Lay's Potato Chips: The Crunch is on (a)

Abstract

Snack-food customers claim they want to eat healthier snacks and lose weight, but snacks marketed as nutrition-wise don't sell as well as traditional salty snacks, such as the iconic Lay's brand of potato chips. Al Carey, CEO of Frito-Lay North America, needs to come up with a strategy to connect with the health-minded customer in a shifting market without compromising the products that built the company. Part A of this two-part case maps out an industry in flux.

Excerpt

UVA-S-0200

Rev. Dec. 11, 2013

LAY'S POTATO CHIPS: THE CRUNCH IS ON (A)

Looking at a recent trade publication article describing his company's supply chain of all-natural ingredients, Al Carey, CEO of Frito-Lay North America (Frito-Lay), thought, “All that and a bag of chips doesn't change our numbers.” Things were going on in the marketplace: One of Carey's core top brands, Lay's potato chips, was suffring, and the lingering effects of the 2008 economic crisis had consumers tightening their purse strings at grocery stores and squeezing businesses' bottom lines.

American families had been loyally crunching on Lay's potato chips since 1932. Over the years, fad diets and healthy-living binges had occasionally resulted in dips in demand for the chips, but Carey was concerned that the current trend in the marketplace was more than a “vogue.” This consumer behavior felt different. Since 2009, Frito-Lay had made several efforts to reposition its line of potato chips, including its “Happiness is Simple” and “Lay's Local” marketing campaigns. Both promotions got the word out about what Lay's potato chips had always been: simply made, from three natural ingredients bought from producers close to home. That same year, Lay's introduced versions of some of its chips with 50% less salt, and product development teams started experimenting with designer sodium recipes and capabilities.

Without a doubt, the industry was changing, and Lay's had to understand who and what was shifting to determine how to respond in the long term. To expand growth in the market again, the snack food giant needed to strategize to connect with consumers. Indeed, Indra Nooyi, CEO of PepsiCo, had made it clear she believed the nutrition-wise market should be front and center. But customers were sending mixed messages. They claimed they wanted to eat healthier snacks and lose weight, yet Lay's “Smart Spot” products didn't sell as well as its core chip products. Carey and his leadership team had to think about a sustainable model. Was making the billion-dollar brand healthier the right move? Would reducing or removing the amount of salt in Lay's chips—indeed, in all Lay's snack products—be appropriate? Was that what consumers were looking for from their salty snacks? Or would changing the recipe of the great all-American chip cost the company customers?

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Keywords: reposition, sustainable growth