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Case Study on the Charm and Glory of Lay’s Chips by

PepsiCo with Specific Reference to Indian Market

Varun Kesavan, Research Scholar, Palakkad, Email Id – varunkesavan@yahoo.com

INTRODUCTION

PepsiCo Inc. is an American multinational food and beverage corporation

headquartered in Purchase, New York, United States, with interests in the

manufacturing, marketing, and distribution of grain-based snack foods, beverages,

and other products. PepsiCo was formed in 1965 with the merger of the Pepsi-

Cola Company and Frito-Lay, Inc. PepsiCo has since expanded from its namesake

product Pepsi to a broader range of food and beverage brands, the largest of which

includes an acquisition of Tropicana in 1998 and a merger with Quaker Oats in 2001,

which added the Gatorade brand to its portfolio.

As of January 26, 2012, 22 of PepsiCo's brands generated retail sales of more than

$1 billion apiece, and the company's products were distributed across more than 200

countries, resulting in annual net revenues of $43.3 billion. Based on net revenue,

PepsiCo is the second largest food and beverage business in the world. Within North

America, PepsiCo is the largest food and beverage business by net revenue.

PepsiCo products are enjoyed by consumers one billion times a day in more than

200 countries and territories around the world. PepsiCo generated more than $66

billion in net revenue in 2014, driven by a complementary food and beverage

portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana.

PepsiCo’s product portfolio includes a wide range of enjoyable foods and beverages,

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including 22 brands that generate more than $1 billion each in estimated annual

retail sales.

At the heart of PepsiCo is Performance with Purpose—our goal to deliver top-tier

financial performance while creating sustainable growth and shareholder value. In

practice, Performance with Purpose means providing a wide range of foods and

beverages from treats to healthy eats; finding innovative ways to minimize our

impact on the environment and reduce our operating costs; providing a safe and

inclusive workplace for our employees globally; and respecting, supporting and

investing in the local communities where we operate.

Indira Krishnamurthy Nooyi has been the chief executive of PepsiCo since 2006. The

company's beverage distribution and bottling is conducted by PepsiCo as well as by

licensed bottlers in certain regions. Approximately 274,000 employees [3] generated

$66.415 billion in revenue as of 2013.[1]

The recipe for the soft drink Pepsi was first developed in the 1880s by Caleb

Bradham, a pharmacist and industrialist from New Bern, North Carolina. He coined

the name "Pepsi-Cola" in 1898. As the cola developed in popularity, he created

the Pepsi-Cola Company in 1902 and registered a patent for his recipe in

1903.[5] The Pepsi-Cola Company was first incorporated in the state of Delaware in

1919.The company went bankrupt in 1931 and on June 8 of that year, the trademark

and syrup recipe were purchased by Charles Guth who owned a syrup

manufacturing business in Baltimore, Maryland. Guth was also the president of Loft,

Incorporated, a leading candy manufacturer, and he used the company's labs and

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chemists to reformulate the syrup. He further contracted to stock the soda in Loft's

large chain of candy shops and restaurants, which were known for their soda

fountains, used Loft resources to promote Pepsi, and moved the soda company to a

location close by Loft's own facilities in New York City. In 1935, the shareholders of

Loft sued Guth for his 91% stake of Pepsi-Cola Company in the landmark case Guth

v. Loft Inc. Loft won the suit and on May 29, 1941 formally absorbed Pepsi into Loft,

which was then re-branded as Pepsi-Cola Company that same year. Loft restaurants

and candy stores were spun off at this time. In the early 1960s, Pepsi-Cola's product

lines expanded with the creation of Diet Pepsi and purchase of Mountain Dew.[7]

In 1965, the Pepsi-Cola Company merged with Frito-Lay, Inc. to become PepsiCo,

Inc... At the time of its foundation, PepsiCo was incorporated in the state of

Delaware and headquartered in Manhattan, New York. The company's headquarters

were relocated to their present location of Purchase, New York in 1970, and in 1986

PepsiCo was reincorporated in the state of North Carolina.

Between 1990 and 1995, PepsiCo funded The MacNeil/Lehrer News Hour on public

television.

