Frito-Lay is a well-known company that is a division of PepsiCo
and they are currently interested in purchasing the Cracker Jack Brand from
Borden. Frito-Lay represents 31 percent of PepsiCo’s net sales and 60 percent
of their operating profit. They are the leading manufacturer of snack chips in
the US and in the search for more growth
Frito-Lay’s Venture Division is looking to Cracker Jack to create
a new business platform. The new venture division came up with three growth
avenues for Frito-Lay. They include: (1) opportunities existing snack business
by expanding into new eating occasions for current or new products, (2)
opportunities to successfully enter new product categories by capitalizing on
Frito-Lay’s strengths (3) purchasing related food companies offering products
or entire businesses for sale as a result of corporate restructuring. All of
these avenues were seen to be a reality when Borden announced its intention to
sell Cracker Jack
Being a multi-million dollar industry in itself,
the ready to eat caramel popcorn industry was an attractive product that the
Frito-Lay Company wanted to add to their arsenal of products. In doing so, the
Frito-Lay Company created their New Ventures Division in 1996 with the intent
of driving growth for the company by seeking new business platforms and
products. By 1997, enough market research provided Frito-Lay with the
confidence they needed to purchase the Cracker Jack brand, which was already
the market leader in the ready to eat caramel popcorn industry. In doing so,
the Frito-Lay Company acquired an already successful product to add to their
product line with few competitors in the industry.
In June 1997, it became public that Borden, who owned Cracker
Jack, was putting the brand up for sale. That is when Lynne Peissig, vice
president and general manager for new ventures at the Frito-Lay Company began
studying the market opportunity for acquiring Cracker Jack. The 3
steps that Peissig and her team engaged in when they met as a group was to
first combine their findings as a business team, then outline a plan of how
Cracker Jack might be marketed as a Frito-Lay brand, and lastly, estimate the
fair market value of the Cracker Jack business, this would help the PepsiCo
executives determine a bid price if they wanted to pursue the venture.
In December 1996 the new venture division at Frito-Lay emerged.
Their mission was to “drive significant Frito-Lay growth by seeking and
creating new business platforms and products which combine the best of
Frito-Lay advantages with high impact consumer food solutions.” The purpose of
the new venture project was to create meaningful growth outside of the
Frito-Lays existing snack business and to improve internal product development
activities. There were 3 areas in which they sought opportunities that would
help them with future growth. The first one was to expand into new eating
occasions for current or new products. “Better-for you” products for morning
and all-day consumption was included in this opportunity. Second, was to enter
a new product category by capitalizing on Frito-Lay’s store-door-delivery sales
for strengths, broad distribution coverage, and brand marketing skills. The
last opportunity was “opportunistic acquisitions” which involved companies
putting products or businesses for sale as a result as corporate restructuring.
When Frito-Lay found out that Borden was selling Cracker Jack they realized
that the brand fit each one of the three opportunities they were looking for.
The Cracker Jack strategy had three basic objectives, from which
accompanying tactics were developed. The objectives were to revitalize the base
business, improve operating efficiencies, and extend the Cracker Jack
trademark. From this basis, tactics were developed to try and accomplish the
objectives. Year over year performance would indicate that Cracker Jack’s
strategy is quite effective, because gross profit margin has increased
continually. The strategy to accomplish the objectives were to expand
distribution, develop new packaging and flavors, create impactful product
positioning, enhance gross margins via sustained leadership, and allot
additional resources to consumer advertising.
The measurable key performance indicator in this case was direct
product contribution, which can show just how valuable Cracker Jack was to
Frito Lay. The bigger the contribution, the more impact Cracker Jack has on the
Frito Lay business as a whole. The objectives revolved around creating a higher
contribution, with the tactics to follow. 3 specific actions were taken; the
creation of a single serve bag, a 6% price increase, and taking a “low-fat
snack” approach. These three actions in the strategy attributed to a growth
rate of 500% in sales from 1997 to 2001, thus increasing direct product
contribution exponentially.
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In an attempt to differentiate, and reposition themselves as an
everyday snack option, especially in the millennia’s market, Cracker Jack’s
introduced a new product line of flavored popcorn. They felt that younger
purchasers were overlooking the Original Cracker Jack’s, which has been the
same for over 100 years, as a viable snack option. They were not looking to get
rid of the Original Cracker Jack’s but decided to launch a new product line
alongside it called Cracker Jack’d, featuring new packaging, and new flavors to
appeal to the younger demographic.
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There was controversy
before the product was launched because some of the new flavors contained
caffeine. Consumer activist group was upset because they believe that Frito-Lay
was targeting children and the relatively large amount of caffeine would be harmful,
and just shouldn’t be marketed to children. “But [the company said]
it's being used to gauge the interest of a niche, coffee-drinker market over a
broader audience.”
“Cracker Jack'D: Frito-Lay Gives Cracker Jack A
Makeover With New Line” Kim Bhasin. HuffingtonPost website. 4/30/2013.
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