Frito Lay Business Plan

Company and Market Background

Frito Lay, Inc is one of the dominant companies in a highly competitive market for snack foods. Of the total snack food sales in the United States in 1990 ($37 billion), Frito Lay. Inc. owns a 13% market share ($4.81 billion). This is due to their stability in the snack chips segment of the industry, which Frito Lay owns 50% of all retail sales. Of the top 10 best selling snacks in the United States, 8 of them are products of Frito Lay, Inc. The dollar sales of the snack food industry grow at a steady rate of 5% per year. Also yearly, 650 new products are introduced to the market, typically variations of flavor, but still a recipe for a highly competitive market. Of these new products, however, less than 1% achieve $25 million in debut sales. Frito Lay holds their new products to a higher standard, requiring a forecasted first year sales volume of $100 million. Due to the highly competitive nature of the market and the high, industry-wide failure rate, Frito Lay is faced with a dilemma in introducing a new product to the market.

Product Background

In 1990, Frito Lay is aiming to introduce a new, healthy, multigrain flavored chip which will be targeted towards a young to aging adult market who are concerned with consuming healthy snacks. In the late 1970s, Frito Lay released a predecessor to the Sun Chip with a product called “Prontos,” which ultimately failed in 4 years for a variety of reasons. These reasons, a confusing name, non-committal customers, and various manufacturing and sales issues, set the base for what Frito Lay would like to avoid with it’s newest offering. There are a plethora of challenges ahead in the potential introduction to the market. For example. Frito Lay will need to pioneer a new, healthy segment of the snack foods industry and successfully brand a new line of chips. Along with this, the Sun Chip requires a new manufacturing process, which will be very costly. In order to achieve the required first year sales volume ($100 million), the company must invest $20 million in new manufacturing plants and equipment and additional money into advertising and merchandising to build a new brand.

Primary Strategic Issue and Potential Solutions

Issue: Frito Lay executives have begun a yearlong test market in the Minneapolis-Saint Paul metropolitan area of Minnesota to examine the potential success of the introduction of Sun Chips on a national scale. Based on test market results, the executives are met with 3 options on how to proceed: 1) Launch the product on a national basis immediately, 2) Extend the test market 6 months in order to gain more knowledge, or 3) Geographically expand the test market to eliminate uncertainties.

Option 1: National Launch*

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