If so, Ritthaler's gotten his wish.
John Grossmann is a writer based in Mountain Lakes, N.J.
Ritz Foods' financial projections
The future in yuca, as Ritthaler sees it
|
1999 |
2000 |
2001 |
| Sales: |
$10,000,000 |
$12,500,000 |
$15,600,000 |
| Cost of sales and operating expenses: |
$8,500,000 |
$10,625,000 |
$13,260,000 |
| Operating profit: |
$1,500,000 |
$1,875,000 |
$2,340,000 |
| Net profit after debt service and before taxes: |
$1,000,000 |
$1,425,000 |
$1,940,000 |
What the experts say
Getting a new snack chip to market is a very complicated business
Competitor
Michael Schall, president, Guiltless Gourmet, in Austin, Tex., maker of the first baked tortilla chip
There are four things you need to know to compete in the snack food industry: dis-tri-bu-tion. If you use the best distribution for this type of product, you run the risk of being a few items among 6,000 or 8,000 items handled by specialty or gourmet food distributors. Specialty distributors play a critical role in bringing new, specialty, niche-type products to retailers where smaller marketing budgets don't justify warehouse or direct distribution. That's fine for high-margin items like capers or hearts of palm, but if you don't have people in the stores to replenish snack-food items with a higher sales rate, you're going to be out of business. Frito-Lay has people in the stores, in some cases, twice a day, seven days a week.
Even then, the distributor isn't the essential sale. You have to go to the retailers and sell them on the item's quality, flavor, marketing support, and consumer "need," so their buyers will say, "Those yuca chips are great; I'll bring them in."
A one-product company with several flavors has got to stay highly focused. You've got to know which retailers to call on. We use market research that helps us identify, based on the demographic significance of our product, what store addresses--not what chains--are attractive.
There's an old story about a father and son. The father is extremely wealthy and gets his son a business in the snack food industry. Two years later the son tells an acquaintance, "I made my dad a millionaire in the snack food business." His friend says, "Yeah, but your father was a multimillionaire before you started."
Investor
J. Gary Shansby, general partner of the Shansby Group, in San Francisco, the food investment company that bought and sold Terra chips
Tropic's might have something very good. The problem is, the company has most likely fallen in love with the process and the quality, and taking a premium chip product to the commercial market is a real tough assignment.
Food seems like the easiest thing in the world to understand, because we all eat and we all think we know it. But it's probably the most difficult business to execute, because it's very competitive, and the most difficult business in food is the salty-snack business. Why? Because of Frito-Lay. It's a brand with enormous muscle. It's like playing against the 1998 Yankees. Frito-Lay is the most aggressive, deep-pocketed food competitor in America.
If he's spent $5 million and hopes to get to $10 million in revenues, he'll never make money. The investment is too big and the potential too small. I wouldn't personally invest in his company. I think he's late. At this point, with a premium product, I think he's got an uphill battle.
Distributor
John Raiche, East Coast director of marketing, United Natural Foods Inc., in Dayville, Conn.
It sounds quite similar to a product we already carry--Terra chips. I don't believe United Foods would increase its overall snack-food business were it to have this product. There's only so much room on our trucks and in our warehouses. There's a little more to succeeding in this industry than coming up with a unique, high-quality, good-tasting product and making it available. How is Ritz going to build a customer base? Does it have a sales force? Has it hired a broker network? What sort of marketing tools will it make available? To what extent would it fund marketing programs provided by United Natural Foods?
We've been down this road before. Taro was a comet about seven years ago. We were selling triple-digit cases per week of a product called Ray's Taro Chips. That company is out of business now, I think. The snack-food category is so fickle. I could see how you could get a store owner excited about this product. It happened with taro chips. They come in, they're hot, they have shelf placement. And then customers tire of them and move on. All of a sudden your sales are half what they used to be, then a quarter. Then they're gone.
Industry observer
James Shufelt, president of the Snack Food Association, an international trade association based in Alexandria, Va.
There's nothing homogeneous or uniform about the United States in terms of eating habits. Much of what we eat is based on ethnicity. There are clearly regions of the United States where one type of food product is more popular than another. It's important to know where the potential is for a given product.
That should be Ritthaler's first marketing move: he needs to define that segment of the population that is familiar with yuca. Once he locates those ethnic groups, he needs to find the outlets that are interested in what are essentially low-volume, attractively packaged products. Those outlets would give his products the best chance of survival on the racks.
