This is going to ruffle a few feathers.
PepsiCo purposely packs fewer chips into its flavored chip bags, Hugh Johnston, the company's CFO, told the Associated Press. "There might be an ounce or two less [in those bags]," Johnston said.
Actually, it's half an ounce less. Regular Lay's are sold in 10-ounce bags; flavored Lay's are sold in 9.5-ounce bags; and both are sold for the same $4.29 price.
That might not sound like a lot, but it will with a bit of simple math.
Americans buy some $1.6 billion worth of Lay's potato chips every year. Much of that is sold in bulk—or merely in bags bigger than the standard ones mentioned above. But let's assume for a second that those 10-ounce bags are the only ones Lay's sells. That would mean the company sells more than 372 million bags of Lay's in the U.S. each year—or 3.72 billion ounces of chips, at 43 cents per ounce. It would also mean that that half ounce difference is worth 21.5 cents per bag, and more than $80 million in total per year.
That number is likely a good deal lower, but it's not entirely unreasonable. If Lay's is charging a premium for the smaller flavored chip bags, it's likely doing the same for the bigger ones, too. That tiny half-ounce tweak might only mean a potato chip or two to you, but it's probably worth tens of millions to PepsiCo annually.
PepsiCo confirmed that flavored and unflavored Lay's chips are sold for the same price, but not in the same quantity. "This allows us to keep the same price point across the brand," Jeff Dahncke said in an e-mail. He also suggested that the chip difference has nothing to do with extra profit. "The reason there is a slightly higher price per ounce for flavored chips is the added seasonings," he said.
But that doesn't appear to be the case.
Some of the mark-up (or chip down) is simply meant to make up for the added input costs that go into sprinkling on cheese, barbecue, sour cream and onion, and other flavorings. But some of it is also there (or not there) to pad the potato chip-maker's profits. PepsiCo has a soft spot for its specialty potato chips, because its specialty potato chips are more profitable than its regular ones, according to Johnston.
John Staszak, a PepsiCo analyst and former Frito-Lay employee, agrees. "He is right," Staszak said of Johnston's remarks.
Perhaps that's why Lay's is getting ready to launch a horde of new specialty potato chip flavors, which will include flavors like Cappuccino, Mango Salsa, Wasabi Ginger and Bacon Mac & Cheese (Businessweek tried them, so you don't have to). The launch is part of PepsiCo's annual "Do Us a Flavor" contest, in which it lets customers participate in the flavor creation process.