Acquisitions and divestments

Between the late-1970s and the mid-1990s, PepsiCo expanded via acquisition of

businesses outside of its core focus of packaged food and beverage brands;

however it exited these non-core business lines largely in 1997, selling some, and

spinning off others into a new company named Tricon Global Restaurants, which

later became known as Yum! Brand, Inc.[9] PepsiCo also previously owned several

other brands that it later sold so it could focus on its primary snack food and

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beverage lines, according to investment analysts reporting on the divestments in

1997.[10] Brands formerly owned by PepsiCo include: Pizza Hut,[11] Taco Bell,

KFC, Hot 'n Now, East Side Mario's,[13] D'Angelo Sandwich Shops,[14] Chevys Fresh

Mex, California Pizza Kitchen,[15] Stolichnaya[16] (via licensed agreement),Wilson

Sporting Goods[17] and North American Van Lines.[18]

The divestments concluding in 1997 were followed by multiple large-scale

acquisitions, as PepsiCo began to extend its operations beyond soft drinks and

snack foods into other lines of foods and beverages. PepsiCo purchased the orange

juice company Tropicana Products in 1998,[19] and merged with Quaker Oats

Company in 2001,[20] adding with it the Gatorade sports drink line and other Quaker

Oats brands such as Chewy Granola Bars and Aunt Jemima, among others.[21]

In August 2009, PepsiCo made a $7 billion offer to acquire the two largest bottlers of

its products in North America: Pepsi Bottling Group and PepsiAmericas. In 2010 this

acquisition was completed, resulting in the formation of a new wholly owned

subsidiary of PepsiCo, Pepsi Beverages Company.[22] In February 2011, the

company made its largest international acquisition by purchasing a two-thirds

(majority) stake in Wimm-Bill-Dann Foods, a Russian food company that produces

milk, yogurt, fruit juices, and dairy products.[23] When it acquired the remaining 23%

stake of Wimm-Bill-Dann Foods in October 2011, PepsiCo became the largest food

and Beverage Company in Russia.[24] [25]

In July 2012, PepsiCo announced a joint venture with the Theo Muller Group which

was named Muller Quaker Dairy. This marked PepsiCo's first entry into the dairy

space in the US.[26]

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Competition

The Coca-Cola Company has historically been considered PepsiCo's primary

competitor in the beverage market, [27] and in December 2005, PepsiCo surpassed

The Coca-Cola Company in market value for the first time in 112 years since both

companies began to compete. In 2009, The Coca-Cola Company held a higher

market share in carbonated soft drink sales within the U.S.[28] In the same year,

PepsiCo maintained a higher share of the U.S. refreshment beverage market,

however, reflecting the differences in product lines between the two

companies.[28] As a result of mergers, acquisitions and partnerships pursued by

PepsiCo in the 1990s and 2000s, its business has shifted to include a broader

product base, including foods, snacks and beverages. The majority of PepsiCo's

revenues no longer come from the production and sale of carbonated soft

drinks.[29] Beverages accounted for less than 50 percent of its total revenue in 2009.

In the same year, slightly more than 60 percent of PepsiCo's beverage sales came

from its primary non-carbonated brands, namely Gatorade and Tropicana.[28]

PepsiCo's Frito-Lay and Quaker Oats brands hold a significant share of the U.S.

snack food market, accounting for approximately 39 percent of U.S. snack food sales

in 2009.[28] One of PepsiCo's primary competitors in the snack food market overall

is Kraft Foods, which in the same year held 11 percent of the U.S. snack market

share.[28] Other competitors for soda are RC Cola, Cola Turka, Kola Real, Inca

Kola, Zamzam Cola, Mecca-Cola, Virgin Cola, Parsi Cola, Qibla Cola, Evoca

Cola, Corsica Cola, Breizh Cola, Afri Cola.

