strategic-management

EXHIBIT 7 World Chip Market
In million US$
$25,000
$20,000
$15,000
$10,000
$5,000
$0 2003 2004 2005 2006 2007 2008
Source: Euromonitor International (2008).
Chips/crisps
Tortilla/corn chips
Pretzels
Industry: Savory Snack
The U.S. savory snack market is composed of over 400 companies with combined annual
revenues of $23 billion. This industry is also highly concentrated with the top 50 companies
controlling 75 percent of the market. The largest competitors in this industry include
PepsiCo’s Frito-Lay (with 39 percent), Kraft’s Nabisco (with 11 percent), and Kellogg’s
Retail Snacks division. By itself, the global chip market is over $32 billion, with an annual
growth rate of approximately 6.35 percent (see Exhibit 7). This market is also driven by
consumer taste and health considerations.
The largest product segment of this market is potato chips (30 percent of industry
revenues) followed by tortilla chips (20 percent) and bulk nuts (10 percent). The remainder
of the market is composed of canned nuts, corn chips, peanut butter, popcorn, and
hard pretzels. It is estimated that 99 percent of all American households have salty
snacks and the average household spends approximately $80 yearly on 32 pounds of
these products.
Companies in this industry must compete against each other through extensive
advertising, product promotions, and product innovation. As consumer tastes have
changed, we have seen the introduction of products with less salt, sea salt, baked, zero
trans fat, made of vegetables, low carb, organic, hot, sweet, black, green, and with chili or
cheese added. Some of the new products are designed to compete on taste: others are
designed to reflect a particular consumer concern such as obesity or hypertension.
Industry: Breakfast Cereals
The global breakfast foods market is composed of more than just cereals: it also includes
bread, pastries, breakfast bars, and spreads. Bread is by far the largest segment of this market
followed by pastries and then cereals. However, growth for bread is low at 1.6 percent,
with pastries at 3.5 percent and cereals at 2.6 percent. The greatest growth for breakfast
food appears to be in breakfast bars, and the fastest regional growth is the Asian-Pacific
market. The largest markets continue to be Europe and America, but both are mature with
low growth rates.
PepsiCo is primarily in the U.S. breakfast cereal market with the Quaker division
generating approximately 4 percent of total revenues, down from 5 percent in 2007 and
2006. This market is a highly concentrated $9 billion market with the top four companies
accounting for 80 percent of the market. The major competitors in this market are Kellogg
and General Mills. Demand is driven by consumer demographics (age and lifestyle) and
health considerations because a fast-paced life and health concerns shape our perceptions
of the first meal of the day. Ready-to-eat cereals comprise about 90 percent of total industry
revenue.
CASE 24 • PEPSICO — 2009 239