Eagle Snacks up, though still down - Eagle Snacks Inc.'s share of the potato chip market

Modern Brewery Age, Nov 4, 1991

Eagle Snacks up, though still down

Since realizing national product distribution in 1988, Eagle Snacks, Inc., a subsidiary of Anheuser-Busch Cos., Inc., has seen its share of the potato chip market rise to 9.4 percent from 5.5 percent, while at the same time jumping into the number-three position in the $10-billion snack food industry. Such a scenario would seem to be a snack-marketers dream; nevertheless, that dream could turn into a nightmare, according to a recent New York Times report.

The problem seems to lie in the company's meteoric ascent in the industry, which has mustered the segment's giant, Frito-Lay, Inc., into action. While low-margin selling has been a staple for Eagle Brands, Frito-Lay has begun to do the same, cutting back on costs and personnel to keep its prices low. By continuing such a practice, the Times said, Frito-Lay hopes to prevent Eagle, which has lost between $10 million and $20 million a year, from ever making a profit in the segment.

"Eagle has shown that is has good product, good marketing and good packaging," reported George Thompson, a food industry analyst with Prudential Securities, "but it hasn't shown it can make a profit. What you ultimately end up with is that Frito-Lay is going to determine in large part when and how much money Eagle makes in the business."

Besides cutting costs by $100 million, Frito-Lay recently introduced 25-cent packages for many of its products, as well as rolling out several new snack varieties. In addition, Frito-Lay has also reduced its profit margins from 21 percent to 17 percent.

Also in contention for market share and just ahead of Eagle Brands with a 12.7-percent share, Borden Inc., has vowed to cut its profit margin to 17 percent and do whatever else is necessary to stay ahead of Eagle.

But despite pushing back the year it expects to become profitable from 1992 to 1993, Eagle Snacks executives noted that it can survive and prosper in spite of price-cutting because its costs are already low. "Remember the little engine that could?" asked Eagle president Kevin Bowler. "I will reach my goal of being a successful number-two in the snack industry. We will prevail."

Meanwhile, parent company Anheuser-Busch is expected to continue shouldering Eagle's losses as it attempts to diversify from the brewing picture. Since reaping few profits from the recent $1.1-billion theme park purchase and while incurring other drains like the $6-million buy-back settlement for Shamu the Whale, industry analysts see A-B sticking with Eagle Snacks even if it continues to lose money for years.