Regional Player Seeks Bite-Size Niches
Snak King Corp., with $55 million in annual sales, has a simple philosophy when it comes to dealing with market leader Frito-Lay Inc. “Suicidal is a good definition of trying to go up directly against them,” quips company founder and President Barry C. Levin. “There’s a big kids’ playground, where Frito-Lay plays, and there’s a little kids’ playground, where we’re content to play.”
Couple its $10.9 billion in worldwide sales with the marketing might of parent company PepsiCo Inc. and Frito-Lay clearly is king of the snack world. The playground that Levin refers to is littered with the remains of such Southern California snack-food brands as Blue Bell, Nalley’s and Bell Brand that have either disappeared or moved out of the hotly competitive snack sector.
Still, there’s room in the $18.2-billion domestic snack-food market for such regional players as Industry-based Snak King and San Bernardino-based Anita’s Mexican Foods. Along with such brands as Utz Quality Foods Inc. in Pennsylvania and Granny Goose Foods Inc. in Northern California, Snak King survives by picking profitable niches where Frito-Lay isn’t likely to tread.
Snak King, which entered the snack business 20 years ago with pork rinds, has expanded its line to include such snacks as potato chips, pretzels, caramel corn, trail mixes and dried fruit mixes. While the vast majority of Snak King’s sales come from California, the company is laying the groundwork for broader distribution of Jensen’s Orchard, a higher-end dried-fruit snack. And it is expanding the number of products in the El Sabroso line aimed at Latino customers.
“Barry has done very well,” said former Bell Brand executive Bruce W. Waterworth, now president of Cornerstone M&B; Inc., a Huntington Beach-based company that distributes Snak King product. “He’s had some good ideas on products, and he’s found a way to make it profitable for Snak King and its customers.”
Marketers say niche players can survive only if they make their lines attractive to retailers. That means building profit into snacks that give store owners and distributors a solid reason to carry them. But profits aren’t easily earned in the snack food industry because competitors regularly wage profit-numbing price wars to build market share.
Bell Brand and Laura Scudder, another longtime Southern California brand, for example, fought a pitched battle during the 1990s for market share. In the end, Bell Brand acquired the Laura Scudder name--only to disappear a short time later when the company’s owners decided to cut their losses.
The price wars escalated during the 1990s as Anheuser-Busch Co. was battling to establish its Eagle brand of snacks as a national contender. The St. Louis-based brewer in 1996 sold the Eagle brand to Cincinnati-based Procter & Gamble Co. in 1996. P&G;, which also owns the Pringles brand, won’t say whether the Eagle brand will again be sold in stores.
Frito-Lay’s competitive tactics--using its deep pockets to pay fees that retailers demand for shelf space and exclusive promotions that keep other brands out of stores--have prompted grumbling among competitors about possible anti-competitive practices. A two-year investigation by the Justice Department that began in 1996, however, failed to result in a challenge to Frito-Lay’s business practices.
Marketers who have used price wars to build market share say the practice can be deadly. “Market share without profits is the equivalent of breathing air without oxygen,” Waterworth said. “It feels good, but it’s eventually going to kill you.”
Consolidation within the industry continues at all levels. In 1997, Frito-Lay acquired the Cracker Jack brand from Borden Foods Inc. Nonetheless, people in the snack business say there is opportunity for regional players with innovative products to feed America’s appetite for snack food. The average American now eats nearly 22 pounds of snacks each year, according to the Snack Food Assn., and big players such as Frito-Lay generally can’t move into narrow, new niches as quickly as smaller companies.
“There’s a cycle to this industry that involves consolidations and new companies that keep popping up,” said Marc R. Birtel, manager of communications for the Alexandria, Va.-based Snack Food Assn. “Companies get bought out, then others pop up. . . . They find a specialty product that is in some way different from the norm.”
Rather than fighting Frito-Lay for space on the shelves in the rapidly consolidating grocery store industry, Snak King continues to rely heavily on sales through smaller stores. The company initially relied almost exclusively on sales made through mom-and-pop retailers. Now, 40% of its sales come through convenience stores. Snak King also sells products through mass merchandisers and warehouse-style retailers.
Levin, 41, operates Snak King from a 140,000 square-foot factory in an industrial park. Business is solid enough that the company soon will add 30,000 additional square feet of manufacturing and shipping space.
Most of the snacks produced by the company’s 350 employees are packaged under the Snak King label. But 25% of the company’s products, including roasted nuts and popcorn, also are packaged for other companies, including health food and specialty food chains.
Snak King also has been expanding the El Sabroso line. El Sabroso, which means flavorful in Spanish, includes such widely popular snacks as tortilla chips. But it also offers ethnic snacks such as chicharrones, a pork rind snack, and chabas con chile, a spicy, dried lima bean snack.
Levin also has high hopes for the Jensen’s Orchard line, which is now being rolled out in the Northwest. The line, which Snak King hopes to eventually distribute nationwide, is designed to cash in on growing consumer demand for healthier snacks.
In both cases, Snak King is sticking with niches that the big playground player isn’t as likely to target. “Our success is dependent upon continuing to be innovative,” Levin said. “It’s all about finding niches to fill, finding markets that are underserved.”
