FRITO-LAY IS MUNCHING ON THE COMPETITION
From a conference room in a Dallas high rise, executives at a Frito-Lay Inc. division point outside to a rival's cheeky assault: a billboard touting Eagle Snacks Inc.'s new tortilla chip. Score one for Eagle? Forget it. Frito's sales team struck back by winning most of the snack franchise at the independently operated deli in Eagle's new Dallas headquarters.
Now that's what Roger A. Enrico likes to call "taking back the streets." Since arriving at Frito in January, 1991, Enrico has put the PepsiCo Inc. unit back in the fast lane by grabbing market share, shrinking a bloated bureaucracy, and boosting profit margins. "The organization has accomplished far more in this period than I ever thought possible," says Enrico, who won his reputation as a scrappy manager and savvy marketer while president and CEO of PepsiCo Worldwide Beverages.
The numbers alone give him reason to boast: Frito's operating profits jumped 15% in the first half of 1992, helped partly by lower potato costs. The company should earn $800 million on $4 billion in sales for the full year, according to analyst Lawrence Adelman of Dean Witter Reynolds Inc. That's a 13% gain over 1991 profits, excluding a $91 million restructuring charge (chart). "I don't think they've topped out by any means," says Adelman.
BIGGER CHEESE. Enrico has roused the industry Goliath out of a torpid five years by slashing prices, boosting quality, and putting the zing back into Frito's advertising. Frito's share of the $4.2 billion supermarket salty snack business jumped more than a point, to 42.3%, for the 52 weeks ending in mid-June, according to Nielsen Marketing Research. Archrival Borden Inc. lost nearly a point of its share, falling to 8% for the same period. The turnaround adds another star to Enrico's career: In June, the 20-year PepsiCo veteran was promoted to oversee both Frito and PepsiCo Foods International (page 50). And he has emerged as the clear favorite to succeed 56-year-old PepsiCo Chairman Wayne Calloway.
Not that Frito was in danger of crumbling without Enrico. The company has powerhouse brands such as Doritos, Lay's, and Ruffles, a 10,500-member sales force, efficient factories, and sophisticated information systems. But in the last decade, Frito grew fat on all its success. It developed a bulging payroll at its Plano (Tex.) headquarters. It boosted prices faster than inflation. And it allowed lapses in quality, such as too many broken chips in each bag. As a result, rivals began to nibble away. Most alarming were the gains made by Anheuser-Busch Cos.' Eagle Snacks, which churned out premium products at prices up to 20% lower than Frito's. The fierce competition drove down the company's profit margins from 21.4% in 1990 to 18.9% last year.
Enter Enrico. Using skills honed in the cola wars, he first eliminated 1,800, or 60%, of Frito's management and administrative jobs. By spreading decision making throughout the company, Enrico boosted quality and made Frito more nimble. At a snack plant in Irving, Tex., for example, nearly half the managers are gone, and plant-floor operators rather than supervisors check products every hour to enforce stiff new quality standards. Enrico also closed or sold 4 of Frito's 40 U.S. plants and dropped nearly 100 package sizes and flavors from its bloated lineup.
The cutbacks have saved an estimated $100 million annually, which Enrico is using to pay for new products, lower prices, and better marketing. His mouth-watering goal: profit gains of 10% to 12% annually, real volume growth of 6% to 10% a year, and gains in market share, all while keeping a lid on prices.
GOING LOCAL. That's a tall order, particularly in an industry racked by price wars. As he did at Pepsi, Enrico is betting heavily on slick marketing to make the difference. First he reformulated the flagship Doritos brand. And recently, Frito rolled out splashy new TV ads to launch reformulated Lay's and Ruffles potato chips. In May, the company announced it was changing the packaging, cutting the salt content, and switching from soybean to cottonseed oil to improve the flavor of both chips. It signed up basketball stars Larry Bird and Kareem Abdul-Jabbar to peddle the new Lay's in the product's first network TV commercials in 10 years. Then Enrico shelved the 27-year-old "Ruffles Have Ridges" tagline, replacing it with a "Get Your Own Bag" theme.
Catchy advertising is only one of Frito's weapons. The company's marketing machine is humming at the grass roots, too. That's critical, because unlike other packaged goods, such as toothpaste or canned soup, the snack-food market still has strong local players who command regional loyalties. In the Baltimore-Washington area, for example, Utz potato chips claims about one-third of the market. Now, Frito is challenging Utz in blind taste tests. The result so far this summer: Lay's has doubled its still-slim share in the area. In the past, says Stephen Liguori, vice-president for brand marketing, "we were too big and too stodgy to worry about going after these local opportunities."
Enrico even put on his salesman's shoes to champion the grass-roots effort. Last May, he and his wife handed out samples of Frito's new "Nacho Cheesier Doritos" at several Dallas supermarkets. They were among 13,000 staffers who promoted the new brand by giving away 5 million bags across the country that day. Enrico says the campaign also lifted morale by making employees feel like a team: "It's about as close to a religious experience as you ever get in business," he says.
But it is Frito's rivals who may soon be saying their prayers. The company has recently discounted some of its key brands "to levels we've never seen," says Peter J. Cline, group vice-president for Borden's North American snack business. Borden blames the ferocious price competition for a 33% plunge in second-quarter operating profit from its snacks and international consumer products unit. No. 3 Eagle is faring better. Its share in supermarkets is up 0.8 points, to 5.2% for the year, according to Nielsen. But despite its strong growth, analysts figure Eagle could still lose $15 million to $30 million in 1992.
RIGHT STUFF. Borden and Eagle are both far from cashing in their chips. To cut costs, Borden plans to start a national brand to supplement its 20 or so regional labels. The company is also launching a new chip called Graingers to compete with Sunchips, Frito's successful new multi-grain snack, which had a remarkable $115 million in sales in its first year. Eagle, meanwhile, says it is rolling out new tortilla chips and pretzels.
If Enrico is as good a talent scout as he is a marketer, Frito's rivals will get little relief from Steven S. Reinemund, his hand-picked successor. Reinemund earned his stripes as CEO of PepsiCo's Pizza Hut unit by building a home-delivery business that may surpass industry leader Domino's Pizza Inc. this year.
Now, as he takes over a revitalized Frito, Reinemund has inherited the ingredients for success. After all, he'll be learning from a man who has convinced lots of Americans that the perfect meal is a bag of Doritos and a Pepsi.Wendy Zellner in Plano, Tex.