Frito-Lay Inc. – Wow Chips! Research WOW! Chips In 1998 Frito-Lay, Inc. released its new product line WOW! Chips. This new product line consists of WOW! Lays, WOW! Ruffles, WOW! Tostitos, and WOW! Doritos. WOW! chips are meant to be a healthy alternative to ordinary potato chips and other snacks.
The outlook was great for this new product. Americans are the largest people on the planet. People are obsessed with eating, often times eating when they are not even hungry. But the trend lately is turning toward a more healthy diet. Most people don’t intend to stop eating they become more fat conscious.
Looking into the future Frito-Lay wisely produced a healthy alternative snack for this growing trend. WOW! chips are cooked in an olestra based oil called Olean. This new oil developed by Proctor & Gamble is the building block upon which WOW! chips are based. It is Frito-Lays hope that the public accepts this new product and what it stands for. The initial acceptance by the public has not been what Frito-Lay has expected.
The areas that will be discussed in report are consumer opinion, marketing problems/opportunities, and financial performance along with a brief conclusion to follow. Consumer Opinion With a relatively new product such as Frito-Lays WOW! potato chips, the focus needs to be on the current opinion of consumers. The following information comes from individual consumers as well as the research from scientific professionals and medical doctors. Lets first look at the current consumer response. Obviously the interest in fat free snacks with the same taste as original snacks is overwhelming. Information Resources Inc. shows that Frito-Lays WOW! chips registered $347 million dollars in sales in 1998, despite reports of possible digestive problems associated with the chips.
This reported sales figure out performed most analyst that said sales would average $250 million per year. A key factor that has led to these sales are the so called baby boomers and their concern with appearance and health as they grow older1. Studies of the affects from Olestra based products have produced very different results. However, the endorsement by the FDA is the key factor in WOW! chips’ success. A quote from the American Medical Association says, approximately 150 studies, including 43 clinical trials, have been conducted on this product (Olestra) in advance of FDA approval, making it one of the most thoroughly tested foodstuffs to come to market in America. The AMA supports the FDA evaluation and approval process and advocates a balanced diet that is healthful and low in total fat for all Americans.2 Louis Sullivan, M.D., a former Secretary of Health and Human Services, states that, All Americans can feel confident in the safety of snacks made with Olestra.
The FDA with input from the many respected experts including the National Cancer Institute carefully reviewed more than 25 years of research supporting olestras safety.2 It seems that this is the major issue that WOW! chips and Frito-Lay seems to rely upon when refuting the claims against Olean. However, doubts among American consumers are still prevalent. Tom Howe, the president of Jays Foods, L.L.C., reports Olean products have dropped dramatically in the Midwest. WOW! chips range between 3-6% of the potato chip niche in our markets. While diversity in sales between regions is a common occurrence, the existence of positive or negative media in each region may be directly related to sales differential. Never the less, Americans derive 25% of their total calorie intake from snacks3 thus showing not only a need for snack food, but also a need for a tasteful, healthy alternative not previously available.
There are many more concerns and pubic opinions addressed throughout this report. These concerns are digestive and health related. But these are mainly marketing problems or opportunities that are only done justice by being presented in their appropriate sections. Marketing Problems One marketing problem accompanying WOW! chips is the advertising campaign that Frito-Lay has adopted. This campaign centers upon the very thing that consumers have a problem with, the oil Olean. The word Olean can be seen on every store display, every commercial, and stamped on every bag within retail stores.
It is because of the widespread knowledge that WOW! chips are cooked in Olean that they receive bad publicity. Many consumers have their doubts and beliefs about the effects of Olean. A second source of bad publicity is from a non-profit health-advocacy organization known as the Center for Science in the Public Interest or the CSPI. This organization has set up a campaign against Frito-Lay and Proctor &Gambles use of Olean. The organization claims that the product causes a majority of users to experience abdominal cramping, diarrhea, fecal incontinence, and other gastrointestinal symptoms.4 This is certainly not what Frito wants the image of WOW chips to be to consumers. To Frito-Lay’s credit they have sponsored studies to disprove the CSPN claim, such as the study highlighted in an article presented by CNN.
The article showed that those who ate the Olestra based chips had somewhat more frequent bowel movements5. While neither refuting other people’s claims this article helps to draw attention to bowel movements instead of health problems. This article helps the cause, but is it enough. The problem lies in the perception of Olean and its effects on people’s digestive systems. In order to change public opinion to the more positive end of the spectrum Frito-Lay should maintain the great tasting fat free concept of WOW! chips while at the same time de-emphasizing the fact that they are cooked in the controversial oil Olean.
If the word Olean weren’t found on every advertisement then the consumer would not be reminded of the possible affects of the oil in which they are cooked. People do not need to know how Frito-Lay can put a low fat great tasting chip on th4e market, just that they can. Another issue or problem that has arisen since the introduction of WOW! chips is the statement that some have made that Olean may cause cancer. In today’s society cancer is an ever-present concern of many. Just the mere mention of the word can cause one to shudder.
