After two years of fending off rival snack food companies with price cuts, coupons and costly promotions, Frito-Lay Inc. announced big changes yesterday to lower its cost of doing business.
The battles between market leader Frito-Lay, No. 2 Borden Inc. and third-place Eagle Snacks Inc. have lowered the profits of all the major makers of potato and corn chips, pretzels and other salty snacks. But the competition has been a boon to consumers, who have become less tolerant of price increases.
"It's a war, and they are all bleeding," Max Busetti, editor of the Food Industry Newsletter in Alexandria, Va., said of the snack companies. "There is no other aisle in the supermarket where the competition is so severe."
Frito-Lay, a Pepsico Inc. subsidiary that is based in the Dallas suburb of Plano, Texas, said yesterday that it planned to cut 1,800 people -- about 7 percent of its work force -- from its payroll.
The company said that the move would save $100 million a year, which would permit it to keep price increases to a minimum. The company is also trying to bolster profit margins, which have been sagging this year.
Some analysts applauded the move and predicted that other types of consumer products would also be forced to hold down price increases.
That there were reductions at Frito-Lay was not a surprise, but the cuts were nearly three times what most analysts had expected.
The staff reductions will be especially severe at the company's headquarters, where 800 people, or nearly one-third of the 2,800 people employed there, will lose their positions.