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.