“Brand Value $11.6 B As of November 2013
At a Glance
- Industry: Consumer Packaged Goods
- Founded: 1961
- Country: United States
- Website: www.fritolay.com
- Sales: $11.1 B
- Headquarters: Plano, Texas
#40 World’s Most Valuable Brands
Frito-Lay began as two separate companies in the early 1930s that merged in 1961 to form Frito-Lay. It became a subsidiary of PepsiCo in 1965. Snack foods produced under the Frito-Lay name include Lay’s potato chips, Fritos corn chips, Cheetos cheese-flavored snacks, Doritos and Tostitos tortilla chips. Frito-Lay North America generates one-third of PepsiCo’s annual operating profit.”
The Frito Company
In 1932, Charles Elmer Doolin, manager of the Highland Park Confectionery in San Antonio, purchased a corn chip recipe, a handheldpotato ricer and 19 retail accounts from a corn chip manufacturer for $100, which he borrowed from his mother. Doolin established a new corn chip business, The Frito Company, in his mother’s kitchen. Doolin and his mother and brother produced the corn chips, named Fritos, and had a production capacity of approximately 10 pounds per day. Doolin distributed the Fritos in 5¢ bags. Daily sales totaled $8 to $10 and profits averaged about $2 per day. In 1933, the production of Fritos increased from 10 pounds to nearly 100 pounds due to the development of a “hammer” press. By the end of the year, production lines were operating in Houston and Dallas. The Frito Company headquarters also moved to Dallas to capitalize on the city’s central location and better availability of raw materials. In 1937, The Frito Company opened its Research and Development lab and introduced new products, including Fritos Peanut Butter Sandwiches and Fritos Peanuts, to supplement Fritos and Fritatos Potato Chips, which had been introduced in 1935.
In 1941, the company opened its Western Division in Los Angeles with two sales routes, which would become the prototype for The Frito Company’s distribution system. In 1945, The Frito Sales Company was established to separate sales from production activities. Expansion continued with the issue of six franchises through the Frito National Company in the same year. In 1950, Fritos were sold in all 48 states.The Frito Company issued its first public stock offering in 1954. At the time of Doolin’s death in 1959, The Frito Company produced over forty products, had plants in eighteen cities, employed over 3,000 people and had sales in 1958 in excess of $50 million. By 1962, Fritos would be sold in 48 countries.
H.W. Lay & Company
In 1931 a salesman Herman Lay sold potato chips in southern United States out of his car. In 1932, Lay began a potato chip business in Nashville, Tennessee. Lay was hired as a salesman for the Barrett Food Products Company, an Atlanta, Georgia manufacturer of Gardner’s Potato Chips, and eventually took over Barrett’s Nashville warehouse as a distributor. Lay hired his first salesman in 1934, and three years later had 25 employees and a larger manufacturing facility where he produced popcorn and peanut butter sandwich crackers.
A representative of the Barrett Food Company contacted Lay in 1938, offering to sell Barrett’s plants in Atlanta and Memphis to Lay for $60,000. Lay borrowed $30,000 from a bank and persuaded the Barrett Company to take the difference in preferred stock. Lay moved his headquarters to Atlanta and formed H.W. Lay & Company in 1939. He later purchased the Barrett manufacturing plant in Jacksonville, Florida, along with additional plants in Jackson, Mississippi, Louisville, Kentucky and Greensboro, North Carolina. Lay retained the Gardner trademark of Barrett Food Products until 1944, when the product name was changed to Lay’s Potato Chips.
Lay expanded further in the 1950s with the purchase of The Richmond Potato Chip Company and the Capitol Frito Corporation. By 1956, with more than 1,000 employees, plants in eight cities and branches or warehouses in thirteen others, H.W. Lay & Company was the largest manufacturer of potato chips and snack foods in the United States.
Merger forms Frito-Lay, Inc.
In 1945, the Frito Company granted the H.W. Lay & Company an exclusive franchise to manufacture and distribute Fritos in the Southeast. The two companies worked toward national distribution and developed a close business affiliation. In September 1961, The Frito Company and H.W. Lay & Company merged to become Frito-Lay, Inc., combining their headquarters in Dallas, Texas. At this point, the company’s annual revenues totaled $127 million, largely generated from sales of its four main brands at the time: Fritos, Lays, Cheetos and Ruffles.
Division of PepsiCo, Inc.
In February 1965, the boards of directors for Frito-lay, Inc. and Pepsi-Cola announced a plan for the merger of the two companies. On June 8, 1965, the merger of Frito-Lay and Pepsi-Cola Company was approved by shareholders of both companies, and a new company called PepsiCo, Inc. was formed. At the time of the merger, Frito-Lay owned 46 manufacturing plants nationwide and had more than 150 distribution centers across the United States.
The merger was pursued for multiple factors, one of which was the potential for Frito-Lay snacks to be distributed outside of its initial markets of the United States and Canada—via Pepsi-Cola’s existing presence and distribution network in 108 countries at the time of the merger. International distribution of Frito-Lay products expanded shortly following the 1965 merger, and its U.S. presence grew at the same time, resulting in Lay’s becoming the first potato chip brand to be sold nationwide (in all 50 U.S. states) in 1965.
Also at this time, PepsiCo had envisioned marketing Frito-Lay snacks alongside Pepsi-Cola soft drinks. In an interview with Forbes in 1968, PepsiCo CEO Donald Kendall summarized this by noting that “Potato chips make you thirsty; Pepsi satisfies thirst.” Plans to jointly promote the soft drink and snack products were thwarted later that year, when the Federal Trade Commission ruled against it.
