PLANO, Texas -- Is Frito-Lay here the snack king due to savvy business practices or shelf monopolization? The former, retailers told SN.
Quality, smart marketing techniques and high consumer demand -- not anticompetitive practices -- have made it the market leader, retailers said. They said companies are represented fairly in their snack aisles; those that have the most sales, like Frito-Lay, are given the most space. "Frito-Lay has never asked us to give them anything more than what they need," said Jeff Savage, senior category manager at Randalls Food Markets, Houston. But industry watchdogs are not so sure. The U.S. Justice Department's antitrust division is exploring whether anticompetitive practices exist in the snack foods industry, reportedly targeting Frito-Lay. A Justice Department official declined to comment any further on the investigation, saying only that it's in the preliminary stages.
At issue is the increasingly controversial slotting fee. Published reports have said the Justice Department is probing whether Frito-Lay is buying more space than it needs so that it can dominate the category. Though some large companies reportedly charge substantial slotting fees, most retailers polled by SN said they don't sell shelf space. Money received from companies is used toward promotions, advertising and other product support, they said. The majority of companies polled by SN agreed that Frito-Lay has the most space, but said its sales warrant it. "Look at our stores after the weekends, Frito-Lay is blowing out [the door]. All the other vendors still have plenty of product," said David DiGeronimo, grocery buyer at Victory Supermarkets, Leominster, Mass.
Frito-Lay is the top brand in most of the leading snack items. The leading two potato chip brands are Frito-Lay's Ruffles and Lay's, which have about a 20% and 19% share of the market, respectively, according to scan data from A.C. Nielsen, Schaumburg, Ill., for the 52 weeks ended Dec. 9, 1995. In tortilla chips, Frito-Lay's Doritos and Tostitos have 36% and 33% of the market, respectively. And in corn chips, its Fritos brand has a whopping 88% share of the market. Most retailers said shelf space is allocated according to a company's sales. Based on this standard, some said Frito-Lay technically deserves even more space than it is given.
"Frito-Lay has about 51% of the snack market at Ukrop's, and it only has about 41% of the shelf," said Carol Obaugh, senior director of procurement at Ukrop's Super Markets, Richmond, Va. "If you really want to be fair, if they have 51% of the sales, they should have 51% of the shelf."
At Big Bear Stores, Columbus, Ohio, the percentage of space devoted to Frito-Lay products also is often less than its sales, said Larry Hood, director of merchandising.
Some retailers, including Ron Ratcliff, store manager at Festival Foods, Lancaster, Ohio, questioned why the Justice Department approved Frito-Lay's purchase of four plants from Anheuser-Busch's Eagle Snacks division this year if it was concerned about antitrust issues.
But not all are supportive of Frito-Lay. Phil Lanzarotta, vice president of sales and marketing at Lanzarotta Wholesale Grocers, Vaughan, Ontario, said the main reason Frito-Lay outsells other companies is that it monopolizes the category.
"They've blocked out competitors from selling chips," Lanzarotta said. "They've basically bought all the shelf displays and all the store impulse areas so that other brands, including private label, don't have the space or merchandising shelving to sell their product."
Frito-Lay attributed its success to shrewd business strategies, including a major reinvestment in product innovation and news. "There's no law against winning the right way," Lynn Markley, a Frito-Lay spokeswoman, told SN. "Historical success gives us a clear advantage in the marketplace, and these advantages are earned honestly and fairly through decades of above-board competition that is absolutely not anticompetitive."
She said there was a time when Frito-Lay was experiencing tough times. Product quality was poor, and brands were priced at a premium, she said. "We did consumer testing, and time and time again consumers would choose Eagle's potato chips and tortilla chips. We knew we had an issue," she said. Then it implemented a major overhaul of its operations. "Eagle, Keebler and Borden taught us a few lessons. They made us a better competitor," she said.
Several of Frito-Lay's competitors, including Procter & Gamble, Herr's, Borden and Snyder's of Hanover, declined to comment.
Meanwhile, a buyer with a Northwest chain said that while Frito-Lay is a powerful company, the supermarket chain remains in control of the snack aisle.
"We have private label coming back into the market now, so I went to Frito-Lay and said we're cutting 2 feet of you guys. They can't squabble because I own it," said the buyer, who did not want to be identified.