Munchie price crunch

Canadian snack food giant Hostess Frito-Lay has begun minimizing prices in order to maximize sales.Earlier this month, the Mississauga, Ont.-based company began offering its 55-gram bags of Hostess, Ruffles, Doritos, Cheetos and Fritos products in retail outlets for 69 cents instead...

Canadian snack food giant Hostess Frito-Lay has begun minimizing prices in order to maximize sales.

Earlier this month, the Mississauga, Ont.-based company began offering its 55-gram bags of Hostess, Ruffles, Doritos, Cheetos and Fritos products in retail outlets for 69 cents instead of 80 cents, a 14% reduction.

Dubbed ‘Project Little,’ the new cost structure is part of a long-term, two-phase, ‘value-driven strategy,’ says Paul Cooke, vice-president of marketing for Hostess Frito-Lay.

Cooke says prices were lowered after the company successfully launched its first-phase ‘Project Big’ earlier last year.

At that point, Hostess Frito-Lay’s larger 180-, 190- and 200-g. bags of chips were increased by 20% and prices reduced by 10% per gram.

‘We’ve seen very healthy unit and kilogram growth in our [large bag] business over the past year,’ Cooke says, and this has occurred mainly in larger retail outlets.

And he feels the snack food industry in general, which is two-thirds taken up by potato chips, has improved despite the recession.

Cooke says the success of ‘Project Big’ has been driven by more ‘in-home snacking,’ and ‘cocooning,’ whereby people are staying in and entertaining.

With that in mind, Hostess Frito-Lay went to phase two and ‘Project Little’ to help increase ‘impulse buy’ sales of its smaller products, particularly in convenience stores.

‘Store traffic is down in these shops because people are going elsewhere to purchase [less expensive] snacks,’ Cooke says.

One ad agency executive, who handled the Humpty Dumpty account in the mid-1980s, says the price lowering by Hostess Frito-Lay is likely a good move, one that can only help it in Canada’s fiercely competitive billion-dollar salty snack food industry.

Elliott Ettenberg, chairman and chief executive officer of Prism Communications in Toronto and Montreal, feels there is plenty of room for Hostess Frito-Lay to adjust its small package pricing.

Softening

‘I think there is a softening in the business generally, so this is a smart move, and it is a long-term one,’ Ettenberg says.

Cooke says competitor Humpty Dumpty also increased the size of its large bags last year, but he adds it did not seem to be a long-term move by the company.

‘And as far as any reaction from Humpty Dumpty to our Project Little and the price reduction, we haven’t heard anything yet,’ he says.

Hostess Frito-Lay and Humpty Dumpty are two primary suppliers in Eastern Canada. Old Dutch has the majority of the market in Western Canada.

Cooke says Hostess Frito-Lay’s media advertising and promotion budget will remain at the same level it was the past two years – -about $5 million annually.

Hostess Frito-Lay’s agencies are Young & Rubicam and McKim Baker Lovick/BBDO.

Promos for Project Little include point-of-purchase material in-store, and colorful logos on bags noting the new prices.

In addition to cost-cutting and size increases, Cooke says Hostess Frito-Lay will continue bringing out new, more nutritional and innovative products.

One such product is SunChips, a 55-g. multi-grain snack developed by Frito-Lay in the u.s. and launched here last June.

‘We’re having trouble keeping up with supply [from the u.s.] – consumers are just going crazy for it,’ Cooke says.

Potential

He feels SunChips has the potential of cracking the top five snack brands that are already on the market.

In order to ensure future supplies, the company has announced plans to invest $12 million in its Cambridge, Ont. facility to make SunChips.

As for the nutritional value of chips, Cooke says:

‘Snacking is snacking – this is a fun category. And what we’re finding is that you’ll never see people giving up on the fun aspect of food.’