Frito-Lay Dips

Frito-Lays is a nationally recognized leader in the manufacture and marketing of salty snack foods with 33% market share in the U.S. Frito-Lay has a highly profitable dip product line with $87 million sales in 1985. Dips are most frequently used with salty snacks whereas account for 67% of total dip sales. Rest of dip sales (33%) are linked to vegetable usage. But the market for dips is highly fragmented and difficult to measure. In late 1986, management team of Frito-Lays wants to complete their planning review of whether they should continue to develop the chip dip market or pursue the vegetable dip market as well. I will analyze pros/cons of these two product lines and make a recommendation based on the analysis.

There were three dips sold by the company until 1983. During 1983 and 1984, there were a number of cheese-based dips introduced by the company. In 1986, company introduced its first sour cream-based, shelf-stable dip. All the dips were displayed in the salty snack section of supermarkets, where 80% of dip sales are made. Frito-Lay could capitalize on its foothold in the chip dip market and attempt to expand the market share. However the opportunity was less promising because the company is facing a fully saturated market. First, research showed that only 20% of chips were eaten with dips and only 45% of al U.S. households used dips in 1985. Second, increased competitive activity was such that Frito-Lay could only hold but not improve its position. Third, recent sales growth in dips was due to new products (cheese-based dips). Also the new sour cream dip represented a break with Mexican-style dips and cheese dips and was probably more suitable for vegetable dipping.

With the correct launch and positioning, Frito-Lay could penetrate and stake a claim to a large and undefined, yet extremely viable vegetable dip market. This is a market that does not have a major competitor in a strong competitive position and consumers are becoming more concerned over the content of the food they eat and buying enough "substitute dips" to support growth in this market. Research indicated that sour cream-based dips were more popular than cheese dips for vegetable dipping. Further, sour cream dips are the most popular flavor, accounting for about 50% of dip sales in the salty snack dip segment of the market. The gross margin on sour cream dip was 45 percent and it is a really cash cow product line. But there are always