Frito-Lay’s new line of fat-free chips isn’t wowing the competition. Salty-snack competitors are in no rush to introduce their own lines of Olestra chips to compete with Frito-Lay’s Wow chips — even though the food additive becomes available for widespread use in May.
What’s holding the other snack manufacturers back? Concerns about the fat-free snacks’ sales potential and reports of illness among people who have eaten them.
To date, only two salty-snack manufacturers, Utz of Hanover, Pa., and Small Fry Snack Foods of Kitchener, Ontario, have said they plan to enter the market for chips fried in Olestra, the Procter & Gamble fat substitute contained in Wow and in Procter & Gamble’s fat-free Pringles potato chips.
Other chip makers remain uncertain about investing millions of dollars in factory equipment to produce the chips when Frito-Lay already has resorted to pumping up Wow sales with $1 coupons.
“If it’s something everyone wants, and you are the only one who’s got it, why would you discount it?” asked Wayne Pate, president of Golden Enterprises, the Birmingham, Ala., owner of Golden Flake Snack Foods. “We aren’t sure of the impact the product is going to have.”
Frito-Lay, a Plano, Texas-based subsidiary of PepsiCo, introduced Wow nationally last spring with high sales expectations. The chips promised diet-conscious consumers about half the calories and none of the fat of regular chips.
Unlike other low-calorie salty snacks, the company said, Wow tasted just like regular chips.
Since its debut, Wow has battled media reports that the chips cause uncomfortable side effects, such as loose stools and abdominal cramping, in a small percentage of consumers. The chips carry warning labels to alert buyers of possible effects.
Nevertheless, Wow sales are on track to meet Wall Street analysts’ first-year sales expectations of at least $400 million, or 5 percent of Frito-Lay’s total sales. Excluding purchases in convenience stores and vending machines, Wow sales totaled $303 million in the 52 weeks ended Dec. 6, according to market research firm Information Resources Inc.
“Wow has met our every expectation,” said Frito-Lay spokeswoman Lynn Markley. She said complaints of sickness from eating the chips haven’t hurt sales.
But many regional chip manufacturers are far from dazzled by the sales figures and remain unconvinced that consumers will flock to the chips in large numbers in the long run.
“The jury is still out as far as the popularity of Wow and the new Pringles that use Olestra,” said Ron Zappe, president of Zapp’s Potato Chips in Gramercy, La.
“Consumers don’t want to eat things that can cause diarrhea.”
Until now, Frito-Lay and Procter & Gamble have been the only companies allowed to sell Olestra chips.
But in May, other salty-snack companies that have signed agreements with Procter & Gamble will be able to sell chips containing the fat substitute, Procter & Gamble spokesman Bryan McCleary said.
Procter & Gamble has signed contracts with more than a dozen snack makers giving them permission to use Olestra, McCleary said. Although Procter & Gamble won’t identify the companies, the list isn’t limited to regional salty-snack manufacturers, he said.
For example, Nabisco is test-marketing fat-free Wheat Thins and Ritz crackers, while General Mills is experimenting with fat-free Bugles.
For many regional salty-snack companies, the decision to use Olestra is a difficult one.
Herr Foods Inc., a snack maker in Nottingham, Pa., is attracted by Olestra chips’ 10 percent share of the potato chip market in its sales region.
But Herr is worried that using Olestra may harm its reputation for using wholesome, natural ingredients in its chips, said Daryl Thomas, Herr’s director of marketing.
“The negative consumer attitude about the product is based more on sensationalism than on fact,” he said. “But perception is reality.”
Herr plans to decide soon whether it will produce Olestra chips, Thomas said.
Of the two chip makers that have said they will make Olestra chips, Small Fry Snack Foods cannot make the chips until the Canadian government approves Olestra as a safe food additive, an outcome that is at least 18 months away, said Gerry Schmalz, Small Fry’s chief executive.
“Everybody is a little concerned about the perceived disappointment they are hearing about the Frito launch” of Wow, he said.
“Expectations were higher than what the sales have been.”
Small Fry has already spent more than $2 million on equipment to produce Olestra chips. It plans to manufacture the chips for U.S. companies but hasn’t signed any customers, Schmalz said.
If a number of regional chip makers do succeed in selling their own brands of Olestra chips, it could generate more awareness for Wow.
On the flip side, more competition might force Frito-Lay to reduce Wow prices, cutting profit margins.
But that scenario doesn’t appear likely any time soon.
“There is some real concern about the reports of some people getting sick,” said Don Petty, president of Line of Snacks Consultants International in Dallas.
“The regional chip makers want to wait and see what happens with that.”
