BOSTON — A marketing message once bet consumers they could not eat just one Lay’s potato chip. It turns out they will buy more than one sized bag, too. Frito-Lay North America is having success with a new, smaller 8-oz bag of Lay’s, said Tom Greco, chief executive officer of Frito-Lay North America, in a Sept. 9 presentation at the Barclays Global Consumer Staples Conference in Boston.
Frito-Lay North America, a business of Purchase, N.Y.-based PepsiCo, Inc., in 2013 examined how marketplace dynamics were affecting its potato chip business, he said.
|Tom Greco, c.e.o. of Frito-Lay North America|
“First, on the consumer side, households were getting smaller,” Mr. Greco said. “By the end of 2014, over 60% of U.S. households had two people or less, making a strong case for a smaller bag of take-home Lay’s.
“Meanwhile, our customers were facing huge margin pressures. In 2014, grocery margins had dipped over 40 basis points in just one year. And, finally, we knew that over 90% of Lay’s take-home business was in just one size. In fact, we had 14 s.k.u.s (stock-keeping units) of 10-oz Lay’s, and the majority of the transactions on this size were buy-one-get-one-free.”
Frito-Lay North America tested a new price-sized architecture for Lay’s for one year and focused on four objectives: driving household penetration, accelerating market share, improving customer margins and enabling pricing runway.
“As a result, we recently introduced a smaller 8-oz bag of Lay’s with full variety,” Mr. Greco said. “We then reduced the lineup on our 10-oz bag and branded this ‘Family Size.’ Finally, we added weight to our largest size and branded this ‘Party Size.’
“During the second and third quarter of this year, we executed this massive change across all channels on Lay’s. We’ve now completed over 25,000 section resets, and, in many cases, our customers rewarded us with incremental shelf space to go after the sales, margin and profit opportunity.”
He said F.L.N.A. has shifted its promotion emphasis from 14 s.k.u.s at buy-one-get-one- free on key holidays to 4 to 5 s.k.u.s. Customer margins are up, and unit share and growth is accelerating, he said.
Lay’s has fared well in international markets as well, particularly Russia, said Ramon Laguarta, c.e.o. of Europe and Sub-Saharan Africa for PepsiCo. Lay’s is now the No. 1 snack in Eastern Europe. PepsiCo, which has a 61% market share in potato chips in Russia, featured a “Summer Tastes Better with Lay’s” promotional concept in that country this summer.
PepsiCo leverages Russia as a gateway to the C.I.S. (Commonwealth of Independent States), Mr. Laguarta said.
“For example, if you look at our share of market performance in the C.I.S. markets in savory over the last five years, we’re now leaders everywhere, leveraging our factories in Russia, leveraging the brand activities in Russia, leveraging the talent in Russia,” he said. “This is countries like Kazakhstan, Belarus, Georgia, Armenia, Uzbekistan, Tajikistan.“Clearly there are short-term challenges in the Russia business, and you’ve seen it, probably, in most of the (Barclays) presentations. There is nothing new. This country has been through crisis in the last 10 years. We have very strong and very experienced local management in each one of the markets, in Ukraine, in Russia, the C.I.S. markets, that have been through (this) turbulence, and we’re managing the business to stay competitive, to make sure that our brands remain relevant with our consumers, that we continue to provide value to the consumers.”