Small snack suppliers carve niche

Chain Drug Review, Nov 5, 2007

NEW YORK -- Although snack food sales in drug stores are dominated nationally by brands from the industry's largest players, shoppers in certain areas of the country remain loyal to regional brands.

The phenomenon is particularly evident in the potato chip category, where consumers often develop brand loyalty at a very young age.

In Philadelphia, Baltimore and much of the mid-Atlantic states, for instance, Herr Foods Inc. and Utz Quality Foods Inc. dominate the potato chip market, consistently outselling such national brands as Lay's from PepsiCo Inc.'s Frito-Lay unit and Procter & Gamble Co.'s Pringles.

In fact, data from Information Resources Inc. shows that for the 52 weeks ended September 9, Herr's and Utz were the seventh and eighth best-selling potato chip brands in drug stores.

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Herr's cheese snacks are the second-best-selling brand (excluding private label) in that product area. However, the brand's 2.2% market share pales in comparison to the category-leading Frito-Lay's Cheetos, which has an 85% share.

In recent years the increasing dominance of such suppliers as Frito-Lay has led some regional players to go out of business and caused others to rethink their approach to the market.

Many regional snack makers are finding that the only way to remain competitive is to expand their reach. In some cases this has meant going national.

"It has been a very difficult year for regional snack food companies, and a lot of them have gone belly-up in the last 15 years," Steve Aanenonson, president of Roseville, Minn.-based Old Dutch Food Inc., recently told the Chicago Tribune.

While Old Dutch has remained basically a niche player in the Midwest, the company has become a giant in Canada, where it has become a market leader across the country's westernmost provinces. Last year Old Dutch acquired Humpty Dumpty Snack Foods, one of the best-selling product brands in eastern Canada.

Similarly, such once-regional players as Herr's, Utz, Snyder's of Hanover (Pa.) and Salem, Ore.-based Kettle Foods--which recently opened an environmentally friendly manufacturing plant in Beloit, Wis.--have all branched out in recent years to cover more of the country and are seeing their market shares steadily increase.

Snyder's is now the fourth-best-selling brand of pretzels in drug stores behind private label, Frito-Lay's Rold Gold and Mars Inc.'s Combos. Herr's and Utz pretzels rank fifth and sixth in the trade class.

A spokeswoman for Kettle Foods, which historically has been marketed by upscale food retailers, notes that as the trend for more natural products continues to grow, the company expects its chips to find their way onto more store shelves.