Frito-Lay Company - Cracker Jack

Frito-Lay Company- Cracker Jack

Huong Tran

Bellevue University

MBA 652 Marketing Strategy

Kristin Lynch

Dec 22, 2014

Case Recap

         Frito Lay is a division of PepsiCo Inc. It is known as a worldwide leader in the manufacturing and marketing of snack foods with well-known national brand products such as Ruffles, Fritos, and Doritos.  Frito Lay captured 54 percent of retail sales in this product category in 1996.  Frito Lay has 9 major brands of snack chips that are amongst the top 10 best-selling snack brands in United States.

        During 1990, the major source of volume growth for Frito Lay was due to the attribution of its low-fat and no-fat snacks such as Baked Lay’s potato crisps, Baked Tostitos tortilla chips, and Rolled Gold pretzels. The company has 45 manufacturing plants in 26 states, including the world’s largest snack food plant in Frankfort, Indiana. (Keren and Peterson, 2013) The warehouse and distribution facilities have extended to 1,800.  Frito Lay employs 17,500 salespeople who make 750,000 sales and delivery 350,000 retails store customers calls each week.  (Keren and Peterson, 2013). Frito Lay is also known as a leader of national advertisers in United States.

         Borden Foods’ Cracker Jack is known as a premium-price brand in the ready to eat caramel popcorn category.  Due to the strategic decision to concentrate resources on pasta business and grain-meals, which would require significant resource investment, Borden has decided to divest Cracker Jack and related assets.  In 1997, Frito Lay was seeking at a possible acquisition of Cracker Jack from The Borden Foods Corporation.  The executive team at Frito Lay had a meeting to discuss the potential of Cracker Jack, created an action plan on how Cracker Jack might be marketed as Frito Lay brand, and evaluating the purchase of Cracker Jack brands to grow Frito Lay’s business. Frito Lay feels confident that a good marketing strategy for its new acquisition of Cracker Jack’s brand, would see it continue to retain as a leader in the snack food arena. Therefore the executive team has put together a plan to determine the best strategy for this goal attainment.  

Problem Identification

          The sale for the ready to eat caramel popcorn product category reached a high of $205 million in 1995, but have been seen declining significant since then.  Borden is faced with several different types of competitors serve the ready to eat caramel popcorn category such as National brand firms, seasonal/specialty firms, regional firms, and private label firms (Kerin and Peterson, 2013). The biggest competitor of Cracker Jack national brands is Crunch’n Munch from International Foods Home Inc.  In 1996 the market share of Cracker Jack was percent while the Crunch’n Munch controlled percent of market share. (Kerin and Peterson, 2013). Due to declining sales and strong competition resulted in lower contribution margins, Cracker Jack has seen itself severely under marketed.   Cracker Jack spent a lot less in media advertising compared to its major competitor Crunch’n Munch.  Cracker Jacks ready to eat caramel popcorn brand has lost momentum because of the reasons mentioned above.  

Identifying the Root Problem Components

Cracker Jack is known as one of the most recognized consumer food brands in the United States.  The brand name controls 97 percent of awareness among people between the ages of 15 and 60.  It also has 95 percent brand name awareness among heavy users of Caramel popcorn (Kerin and Peterson, 2013).  In spite of the universal awareness, Cracker Jack is still seen as traditional and old fashion, and less contemporary than its major competitor Crunch’n Munch.  Even though, Crack Jack uses product diversification strategies to lead the development of several versions such as Cracker Jack Fat Free, Butter Toffee, and Nutty Deluxe, in the hopes of capitalizing on the high brand recognition, the consumer awareness level of these is still below 50 percent.  Although Cracker Jack is aware of brand largely because of its heritage, still only 7.1 percent of U.S households consume the product. According to survey the most important reasons for consumers not buy Cracker Jack more often are due to:

• Consumers don’t think about it because they don’t see the advertisement for product.
• Product is not available where they shop
• Consumers see it as too expensive and box is not large enough or poor quality
• Consumers see it as an unhealthy product

         In order to overcome this substantial hurdle, Frito Lay needs to bring the revitalization of the product, correct price points, expand distribution channels, develop new packaging and flavors, and reduce the number of unpopular  SKUS from its current 32, be impactful product positioning, and increase consumer advertisement.  

SWOT Analysis

Evaluation of Alternatives

              Frito Lay has several options to expand its future growth.  First option includes the opportunities for building its existing snack business by exploring new eating occasions for current or new products. Second option consists of opportunities to successfully enter new product category by capitalizing on its existing strength.  The third growth avenue called “opportunistic acquisitions”, which Frito Lay Inc would acquire a related food company specific products or entire business.  Frito Lay already has a market penetration strategy with its strong existing brand name, sales. Advertisement and distribution infrastructure for the first option would require a lot of expense and creative ideas.  Second option seems to be risky for Frito Lay because of its inexperience in new product category and strong well established competition.  Acquiring a new brand or entire business would bring Frito Lay’s own challenges such as corporate restructure challenge, but also give the opportunity to enter a new product category.