POTATO CHIPS PB whitepaper

Volume 1-2019 Potato chips have been a favorite consumer snack around the world for a long time. They are sold and purchased everywhere and currently represent a multi-billion dollar market. 1/2019 PB and H Keep Getting Bolder POTATO CHIPS whitepaper po The UK,US,andMexico are thelargest EVOLUTION BY COUNTRY average annualincrease of USD831m. USD37.4bn in2017. This represents an rising from USD29.6bnin2012to 2.4% rate duringthe2012-2017period, America andEurope grew at anannual of potato chipsremain heavily skewed USD25bn andUSD30bn at present. Sales the globalmarket value salesat between research company. over the2012-2017period, reports the annual volume percent growth of 5.9% the endof 2017,ridinganaverage chips market reached USD29.7bn by More specifically, theglobalpotato high potential for future growth. Poland, with allthree markets showing comes first,followed by Bulgaria and the five-year value growth rate, Romania terms of per capitaexpenditure. Regarding Ireland, andCanadarepresent thetop3in by changinglifestyles andpreferences. Global potato chipsmarkets are constantly influenced Alternative estimates regarding thesize of 2 tato snackmarkets, while theUK, A ealthier chips –inNorth encompasses potato which also snack segment – Thought, thepotato offered by Food for According todata manufacturers developing more premium in recent years. This trend isaresult of strong growth intheadultsnackingsector markets suchasthe UK,there hasbeen to snackingevery day. In developed population, while 63%of UKpeopleadmit are eaten regularly by 93%of the Mintel notes that, intheUK,potato chips corn-based tortillasnacks. alternative snackssuchaspopcorn and explained by the fact that Americans enjoy surprisingly low figure intheU.S. canbe at 2kgandtheU.S. at 2.32kg. The numbers thendrop significantly for Spain with 3.5kgandCanada with 3.4kg. The capita consumption, followed by the UK Ireland was theleader with 4.4kgsper Additional data reveals that in2017, disposable income. and alsopossesshigher levels of who leadmore time-pressured lifestyles amongst younger urbanized consumers, growth indemandismore evident for expansion. In markets suchasthese, believed tooffer thebiggest opportunities consumption remains at 1kgor lower –are two – where annualper capita Emerging economies suchasthelatter UK, Russia, Brazil, ChinaandIndia. world’s largest market, followed by the with larger populations. The U.S. hasthe towards Western countries andnations and luxury chips to cater to increasingly future annual growth of 1% is still 30 demanding trends. probable in these regions. On the upside, The BRIC countries (Brazil, Russia, India, the Central and Eastern European bn USD and China) which have started from a countries show a lot of promise in terms of is the small base market, show very high growth. Consumption is anticipated to estimated historical per capita volume annual increase due to the young consumer growth. This trend is expected to continue category, which is expected to push global at least by 2020 at similar rates, making growth for the next 10 years. A busy market these markets quite attractive for lifestyle is once against the main driving value for manufacturers of chips. In China, the factor for the chips market in Bulgaria, the potato market for potato chips is expected to Czech Republic, Romania, and Hungary. chips. reach a value of over USD2.4bn by 2020. The new generation of young people are For most of the other countries, the moving away from classic meal-taking, and growth rate in terms of market values is so the marketing industry has not been stable, in the 2-4% range. Development is slow to target this market. According to backed up by flavor diversification and Food for Thought, a variety of modern experimentation. Another driver is the situations have led to the phenomenon of emerging trend of using potato chips constant snacking. For example, watching alongside main dishes. For example, a movie or spending time with loved ones serving hamburgers accompanied by chips is easily conductive of sharing snacks. covered with different toppings. Alternatively, people living alone – a Alternatively, consumers in Austria, category on the rise – are increasingly Germany, and Denmark are not big chips replacing classic meals with snacks such as consumers. In these countries, potato chips or others. consumption per capita in kilograms is not only a modest one but has had a tendency THE HEALTH TREND IS SHAPING to slow down in recent years. Even so, THE INDUSTRY N Demand for snack foods such as potato chips continues to remain high throughout In the UK, potato chips are eaten regularly the world. With consumers leading active by 93% of the population, while 63% of UK lifestyles, the need for foods which can be people admit to snacking every day. eaten conveniently and on-to-go shows

