Snack Foods Manufacturing
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Industry Overview
The snack food manufacturing industry includes about 400 companies with combined annual revenue of $23 billion. Major companies include PepsiCo's Frito-Lay, Kraft's Nabisco subsidiary, and Kellogg's Retail Snacks business. The industry is concentrated: the top 50 companies account for 75 percent of industry revenue.
The snack food manufacturing industry includes companies that make roasted nuts and nut mixes; potato, tortilla, and corn chips; popped popcorn; and peanut butter. This industry doesn't include companies that make cookies, candy, crackers, pies, or chocolate-covered snacks.
Competitive Landscape
Demand is driven by consumer tastes and health considerations. The profitability of individual companies depends on efficient operations, effective marketing, and a strong sales force. Large companies have advantages in raw material purchasing, manufacturing efficiencies, distribution, and marketing budgets. Small operations can compete effectively by self-distributing products, selling online, or marketing snacks as gift items. Average annual revenue per employee is $500,000.
Snack food manufacturing competes against other "impulse" food items, including cookies and crackers, baked goods, fruits and vegetables, and fast food items.
Products, Operations & Technology
Major products are potato chips (30 percent of industry revenue); tortilla chips (20 percent); and bulk nuts (10 percent). Other products include canned nuts, corn chips, peanut butter, popcorn, and hard pretzels.
Salty snack foods are found in 99 percent of all American households. Research from the USDA and the Snack Food Association (SFA) finds that the average American household spends around $80 on 32 pounds of salty snacks each year. Potato chips are the most popular US snack, representing 40 percent of all snack food consumption. Each year, Americans consume 4.6 pounds of potato chips per capita from nearly 20 pounds of farmed potatoes.
To make potato chips, manufacturers receive daily truckloads of fresh potatoes. Sources depend on the season: potatoes come from Florida in April and May, from Virginia and North Carolina in the summer, and the Dakotas in winter. Potatoes are stored in warehouses at 40 to 45°F and warmed to room temperature prior to processing.
A conveyor belt moves the potatoes through the various stages of manufacturing. Vibrating conveyors remove debris and push the potato to an automatic peeling machine. After peeling, potatoes are washed with cold water and enter a revolving impaler. Straight blades produce regular chips; rippled blades make ridged potato chips. A secondary wash rinses off excess starch from the newly sliced potatoes. "Natural" potato chips aren't washed and retain this starch.
The sliced potatoes move through air jets that remove excess water and enter a long trough filled with hot cottonseed, corn, or blended oil. Paddles push the chips along as they fry. Salt and flavorings are added as the chips cool. Cooled chips are conveyed to a packing machine, where computer-aided machines pack the chips and add air and nitrogen to the package prior to sealing. Workers handpack the bags into cartons and place them on pallets for warehousing. Rejected potatoes and peels are sent to farms for animal feed. The starch removed during rinsing is sold to starch processors.
A snack food manufacturer must have advanced quality control measures in place at all stages of processing. Optical sensors spot and discard defective chips. Quality control managers inspect incoming ingredients, test the viscosity of oils, and taste-sample every product, typically on the hour.
To reduce product shipping costs, companies typically operate multiple manufacturing plants across the US. Most plants are capable of manufacturing a range of products, though each plant usually specializes in one or two popular brands. Large companies manage a network of distribution centers for warehousing products prior to store delivery.
Common inputs for snacks include white potatoes; corn and wheat flour; cottonseed, corn, and soybean oil; shelled peanuts; flavorings like herbs, salt, and spices; and packaging materials. Key energy inputs include water, electricity, diesel, and natural gas.
Recent technological advances include automated quality control instrumentation, advancements in creating crunchier chips, baked snacks, and genetically modified (GM) potatoes and corn that result in more uniform chips and snacks. Most large companies manage real-time sales tracking using a network of handheld wireless devices and centralized enterprise resource planning (ERP) systems.