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Frito-Lay Changing to Meet New Tastes: CEO is Steering the Snack Maker Toward More Healthful Products

Posted on: Tuesday, 27 December 2005, 12:00 CST

By Karen Robinson-Jacobs, The Dallas Morning News, The Dallas Morning News

Dec. 27--Just over a year into her tenure as chairman and chief executive of Frito-Lay Inc., Irene Rosenfeld is leading a quiet evolution.

Over the rocky landscape that is "changing consumer tastes," she is guiding the nation's largest snack maker toward a realm of healthier offerings.

And as many bankrupt food companies can attest, this terrain is littered with well-intentioned products that failed to satisfy what consumers say they want -- and what they most want to eat.

In an interview with Dallas Morning News business editors and reporters, Ms. Rosenfeld talked about the options and opportunities facing the Plano-based company.

"I feel really good about some of the progress we've made on some key initiatives," said Ms. Rosenfeld, 52, who became chairwoman and CEO in September 2004.

"I think we've got a lot of momentum. We've taken a lot of steps to stage our business for the future."

Frito-Lay, whose roots date to 1932 and which is a unit of PepsiCo Inc., continues to pledge allegiance to its core four brands.

Lay's potato chips, Doritos and Tostitos tortilla chips and Cheetos snacks remain marquee names, with each bringing in more than $1 billion in sales in 2004.

Frito-Lay sales totaled $9.6 billion that year.

But there are headwinds.

This year, overall sales of salty snacks are up only 1.5 percent, according to Information Resources Inc., a Chicago-based research firm. And potato chips are up 1.1 percent.

Part of that is due to the law of big numbers. But clearly the triple digit growth is attached to products with "light" in the name or a healthful appeal in the pitch.

Against this backdrop, Ms. Rosenfeld must take the cachet of Frito-Lay's core brands and add a more healthful sheen, with products such as the upcoming Baked Lay's Cheddar and Sour Cream chip, and with 100-calorie, portion-control packs of some of the core products.

Here are edited excerpts from the interview.

If you go back to 2000-01, Frito-Lay described itself in news releases as the "snack food division" of PepsiCo. Now it describes itself as the "convenient foods division." What do you see as the difference and what motivated that positional change?

Historically we had described ourselves in terms of the portfolio of products that we had at that time, which were primarily snack foods and most specifically chips.

With the acquisition of the Quaker Oats Co. in 2002, we brought into the fold a host of other snacking alternatives, most specifically Quaker granola bars, Quaker rice cakes, and most importantly the Quaker trademark itself. ... They're still snack foods, but they're perhaps defined more broadly.

You've talked in the past about wanting to be a bigger player in the "macro snack" category. Can you define what you mean by that and tell us what kinds of things are you going to be offering that you're not offering now?

We've made steady progress in growing our share in what has been our traditional stronghold -- it's about a $15 billion category of savory snacks. And we've continued to grow share year after year. In fact, there's about $90 billion of snacks out there that would include cookies, crackers, nuts, meats and other kinds of packaged convenient foods.

What does that mean in terms of your product lineup?

We already participate in a number of categories beyond our traditional chips, which is part of what led to our describing ourselves as a convenient food company. ...

And as we think specifically of expanding our portfolio more in the direction of health and wellness offerings, we want to be able to expand into some new categories where we feel we can bring consumer benefits, whether it's added protein, fruits or vegetables.

What does that mean for your marquee brands such as traditional Lay's, which don't fit into the "better-for-you" category?

Within each of our brands we offer a range of products that we believe best meet the variety of consumer needs.

So, for example, in our Lay's portfolio we have our base classic Lay's product that we classify as more indulgent and fun for you, but we also have a very strong position in Baked Lay's and Lay's Light, which has half the calories of our base Lay's product.

We are launching this coming year a Lay's Kettle chip that is made with sunflower oil, which is a healthier oil that is high in monosaturated and polyunsaturated fats.

