Frito-Lay is proclaiming its Wow! chips as "the most successful new product in a decade," but some analysts and observers are already waving caution flags.
With a launch advertising barrage subsiding, Wow! sales growth started slowing in June, according to analyst reports that helped trigger a 6.6% drop in parent PepsiCo's stock last week.
EARNINGS RELEASED EARLY
Although the stock gyration caused PepsiCo to announce its earnings early--reporting volume growth in North American snacks of 5% for the second quarter ended June 13--questions still remain about whether Wow! is wowing consumers.
The company didn't disclose Wow! sales figures, saying only that "consumers have already bought more than 100 million bags."
But Schroder & Co. analyst Caroline Levy said that according to data from Information Resources Inc., Wow! dollar sales went from $41.4 million for the four weeks ended May 24 to $36 million for the four weeks ended June 21.
"Wow! volumes have slowed vs. May levels, suggesting the product may not be an instant home run," she said in a report.
PRODUCT STILL A SUCCESS
Even including the decline in growth, according to Ms. Levy's figures, sales through IRI were $114.3 million for the three-month period ended June 21, well above the full-year benchmark for new-product success.
"I don't think we have a revolution here. I think we have a product that is doing OK, a product that is trying to wait for the mindset of American consumers to change," said Tom Pirko, president of food and beverage consultancy Bevmark.
Moreover, the Wow! brands appear to be cannibalizing Frito's other better-for-you snack, Baked Lay's. Frito crowed in January 1997 that the brand was the "biggest-selling salty snack ever," with $275 million in sales--second only to Nabisco's SnackWell's. Since then, Frito has shifted media support from Baked Lay's to Wow! and watched sales of the former drop.
According to IRI, Baked Lay's sales stood at $160.8 million for the 52 weeks ended June 21, down 28.9%. Media outlays shrank from $22 million in 1997, according to Competitive Media Reporting, to zero through April of this year, the most recent period available.
Media spending on Lay's Wow!, meanwhile, was $7.4 million during that four-month period, compared with $14.6 million on Lay's Deli Style potato chips. Since Wow!'s national rollout in February, ad spending has dropped off, although it's difficult to say how strongly.
After a widely talked about teaser ad from BBDO Worldwide, New York, on January's Super Bowl, a full-fledged campaign for Doritos 3Ds promised by summer failed to materialize. And Frito still hasn't launched its national effort for Cracker Jack, more than four months after awarding the account to Goodby, Silverstein & Partners, San Francisco.
Sanford C. Bernstein analyst Bill Pecoriello said Frito is experiencing "higher than expected cannibalization of `better for you' products" as well as suffering from a lower than expected volume lift in potato chips.
While noting "Frito's lighter than expected volume growth in June is cause for concern," he added, "it's too early to assess the positive impact fall marketing and promotional activity will have."
He also sounded a warning that Frito was seeing "a lower than expected volume lift from merchandising activity"--such as displays, feature ads and price discounting--in regular Lay's and Ruffles.
Frito maintains sales of both Wow! and Baked Lay's are good, and a spokeswoman noted the company was going ahead with the addition of Tostitos Wow! in August.
Also, a Roasted Herb variety of Baked Lay's is coming later this year, and Baked Ruffles is on target for a national rollout next year.
"Baked Lay's [sales] are not in decline this year," she said, adding the company has repackaged the line, as well as added two flavors and a minimal amount of fat into some varieties to improve taste.
When asked whether Wow! is cannibalizing Baked Lay's, the spokeswoman said, "it's too early to tell."
Wow! "sales remain strong," she said. "We're doing 20% to 25% better than test markets" and "repeat sales are even better than the test markets."
`UNDERWHELMING' IN TEST
At least two competitors, however, said it wouldn't be at all difficult to do better than the test markets, which they said were underwhelming.
"The results were horrible," said one. "Frito kept saying there were executional problems with the test market and [then] merchandising as a way of explaining it."
Test results for Indianapolis obtained by Advertising Age for the period March 1997 through January 1998 show steep unit-sales declines across the Wow! line in supermarkets, with the drops becoming most pronounced beginning in November --three months before rollout. Figures for the other test sites--Grand Junction, Colo.; Eau Claire, Wis.; and Cedar Rapids, Iowa--are not known, and price points were adjusted from market to market.
`SENSE OF MALAISE'
Ken Harris, a consultant with Cannondale Associates who has tracked Wow!, said expectations appear to be unusually high.
"There's a certain sense of malaise since there are not that many blow-your-socks-off new products," he said.
However, he added that the dip in the product's sales "isn't a statistical wobble. Looking at the longer-term business prospects, [Wow!] just doesn't have enough legs to be the second coming."
PaineWeber analyst Manny Goldman, however, strongly disagrees.
"I'm more bullish than ever on Wow!" he said, adding that he expects harder-sell advertising for the brand now that the Food & Drug Administration has reiterated the product's safety. "[Wow!] has the makings of a good-size business. It's a product with legs. What more can you ask?"
Contributing: Louise Kramer.
Copyright July 1998, Crain Communications Inc.