The United States and the developed world are saturated with cheap, convenient, pre-packaged snacks. These treats are available in sweet, savory, hot or cold styles and presentations. None is more popular and ubiquitous than the potato chip.
Historically, French fries in America were a very local family business until the 1930s. The end product, French fries; they were very difficult to transport, handle and preserve without advanced packaging techniques. Before the invention of coated bagging components, French fries were made in local kitchens and sold in some local stores, usually in barrels. As soon as the barrels were opened and the store owner picked up the product sold for the consumer, air entered the barrels and the chips stagnated. Consumers of these fries were taught to heat the fries at home before serving to mitigate lack of freshness.
This type of trade was suitable for a local services business model, but did not allow for economies of scale or national distribution. In addition, each city and region developed a favorite type of chip that was only locally popular. The opportunity was ripe for an entrepreneur to consolidate and market the snack business in a major way and revolutionize the category.
That businessman was Herman Lay. Mr. Lay was a traveling salesman for the Barrett Food Company of Atlanta. He sold the Barrett brand of potato chips in an assigned territory in Nashville, TN during the 1930s. A natural sales talent, he quickly developed and grew his territory and soon hired roadside salesmen to work for him. Barrett’s owners noted his success and offered to sell the entire business to Herman Lay. He struggled to improvise financing. This was at the height of the depression. Somehow, a combination of loans, savings and preferred stock was put together and the sale price of $600,000 was secured.
The new Company immediately changed the name to HW Lay, Company. Mr. Lay recognized that mechanization was necessary to expand distribution and reduce costs. He invested every dollar of profit in self-contained potato processing machinery that would take a whole potato and produce a finished potato chip. The chips were then packaged in the new waterproof bags that ensured product freshness as it shipped and remained on store shelves until purchased and consumed.
The start of World War II turned out to be more profitable for the salty snack industry. Chocolate and sugar were heavily rationed during the war, and products using these ingredients became rare and expensive until the war ended. However, salt was never rationed and the availability of salty snacks made them the preferred choice for consumers looking for a quick snack during the war. Furthermore, these salty snacks were consumed in large quantities by the troops.
Lays Potato Chips and snacks became ubiquitous on store shelves in the American South during and after the war. The Company purchased small and under-capitalized competitors and aggressively expanded. Ultimately, the HW Lay Company purchased the Frito Company of San Antonio, Texas. Frito had perfected the production of a corn chip that we eat in large quantities to this day. The combined Frito Lay Company became the nation’s strongest producer of savory snacks.
Frito Lay and several regional brands dominated the salty snack category during the postwar years. The plain potato chip was basically unchanged in appearance, flavor, and consistency, except for the addition of new flavors like garlic, green onion, and barbecue. The industry appeared to have settled into a slow-growing, mature category with limited business opportunities for new offerings. Yet the world’s most entrepreneurial consumer products company, Cincinnati-based Procter & Gamble (P&G), is always looking to cultivate and grow new product niches. They had a corporate eye on the snack food industry, and P&G management in particular felt they had identified a chink in the chip makers’ armor.
That crack was in the packaging. Potato chips have been sold since the late 1930s in flexible, flexible bags. While this ensured freshness, it made breaking a problem. Consumers who participated in the focus groups told P&G that they didn’t like the small, cracked, and broken pieces of potato chips that settled to the bottom of the bags. Research and Development at P&G began work on an answer to the problem.
P&G is famous for its creation of Brand Management. Brand Management allows the responsible team assigned to each specific product to treat the brand as an independent business and profit center for the Company. The success of this management style is legendary and has been studied in Business Schools and adopted by many other companies. The brand management system encourages each team to aggressively pursue new product adaptations and inventiveness.
P&G Research and Development for the company’s food group worked on the potato chip project during the 1960s. Their response to the problem created a wonderful example of how an enterprising company, or individual, can benefit immensely from innovation. of a convergent product. The innovation that became a billion dollar brand and revolutionized snack marketing was the introduction of Pringles.
Obviously, P&G didn’t invent potato chips or salty snacks. However, by adapting classic French fries in shape, flavor and presentation, they have created a new and successful brand that is sold to millions of consumers around the world every day.
Pringles are 42% potato. They are formed by mixing potato flakes with a liquid suspension and then drying to turn each potato into an almost perfectly identical curved oval. The genius of Pringle’s lies in the cylindrical cardboard tube invented for P&G by Fredric Baur. Pringle potato chips are stacked inside the tube, so individual chips are virtually unbroken. The tube closure is a snap-on plastic cap. Pringles was marketed on a trial basis in 1968 and consumers were enthusiastic. The product has been constantly improved and more than 40 flavors have been added to the original style. Many of these flavors are sold in specific countries or regions to suit prevailing taste preferences, such as Jalapeno in Mexico and Cajun in Louisiana.
Entrepreneurs are driven to search for and create “divergent products”. The invention of disruptive “divergent products” such as the light bulb, the cotton gin, or the internal combustion engine is the “Holy Grail” that these visionaries seek to perfect and harness to fame and fortune. However, the most often realized and realistic path to success is to create a niche product upgrade. Explore existing products and technologies and identify needs that these products are not addressing. Creating novel “converged products” that simply add incremental benefits and small performance improvements can add up to big profits.
Procter & Gamble has created the world’s largest consumer products company and one of the most admired factories of innovation by pursuing both “divergent” and “convergent” opportunities. Pringles is an example of a highly successful “converging product” innovator. P&G’s history is littered with examples of new “converging product” successes. “Divergent product” innovations are fewer and more difficult to discover and bring to market. This is a great company that looks for opportunities anywhere it can find them.
Contractors should take note of this process. Frito Lay is now owned by PepsiCo. The evolution of this great brand is largely due to the simple drive and vision of HW Lay. He took a simple product that suffered from a bad distribution model and turned the opportunity into immense wealth. P&G took the breakage problem inherent in bagged potato chips and, through recipe and packaging innovation, created a huge global success with the introduction of Pringles. P&G and HW Lay are examples of the elegance of simple ideas. Remember the old axiom: KISS = Keep it Simple Stupid! The best ideas are often the most obvious.
