Frito-Lay is the undisputed chip champ of North America. The company makes some of the best-known and top-selling savory snacks around, including Cheetos, Doritos, Lay's, Ruffles, SunChips, and Tostitos. On the sweet side, Frito-Lay also makes Grandma's cookies, Funyuns onion-flavored rings, Cracker Jack candy-coated popcorn, and Smartfood popcorn. It also makes a line of chips made with the fat substitute Olestra under the Light brand name. Owned by PepsiCo, Frito-Lay North America's operations span the US and Canada and account for about 20% of the soda maker's sales. Frito-Lay's Mexican sales are reported within PepsiCo's Latin America Foods segment.
Frito-Lay offers healthier snacks and dips through a 50-50 joint venture with the Strauss Group. Formed in 2007 the Sabra Dipping venture makes fresh hummus, spreads, Mediterranean salsas, and other vegetarian foods. In 2011 Frito-Lay and Strauss extended their collaboration to markets outside North America.
Frito-Lay North America (FLNA) sold about $13.6 billion worth of snacks in 2012, up from $13.3 billion in 2011 and $12.6 billion in 2010. The 2% rise in sales in 2012 compared with 2011 was was driven by pricing, partially offset by a decline in volume. The volume decline reflected double-digit declines in SunChips and Rold Gold, a low-single-digit decline in Lay's, and a mid-single-digit decline in Tostitos. FLNA's operating profit grew 1%, driven by net revenue growth and planned cost reductions, partially offset by higher commodity costs, primarily cooking oil, and higher advertising and marketing expenses.
While Frito-Lay stands alone at the top of the fragmented snack food market, Diamond Foods and the US snack division of cereal maker Kellogg are coming on strong. Diamond Foods, best known for its nuts, in 2012 attempted to acquire Pringles (the world's best selling brand of potato chip) from Procter & Gamble, but lost out to Kellogg, which paid $2.7 billion in cash for Pringles, making it the world's second-largest snack food company.
Continuing concern about obesity has led the company to refine some of its snack foods and begin making healthier versions of them. It has embarked on a plan to reduce sodium, fats, and sugar in its products, as well as introduce more whole grain foods to its line-up. It now offers a line of 100-calorie-per-portion products repackaged as Mini Bites and a variety of real fruit and vegetable crisps called Flat Earth. Hoping to reduce the overall salt content of its products by 25%, it makes low-sodium versions of its top-selling brands, including Lay's and Ruffles potato chips, Tostitos tortilla chips, and Fritos corn chips. To maintain their flavor, the company works with seasoning partners to improve the taste of its current product and work up new tastes.
The company also looks for opportunities to partner with other snack makers. Frito-Lay collaborates with beef-jerky maker Jack Link's to sell a line of Matador meat snacks. Aimed at younger, busy adults, the product takes advantage of Jack Link's meat-product manufacturing know-how and Frito-Lay's expertise in distribution, sales, and merchandising.
Frito-Lay North America is a wholly-owned subsidiary of PepsiCo, which has come under pressure to separate is declining soda business from growing Frito-Lay. Activist investor Nelson Peltz, who has been amassing positions in PepsiCo and Mondelez, is pushing PepsiCo to spinoff its snacks division and merge it with Mondelez.