Executives who voiced concern about focusing on the chip dip category also raised several points in favor of the vegetable dip opportunity. First, they noted that 33 percent of dip sales were linked to vegetables. Moreover, industry research indicated that only one-fourth of the dollar volume associated with vegetable dipping was accounted for by refrigerated salad dressings, such as Marie’s. The remainder was was accounted for by dip mixes and refrigerated dips, and no major competitors had a strong competitive position in the market. Second, research indicated that sour cream-based dips were more popular than cheese dips for vegetable dipping. Third trend data indicated that consumers were becoming concerned about the nutritional value and salt content of prepared foods. It was felt that this trend could affect preferences for vegetables and salty snacks and, as a result, dips. Fourth, the Frito-Lay’s. Dips line now had a sour cream-based dip that ha not yet been promoted and merchandised for vegetable dipping. Fifth, no major competitor had introduced a shelfstable dip for vegetables. Frito-Lay had pioneered the shelf-stable business for chip dips, and some executives felt that a similar opportunity existed for vegetable dips. Finally, a cost analysis indicated that the gross margins would be largely unaffected. The gross margin on Frito-Lay’s sour cream dip was 45 percent.
Other executives expressed the view that pursuing the vegetable dip segment would not be easy, however. These executives cited research indicating that supermarket executives preferred that dips suitable for vegetable dipping be handled by their produce warehouse. This meant that Frito-Lay’s front-door delivery system would not be favored. Distribution through the produce warehouse would also involve dealing with supermarket produce buyers and managers. Frito-Lay had never dealt with these individuals in the past, and some company executives believed that a totally new sales approach would be necessary. Even though a complete cost analysis had not been conducted, it was estimated that selling expenses could increase to 25 percent of sales. Current sales expense was 22.7 percent. Freight expense would not be affected. As of 1986, the sour cream dip was not allocated any general and administrative overhead. Furthermore, Frito-lay driver/salespeople were unfamiliar with merchandising practices in the produce section of supermarkets. This same research indicated that any new vegetable dip should be shelved next to refrigerated salad salad dressing or near produce.
A second concern was that Frito-Lay’s Dips would lose some economies in advertising and merchandising. Frito-lay’s Dips had been promoted jointly with the company’s chips in the past and thus traded on the “halo effect” of Frito-Lay salty snacks. Mirabito acknowledged that vegetable dips would have to “go it alone” because Frito-Lay’s halo effect might not translate to vegetable dips.
A third concern expressed at the meeting was that any foray into vegetable dips would require more than a single item. In addition to the French onion flavor, other flavors(such as ranch style) would be necessary. Such line extensions would require added research and development expenses and promotional support, as had been the case with the successful introduction of cheese dips.
The planning meeting adjourned without resolution of the issue. Ben Ball asked Ann Mirabito to give the “chip dip versus vegetable dip “ question further consideration. She was to prepare a recommendation for another meeting to be scheduled within 30 days.