What French Fries Can You Teach Entrepreneurs?
America and the developed world are saturated with cheap, convenient, prepackaged snacks. These delicacies are available in sweet, savory, chilled, or hot presentations and styles. None are more popular and ubiquitous than French fries.
The potato chip in America was historically a very local family business until the 1930s. The end product, the French fries; they were very difficult to ship, handle and preserve without advanced packaging techniques. Before the invention of coated bagging components, potato chips were made in local kitchens and sold in some local stores, usually in kegs. As soon as the kegs were opened and the store owner picked up the product sold for the consumer, air entered the kegs and the fries went stale. Consumers of these chips were taught to heat them at home before serving to mitigate lack of freshness.
This type of commerce was adequate for a local services business model, but it did not allow economies of scale or national distribution. In addition, each city and region developed a favorite type of chip that only enjoyed local popularity. The opportunity was ripe for an entrepreneur to consolidate and commercialize the snack business in an important way and revolutionize the category.
That entrepreneur was Herman Lay. Mr. Lay was a route salesman for the Barrett Food Company of Atlanta. He sold the Barrett brand of potato chips in a designated territory in Nashville, TN during the 1930s. A natural sales talent, he developed and quickly grew his territory and soon hired road salespeople to work for him. The Barrett owners noted his success and offered to sell the entire business to Herman Lay. He struggled to improvise financing. This was at the height of the depression. Somehow, a combination of loans, savings, and preferred stock was put together and the sale price of $ 600,000 was secured.
The new Company immediately changed the name to HW Lay, Company. Lay recognized that mechanization was necessary to expand its distribution and reduce costs. He invested every dollar of profit in autonomous potato processing machinery that took a whole potato and produced a finished chip. The chips were then packed into the new non-permeable bags that ensured product freshness as they were shipped and were placed on store shelves until purchased and consumed.
The start of World War II turned out to be more profitable for the savory snack industry. Chocolate and sugar were heavily rationed during the war and products using these ingredients became rare and expensive until the war was complete. Salt, however, was never rationed and the availability of salty snacks made them the preferred choice of consumers looking for a quick snack during the war. In addition, these salty snacks were consumed in large quantities by the troops.
Lays French fries and snacks became ubiquitous on store shelves in the American South during and after the war. The Company bought small and undercapitalized competitors and expanded aggressively. Eventually, HW Lay Company purchased the Frito Company of San Antonio, Texas. Frito had perfected the production of a corn chip that we eat in large quantities to this day. The combined Frito Lay Company became the strongest producer of salty snacks in the country.
Frito Lay and several regional brands dominated the savory snack category during the postwar years. The simple potato chip was basically unchanged in appearance, flavor, and consistency except for adding new flavors like garlic, green onion, and bar-b-cue. The industry appeared to have settled into a mature, slow-growing category, with limited business opportunities for new offerings. Yet the world’s most enterprising consumer products company, Procter & Gamble (P&G) of Cincinnati, is always looking to cultivate and develop new product niches. They had their corporate eye on the snack food industry, and in particular, P&G management felt they had identified a chink in the armor of potato chip producers.
That crack was in the packaging. French fries had been sold since the late 1930s in flexible, malleable bags. While this ensured freshness, it made breakage a problem. Consumers who participated in the focus groups told P&G that they did not like the small, cracked and broken pieces that settled at the bottom of the bags. Research and development at P&G began work on an answer to the problem.
P&G is famous for creating Brand Management. Brand Management enables the responsible team assigned to each specific product to treat the brand as an independent business and profit center for the Company. The success of this management style is legendary and has been studied in Business Schools and adopted by many other companies. The brand management system encourages each team to aggressively pursue new adaptations and product inventiveness.
P&G Research and Development for the company’s food group worked on the potato chip project during the 1960s. Their response to the problem created a wonderful example of how an entrepreneurial company, or an individual, can benefit immensely from an innovation from convergent product. The innovation that became a billion dollar brand and revolutionized snack marketing was the introduction of Pringles.
Obviously, P&G didn’t invent French fries or savory snacks. However, by adapting the shape, taste and presentation of the classic fries, they created a new and highly successful brand that is sold to millions of consumers around the world every day.
Pringles are 42% potato. They are formed by mixing potato flakes with liquid slurry and then dried to form each chip into an almost perfectly identical curved oval crisp. The genius of Pringle lies in the cylindrical cardboard tube invented for P&G by Fredric Baur. Pringle fries are stacked inside the tube so that individual fries are virtually not broken. The tube closure is a snap on the plastic cap. Pringles was marketed as a trial in 1968 and consumers were raving about it. The product has been constantly improved and more than 40 flavors have been added to the original style. Many of these flavors are sold in specific countries or regions to suit prevailing taste preferences, such as jalapeño in Mexico and Cajun in Louisiana.
Entrepreneurs are driven to find and create “divergent products.” The invention of disruptive “divergent products” like the lightbulb, cotton gin or internal combustion engine is the “Holy Grail” that these visionaries seek to perfect and harness for fame and fortune. However, the most accomplished and realistic path to success is to create a niche product enhancement. Explore existing products and technologies and identify needs that these products do not meet. Creating novel “converged products” that simply add incremental benefits and small performance improvements can result in huge profits.
Procter & Gamble has built the world’s largest consumer products company and one of the most admired innovation factories by seeking out both “divergent” and “convergent” opportunities. Pringles is an example of a highly successful “converged product” innovation. The history of P&G is littered with successful examples of new “converging products.” “Divergent product” innovations are rare and more difficult to discover and bring to market. This is a great company looking for opportunities anywhere you can find them.
Entrepreneurs should take note of this process. Frito Lay is today owned by PepsiCo. The evolution of this great brand is largely due to the uncomplicated momentum and vision of HW Lay. He took a simple product that suffered from a bad distribution model and turned the opportunity into immense wealth. P&G took the breakage problem inherent in bagged potato chips and, through recipe and packaging innovation, achieved great global success with the introduction of Pringles. P&G and HW Lay are examples of the elegance of simple ideas. Remember the old axiom: KISS = Keep it simple and stupid! The best ideas are usually the most obvious.