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1/2019 no sign of abating, especially among the is also witnessing a move towards smaller younger age segments, who do not abide packaging formats and sizes in many of to strict mealtimes anymore. the large Western markets. While this Traditionally, potato chips have had a less undoubtedly assists with portability, helps than positive reputation, being viewed as to reduce the risk of food being wasted potentially causing health problems by and is ideally suited to the growing some experts. However, in recent years, number of single-person households health lifestyle trends have slowly throughout much of the world, health penetrated into the potato chips market. concerns are also thought to have Some start-ups and more enterprising influenced this trend. Smaller portion sizes manufacturers have been reviewing the have been linked to calorie control, traditional ways and introducing new chips enabling consumers to monitor their ranges with reduced salt content or more intake more carefully. exotic flavors. The bigger brands are also Additionally, private label products are keen on cutting down on fat content. As increasingly convincing customers in terms evidence for this rising trend, many of the of quality, and they are taking their share world’s leading manufacturers include too. The perception of private label being chips carrying some sort of health or an adequate substitute for known brands nutritional benefit within their ranges. In has been catalyzed by increased market Ireland, for example, the Tayto range share of discounter retailers across Western includes Tayto Crunch chips, which are Europe in countries like the UK, Ireland and marketed as containing less 100 calories Turkey. For example, retailers like Lidl and per pack. Aldi, stock mainly private label products, Although products such as low-fat and which in recent times, have managed to low-sodium chips have been around for impact the sale of A brands in categories some time now, recent evidence suggests such as potato chips or puffed snacks. that health-conscious consumers are According to Food for Though, the own increasingly seeking out all-around label market share remains at around 10- nutrition from snack-foods. This may 11%. The research firm believes that, when include gluten-free varieties, but also it comes to potato chips, own label can products manufactured using the process cover niches such as bio or specific flavors. of baking, as opposed to frying. The perception of potato chips has also Consumers, especially in Western Europe, been improving in the last few years. Some are looking to lead healthier lifestyles. This experts claim nutritionists have started to tendency has initiated a shift in snack admit that in the current landscape of habits, while providing a further incentive snacks, chips are not exactly as dangerous for manufacturers to innovate, by when it comes to maintaining a healthy reformulating their recipes. diet. This is because, today consumers can And while brand loyalty for savory snack find some varieties that spice up a products like potato chips is high in all balanced nutrition, with little risk to their markets, traditionally smaller brands have health, such as with low salt levels or with started leaving their mark on market share, less fat than the classic format. as heavily processed food wanes in appeal According to recent consumer behavior because of health-related concerns. studies, indulgence in healthier snacks N On a related note, the potato chips market tends to be heaviest earlier on in the day, such as mornings and launch times. The health trend has initiated a shift in Towards the evening, consumers are more inclined to move towards more snack habits, while providing a further indulgent products, carrying less of a incentive for manufacturers to innovate health appeal. But although an increasing by reformulating their recipes. focus on health has had an influence on

PB whitepaper 4 survey. Other companies including Intersnack and Kellogg’s are present in less than half of these markets, and with significantly lower market share (4.94% and 4.61% respectively). Additionally, Lorenz Snack-World, Tayto Crisps, Calbee and General Mills are also notable, albeit smaller players. When it comes to major chips brands, Frito-Lay maintained its leading position in savory snacks in 2017 with a value share of 39%, a report by Euromonitor noted. The company continued to dominate in potato chips, puffed snacks, and tortilla chips, commanding value shares of 61%, 73% and 74% respectively with brands such as Lay’s, Doritos, Cheetos, Tostitos, Fritos and Ruffles. In March 2017, Frito- Lays launched a new brand in this space called Poppables, a light-textured potato snack in flavors such as White Cheddar and Sea Salt. As it continues to innovate, the company introduced in early 2019 three limited-time flavors inspired by three popular music genres – Pop, Hip Hop, and N Rock. The snacks were offered in Electric Lime and Sea Salt, Flamin’ Hot, and Dill Chips manufacturers are virtually drawing Pickle and Classic Beer Cheese flavors. inspiration from everywhere, like, for Lay’s has also been experimenting with its example, the alcoholic drinks market. packaging. In the late summer of 2018, Lay’s chips appeared in new bags featuring chips, Mintel says it is worth a speech bubble, called Snackable Notes. remembering that enjoyment plays a Introduced in time for the back-to-school bigger role when people choose to period in the autumn, the new packages consume a certain food product, allowed parents to write messages in the especially when it comes to snacking. speech bubbles for their children. Case in point, a recent study published in Research has shown that established the journal Appetite, noted that people brands play an important role in the chips 50% are likely to eat more chips when they category, as shoppers are more willing to are labeled as “crunchy”. try something new from a brand they of know and trust. According to Mintel, in the Americans MAJOR PLAYERS CONSTANTLY UK, new flavors provide the key claim to RELEASE NEW PRODUCTS inspiration when it comes to chips. prefer The North American and European Cuisines such as those from South plain markets are very concentrated, with the America and the Far East are becoming top 5 companies taking almost 50% of the increasingly popular and are extending varieties market, while the top 10 companies make into the chips market. of chips up 60% of the market combined. Data In the competitive potato chip space, over shows that PepsiCo is present in a manufacturers will need to offer flavored significant number of countries, 47 shoppers another reason to buy the ones. altogether, out of the 78 included in the product, relating to the key themes of PB whitepaper 5

