When the chips are down

One by one, most Frito-Lay foes have fallen: Will Procter & Gamble's Pringles be next?

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Frito-Lay projects it eventually will be able to sell $300 million to $500 million worth of Lay's Stax per year. That's a fairly ambitious goal, given that Pringles sales total around $300 million, or about 6 percent of the U.S. salty snack market, according to Information Resources Inc. (Executives familiar with the brand peg sales at Wal-Mart Stores, clubs, and other outlets excluded by IRI at another $200 million or more.) Pringles currently trails Frito's Lay's and Ruffles potato chip brands in the U.S., its performance paling in comparison to Frito-Lay's $3 billion U.S. salty snacks business.

Stamp sees Stax as "a revival of the old Munchos brand done a lot better," referring to a form-fried snack brand Frito-Lay launched without much success in the 1980s. Stax doesn't compare to Pringles in quality at this point, he says, but the product is "probably 80 percent of the way there" , sufficient to command much of the market as Frito-Lay works to improve the quality.

Pringles' uphill battle

Pringles faces a fight made harder by P&G's own mistakes in the late 1990s, says Jeff Dufresne, a former Pringles brand manager and currently president of Brandstorm, a new product consulting division of Cincinnati advertising agency Northlich.

"Even prior to Stax, Pringles had blown up their business model," said Dufresne, who as the product's brand manager in the early 1990s developed the teen and young-adult-focused advertising that hit at "Lay's greasy broken chips," helping to transform Pringles from divestiture candidate to billion-dollar-plus global brand. Pringles subsequently expanded into 125 countries.

By the late 1990s, however, Pringles' U.S. volume and share had slipped by more than a third, which Dufresne blames on price cuts and a shift in focus to younger kids and moms. By aiming Pringles at younger kids, he says, marketers run the risk of making them appear "uncool" to teens and young adults, traditionally the brand's core consumers. P&G also expanded Pringles' production capacity too fast, thereby eroding profitability, he said.

Current management has moved to fix these problems, but now must try to shepherd the brand to recovery during a major competitive assault. "Frito-Lay is doing this to put the nail in the coffin for P&G in snacks," Dufresne says. At the very least, he says, "Stax probably caps the upside for Pringles, or any hope they could return to their glory days."

Ultimately, however, the key battle could be outside North America, Dufresne says. In many overseas markets, Pringles is a considerably stronger brand than in the U.S. With labor laws in Europe and many overseas markets preventing development of DSD systems, Frito-Lay doesn't enjoy the major competitive edge it has over P&G in the U.S. Accordingly, he believes Pringles' success outside the U.S. is most likely what drove Frito-Lay to mount a challenge to a brand posing little threat to its dominance here.

Should Stax gain a foothold in the U.S., Dufresne believes the next step for Frito-Lay is to export the brand overseas from its U.S. plant, just as Pringles did in the early days of its global expansion. Among the advantages of canned potato crisps are their shipability, density and extended shelf life, all attractive attributes in an export product.

"If Pringles had taken Lay's Stax on when it was at its peak, it would be a much different battle," Dufresne says. "Right now, Pringles is struggling to recover from a series of three to five years of soft business results. This on top of that is going to make it a pretty tough category for both Pringles and Lay's."

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