Pepsi: Crunching The Competition Essay

2583 words - 11 pages

When Frito Lay, the snack food subsidiary of PepsiCo, entered India in 1990 it had to face the formidable presence of Uncle Chipps from homegrown Delhi-based company Amrit Banaspati, which accounted for over half the market.There were other discouraging moments too. In 1993-94, a Pepsi spokesman admits, a local chain of sweatmeat shops, Nathu's, sold more volumes than Frito Lay sold in the whole of India.Eleven years down the line it is Frito Lay that has not only managed to buy out Uncle Chipps, but has also succeeded in becoming the dominant player in the market with little challenge from its rivals.Apart from a dominant 90 per cent share of the tough packaged potato chips market, it now ...view middle of the document...

Most importantly, it fell into the standard multinational trap by failing to read the consumer correctly. The multinational's decision to launch in India was mainly an offshoot of the success of its snack food business worldwide. Frito Lays' first offerings were Hostess potato chips, Cheetoz corn snacks and Ruffles, which was a ribbed chip.By 1994, it was clear that consumers weren't biting at least two offerings - Hostess and Cheetoz. Hostess bombed because it was a plain salted offering that was priced higher than the nearest competition. And Cheetoz, an extruded corn-based snack, proved unfamiliar for Indian taste-buds. Both products were withdrawn for lack of volumes.Even with Ruffles, however, Pepsi suffered some teething problems. When Pepsi entered the market Uncle Chipps enjoyed a market share of 53 per cent. The rest went to local players such as Hello, Twinkle, Marvel and OK. (By the mid-nineties, the other major competitor, Binny's from Delhi-based liquor group Jagatjit Industries, had made an ignominious exit on the back of packaging problems which affected the shelf life of the product.) Ruffles was perceived as a premium product, mainly because of the relatively high-tech packaging and its global lineage. Lays was the first company to introduce nitrogen packaging in a special metallic film that was developed by the parent company.Although this improved the shelf life of the product, it also increased costs - packaging alone accounted for half the price of the product. The problem was that consumers didn't perceive the plus in the packaging; as far as they were concerned, they were paying extra for the same chips.To begin with Ruffles was available in various flavours including "Classic Salted". Then in 1991, to combat Uncle Chipps, it introduced such "ethnic flavours" as "Pudina Punch" and "Magic Masala". Despite this, by 1994, Ruffles sold only 300 tonnes - a tenth of the branded potato chips market.Consumers were turned off because Ruffles chips were initially a darker brown rather than the conventional golden colour. This was mainly because the company used locally sourced potatoes which others were also using. Again, this didn't allow any scope for product differentiation that would rationalise its premium position.Frito Lay also choked on its distribution strategy. Before 1994, Frito Lay was distributing chips through Pepsi India's bottling system. This proved a mistake because the nature of the two businesses are different. Soft drinks is an established market in India whereas the branded snack food market was undeveloped. So simply offloading chips to the retailer, which is what was done with soft drinks, proved counterproductive especially since snack foods had a far lower shelf life.Turning point The turning point was 1995. As a company spokesman says, "When we launched snack foods in India, it took us time to understand the product, the price and distribution. By 1995, we had clearly understood the consumer, consumer...

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