1/2019 base. Many people, especially from the younger age groups, are now actively seeking out a broader range of tastes, often inspired by ethnic food cuisine. In such instances, manufacturers frequently take the opportunity to add provenance as a selling point for their chips. In 2018, the Pipers range in the UK was extended with Jalapeno & Dill, which uses Jalapeno peppers sourced from Chihuahua in Mexico. In Western countries like the UK, street N food is very big with consumers, especially with the younger age groups When it comes to potato such as Millennials and this is now being chips, own label can cover reflected in flavor innovation within the niches such as bio or potato chips category. One specialist in specific flavors. this sector is London Flavors, which developed a new range of chips inspired taste, health, and enjoyment, in by street foods in the autumn of 2018. order to differentiate Flavors in this range include Sticky Ribs, themselves. Speaking of flavor, Teriyaki (which blends soy and ginger this characteristic remains an flavors) and Pho, which is based on important point for potato chips Vietnamese cuisine. PepsiCo's Ruffles throughout the world. Although brand of ridged chips includes several over 50% of U.S. households claim hot and spicy flavors. Examples from the to prefer plain varieties over flavored, U.S. include Flamin’ Hot, Mozzarella & recent market growth has been higher Marinara and Jalapeno Ranch. In for the latter. One recent tactic observed Portugal, customers can buy Spicy Curry in the UK was from Walkers, which and Hot Chicken Wings. One popular celebrated some of its most unusual variety from Canada is All Dresses, which flavors, matching six with regions around is a mix of barbecue, ketchup & salt and the country. For example, Scotland was vinegar flavors. paired with Pickled Onion and the North The world of chips is extremely diverse. with Tomato Ketchup. In the targeted UK In some parts of the world regions, sales of these flavors have manufacturers are offering unique ranked well above the national average. flavors which would certainly raise an Potato chips manufacturers continue to eyebrow in Western countries. For experiment with a widening range of example, in 2018, Lay’s extended its flavors, in order to cater towards an product portfolio in China with a potato increasingly sophisticated consumer chips flavor based on Durian. This is

PB whitepaper 6 1/2019 featured as an ingredient in foods from real pine needles. 3% supplied by the most popular foodservice One notable innovation was brought by operators including McDonalds and KFC. U.S.-based Dieffenbach in 2017, which is the Another Lay’s flavor which was launched launched a new range of potato chips estimated on the Chinese market was Salted Egg. In called Uglies. These were made of India, the Lay’s range includes options potatoes rejected by farmers or brokers market such as Magic Masala, Swiss Grilled on the grounds of their aesthetics. The value Cheese and Spanish Tomato Tango, snacks were offered in Original Sea Salt, growth while Japanese snack manufacturer Salt & Vinegar, and Mesquite BBQ rate for Calbee unveiled Grilled Seaweed flavor flavors and were directed towards most chips in Indonesia. consumers who wanted to play a part in countries. In Russia, customers can experience the diminishing food waste. unique red caviar aroma on their snacks, On top of the classic potato chip market, while in Poland, Guacamole and Green vegetable chips are also making a splash. Onion are increasing in popularity. In Technavio analysts predict that the 4.4 Belgium, consumers who are big fans of global vegetable chips market will post a the specific mayonnaise sauce they use CAGR of around 10% by 2021, with kgs of for fries, are, of course, demanding this three market drivers that are chips are flavor for their chips. contributing to the growth of the global purchased Chips manufacturers are virtually vegetable chips market: changing taste by Irish drawing inspiration from everywhere, preferences, increasing demand for low- consumers like, for example, the alcoholic drinks calorie vegetable chips and expansion in every year. market. In Spain, Patatas Torres rolled the retail landscape. Manufacturers have out what was described as sparkling been introducing a flurry of new flavors wine chips (chips featuring a fruity of vegetable chips to expand their flavor with a slight bubbling effect). consumer base, including roasted or Other companies have designed potato toasted, barbeque, spice, and beef. Many snacks to complement occasions in players try to differentiate their products which alcoholic drinks are featured. For based on flavor, which has become an example, Walkers introduced the Max important component of the overall Strong range in the UK early in 2018, branding, marketing, and NPD strategies which is best served as an of processors. accompaniment for beer. Flavors in the range include Chili & Lime, Hot Chicken THE FUTURE IS RIPE Wings, and Jalapeno & Cheese. WITH OPPORTUNITY Another trend is launching limited Consumer preference for this particular edition flavors linked with a certain vegetable will remain both a constant time of the year. Again, in the UK, challenge and an opportunity for foods Walkers extended its range towards the manufacturers. The popularity of potato end of 2018 to include new festive- chips is encouraging manufacturers and themed flavors such as Pigs in Blankets, retailers alike to develop bolder Turkey & Stuffing and Brussels Sprouts. options, as well as own private label Elsewhere in the UK, supermarket giant products, a sure sign that this is a Iceland offered Christmas Tree Flavored profitable market. The future for the N Chips, which were prepared using oil chips market over the next few years is promising, featuring continued steady Established brands play an important growth and intensive innovation. role in the chips category, as shoppers are more willing to try something new This article is based on information and data from from a brand they know and trust. Food for Thought, analyst Jonathan Thomas, Euromonitor, Mintel and Technavio

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1/2019