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Products and brands

PepsiCo's product mix as of 2012 (based on worldwide net revenue) consists of 63

percent foods, and 37 percent beverages.[28] On a worldwide basis, the company's

current products lines include several hundred brands that in 2009 were estimated to

have generated approximately $108 billion in cumulative annual retail sales.[30]

The primary identifier of a food and beverage industry main brand is annual sales

over $1 billion. As of 2009, 21 PepsiCo brands met that mark: Pepsi, Mountain

Dew, Lay's, Gatorade, Tropicana, 7 Up, Doritos, Lipton Teas, Quaker Foods

, Cheetos, Mirinda, Ruffles, Aquafina, Pepsi Max, Tostitos,Sierra Mist, Fritos,

and Walkers.[

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1. 7 UP Soft drink

7UP, the refreshing clear drink with a natural lemon and lime flavour was created in

1929. It was launched in India in 1990 and its international mascot Fido Dido was

used for advertising in 1992, to position the brand as a cool drink for youngsters.

Fido became an instant hit with his trendy look, laid-back attitude and unconventional

take on life. 7UP is one of the first to be nationally distributed besides being

marketed as a healthier alternative to other soft drinks.

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2. 7 UP Nimbooz

7UP Nimbooz was launched in India on the 28th of February 2009 and its folio

expanded with the introduction of its variant, 7UP Nimbooz Masala Soda. 7UP

Nimbooz Masala Soda is a unique offering that combines the authenticity of 7UP

Nimbooz, cool of 7UP and the edge of masala.

3. Aquafina

Aquafina was first launched in the US in 1994. With its unique purification system

and great taste, Aquafina soon became the bestselling brand in the country.

In India, Aquafina’s journey began with its launch in Bombay in 1999 and it was

rolled out nationally by 2000. On the strength of its brand appeal and distribution,

Aquafina has become one of India’s leading brands of bottled water in a relatively

short span of time.

4. Cheetos

History

Cheetos, a global brand, launched in India in 1995 has been positioned as a

brand which inspires imagination and a sense of adventure and fun.

Chester- The Cheetos Mascot

Chester Cheetah is Cheetos’ brand mascot. Chester Cheetah is the “Cool

Cat” who accompanies kids in their adventures. Chester is wild and witty,

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wears cool sun glasses and is great fun to be with. Most importantly, Chester

Cheetah is crazy for Cheetos.

The Cheetos portfolio

The Cheetos portfolio comprises of a range of exciting shapes and flavours in

the extruded segment. The portfolio comprises of Cheetos Masala Balls,

Tangy loops, Cheese balls and Cheez Puffs.

5. Duke Soft Drink

Founded in 1889 by Dinshwaji Pandole, Duke’s is a brand that is seeped in

Mumbai’s rich history. It was in many ways the country’s first aerated soft drink and a

pioneer on many fronts. Many a generations have grown up enjoying the refreshing

taste of Duke’s. Thus when PepsiCo India brought this brand in 1994, it also

inherited Duke’s rich Mumbai legacy. While the Lemonade flavour has refreshed the

consumers ever since, in September 2011 some more flavours of Duke’s , the

delicious Raspberry and the sugary sweet Ice-cream soda were relaunched. And

with it was launched Duke’s Masala Soda, with its strong local flavour that has the

consumers wanting for more...

6. Gatorade

Gatorade, the World’s No.1 Sports Drink, was born on the field of sport! Gatorade

was launched in India in 2004 and over the years, has become an integral part of the

kitbags of many leading sportspersons. Such as Usain Bolt, Lionel Messi, Serena

Williams and James Rodriguez. Gatorade is the official sports drink of the UEFA

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Champions League, NBA, NHL, NFL, AVP, and PGA, Major League Baseball, Major

League Soccer, and numerous other elite and professional organizations and teams.

7. Kurkure

Launched in 1999, this perfect ‘namkeen’ snack, developed entirely in India, has

come to be identified with fun and lovable human quirks. It developed an even

stronger identity through associations with well-known Indian actors.

8. Lehar

Lehar was launched in 1996, with innovative small packs and traditional flavours.

The brand positioned itself by emphasizing its irresistible taste and using modern

imagery.

Lehar was re-launched in 2006 and positioned itself using the plank ‘Taste zyaada

kyunki oil taza’. It promised to deliver good taste through the use of fresh oil in the

manufacturing process.

