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 / Autumn 2013 / Issue 72(originally published by Booz & Company)


The Big Bite of Small Brands

Utz Quality Foods is a family-founded potato chip brand in the United States that creates a direct relationship with consumers by offering products online and delivering directly to homes. It also appeals to health-conscious consumers with wheat-free and gluten-free Rice Crisps, non-fried light potato chips, and organic tortilla chips and pretzels. This capability to create healthy innovations is a powerful differentiator for snacks that are often labeled as junk food.

The Large Player Response

The success of small players and the conditions that have arisen to make them more competitive raise some critical issues for large players about their organic and inorganic growth strategies. Large players need to think carefully about how to access the capabilities that small players are using to such advantage.

But at what point should the large incumbent company respond to a small player’s inroads? Should the response be to build or to buy? In either case, what new capabilities does the company need to succeed, and how can they be incorporated into existing systems?

Addressing these issues is a tall order, but several large companies are countering the incursion of small players effectively and consistently. Some, such as Coca-Cola, have acquired a long list of successful small businesses, capturing their continued high growth for themselves. Others, such as Frito-Lay, win by mimicking the small players’ approach to innovation and then using their scale and brand leverage to compete and drive growth.

Coca-Cola: The Acquirer

Coca-Cola routinely expands its beverage portfolio to leverage its impressive and differentiating distribution capabilities. More recent acquisitions include Glaceau, an enhanced water; Fuze, a vitamin-enriched beverage; and a handful of other specialty drinks including Odwalla, Honest Tea, Innocent, and Zico.

• Brand positioning: To keep each new brand distinct and attractive to its established and sometimes devoted customer base, Coca-Cola does not affiliate the acquired brand directly with the Coca-Cola brand.

Pricing: Acquired brands are often positioned as premium brands and are priced higher than the competition.

Market entry: Coca-Cola chooses brands that have an established market presence in their niche and that have reached a certain multimillion-dollar revenue threshold.

Innovation: Coca-Cola uses different governance models to oversee acquisitions, but the common priority is to keep the company flexible and innovative.

Route to market: Coca-Cola continues to distribute the acquired brand to specialty retailers, but it also leverages its extensive distribution network to reach more consumers.

In-store marketing and merchandising: Coca-Cola takes advantage of its reach and distribution to merchandise new products. For example, Vitamin Water is now available in numerous convenience stores and kiosks with coordinated displays and in-store support.

Frito-Lay: The Builder

Instead of making acquisitions, Frito-Lay leverages its well-honed capability to mimic market innovations. Consider kettle chips (potato chips cooked in small batches, rather than in the more common continuous-flow machines), a category dominated by two small players: Cape Cod and Kettle Chips. Frito-Lay took careful notice, and created Lay’s Kettle Cooked.

Brand positioning: Frito-Lay positions its Kettle Cooked brand as a value brand in comparison to Kettle and Cape Cod products, and promotes the healthy aspects of the chip (e.g., “40 percent less fat than regular potato chips”).

Pricing: In keeping with its value brand position, Lay’s Kettle Cooked is priced below other kettle competitors. A canvass of supermarkets in January 2013 found that a $3.29, 8-ounce bag of Lay’s Kettle Cooked was as much as 7 percent less expensive than the small player alternatives.

Market entry: Frito-Lay rolls out different flavors of Kettle Cooked chips over time, instead of all at once, while consistently pushing them as a healthier way to enjoy Lay’s potato chips, which have a long-established brand following.

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