The question is whether this is a researched enough statement to be stated on every bag. But on the other hand, if WOW! chips were to cause cancer Frito-Lay could have massive lawsuits on its hands for neglecting to print the warnings on bags. Michael Jacobson, executive director of the CSPI, says, The most important longterm effect of olestra is that it interferes with the bodys absorption of fat soluble nutrients. Even the amount of olestra in a small, one ounce (28 gram) bag of potato chips will lower blood carotenoids by over 50 percent if consumed on a daily basis, states Dr. Walter Willet, head of the nutrition at the Harvard School of Public Health.
Proctor & Gamble disputes these statements. Since the FDA approval there have been hundreds of studies on carotenoids that have been published, Suzette Middleton, a nutritional scientist at Procter & Gamble said. Proctor & Gamble does admit that olestra can carry away fat soluble vitamins, because it passes undigested through the intestines. For this reason the FDA requires it to add four vitamins A,D,E and K to Olean. Marketing Opportunities Frito-Lay can still turn WOW! chips into the excelling product for which it was planned.
The company needs to somewhat reinvent the product line. The fact that the chips are low fat and taste good is still a plus and should be highly promoted. It is the fact that Olean is used to do so that should be abandoned. This will cause the focus to fall away from the reason for the concerns of many consumers and land back on the quality fat free chips that Frito-Lay produces and every snack eating consumer desires. The 65 years old age group is another opportunity for Frito-Lay and WOW! chips.
According to Business and Industry magazine2, the fastest growing segment in the U.S. population is people over the age of 65. If WOW! chips and Frito-Lay could somehow capture this age group it could potentially be one of its largest consumers. It would be a laborious task to identify the buying habits of this age group, but sooner or later the company who can successfully market towards this age group will have enormous sales. The potential for sales in this segment is an opportunity that should not be overlooked. Performance Data Frito-Lay is a subsidiary for PepsiCo and a leading distributor in the snack food industry. In 2000, Frito-Lay expects to have global sales of $13.2 billion.
On a whole, Frito-Lay controls 56% of the market share in the category of salty snacks. However, Frito-Lay only controls $4 billion market for healthy snacks. PepsiCo generates 70% of its operating profit and 60% of its revenues from Frito-Lay alone. According to observers in the market, the Wow! Chips are expected to have sales of $250 million per year. Based on tests in Indianapolis, Wow! Chips produced $550 million in sales for the manufacturer and retail sales of $900 million. Prior to sales of Wow! Chips, Frito-Lay discovered that about half of its customers that were buying healthy snacks were men under the age of 35, not women over the age of 35 like they had expected. This changed their marketing outlook for their new healthy product. For the launch of the Wow! Chips, Frito-Lay budgeted $35 million, most of which was for media coverage. Their opening campaign included television commercials, and prints in Newsweek, Time, People, and Fitness, and reached 95% of households, at least 14 times.
Wow! Chips have really pushed the better-for-you market. After 4 months in the market, Wow! Chips were in fourth place with $63 million of sales, and 4.3% of the market share. According to the Snack Food Association, sales of non-fat or reduced fat items have been declining since 1996, and they are still a very small portion of all snack food. After a year, Ruffles Wow had moved into the 10th place of sales with volume more than $39 million, according to Information Resources Inc. In September 1999, olestra based snacks made up 13% of the market share, and their volume share was rising 8%. At that time, 30% of the population had already tried olestra products.
30% of those people have made incremental purchases. Sales appear slightly inflated compared to other potato chips due to the higher price of Wow! Chips than regular chips. In October 1999, Frito-Lay redesigned its distribution system so that its sales people can spend more time merchandising and selling chips, rather than loading and sorting them, thus reducing costs and improving profits. For 1998, Wow! Ruffles had sales of $102 million and Wow! Lays created $128 million in sales. Supermarkets are the primary seller of all chips with about 45% according to polls done by the FMD (Food, Mass Merchant, and Drug) Sales.
These figures suggest that the potential for high sales is prevalent.* Conclusion While the initial intention of Frito-Lay in introducing WOW! chips was to smoothly, but aggressively capturing the health conscious consumer through a multi million dollar advertising campaign and the use of a new fat free cooking oil was great the situation is not as well as once thought. Sales are fine, but it seems that there can be many, many more sales made judging the amount of opposition that WOW! chips and Olean have met. From digestive problems to other health concerns Olean is a constant thorn in Frito-Lay’s side. In order to smoothly pluck this thorn safely out Frito-Lay must change the public opinion of Olean and convince them that Olean is not only a safe substitute to conventional oils used to cook chips, but a healthy and wise alternative to ordinary chips and snack foods. Marketing and Advertising.