Frito-Lay Pursues 1% ?" and 99% ?" Customers

The snack-food company has long focused on middle America, but is now expanding to both value and high-end consumers.

June 15, 2012

PLANO, Texas - Frito-Lay, long one of the top rulers of the snack food kingdom, has changed its focus from middle America to high-end and low-end customers, the New York Times reports. The effort to appeal to the so-called 1% and the 99% comes as the company seeks to expand its offerings as sales of its traditional powerhouses ?"Doritos, Lay??s, Rolo Gold and Tostitos ?" have slowed.

"The rich are getting richer and the poor are getting poorer," said Ann Mukherjee, chief marketing officer at Frito-Lay North America. "Demographics, the aging population and changing ethnic mix, and bifurcating income are the trends reshaping the way people are eating. ?? We??re snacking more often during the day, and we??re looking for snacks that are more satisfying physically and healthier."

Overall, the salty snacks category, while a $22 billion market, has been bleeding sales. However, the premium end has jumped around 7% over the last two years, while Goldman Sachs predicts the value end will increase around 4% annually. The middle tier will boast of only 2% growth each year.

"The challenge for them is how to continue to grow their core business when some of their mainstream brands are losing share to some of the smaller premium and value brands as well as to other snack categories," said Judy Hong, Goldman Sachs stock analyst. "Pretzels and snack bars and energy bars, trail mixes and nuts are also growing at a faster pace."

Competitors Kraft, Kellogg and General Mills have upped their offerings in those categories, while niche companies have taken over the high-end of the market. "These traditionally have been niche markets dominated by small players and regional brands," said Harry Balzer, chief food industry analyst with the NPD Group. "That leaves a lot of room for a mass player like Frito-Lay to come in and gain market share."

Frito-Lay has begun to dabble in reaching those customers by launching Olive Coast, a kettle-cooked chip with a Mediterranean flavor, and a lower-cost tortilla chip called Taqueros. "Whether you look at it in terms of price points or customers, there??s just more happening on the edges of the market than in the middle right now," said Daniel Naor, senior vice president for growth ventures at Frito-Lay North America.

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