Frito-Lay is the undisputed chip champ of North America. The company makes some of the best-known and top-selling savory snacks in the United States, including Cheetos, Doritos, Fritos, 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 more than 20% of the soda maker's sales. Frito-Lay's sales in Mexico 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. Its Sabra Dipping joint venture makes fresh hummus, spreads, Mediterranean salsas, and other vegetarian foods.
Beyond its operations in the US and Canada, the company has a research facility in Plano, Texas.
Sales and Marketing
To foster customer engagement and hopefully boost potato chip sales, Frito-Lay in 2013 launched the "Do Us a Flavor" contest that invites people to come up with new potato chip flavors with some interesting results. The four finalists in 2014 include cappuccino-flavored Lay's, Cheddar Bacon Mac & Cheese, Mango Salsa, and Wasabi Ginger. Winners receive $1 million and get to see their flavor sold nationally.
Frito-Lay North America's (FLNA) sales have been steadily growing in recent years. The company sold about $14.5 billion worth of snacks in 2014, up from $14.1 billion in 2013 and $13.6 billion in 2012. The 3% rise in 2014's sales was driven by volume growth and effective net pricing. FLNA's variety packs and its Sabra joint-venture products continued to outperform, posting double-digit growth, while its trademark Doritos brand delivered mid-single-digit growth. Dips also contributed with low-single-digit growth, while SunChips suffered another year of double-digit declines. Overall, the company's sales accounted for 22% of PepsiCo's total revenue in 2014.
FLNA's operating profit grew by 5% in 2014, thanks to revenue growth andplanned cost reductions across several expense categories. Lower commodity costs, especially from cooking oil and corn, drove operating profit growth by 2 percentage points during the year.
While Frito-Lay may have a stranglehold on the fragmented snack market in North America, the company still recognizes the need to innovate to keep its product lines fresh and in the minds of consumers. In 2015, for example, the company introduced two new convenience snacks, Rold Gold Pretzel Dippers (in Cookies & Cream and Fudge Brownie flavors) and Rold Gold Pretzel Cracker Sandwiches (in Sharp Cheddar and Creamy Fudge flavors). In 2014, the company expanded its health-conscious product portfolio with two new "40% less fat versions" of its Lay's Kettle Cooked potato chips, in Sea Salt & Vinegar and Jalapeno Cheddar flavors.
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 spin off its snacks division and merge it with Mondelez.