Upon the formation of PepsiCo, Frito-Lay still maintained the same brand and product line-up that it had four years prior, consisting of Fritos, Lay’s, Cheetos, Ruffles, and Rold Gold pretzels. It soon began efforts to expand with the development of new snack food brands in the 1960s and 1970s, including Doritos (1966), Funyuns (1969) and Munchos(1971). The most popular new Frito-Lay product launched during this era was Doritos, which initially was positioned as a more flavorful tortilla chip. At first the chip was perceived by consumers as being too bland. In response, the company re-launched Doritos in Taco, and later Nacho Cheese, flavors. The spicier composition proved successful, and Doritos quickly became the second most popular Frito-Lay product line, second only to Lay’s potato chips.
Frito-Lay faced increased competition in the 1970s, from competing potato chip brands such as Pringles, launched by Procter & Gamble in competition with Lay’s. Nabisco andStandard Brands also expanded in the 1970s to produce potato chips, cheese curls and pretzels, which placed added pressure across Frito-Lay’s entire line of snack food brands.
Frito-Lay acquired Grandma’s Cookies in 1980, which launched nationwide in the United States in 1983. In January 1978 Frito-Lay’s product development group led by Jack Liczkowski completed development of Tostitos, a Mexican-style tortilla chip lineup. Tostitos Traditional Flavor and Tostitos Nacho Cheese Flavor went into national distribution in the United States by 1980 and reached the sales of $140 million, making it one of the most successful new products introduction in Frito-Lay history. Tostitos sales grew quickly, and in 1985 it had become Frito-Lay’s fifth-largest brand, generating annual sales of $200 million. Ahead of Tostitos at the time were Doritos, Lay’s, Fritos and Ruffles, each recording annual sales between $250 and $500 million. While Tostitos became a long-term success, several other new products launched in the 1980s were discontinued after lackluster results. These short lived Frito-Lay products included Stuffers pre-filled dip shells and Toppels crackers, which came pre-topped with cheese. In the late 1980s, Frito-Lay acquired Smartfood, a brand of cheese-flavored popcorn which it began to distribute across the United States. International sales began to increase significantly at this time as well, with annual revenues from sales outside of the U.S. and Canada accounting for $500 million in 1989, contributing to total Frito-Lay sales of $3.5 billion in the same year.
Several new products were developed internally at Frito-Lay and launched in the 1990s, the most successful of which was Sun Chips, a multi-grain chip first sold in 1991. Sun Chips, along with new Baked (instead of fried) variants of Tostitos and Lay’s, represented Frito-Lay’s intent to capitalize on an emerging trend among adults in the U.S., who were displaying a growing preference for healthier snack alternatives. In 1994, Frito-Lay recorded annual retail sales of nearly $5 billion, selling 8 billion bags of chips, popcorn andpretzels during that year—outpacing competitors Eagle (owned by Anheuser-Busch) and Wise (owned by Borden).
Up until the mid-1990s, Frito-Lay was represented in PepsiCo’s organizational structure as Frito-Lay, a single division of PepsiCo. This changed in 1996 when PepsiCo merged its snack food operations into what was titled the “Frito-Lay Company”, made up of two subsequent divisions, Frito-Lay North America and Frito-Lay International. In 1997, Frito-Lay acquired the candied popcorn snack brand Cracker Jack, followed in 1998 by multiple international acquisitions and joint ventures, including Smith’s Snackfood Company(Australia), as well as Savoy Brands (Latin America).
Recent history (2000 – present)
In the early 1980s, PepsiCo continued to grow its Frito-Lay brands in two ways—through international expansion and acquisition. Through a joint-venture with Walkers, a UK chip and snack manufacturing company, Frito-Lay increased its distribution presence in Europe. Similar joint-ventures were arranged in other regions of the world in the 2000s, including Smith’s in Australia, and Sabritas and Gamesa in Mexico. As a result of these international arrangements, some global Frito-Lay products (such as Doritos) are branded under the same name worldwide. Others maintain their original regional names. For example, Lay’s chips are a similar product to Walkers Crisps in the UK and both share similar logo designs.
The Quaker Oats Company merged with PepsiCo in 2001, resulting in Quaker snacks products, including Chewy granola bars and Quaker rice cakes, becoming organized under the Frito-Lay North America operating division. This operating structure was short-lived, and in 2003, as part of a restructuring, the international operations of Frito-Lay (formerly Frito-Lay International) were brought within the PepsiCo International division, while Frito-Lay North America was maintained as its own division, comprising Frito-Lay business within the United States and Canada.
Frito-Lay continued to experiment with changes to the composition of its products, introducing Reduced Fat Lay’s and Cheetos in 2002. The “Baked” product line also expanded in 2002 to include Baked Doritos. In 2003, Frito-Lay introduced the first products in its “Natural” line, which were made with ingredients that had been organically produced. The first of these included Organic Blue Corn Tostitos, Natural Lay’s Potato Chips (seasoned with sea salt), and Natural Cheetos White Cheddar Puffs.
A new CEO, Irene Rosenfeld, was appointed in 2005. Under her management, Frito-Lay North America continued to expand its product lines with acquisitions such as Stacy’s Pita Chip Company, which represented “Frito-Lay’s desire to participate more broadly in the $90 billion macrosnack category”, particularly involving snack foods made with more natural ingredients, according to reports from within its industry at that time. In 2010, Frito-Lay reformulated Lay’s Kettle and Lay’s flavored chips into a new variant labeled as being made with all-natural ingredients. Sales of Lay’s potato chips grew by 8% following the change to all-natural ingredients. As a result, Frito-Lay announced in 2010 its plans to convert approximately half of all Frito-Lay products, including Sun Chips, Tostitos, Fritos and Rold Gold pretzels, to all-natural ingredients in 2011.“
*Information from Forbes.com and Wikipedia.org
**Video published on YouTube by “Julian Dario Combariza Gonzalez“