Snack Giants Search for A Perfect Crunch
FOOD INDUSTRY - Long a highly profitable business, competition has trimmed margins
BOSTON — POP. Pop. BOOM!
The muffled rumbles of popcorn cooking in a microwave oven are reminiscent of the detonations in an all-out market-share battle in America's snack-food industry.
Companies that once could sit back and enjoy fat profits have gotten up off the couch. At PepsiCo's Frito-Lay division and Borden Inc., workers have been shed, prices slashed, operations streamlined.
The biggest winner so far has been the consumer, who can indulge for less in everything from the adventurous (cajun-flavored tortilla chips) to the health-conscious ("lite" popcorn), from the traditional (peanuts) to the presidential (pork rinds).
The market for what analysts refer to as "salty snacks" has continued to grow even during the recession. But the Keebler Company and Eagle Snacks are scrapping to enlarge their share of the business.
In one Boston grocery store, Frito-Lay's prominent display at the end of an aisle befits its No. 1 status, with 40 percent of the market. But the company's medium-size bags of potato chips are specially priced at 99 cents, fighting to retain buyers who might notice Eagle's 79-cent bags around the corner.
Eagle products, once known mostly in airline cabins and bars, entered the grocery-store fray in 1988. Since then Eagle has been growing steadily, and will have 6 or 7 percent of the market this year, says Roy Burry, an analyst with Kidder, Peabody & Co., an investment house in New York.
"They are the primary antagonist" to Borden and Frito-Lay, he says. Borden has about 9 percent of the market, according to the Snack Food Association in Alexandria, Va.
Mr. Burry says private label brands, which account for much of the rest of the market, stand to lose market share as the big companies cut prices.
Eagle has paid for its strong growth with red ink; the division of Anheuser-Busch Inc. of St. Louis says it expects to become profitable in 1993.
EQUALLY important as holding down prices is developing products that catch on with the munching public. Consumer concern about nutrition is not hurting industry growth, but the trend has spurred above-average growth in snacks such as popcorn, pretzels, and low-salt chips, which are perceived as healthier.
But the key ingredient of a successful snack food remains taste, industry observers say. "Snack foods by definition are an indulgence," says Christopher Wolf, editor in chief of the Food Channel, a biweekly publication aimed at food executives.
"People buy our products for their taste and their variety and their fun," says Frito-Lay spokeswoman Beverly Holmes.
Frito-Lay appeared to score a taste hit as well as to latch onto a health trend with the introduction of multigrain Sun Chips in 1991. The product's first-year sales were a surprising $100 million.
"We've seen pretty much every flavor and shape" of chip and pretzel, Mr. Wolf notes.
The latest novelties include snack hybrids such as pretzel-chips, Wolf says. Keebler, with 3 percent of the market, last year introduced Munch 'ems, which combine the "crunch of chips with the wholesomeness of crackers," the Elmhurst, Ill., company says. Frito-Lay is now test-marketing its own cracker-chip in eastern Tennessee.
Those who worry about the demise of regular potato chips, take heart: These still account for two-thirds of all potato-chip sales.
Tastes vary widely by geography, with Western shoppers buying more tortilla chips than potato chips - the leading snack food in all other regions. The mid-Atlantic region craves pretzels, while sales of cajun and jalapeno-flavored chips soar in Louisiana and Texas. In part to better meet these differing tastes, Frito-Lay reorganized in 1989 into four regional business units. Borden, which built its snack business largely through acquisitions, is consolidating from 12 to three profit centers.
In the process of streamlining operations, Borden and Frito-Lay have each recently cut the work force in their snack divisions, by 1,000 and 1,800 respectively. The cost cutting comes as profits have dipped at both companies.