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Big Fish Swallows the Rivals: The Case of Frito Lays

In 1992, Amrit Agro Ltd launched potato chips known as uncle chipps. Until 1998, the Delhi-based Uncle Chipps was the market leader in the industry, enjoying a 71% market share, thereafter saw competition bring its market share down to 30-35% by 2000. Originally owned by Amrit Agro Ltd., it was bought over by Frito-Lay, PepsiCo’s snacks division in October 2000.

This is how it goes

After its launch in 1992, Uncle chipps dominated the indian snacks market. Known for its quality and authentic flavours, made in rock salt, uncle chipps was a snack for all, be it kids or adults. 71% market share justifies this popularity. However, international giant, Frito lays(a subsidiary of Pepsico), did not like this growing popularity of a small cap in India and offered to buy Uncle chipps for 7 times it’s market valuation. Amrit Agro Ltd, however, believed its intrinsic value to be more than the offered enterprise value, and turned down the offer.

The $65-billion US major has been mostly credited for the rapid expansion of the snacks market since it entered the segment in 1995, helping it grow 20% a year. When PepsiCo introduced Lays and Cheetos brands in 1995, there were only two large competitors – Haldiram’s and Amrit Agro.

Lay’s did not enter with a simple copy paste solution for India neither did they do a me-too with the already existing competition. They entered with a plan. They understood the diversity in topography and taste buds both. At a time when Uncle Chipps only sold a classic and a spicy version of their potato chips, Lay’s slowly developed and marketed close to 7 flavours with their runaway hit being “Magic Masala”. A flavour name and product cannot get more Indian than that. The quality of chips was uncompromising, not just in taste but even the shape and the texture.

Uncle Chipps did not concentrate on any particular single demographic. All they had going was an iconic jingle and great media money backing that jingle, which worked.

Lays set their eyes straight on children and slowly over the years moved to youth. Again to jog back the memory of the 90s kids, we would all remember how Lay’s stormed into every child’s heart with the invincible collectible named TAZO. It was these tactics of frito lays that amrit agro lost its market share of 71% to 30%. Well, that didn’t still wipe it off the market.

Lays played its masterstroke later that compelled Amrit Agro to wrap up its business; it used the right key pillar in the supply chain that did not let the competition survive.

Lets understand the supply chain of potato chips.

The first step in the supply chain is raw materials and the gathering of these materials. Therefore, for potato chips, this is the gathering of the main ingredients and especially the potatoes which would come from local farms. The next step is the supplier and the supplier is the firm that would gather the potatoes in the first place (for example the farm). From there the supplier would ship the potatoes off to the manufacturer. This is where the conversion will take place from potatoes and other main ingredients (salt, flavoring, oil) into potato chips and is generally responsible for the packaging as well.

From there, the potato chips enter the logistics phase where they are shipped via truck, train, or boat to the retailer. In this case, the retailer will be a grocery store, gas station, or possibly sports arena just to name a few. From here, the finished product is sold to the consumer.

The pillar that Frito lays used was the retailer, well in simple words, what they did is offer their product free of cost to the retailer, well, yeah that’s right. Lets say, uncle chipps cost a retailer Rs. 7 that they can further sell for Rs. 10 i.e. for a profit of Rs. 3. What Lays did was to sell their product for Rs. 0-1 to be sold for Rs. 10 to the final consumer i.e. a profit of Rs 9-10 for the retailer, well, the retailers had every incentive to sell Lays and not waste their shelf for less profits. In a few months uncle chipps was completely wiped off the market and Amrit Agro had no option but to let the competition swallow it.

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