As a company, PepsiCo has made a push to offer healthier-focused products. Cynics might see this as mostly an attempt to blunt criticism for the role snacks play in obesity, or to fend off lawsuits, or both. How do you respond to comments such as those?

I respond by looking at our business results. The facts are that our good-for-you products are growing at three times the rate of our base products.

We're coming out now with a Quaker chewy granola bar; it's a 90-calorie bar that actually is preferred to our current bar. It's about a 30 percent reduction in calories vs. our current offering, and consumers find it a more desirable taste than our current offering.

Do you feel that you have the right suite of brands now? If you're trying to make a healthier play, does the Frito-Lay brand name on that help or hurt you?

Our brands have a lot of legs. Without a doubt, Lay's stands for potato chips, but beyond that we've seen some terrific stretch in the brand because we come back to this challenge of having better-for-you products that taste good. If you think about what's in our portfolio, Sun Chips is a brand that has been quietly growing for the last several years because it is a whole-grain offering that tastes great. We will be continuing to invest in the coming year in our Sun Chips business.

We also recently announced the acquisition of Stacy's Pita Chips. It provides us with another leg of our stool as we think about what are the opportunities to offer snacks to consumers. And lastly and absolutely not least, the Quaker trademark is the strongest trademark in wholesome snacking. We have a very exciting platform of ideas that you will see coming out under that trademark as well.

Have you had any products bomb?

We had a product at Wal-Mart that we launched. We had high hopes for it. It was called the Doritos' Bowl Bag. And quite frankly it's a great idea; we just didn't quite execute it. It was a bag that became a bowl. We think it will have a new incarnation as a picnic pack.

As the country becomes more diverse, how has that impacted the flavors that you offer?

The level of spiciness that the mainstream consumer will tolerate has increasingly migrated upward -- in large part because of the influence of the ethnic population. So we're finding that increasingly, products that might have once been targeted uniquely to a multicultural consumer is now more mainstream. For example, we're just launching a Habanero Doritos, and it just burns your tongue. But we're finding it has much broader appeal than we might have thought historically.

You already have an established sports tie-in with the Tostitos Fiesta Bowl. Are there other places that you're looking to extend either the Frito-Lay name or one of the brands into sports?

We've had a long and very productive relationship with the NFL, and that will continue to be a strong venue for us for the various bowls and the Super Bowl. We're just beginning to develop a relationship with Susan Komen [breast-cancer awareness races].

And we believe that's the kind of partnership that speaks to our desire to continue to invest in the whole opportunity for better-for-you and health and wellness. You'll see it as part of our Sun Chips marketing program, but increasingly you'll see more and more of our Quaker products will be affiliated with that venue, and we believe we can bring it to more parts of the portfolio.

So you will be stepping up the marketing budget?

Absolutely. We increased our media investment this past year by over 50 percent. And we will continue to step up our investment to ensure that we're telling the consumer about our evolution as we're making that change. We haven't given out specific media spending numbers, but we're spending a couple hundred million dollars.

At the Plano headquarters, is there anything you've put in place or plan to put in place in 2006 to help deal with the 250 recent layoffs there at a corporate cultural level?

We've taken a couple of important steps. My commitment to the employees is that we are asking them to work smarter, not harder....One of the first simplifying assumptions is to get everybody aligned on a common set of ... [objectives] so that we're all rolling in the same direction. We've streamlined other processes to make sure we have people focused on the most important things and on the right things.

We are pruning the number of ... [varieties of products] that we are selling for the first time, probably ever but certainly in recent memory, in an effort to simplify our portfolio.

And we've taken some very important steps to lessen the number of reports that we issue. At the management reporting level we've cut out 50 percent of the reporting pages that we receive.

What is the best phrase to describe the state of Frito-lay right now? Is it evolution, revolution, metamorphosis?

I would say evolution without a doubt. All of the ideas that we've talked about build on the fundamental strengths of the company. We've got core brands that have enormous equity with consumers. And our intent is to help to evolve those brands to better reflect the evolving needs of our consumers. It's very much an evolution.

E-mail krobison@dallasnews.com

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Source: The Dallas Morning News

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