Reference no: EM132410619
Answer the case questions below in strategic management terms
Taytos: Out of the Frying Pan ...
Tayto's Crisps have dominated the Irish savoury snack market for 40 years. Every week the Tayto Group produces and sells 8 million packets of potato crisps (chips) and snacks in a country with a population of fewer than 4 million people. This means that, on average, every Irish person consumes almost 100 packets a year.
However, Tayto's position is now under threat. British company Walkers, backed by the muscle of its parent company Frito Lay and Frito Lay's owner, the giant Pepsico Corporation, launched the UK's most popular brand of crisps in the Republic of Ireland on 17 March 2000 (St. Patrick's Day). According to Andrew Hartshorn, Walkers Brand Manager for Ireland, Walkers intends to capture a "substantial share of the [Irish] market quickly". Indeed, Walkers appears to not only
want to eat up market share, but to change the way Irish consumers see potato chips. While Tayto's generally come in dinky 25-gram bags, replete with the skin shavings and blemishes of the potatoes they once were, Walkers is a crisp without blemish. They come with a minimal trace of vegetable oil in bigger servings with a modern foil bag decorated in the global Frito Lay format.
While Walkers is now backed by an American parent, Tayto has recently gone the other way, returning to Irish ownership after US firm TLC Beatrice sold it to the Irish drinks company Cantrell & Cochrane.
All of Ireland's crisps were imported from the UK until Mr Joe Murphy from Donabate, County Dublin, founded the Tayto Company in 1954. Murphy's biggest claim to fame was his invention of cheese and onion flavoured crisps (prior to this the only "flavouring" option was salt). Cheese and onion is now the top selling flavour in Ireland and in the UK, where Murphy's innovation was quickly copied. Originally, Tayto's were produced by hand using two sets of deep-fat fryers, but
the company grew quickly, aided by the financial association with Beatrice, who first acquired a stake in the company in 1965. Factories were built in Rathrnines, Harold's Cross and Coolock, all in the Dublin area. Tayto now employs over 250 people and boasts a low staff turnover as testimony to the family atmosphere of the company.
Tayto's supply and distribution chains go deep into the Irish fabric. It only uses Irish potatoes grown under contract by farmers with whom Tayto has been associated for many years, and it has developed an intricate distribution network. Tayto distributes its crisps through one of the largest direct van sales operations in the country, with 10 regional depots located through the country supporting a roving fleet of 35 Tayto's vans. This provides a 99% domestic distribution level- a quite remarkable feat given the still rural nature of large parts of Ireland.
To further consolidate these channels, a central distribution hub was created in 1996 in Ballymount, Dublin. The centre is fully automated and contains 10 automated loading bays, with the capacity to hold in excess of 150,000 cartons of crisps. All types of outlets are serviced by this system: supermarket chains, pubs, newsagents, garage forecourts, off-licences and independent owner-operator stores, and Tayto guarantees that each customer receives fresh product through weekly service calls.
The result: almost every shop in Ireland - from the biggest supermarket to the smallest independent corner grocer and the most remote petrol station - prominently displays Tayto crisps, a big factor in a market where it is estimated that approximately half of all sales are impulse purchases. Finding an Irish person, or anybody with a connection to Ireland, who is unaware of the brand is a difficult task. Indeed, the way in which some Irish speak of Tayto crisps seems to indicate a kind of spiritual attachment. In a recent survey of brands, Tayto was rated the third biggest Irish brand and first in the grocery sector.
While Tayto holds a domestic market position enjoyed by few indigenous consumer brands (in 1999, it held 60% of Ireland's crisp market, and the second highest selling brand, King Crisps, is also owned by Tayto), it has no official export business in an increasingly global savoury snack market. However, there are what could be called "independent initiatives" that bring Tayto crisps to the world. It is often claimed that there are more Irish living outside of Ireland than within, and packets of Tayto's are regularly dispatched to Irish emigrants from friends and family at home. Martin McElroy, an Irishman now living in Philadelphia, has developed an agency that now orders over 100,000 bags of Tayto's a week which he sells through local wholesalers. "It's wonderful to see the reaction of all the Irish people here when they walk into a shop and there is a box of Tayto Cheese & Onion," claims McElroy. "But the Americans are really developing a taste for them too. In fact I can see that Tayto will be regarded as the luxury import in the same way that many American products such as nachos are regarded at home [Ireland]." The crisps are retailing for $1 a pack, twice what they sell for in Irish stores.
Walkers can also trace its history back 50 years. As a local pork butcher in Leicester in the English Midlands, Walkers began producing crisps as a way of utilising staff and facilities in its small factory while meat was heavily rationed after World War II. It began to expand into other British regions around 20 years ago. In recent years, with the backing of its new parents and the help of a big marketing budget wisely spent, particularly on television advertisements featuring British soccer stars, it has become the UK's second most powerful grocery brand after Coca-Cola. Walkers now boasts annual sales of well over £300m and a 65% share of the UK potato chip sector.
Walkers/Frito-Lay /Pepsico is taking the Irish launch of its products very seriously. It has given away more than a million free packets of crisps and made an Irish variation on its theme of soccer-star television advertisements starring Roy Keane, who was one of the highest paid Irish players in the English football league, Andrew Hartshorn explains that the huge marketing budget that Walkers is currently using to push its crisps in Ireland is a "long-term investment" - a strategy that is part of a bigger global picture. Success in Ireland, Europe's fastest growing economy and Walkers' first overseas target, will help the company to develop the knowledge, experience and confidence necessary to launch into other European countries.
Evidence from Northern Ireland does not bode well for Tayto. While the Tayto brand (owned by a different company in the North) is still well regarded, Walkers replaced it as the best-selling crisp in just three years. However, there are many cultural and business factors that make the Republic a different market - not least of which is the clout of the myriad smaller independent stores which still contribute a much higher percentage of sales than in Britain or America and with whom Tayto has long-standing relationships. Tayto's Managing Director, Vincent O'Sullivan, believes that Tayto can compete against the might of the multinational threat: "We're not going to give away market share to anyone," insists O'Sullivan. "What [Walkers] are going to find out is that it's a very competitive market with strong local brands."
Questions
- What resources and capabilities might Tayto have that will be difficult for Walkers to replicate?
- If you were CEO of Tayto, what strategy would you use to protect the company's competitive advantage?
- What resources and capabilities does Walkers have that may help it gain competitive advantage?
- If you were CEO of Walkers Ireland, what strategy would you employ to build a competitive advantage?