Friday, August 19, 2011

Snyder’s-Lance: Building a Bridge to Growth

One of the largest suppliers of crackers, cookies and salty-snacks, Charlotte, NC based Snyder’s-Lance, is looking to expand their reach and efficiency. The snack world took notice of the significance of these two solid companies joining together in a “merger of equals” in December 2010.  This merger created a $1.6B company imagewith a strong direct-to-store delivery (DSD) system intended to compete with the likes of Frito Lay, Kellogg’s, Austin, and others.

Snyder’s-Lance has made the strengthening and efficiency of its distribution system its key priority, to date.  Drug Store News Reported, last week, that Snyder’s-Lance will acquire George Greer Co, Distributor, which distributes Snyder's-Lance's Cape Cod, Lance, Archway and Stella D'oro brands.  This adds 120 routes in the New England Market.  They want to move their DSD network to an independent operator business. Second quarter results were negative, and this is the second quarter of post-merger results.  imageChief Executive Officer of Snyder-Lance, David V. Singer, reported that disappointing Q2 results were due to private label margins which were weak.  Non–branded products make up 41% of total revenue.   Commodity inflation in Q2 was also a factor and pricing moves will be reflected in Q3 results.  Also several significant costs are hitting them from the merger as they cut back on the workforce and sell off company distribution routes to independent ownership.  Still the core of their snacks franchise seem stable.

It is in the branding area where Snyder’s-Lance may be disadvantaged.  Brands for Snyder’s-Lance include: Lance snacks, Archway, Cape Cod Potato Chips, Tom’s and Stella D’oro.  Snyder’s of Hanover brands include Snyder's Pretzels, Jay’s and Kruncher’s.  These are strong selling product lines, mostly due to their strong in-store presence.  Competitively, Frito Lay and Kellogg’s have much stronger consumer connections.    At least four of Frito Lay’s brands sell over $1B in net sales – Lay’s, Fritos, Cheetos and Doritos.  These brands are extensively marketing with big advertising budgets aimed toward young adults and snacking kids.  While Frito Frito Lay North America advertising budgets are not broken down in annual reports, lets assume 20% of total PepsiCo advertising/promotion of $3.4B (same % of revenue) equals $800M advertising for snacks.  Kellogg’s Retail Snack business has Cheez-its and the Keebler name and likely spend upwards of $200M on Advertising and promotion.  image 

Snyder’s-Lance brand strategy is to offer great tasting snacks for the family with smaller investment in consumer advertising.  They must believe that decisions on snacks are made in the store rather than from a branded shopping list.  Maybe it is better to appeal to Mom, who is less affected by youth advertising, and probably wants to buy a name brand that is a bit less expensive.  My observation is that Snyder’s-Lance brands are usually priced $0.50 less than comparable Frito Lay products.

Snyder’s-Lance brands may fall prey to a growing private label presence and consolidation in the retail channels where retailers will only carry the number one player and private label.  Supplying private label can be an effective strategy buy can continue to hurt margins.  Great products, manufacturing and distribution effectiveness may not be enough.  In the competitive world of salty snacks, a chip is not always just a chip when the bigger company invests strongly with big marketing investments.  Frito Lay seems particularly adept at capturing the youthful, in-your-face, snacking attitude that has become the mainstay of its parent company, PepsiCo.

Snyder’s-Lance is now a part of the big league.  Its size and strength allows it to grow to become a bigger, more profitable snack food player.  They may have difficulty getting the organic growth they need without building nationally-recognized, stronger consumer brands. 

1 comment:

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