This morning Jill Ptacek, Nina Hale, and I spoke with [REDACTED TEXT (b4,7D)]
[REDACTED TEXT (b4,7D)]
He explained that their products are purchased by impulse approximately 68 percent of the time. He believes that the industry is changing dramatically. [REDACTED TEXT (b4,7D)] DSD, on the other [REDACTED TEXT (b4,7D)]
The industry was originally based on selling products at a good price. Today, the focus is to get their products into the store and staying on the shelves. [REDACTED TEXT] He said the larger companies are able to pay money for shelf space and promotions. Consequently, they are forced to focus their business on the private labels. Frito Lay, for example, has no private labels. In the past, private label agreements were not contracted. They were built on long term relationships of 30 to 35 years. Recently, however, they have negotiated 2 five year contracts. They deal with private labels as far [REDACTED TEXT]
He estimates that [REDACTED TEXT] percent of their DSD is market is with grocery stores. They do not have much business with convenient stores because they don't have the money to play the game.
Typically, convenient stores ask how much are they will to pay to keep their products in the store. Recently, they had their products removed from a national grocery store called [REDACTED TEXT] This chain sent a letter out asking for an annual payment. As a [REDACTED TEXT] they do not have the money for this extra expenditure. Margins in the salty food industry is [REDACTED TEXTf] percent; if they end up giving more to the stores, there is no reason for them to stay in business.
They have their own distribution and sales system for DSD. The higher level executives, however, will arrange for shelf space. He believes that it is ethnically wrong to pay money for shelf space. He explained that about ten years ago Frito Lay started the practice of offering money for space on the shelves with Pepisco. He said that this practice changed the industry dramatically. He suggested that if we look at the salty food producers in the market before Frito Lay started this practice and compare it to the producers today, we would notice a high percentage of drop outs. He says that this is all because of Frito Lay's new practice. He explained the "Mom and Pop" grocery stores are in trouble. The small stores of rural America are being replaced by the super mega stores.
He says that salty food industry is a $15 billion industry. Frito Lay makes approximately $8 billion. They typically have at least 50 percent of any store's market. He explained that nearly all stores ask for some sort of slotting fee. He explained that when the Eagle products were pulled from the shelves, extra space opened up on the shelves. During this time, the stores asked who was willing to pay for these shelves. Frito Lay's slotting fee payments are not proportionate to their overall market share; a [REDACTED TEXT (b4,7D)] company is expected to pay the same amount as Frito Lay.
[REDACTED TEXT (b4,7D)] He states that in [REDACTED TEXT] used to have approximately [REDACTED TEXT] percent market share. This has changed dramatically as they are unable to advertise. They presently have approximately [REDACTED TEXT ] percent of the potato chip industry and a little less than that overall. He believes that they have a [REDACTED TEXT]
Other competitors include [REDACTED TEXT ] He states some of their major distributors include [REDACTED TEXT] He explained that in [REDACTED TEXT] has about [REDACTED TEXT] percent of the market. He previously had a private label agreement with them. Recently a new competitor has taken over that private label business for them and as a result have taken over [REDACTED TEXT] shelf space for DSD. When [REDACTED TEXT] tried to contact them, they explained that they had [REDACTED TEXT (b4,7D)] He explained that they may charge [REDACTED TEXT] for an ad to be run for [REDACTED TEXT] stores. This means approximately [REDACTED TEXT] per store. If they are working at a [REDACTED TEXT] margin they need to make approximately [REDACTED TEXT] in one week to break even per store. If they are selling, their product at a retail price of [REDACTED TEXT] they must sell [REDACTED TEXT] units/ store which means [REDACTED TEXT] people must be buying their products. He says this is absolutely ludicrous and they are completely unable to compete. As a result, he has lost [REDACTED TEXT] percent of his shelf space. He submitted proposals to try to match this offer, but they were never received. He wants to emphasize, however, that no store has completely kept them out of their local market.
Convenient stores, however, are another game all together. He has approached [REDACTED TEXT] and was told that they only want to deal with one provider -- Frito Lay. Frito Lay is able to serve all of their locations. He states that [REDACTED TEXT] gave them the opportunity to buy shelf space, however they didn't have the money In general, this isn't a bidding industry. If XYZ company offers the product for a nickel cheaper, they wouldn't go back and try to bid down a lower price. He says price is a factor, but quality and service is also considered.
He explains that [REDACTED TEXT (b4,7D)] has not done any advertising in the [REDACTED TEXT (b4,7D)] due to financial constraints. All of their promotional marketing is done at the store level. He has offered a series of rebates or bonuses whereby if a store sells a certain volume, they will discount X amount off on the store's invoice. For example, if a store took out an A ad(full page newsprint spread) , he would take [REDACTED TEXT (b4,7D)] off for every unit that was sold. If they had a secondary display he would also consider a rebate.
He gave another example of a small chain which had [REDACTED TEXT]
He says that Frito Lay is the only player in the industry that doesn't kept its shelves full. The shop owners aren't concerned about this however, because they are able to make a go of the business with their up front profit on shelf space. They don't necessarily have to sell anything. He explains that whatever they actually sell is a bonus to them.
He suggests that the only companies [REDACTED TEXT (b7D)] He says that lack of shelf space is a major factor for these companies going out of business. He says that competition is better [REDACTED TEXT (b7D)] with regional companies such as [REDACTED TEXT (b7D)] He doesn't believe that the national companies (Proctor and Gamble and Frito Lay) have any advantage with their diversified product lines.
He suggested we talk with [REDACTED TEXT]