $3.0 million, down .83 percent; and the rest of the world, with $65.8 million, an increase of .06 percent in 2001.

Further Reading

Buckley, Bruce. "Convenience, Nutrition Catch up to Snacking." Drug Store News, 26 March 2001.

Dickerson, Marla. "Pork Rinds a Trendy 'Diet' Snack." Houston Chronicle, 8 August 2000.

"Financial Review." PepsiCo, March 2003. Available from http://www.pepsico.com .

"Global Perspectives." Snack Food & Wholesale Bakery, July 2002.

Horovitz, Bruce. "P&G Stages Snack Attack Eagle Goes Head-To-Head vs. Chip Champ Frito-Lay." USA Today, 16 September 1998.

"Lay's Potato Chips, the World's Favorite Snack Chip, Goes Gourmet!" PR Newswire, 12 April 2001.

"Live and Let Fry." Snack Food & Wholesale Bakery, June 2002.

"The Man with the Golden Chip." Snack Food & Wholesale Bakery, June 2002.

Marcotty, Josephine. "Super-Sized Portions." Star Tribune, 22 January 2003.

Mullaney, Timothy J. "Using the Net to Stay Crisp." Business Week, 16 April 2001.

"Nacho Ordinary Tortilla Chips." Snack Food & Wholesale Bakery, November 2002.

Smyth, William. "SFA: Salty-Snack Sales are Soaring in 1999." Supermarket News, 27 September 1999.

Yung, Katherine. "An Expanding Palate: Frito-Lay Focusing on Expansion in Non-Salty Snack Markets." The Dallas Morning News, 15 October 1999.

——. "Chipping Away at Competition Bob's Texas Style Makes Gutsy Move into Home Turf of Frito-Lay." The Dallas Morning News, 8 August 1999.

——. "Frito-Lay's Profits Boost Pepsi's Revenues as Soft-Drink Price Rises." Knight-Ridder/Tibune Business News, 7 October 1999.

——. "Sales of Frito-Lay's Fat-Free Chips Fall Short of Expectations." Knight-Ridder/Tribune Business News, 12 October 1999.



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