Just a few weeks ago, Kettle Foods christened a new potato chip plant in Beloit, Wis., the first beyond its original factory in Oregon. The Beloit plant is crucial to Kettle’s effort, so far quite successful, to transform itself from a regional chipmaker into a national snack-food player.
Meanwhile, in downstate Illinois, tiny potato chip-maker Kitchen Cooked this year convinced big supermarkets in Springfield to stock its chips. For Farmington-based Kitchen Cooked, it was a victory every bit as big as Kettle’s march into supermarkets from coast to coast.
Both companies’ successes are particularly notable in light of Friday’s financial failure of Jays Foods Inc., once Chicago’s snack-food leader, and still the No. 2 player in the metro area’s potato chip market. Suffering big losses, Jay’s filed for Chapter 11, its second trip into bankruptcy court in three years. The company also struck a tentative deal on Thursday to sell its assets to another food company.
Like so many other regional snack food-makers, Jay’s couldn’t fend off the colossus of the salty snack industry, PepsiCo Inc.’s Frito-Lay unit.
“It has been very difficult for regional snack-food companies, and a lot of them have gone belly up within the last 15 years,” said Steve Aanenson, president of Roseville, Minn.-based Old Dutch Foods.
But Kettle, Kitchen Cooked, Old Dutch and a handful of other independent regional snack food-makers show that prosperity can be had. In fact, two regional, family-owned snack food-makers, Herr’s Foods and Utz Quality Foods, are still the reigning potato chip champs in the Philadelphia and Baltimore-Washington, D.C. areas, respectively, vanquishing even Frito-Lay in those markets.
Successful regional snackmakers continue innovating, adding new flavors and products, while never losing focus on their core regional markets. A few — such as Kettle and Utz — have also been helped by successful forays into national markets.
Potato chips can inspire intense brand loyalty, bringing consumers back to tastes — and memories — of their youth. Mike Rice, head of Hanover, Pa.-based Utz, recalls attending a snack food convention in Los Angeles and asking a bartender there what her favorite chip was.
“She shot back, ‘Utz,’ which blew me away,” Rice said. “But she was from Baltimore.” Utz is not only big there but in several cities in Pennsylvania and the East.. Overall, Utz is the third-largest U.S. potato chip brand, trailing Frito-Lay and Procter & Gamble, the maker of Pringles, according to Information Resources Inc.
But Frito-Lay towers over both, its annual potato chip sales almost six times more than Procter & Gamble’s and 14 times greater than Utz’s. “Frito-Lay is a universe of its own,” said Don Petty, a Dallas-based snack food industry consultant.
Jay’s has lost ground to Frito-Lay’s over the past five years. In 2002, Jay’s was the nation’s fifth-largest potato chip brand, with $51 million in sales, according to Information Resources. For the 12-month period ending Sept. 9, it had fallen to eighth, with $35 million in national sales.
Jay’s filed bankruptcy in 2004, but its problems stemmed back well into the 1990s. Since then, “it has gone from owner to owner with no real sense of strategy,” said Bob Goldin of industry consultant Technomic Inc. “I think they sort of became a stepchild.”
A hallmark of many successful regional chipmakers is consistent family ownership, which Jay’s hasn’t had since the mid-1980s. For instance, Utz’s current CEO, Rice, is the grandson of Bill and Salie Utz, who founded the company in 1921.
Rice credits Utz’s success partly to its development of a diverse product portfolio, which includes several varieties of gourmet chips, pretzels and organic snacks. But Utz has also been helped by distribution agreements it has forged with the kings of the U.S. bulk grocery shopping business.
“We do a significant amount of national business with Sam’s Club and Costco,” Rice said. Sam’s Club, an arm of Wal-Mart, came to Utz in the early 1990s, asking if it could come up with a way to sell pretzels in bulk, Rice said. The company did: a plastic canister filled with four pounds of pretzels.
Other regional snackmakers have also found Wal-Mart — and its giant distribution system — as a portal into bigger markets.
Cracking a national market is a very difficult proposition for snack food-makers. Without a deal with a giant such as Wal-Mart, it entails building a costly distribution system. Plus, getting a product on store shelves has become harder than ever, as consolidation in the supermarket industry has led to fewer retail sales channels.
Still, a few regional companies have managed to go national. Snyder’s of Hanover, based in the same Pennsylvania town as Utz, has become the nation’s pretzel market leader in the past few years, overtaking Frito-Lay’s Rold Gold brand, according to Information Resources.
Old Dutch, while remaining a Midwest niche player, has also become big in Canada. The company has been a leader in western Canada for decades, neck in neck with Frito-Lay in some categories, said Aanenson, Old Dutch’s president. Last year, Old Dutch spent $27 million to buy Humpty Dumpty Snack Foods, a snack leader in eastern Canada.
Then, there’s Salem, Oregon-based Kettle Foods. It wasn’t among the top 10 U.S. potato chip-makers five years ago, but now ranks sixth, ahead of Jay’s, according to Information Resources.
Kettle was founded 25 years ago and is the No. 2 brand in the Portland metro area, behind Frito-Lay. The company historically sold its chips through natural food retailers such as Whole Foods. “As the national natural [distribution] channel grew, we grew with it,” said Michelle Peterman, a Kettle marketing vice president.
Now, Kettle has another opportunity, as traditional supermarket chains increase their natural food offerings. Already, Kettle is in Safeway and Kroger grocery stores nationwide, Peterman said. The company’s new Beloit plant is aimed at better meeting its growing national business.
Kitchen Cooked shows that even a tiny chipmaker can thrive if it focuses solely on the market it knows best. The company has only 45 workers, yet it is second only to Frito-Lay in the Peoria-Springfield potato chip market, outselling Procter & Gamble, according to Information Resources.
The brand got its start in the 1930s when a woman named Flossie Howard began selling potato chips to help her family get by. It turned into a business, which Howard sold in the 1970s to the family that runs it today, the Blackhursts.
Over the past eight years, Kitchen Cooked has been expanding, too, said Lori Blackhurst, the company’s office manager. Freeport, Champaign, Cedar Rapids, Iowa and — just lately, Springfield — are among its new markets. Expansion is difficult: The big grocery chains are run from a distance and they’ve never heard of Kitchen Cooked, she said.
It took the company nearly two years to negotiate deals allowing it to crack the Springfield market.
Kitchen Cooked has a pretty basic chip menu — regular, ripple and barbecue, though it added a spicy Louisiana flavor a couple of years ago. But then, Kitchen Cooked doesn’t seem to need all sorts of flavors and packaging. That would be like, well, Frito-Lay. And as Blackhorst said, “We don’t want to be Frito-Lay.”
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mhughlett@tribune.com