9. Mirinda

Mirinda has always stood for great bold taste that unleashes uninhibited fun. Taking

the promise forward, Mirinda launched two new exciting flavours- Orange Mango

and Orange Masala which appeal to the Indian palette. While Orange Mango is the

perfect mix of the sweet candy taste of mango flavour and the tanginess of original

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Mirinda Orange; Orange Masala tickles the taste buds with a hint of fruit masala

flavour added to Mirinda Orange. The launch was supported by a robust 360-degree

campaign including outdoor, online and a consumer engagement programme to

bring alive the taste experience.

10. Mountain Dew

The main formula of Mountain Dew was invented in Virginia. The drink was

named and first marketed in Johnson City, Tennessee and Knoxville, Tennessee

in 1948.

In India, Mountain Dew set the soft drink category ablaze in 2003 with its iconic

launch campaign ‘Cheetah Bhi Peeta Hai’.

11. Pepsi

Pepsi is a hundred-year-old brand loved by over 200 million people worldwide. Pepsi

is ubiquitous on just about every social occasion.

Young stain loves it. 200 million people worldwide love it. But what has made Pepsi

the single largest selling soft drink brand in India is actually a formula concocted a

century ago in a faraway continent.

1886, the US. Caleb Bradman, a man with a plan formulated a blockbuster of a

digestive drink and decided to call it Brad’s drink. The potion was to become Pepsi

Cola in 1898, and eventually, Pepsi in 1903.

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Since its inception, Pepsi has always been at the forefront of the beverage industry

and has come up with revolutionary concepts such as Diet Pepsi, 2l bottles,

recyclable plastic cola bottles and the enviable My Can.

12. Quaker Oats

The brand Quaker is more than 130 years old and is a world leader in the oatmeal

segment. Quaker Oats was launched in India in 2006. It has a national presence and

has a range of Quick Cooking Oats. Recently Quaker Oats launched 4 new sweet

and savoury oats to its portfolio.

13. Slice Soft Drink

Slice was launched in India in 1993 as a refreshing mango drink and quickly

went on to become a leading player in the category.

In 2008, Slice was relaunched with a winning product formulation that made

consumers fall in love with its taste. With new pack graphics and clutter-

breaking advertising, Slice has built a powerful appeal.

14. Tropicana

Tropicana was founded in Bradenton, Florida, USA, in 1947. It is now enjoyed

almost everywhere in the world. Carefully nurtured for over 50 years, Tropicana has

matured into one of the most respected beverage brands. Tropicana is the #1 brand

in packaged 100% Juice* in the world in 2011 in off-trade volume. It is today

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available in 63 countries. Since 1998, Tropicana has been owned by PepsiCo, Inc.

Tropicana Premium Gold was re-launched as Tropicana 100% in 2008.

15. Uncle Chips

The brand was acquired from Amrit Agro Ltd. in 2000 by Frito-Lay India. After the

acquisition, the hugely popular brand has grown from strength to strength and has

built a powerful connection with consumers. Uncle Chipps is warm, playful, lively,

companionable and traditional at heart, just like the good-natured uncle everyone in

the family relates to and no family gathering is complete without!

16. Lay’s Chips

In 1932, salesman Herman Lay opened a snack food operation in Dorset, Ohio; and,

in 1938, he purchased the Atlanta, Georgia, potato chip manufacturer "Barrett Food

Company", renaming it "H.W. Lay Lingo & Company." Lay criss-crossed

the southern United States, selling the product from the trunk of his car.

The business shortened its name to "the Lay's Lay Lingo Company" in 1944 and

became the first snack food manufacturer to purchase television commercials,

with Bert Lahr as a celebrity spokesman.[3]

In 1961, the Frito Company founded by Elmer Doolin and Lay's merged to form Frito-

Lay Inc., a snack food giant with combined sales of over $127 million annually, the

largest of any manufacturer. Shortly thereafter, Lays introduced its best-known

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slogan "betcha can't eat just one." Sales of the chips became international, with

marketing assisted by a number of celebrity endorsers.

