Frito-Lay, Inc. has many opportunities, but we will only consider four given alternatives. First, Frito-Lay could consider maintaining its presence in the Minneapolis-St. Paul test marker for an additional 6 months. The additional time and money that could be dedicated to the current test market could yield some results usable for determining predictability and reliability of the market. This could mean that Sun Chips would not be the pioneer in this market.
Many benefits of being the pioneer would be sacrificed, due to increased vulnerability of competitors tapping the market first. The second option would have Frito-Lay, Inc. launch the Sun Chips product as tested in the Minneapolis-St. Paul market. This would include a 22 million dollar marketing budget, which was the annualized rate of the test market along with the two flavors, Natural and Onion, in the three package sizes. Yielded sales of the products would be around 30 million pounds.
From a revenue standpoint, the goal of $100M will not be reached, as the annualized selling dollars would only equate to $82M, slightly offset by a net revenue margin expectation of 7. 8M. The average price per pound sold to retailers is converted to $2. 70. The third option is to follow option 2, but add a 15 oz. bag option. This additional package size is expected to add an increase of half an ounce to the average purchase size of repeat households. This would be an increase from 13 to 13. 25. Yielded sales of the products would increase to 31.
4 M lbs. From a revenue standpoint, the goal of $100M will still be unreached. The new annualized selling dollars equate to $84. 5M, slightly offset by a net revenue margin expectation of $8. 8M. The additional product size is assumed to be sold at the same price as the 11 ounce packaged before mentioned. An additional issue with this approach may be that four sizes could create operational issues such as stretching production capacity, increasing inventory, or acquiring adequate shelf space from retailers.
The recommendation is for Frito-Lay to proceed with the launch of the product line nationally. Waiting on more market testing makes the company entirely too vulnerable to missing the pioneering advantage which build brand recognition in the marketplace. Additionally, getting to many product variables can drive the product line from the retailers store due to inventory and spacing issues. Alternative 2 offers the best long term benefit for Frito-Lay in the snack industry.