P&G warns Pringles, Sunny D to shape up

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Faced with a serious-if delayed-challenge from PepsiCo's Lays Stax and a deadline to hit turnaround targets or face possible divestiture, Procter & Gamble Co.'s Pringles is thinking outside the can.

An executive close to P&G said the company's snack business has one to two years to "get it right" or possibly be divested, and that Chairman-CEO A.G. Lafley has given Sunny Delight juice drinks even less time-as little as six to 12 months-to show signs of turnaround. As a result, P&G's snack managers are "challenging every assumption," he said. "Not all Pringles will necessarily be in cans. ... It could include bags or different shapes or forms."

A P&G spokesman denied, however, that the brands are working against a deadline to turn around or be divested.

Sunny Delight sales were down 15% to $222.8 million in the 52 weeks ended Feb. 23, according to Information Resources Inc., and have been hurt in recent years by the lower-priced Tampico brand. Pringles has fared better, up 0.4% to $321.6 million in figures that exclude Wal-Mart Stores, club and dollar stores. Publicis Groupe's Saatchi & Saatchi, New York, handles Sunny Delight, which was supported with $24 million in measured spending last year, according to Taylor Nelson Sofres' CMR. Grey Global Group's Grey Worldwide, New York, handles Pringles and Torengos, which received $60 million in measured spending last year.

Mr. Lafley fueled longstanding speculation about the businesses' future with a frank assessment during a conference last month. "Our snack business is picking up its performance right now but is in a very important testing period in the U.S. as Frito-Lay introduces Stax, or at least says they're introducing Stax. ... We've been struggling in [Sunny Delight]. We're always evaluating that and we'll make the right decision long-term for the company and the shareholders."

targeting moms

Another P&G spokeswoman said ad copy for Sunny Delight launched six months ago and aimed at moms "seems to be working," and that the brand has high hopes for a new bottle with a sports-drink top.

Mr. Lafley said in a January conference call that Pringles had fixed cost and pricing problems over the past two years, with U.S. volume up 8% in the quarter ended December 2002 and also improving in Western Europe and Japan. But he said developing markets are proving more troublesome for the brand.

Stax appears to have problems of its own. Originally set to hit U.S. stores in March, it has been delayed indefinitely because of production issues and probably won't reach stores until summer, according to a Frito-Lay sales executive. Another executive familiar with the situation said Stax will ship to the Northeast by May. A Frito-Lay spokeswoman declined to comment.

While not aware of any specific Pringles new-product plans, Frito-Lay sales representatives anticipate a P&G counteroffensive against Stax, which they called Frito-Lay's biggest rollout since Wow! launched in 1998 using P&G's fake fat Olean.

According to Frito-Lay insiders, P&G's Torengos tortilla chips made a good initial showing last year, but have started to slip, with many retailers now returning out-of-date product. A second P&G spokeswoman said Torengos recent launch of new flavors shows that neither the company nor consumers have lost interest.

She wouldn't comment on new-product plans. While she said Pringles' packaging and unbroken, non-greasy chips have been integral to the brand, she didn't rule out a bagged entry and said the brand equity could extend beyond potato crisps. P&G has in the past tested bagged extensions of Pringles corn snacks and Jeckles, a youth-positioned snack.

snack patents

P&G's snack patent filings in the past year have centered on a wider range of products, including cheese- and peanut-butter-filled pretzels and extruded corn snacks. Some cover a wide variety of nutritionally balanced snacks, not only cutting fat but also dramatically increasing protein, fiber and vitamin content. One filing is for a snack-and-dip kit that would place a dip cup on top of Pringles or Torengos cans, which jibes with a pending trademark application for a "Go-Kit."

Pringles faced a do-or-die dictum from senior management in the early 1990s before adopting its current youth-friendly marketing and starting a run of global expansion. A 2001 proposal to merge P&G's snack and juice business with Coca-Cola Co.'s juice business fell through.

contributing: stephanie thompson

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