In 1965, Frito-Lay merged with the Pepsi-Cola Company to form PepsiCo, Inc. A

new formulation of chip was introduced in 1991 that was crisper and kept fresher

longer. Shortly thereafter, the company introduced the "Wavy Lays" products to

grocery shelves. In the mid to late 1990s, Lay's introduced a

lower calorie bakedversion and a variety that was completely fat-free (Lay's WOW

chips containing the fat substitute olestra).

In the 2000s, kettle-cooked brands appeared as did a processed version called Lay's

Stax that was intended to compete with Pringles, and the company began

introducing a variety of additional flavour variations.

Frito-Lay products currently control 59% of the United States savoury snack-food

market.

Lay’s, the world’s largest and favourite snack food brand, has steadily

established itself as an indispensable part of India’s snacking culture since its launch

in 1995.

With its irresistible taste, international and Indian flavours and youth-centric imagery,

Lay’s has established itself as a youth brand and continues to grow in the hearts and

mind of its consumers.

Over the years, Lay’s has become known for its engaging and innovative promotions

and campaigns. The brand known for its ‘No one can eat just one’ campaign has

moved its positioning to ‘What’s the programme?’ making Lay’s ‘the main food of

every programme‘! Saif Ali Khan has been the face of the brand for over five years,

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and has recently been joined by the captain of the Indian cricket team M.S. Dhoni.

Both embody the youthful energy and appeal of the brand.

In 2008, Lay’s launched the never-before ‘Fight for Your Flavour’ allowing

consumers to vote for the flavour of their choice. The flavour with the maximum

votes would continue in the market. The flavours have been selected by the Lay’s

brand ambassadors Saif Ali Khan and M.S. Dhoni with each celebrity rooting for the

flavour of their choice.

In November 2008, Lay’s made yet another innovative breakthrough – the Chip-n-

Sauce pack. This first-to-market pack has been launched for cricket lovers as they

settle in their seats to savour the best sporting action of the season. The Lay’s Chip-

n-Sauce large pack comes in two unique flavours – Chilli Chinese with a Schezwan

Sauce sachet and Chatpata Indian with a Tamarind Sauce sachet inside the pack.

In June 2009, Lay’s launched its new positioning platform: ‘Lay’s – Be a Little

Dillogical’. The new Dillogical concept makes an instant connect with youth caught

between the desire to succeed and the desire to remain engaged with certain

moments that offer a deep emotional fulfilment. This friction is like a game between

the heart and the head, a struggle between what you want to do and what you have

to do. It’s all about making things that matter to the heart, happen.

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The new platform has been launched with a series of ads built around the universal

consumer struggle between what the mind asks one to do and what the heart

desires. A powerful 360 degree approach supports the new TVC, and has indeed

prompted consumers to be a little Dillogical.

PepsiCo is seeking to create new categories to differentiate itself from the rest. While

the packaged potato chips market in India is growing at 10%, the growth is 20% in

finger snacks. Both markets are valued at Rs 3,000 crore each. However, the

competition is much more in chips where domestic players like Haldirams, Balaji

Wafers, Prakash Snacks and MTR Foods too are expanding their presence.

As per industry estimates, PepsiCo is still far ahead in overall packaged snacks

segment with more than a 50% share, compared with ITC's 16%. This is after ITC

gained share in finger snacks where it now enjoys a 27% share compared with

PepsiCo's more than 46%. In potato chips, PepsiCo has 60% and ITC, 8%.

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Questions

1. What are the various challenges present for PepsiCo’s Lay’s chips?

2. Which kind of technology can be adopted for PepsiCo’s Lay’s chips in near

future?

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References

1. http://www.pepsicoindia.co.in/brands/lays.html

2. https://en.wikipedia.org/wiki/Lay%27s

3. http://www.pepsico.com/Company/Our-History

4. http://www.pepsicoindia.co.in/company/about-pepsico.html

5. http://articles.economictimes.indiatimes.com/2015-03-

06/news/59844409_1_pepsi-co-india-snacks-sanjiv-puri

6. http://www.pepsicoindia.co.in/brands.html

7. https://en.wikipedia.org/wiki/PepsiCo