Frito-Lay Investigations : 06/03/1996: Memorandum: Interview

Memorandum

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In the last ten years, Frito has increased the price of its corn products, where it has an 80% market share, while it has kept the price of its potato chips virtually unchanged, [REDACTED TEXT (b7D)]

Rather than engaging in explicit exclusive dealing contracts, Frito sets up comprehensive programs involving rebates and incremental sales incentives to induce retailers to give it more space. [REDACTED TEXT (b7D)] referred to a [REDACTED TEXT (b7D)] Typically, this is paid on a quarterly or monthly basis.

For example, Frito has a national contract with [REDACTED TEXT (b7D)] which include rebates and additional compensation per increase in sales. Frito has similar arrangements with airport concession stands [REDACTED TEXT (b7D)]

Although Frito has been the most successful player in this sort of game, others have tried to engage in the same types of maneuvers. A small national salty snack food company offered [REDACTED TEXT (b7D)] up front to be stocked in a certain amount of space. Eventually, the store took the chips out because they were not selling enough.

Frito tends to offer up-front or "spiff money" to acquire the best endcaps and bread tables [REDACTED TEXT (b7D)] recalls another instance in which a retailer told him that Frito had paid one million dollars up front, in a Southeastern market, to stock only Frito products. In another situation, Frito paid money to have a rack of its product placed in front of [REDACTED TEXT (b7D)] product, essentially removing it from view.

[REDACTED TEXT (b7D)] also complained about Procter and Gamble's exclusive arrangement with Frito to sell Olestra;

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[REDACTED TEXT (b7D)] estimated that Frito had about [REDACTED TEXT (b7D)] of all shelf space in stores (gondola only). Convenient stores and gas stations are even more of a problem than grocery chains. Often, grocery chains will keep stocking [REDACTED TEXT (b7D)] products because of customer demand. However, convenient stores and gasoline chains (e.g., Exxon, Chevron, Shell, Texaco) are more willing to enter into exclusive dealing arrangements with Frito. [REDACTED TEXT (b7D)] speculated that Frito paid cash up front for these arrangements, and that it had written, one- and two- year contracts with the stores (even though he doubts that the exclusivity is actually written in).

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