Herr Foods: Chipping away at the competition

By Jack Neff, Business Editor

Even giants Anheuser-Busch and Keebler have fallen to Frito-Lay. With audacious flavors and an ear toward its loyal customers, Herr Foods defends its turf

In the battle for the salty snack food aisle, Herr Foods Inc. would seem a likely casualty. Far bigger national foes, Anheuser-Busch and Keebler Foods among them, have succumbed to the onslaught of PepsiCo's snack powerhouse Frito-Lay. Procter & Gamble Co. is fending off a major attack on its Pringles business from Frito-Lay's Stax. With its national foes defeated or on the defensive, Frito-Lay announced earlier this year it's now setting its sights on regional players like Herr's.

But Daryl Thomas, director of marketing for Herr's, based in Nottingham, Pa., isn't losing sleep over Frito-Lay. With sales of around $200 million and "growth rates generally outpacing the category," he says, Herr's will stick to focusing on its consumers, trying to understanding them better than ever and developing new products that will meet their needs in a marketplace where diet trends are in flux.

"It doesn't surprise me that, across the national landscape, there are areas where companies such as Herr's have prominence, and that Frito-Lay would take an interest," he says. Herr's competes in 10 northeastern states, from Ohio, West Virginia and Virginia up the coast through Massachusetts. "As [Frito-Lay] is looking to grow its business, they're naturally looking for where those holes are." Herr's intends forever to be one of those holes in Frito-Lay's market map.

At the same time, the company doesn't appear particularly interested in joining Procter & Gamble in its plan to enlist "regional chippers," as companies such as Herr's are sometimes called by the national players, in P&G's own battle against Frito-Lay. P&G began a test late last year in Northwest markets of reviving Anheuser-Busch's discontinued Eagle Snacks brand, to which P&G bought the rights in the 1990s. Should P&G roll an Eagle revival nationally, it would be looking to regional snack companies like Herr's as partners to produce and distribute the brand, said spokesman Gary Dowdell.

"We're committed to the Herr's brand and marketing and distributing it," says Ed Herr, executive vice president. "If there's an item out there that would round out our line and not cannibalize sales, we certainly will look at those things. But our first commitment is to the Herr's brand. It's what we're about and what we do. I don't see that changing for the foreseeable future."

More focus on the consumer
What the company is doing to compete more effectively is focusing more closely than ever on its consumers, why they buy Herr's versus other brands, and how to get them to buy more.

"We're involved in a study right now to get a definition of who our consumer segment is," Thomas says. "Herr's is a family business. When we talk to consumers, we get a sense that theme seems to resonate with people. Families like the idea of family companies. It creates a good feeling toward the brand versus a big corporate conglomerate.



"This is a family that does one thing: makes snacks," adds Ed Herr. "Our name is on the bag with a tradition we want to keep alive."

Herr's had mixed but overall positive results in 2003, losing share slightly in its two biggest businesses , potato chips and pretzels , but more than making up for that with strong double- and triple-digit growth in all of its other categories, according to Information Resources Inc. data from food, drug and mass merchandisers, excluding Wal-Mart Stores. Those data also exclude convenience, club, dollar, foodservice and other small-store accounts , all of which are significant channels for Herr's.

In this qualified data, Herr's sales rose 3.2% to $87.8 million, according to IRI figures, twice the 1.6% pace of the $7.7 billion salty snacks business overall. In the fast-growing pork rinds category, Herr's grew its business 114% to more than $1 million, more than tripling the category's already strong growth. In the declining ready-to-eat popcorn and caramel corn business, down 6.4% last year to $196 million, Herr's nonetheless grew its sales 19.9% to $3 million. And in a fairly flat tortilla chip market, up 1.1% to $1.6 billion, Herr's boosted its sales an impressive 16.7% to $13 million.

(Thomas declined to give actual company figures, but said the IRI data is generally accurate but accounts for only about half of company sales.)

To Thomas, the reason for the strong showing is simple: Herr's has been following where its consumers are leading, into greater variety. "We started with one potato chip in 1946," he says. "Today, we have 21 different types. We have 340 [snack stock-keeping units] out there in all."

But he realizes Herr's is far from alone in product proliferation. "There were 700 new snack items introduced last year, accounting for about 5 percent of all new grocery items. So a lot of people are trying to satisfy consumers by giving them the great-tasting product they're looking for."

Audacious new products
For Herr's, product development in such a competitive and fast-paced environment means leaving no stone unturned , be it categories, trends, partners or resources.

"We have a structured program for new product development," Thomas says, in which marketing, R&D and manufacturing are equal partners and ideas are solicited from employees and suppliers, too. The company focuses innovation on areas where it sees emerging consumer interest, areas where a product line has excess capacity that should be tapped to maximize return on capital investment, or areas where the competition seems relatively less intense.