Back in 1998, Utz Quality Foods Inc. faced a dilemma: Rival Frito-Lay spent most of the 1990s squeezing smaller makers of pretzels and potato chips by driving down production costs to free money for aggressive promotions. Utz had to fight back, both to protect its core markets in Baltimore and Washington and to support expansion into new markets as far south as the Carolinas and as far north as Massachusetts. The solution its executives came up with relied on information technology (IT).
The company's first big foray into Web-supported management was UtzFocus, an information system implemented in 1999 to help route drivers and Utz managers beef up service to supermarkets and convenience stores. By spotting service problems and analyzing performance of sales promotions quickly, Utz helped boost growth in sales to these stores by almost 50% last year. Managers credit UtzFocus with half of the acceleration in growth.
Now, the company is moving to use IT to streamline its manufacturing too: The goal is to raise the efficiency of Utz's Hanover (Pa.) factories by up to 25% and to create information tools that will let management monitor production and quality at a planned factory in New England. Mike Rice, CEO of the nation's No. 3 salty-snack company, recently talked to BusinessWeek E-Business Editor Timothy J. Mullaney. Edited excerpts from their conversation follow:
Q: You launched the first big phase of your Internet-based, or IT-based, management plans in 1999. What has it done for Utz's business?
A: It has let our salespeople get more attuned to their goals and how they're achieving them, especially with individual accounts. The information the system provides lets them more effectively plan and interact with their accounts. The [information] can show them what's happening on an immediate basis. Right after a promotion, they can show a store's category manager what happened. That information is available and easily accessed.
Q: How many more chips do you sell because of this?
A: Over the last three years, we've averaged overall sales gains of 15%, which is better than what we got before we put this system in. I can't say it's all because of the data, but it has definitely enhanced performance. About half the gains come from putting new products into [wholesale] club stores and to some degree because of geography.
Q: For a long time, you concentrated investment on factory equipment to cut production costs, rather than investing in IT. What happened in 1998 that convinced you to change that?
A: With the continued expansion of our business, the sheer mass made us need to know better what we were doing. There were some problems with products being out of stock because we didn't have enough to fill the orders. Logistics got much more complicated. We used to ship 50 or 60 trailer loads a week, and we were up to 200. We had moved from direct store delivery out of Hanover to trucks going to warehouses all over.
From the frequency and extent of the problems, it was obvious that if we wanted to do a good job of service, we had to do better. The supermarket shelf probably didn't reflect this -- we could make [shortages] up in a day or two -- but if the problems continued, it was going to become obvious. And it was a hassle for our operating people, even if it didn't kill them right away. They're planning what they need, and then they don't have it when the time comes. And for club stores, meeting their delivery point is very important to them.
Q: Your industry's pace is set by Frito-Lay, a competitor who has almost 60% market share. Its cost structure is also a lot lower than the industry average -- and lower than yours. How are your information-management plans related to fighting back against Frito and the power its market share and cost structure gives it?
A: Obviously, we had to be as competitive, hopefully better in most cases. Our delivery service is recognized as being better than Frito's. It's important to keeping us in the forefront with them. Frito may be able to provide better discounts and incentives, but if we're providing better service that means a lot to the stores. The basic pricing has to be competitive. We don't do everything Frito does promotionally, but you have to be competitive on service.
Q: Now, you're moving some of your e-business efforts into Utz's factories. How is that related to the pressure from Frito, and how effectively do you think you can cope with their efficiencies?
A: Long term, if they can drive a lower price and higher profit, they'll use that money to take you out, marketing-wise, in promotions. We haven't become as efficient as we can in manufacturing. Some of these technologies in the past have created other problems. With some of them, you may not have the flexibility you need. We still think you get a better, more consistent product with the manual labor we use. We could be a much cheaper manufacturer, but the product in the bag wouldn't be as good, and that's the key to consumer preference.
Q: So what will you automate more?
A: We absolutely have to do a better job in the packaging end, because the problems of getting good, reliable help at the level where we need it is very difficult. The economy will come back around, and it will continue to be very difficult [to find good employees]. We want to cut inventories as much as possible, bring packaging supplies and raw materials in closer to when we make the products. We want to give our manufacturing people some of the same tools we've given to sales.
Q: Utz executives told us that getting smart about using IT and the Web to manage is essential to controlling Utz's geographic expansion, especially in New England. How big a role did expansion play in the decision to implement some of these technologies, and how will you use them?
A: Longer term, we'll absolutely have to put production facilities in New England and the South. Frito has operations across the country. And with potato chips in particular, you can't haul products a great distance economically. We want to [build more facilities], and that entails a whole level of finding competent managers and trying to engrain them in our system, which isn't easy.
We found that out very quickly when we first set up a distant sales operation in the early 1980s. We thought we would train them and make them just like our people. But within a year, only one of the four original people was left. Bringing people into Hanover wasn't going to do it, so we needed a more systematic personnel system.
We can be more effective if we can [utilize] videoconferencing training programs, for example. We can do training more easily and more often, saving [managers] time. Now, you either have to pull them into Hanover or do training in outlying areas, which takes people off the road and away from their jobs, which is hard to do.
Q: We talked to one of your competitors, who said he's doing some of the same things you are. But he doesn't expect to make a lot of money from implementing Web-smart management: He just thinks he has to do it or Frito will grind him into the ground. Where do you think Utz would be in a few years if you hadn't gone ahead with some of your e-business initiatives?
A: If we kept quality up, we would still be effective in the marketplace, but we would have lost ground. Frito has clearly gone through a cycle where they decided to temper their drive for market share to some extent.... It's not that they don't want the space -- your space -- in the supermarket, but they structured some things to be less tooth-and-nail than when they were fighting with Anheuser-Busch [which sold off its Eagle Snacks brand to Procter & Gamble].
But I'm not deluded that they won't come back with all the guns. If you have a superior product -- well, it's hard to take a superior product out of the market. If you have good quality, you may be able to hang on. But you'll have difficulty being as competitive.
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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