Pepsi: Crunching The Competition

Essay by EssaySwap ContributorUniversity, Master's February 2008

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When Frito Lay, the snack food subsidiary of PepsiCo, entered India in 1990 it had to face the formidable presence of Uncle Chipps from homegrown Delhi-based company Amrit Banaspati, which accounted for over half the market.

There were other discouraging moments too. In 1993-94, a Pepsi spokesman admits, a local chain of sweatmeat shops, Nathu's, sold more volumes than Frito Lay sold in the whole of India.

Eleven years down the line it is Frito Lay that has not only managed to buy out Uncle Chipps, but has also succeeded in becoming the dominant player in the market with little challenge from its rivals.

Apart from a dominant 90 per cent share of the tough packaged potato chips market, it now commands a 30 per cent share of the packaged snack food market as well. What is more, internal presentations have shown that the Rs 150-crore Frito Lay is PepsiCo's only cash-positive business in India, providing some succour to the high-drain but older soft drinks business.

Frito Lay's dominance has been established in a market that is assailed by competition from two levels. The bigger and tougher is the unorganised sector with its low overheads and competitive pricing.

This sector is hard to quantify, but market analysts suggest that it could account for 75 per cent of the Rs 2,000-crore snack food market. Frito Lay's other challengers come from such companies as Haldiram Bhujiawala, organised sector players that are trusted household names. How did Frito Lay manage to bite off such a large chunk of this market? Early mistakes Frito Lay's acquisition of Uncle Chipps was only part of the story. In retrospect, its biggest advantages were the mistakes it made and its parent's deep pockets that gave it the flexibility to learn from them. And certainly, when...