Should chip maker nix flavors to up efficiency?

March 3, 2012

The big idea: Should Route 11 Potato Chips, a regional kettle-cooked potato chip manufacturer with a cult-like following, cut back on its flavor offerings in order to increase operational efficiency? Hanging in the balance is the image of the brand, built on high-quality chips with unique flavors.

The scenario: The Shenandoah Valley has long been home to a patchwork of small, productive farms. Tabard Farm, located in Middletown, Va., supplies some of the meat and produce to the fabled Hotel Tabard Inn in Washington. One summer, the farm produced more potatoes than the inn could use. Edward Cohen, the owner, decided to make potato chips. Tabard Farm Potato Chips was eventually renamed Route 11 Potato Chips for the main street in Middletown. Edward’s daughter, Sarah, runs Route 11 and has built an intensely loyal customer base.

Such an august brand history comes at a price. Your customers expect more from you. They came to expect the interesting and unusual assortment of flavors that Route 11 sold. Sure, Route 11 had Lightly Salted and Barbeque chips, but it offered Mama Zuma’s Revenge, Chesapeake Crab or Dill Pickle. The brand was all about quality, sustainability and creativity. The flavors and the packaging graphics reinforced the notion that Route 11 really was a different kind of potato chip company.

Broad product assortments tend to cost more money than narrower ones. In Route 11’s case, packaging costs were lower for high-volume flavors relative to low-volume flavors because they could negotiate quantity discounts from the company that printed graphics on the bags. There were also less-quantifiable costs associated with so many flavors, but these costs certainly affected the bottom line. Producing fewer flavors would decrease the number of flavor-related changeovers the production line had to make. Each time the production process was stopped to change to another flavor, equipment had to be washed down thoroughly. Also, retailers that carried some of the slower-selling flavors had to allocate shelf space to them, which sometimes left too little space for the big sellers. Upon encountering a shelf whose space for Lightly Salted (a big seller) was empty, some consumers might switch to another Route 11 flavor, but they might buy a competitor’s product. Route 11 believed the cost associated with these lost sales was significant.

The resolution: Route 11 Potato Chips trimmed its product line, eliminating the flavors Green Chile Enchilada and Garlic & Herb, which were very slow sellers. The revenue they generated did not offset the total cost of including them in the product line. Perhaps more important is what Route 11 didn’t do. Trimming the product line further would have saved some cash, but the company didn’t cut the flavors that were core to the authenticity of its brand. Garlic & Herb is an interesting flavor, but perhaps not original. On the other hand, Dill Pickle and Chesapeake Crab help define Route 11 as a company. So they remain part of the creative spark that draws people to the brand.


Route 11 dill pickle chips

The lesson: Determining the best product assortment often involves balancing the financial gains of operating efficiency with the long-term value of the brand. Overly broad assortments can lead to direct and indirect costs that hurt overall profitability. For some brands, overly narrow assortments can undermine their value.

Ronald T. Wilcox

Wilcox is a professor of business administration at the University of Virginia Darden School of Business.

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