M&As among makers of snack foods chip away at Frito-Lay

Bite-sized snacks are big business.

While Wall Street focuses its attention on makers of semiconductor chips and movers of casino chips to make its money, companies that manufacture snack foods are busy building their fortunes through potato chips, pretzels, and similar indulgences.

More than an impulse purchase, snack foods have become a mainstay for on-the-go consumers and those with voracious appetites for salty and savory foods. The snack foods industry, which comprises some 500 companies the likes of Frito-Lay, Kettle Foods, Nabisco, and Pringles, is highly concentrated with the top 50 firms generating 90% of the revenue. Selling chips accounts for the largest percentage of sales — about a third — industry-wide. Recent merger and acquisition activity among independent snack foods makers proves that these little somethings mean big business.

The common thread among these M&A deals is a push to join forces with other independents as they jockey for position against bigger makers of snacks that enjoy a broader reach and deeper pockets to fund their growth. Merging their operations gives their distribution networks traction and allows them to leverage several more popular brands.

One such agreement involves two regional chip makers. Family owned and operated since 1921, Utz Quality Foods is a longtime provider of potato chips along the mid-Atlantic coast; it pumps out 1 million pounds of chips a week. The manufacturer also supplies pretzels, cheese curls, pork rinds, and popcorn. Utz has become the largest independent privately held snack brand in the US. When fellow Zapp’s potato chip manufacturer Zappe Endeavors lost its founder Ron Zappe, who died in June 2010, company executives looked for a way to keep the Cajun snack foods firm alive and its bayou brand name from getting stale. It was then announced in January 2011 that Utz has agreed to acquire the Zapp’s chips business that had become deeply rooted in Gramercy, Louisiana, since its founding in 1985 (the business also survived the woes brought by Hurricane Katrina). Zapp’s chips are kettle-cooked in peanut oil and are distributed across a handful of Southern states. As part of the deal, Utz plans to add the Zapp’s, Dirty Potato Chips, and California Potato Chips brands to its products portfolio. Together, the chip makers would become a bi-coastal operation.

Utz, itself, had been eyed by über pretzel maker Snyder’s of Hanover as an acquisition target in late 2009. The deal fell through, however, as the two believed that the purchase would have been held up by the Federal Trade Commission.

The largest pretzel maker in the US, Snyder’s of Hanover in 2010 began courting Lance, known for its snack crackers, cookies, and deep delivery routes, in yet another noteworthy matchup. By merging their operations later that year in a stock-for-stock deal, the food companies created a national distribution footprint with one of the largest Direct Store Delivery (DSD) networks in the US. Forming the ultimately named Snyder’s-Lance entity also placed popular snack foods brands Captain’s Wafers, Archway, Tom’s, Cape Cod, Bugles, Toastchee, Nip Chee, Stella D’Oro, and Lance under the same roof.

So, while some consumers consider Frito-Lay to be the chip champ and maybe “all that and a bag of chips,” there are several other pertinent snack foods makers creating alliances to chip away at the competition.

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Photo by FeatheredTar Joel Penner, used under a Creative Commons license.
Catherine Colbert

Tracking the moves of consumer products makers since 2003, Colbert is a company insights writer and blogger. Before covering companies, she spent ample time in magazine publishing, technical writing, ad copywriting, medical writing, and marketing. Follow her on Twitter.

Read more articles by Catherine Colbert.

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