Transcription
After being fired from the biggest food processing company in town, one man decided to go into business himself. He never envisioned that it would grow into one of the most dominant food companies in history, generating billions of dollars a year. This is the story of Lay's chips.
It all began in 1909 when Herman Lay was born into a quiet, middle-class family in Charlotte, North Carolina. His father was a bookkeeper, and his mother was a stay-at-home wife. Growing up, there was no clear career path for him, but what he did excel at was sales. As a young boy, he operated a soda stand for locals, which was so successful that he hired employees. This entrepreneurial instinct would serve him well later in his career.
But Lay was restless. During college, he was more interested in the art of business than studying. Keen to get involved with the world, he dropped out, despite being admitted on a fully funded athletic scholarship. He headed to Sunshine Biscuits, a food company that manufactured cookies, crackers, and cereal, and it looked to be the first stepping stone to a career in business.
But the Great Depression struck in 1929, wiping out 24% of the workforce nationwide and cutting any remaining income in half. At the time, Lay was just 20 years old and suddenly found himself out of a job. This taught him to diversify his income and build something that would provide him with more independence.
At his next job, working for the Bartlett Food Company, he began his side hustle that was destined to transform the U.S. food market. Lay was now in Nashville, Tennessee, in the heart of the American South, and this is where he began to experiment with a product that proved more popular than he imagined.
Lay made it his trademark to bring bags of potato chips to his customers. As a traveling salesman, he quickly earned a reputation for stocking chips in the back of his Ford Model A. He was benefiting from a recent innovation in the market. Potato chips had existed since the 1850s, when thinly sliced, baked potatoes were discovered to be an altogether different experience than eating larger chunks or french fries, which was common at the time. This new kind of potato, named the Saratoga chip for where it was conceived, had become popular in New York, but the nation hadn't shown an appetite for it. That was until 1926, when a method was developed for sealing potato chips in wax paper bags to keep the chips fresh. It allowed them to become portable snacks.
Herman Lay latched onto this innovation and saw the huge potential for potato chips. The Bartlett Food Company allowed Lay to sell large chips that would last for days while maintaining the quality you might expect at a restaurant. And after seeing the popularity, he decided to gamble on himself. He had over a decade in the food industry under his belt and took out a bank loan to purchase a dealership from his former employee. He renamed it H.W. Lay Distribution Co., and just a few years later, he raised $40,000 in a stock sale to purchase the entire Bartlett Food Company.
One of Lay's biggest investors, who owned a shop across the street from the factory, was devastated. His family's life savings had been poured into Lay's company, and the takeover seemed like too big of a risk. But Lay was determined. He was inspired to create an affordable potato chip brand that the average American could enjoy and envisioned huge growth. The first Lay's chips were sold for 10 cents a packet. The brand soon became so popular that it was forced to gear up mass production to keep up with demand.
With plenty of competitors, though, Lay's would need to stand out from the rest. This is where Herman Lay's genius marketing came into play. Lay's became the first snack food company to advertise on television in 1944. Later, they hired the actor who played the Cowardly Lion in *The Wizard of Oz* to serve as a celebrity spokesperson. A popular TV campaign, including the line "Betcha can't eat just one," helped to establish Lay's as the premier potato chip brand in America. Today's potato chips that you can eat one.
Another key ingredient was the innovation of their products. They were first to offer crinkle-cut, ruffled chips, which were less likely to break inside the package. And by 1950, Lay's led the market for potato chips. But this year, Lay's made a decision that would future-proof it against competitors and prove to be the greatest marketing tool of all.
Lay's had been quietly pursuing the rights to use a patented cooking technique developed by Joe Spud Murphy, the owner of the Irish potato chip manufacturer Tayto. Murphy had discovered a way to add seasoning during the cooking process and retain flavor on a scale of mass production. The first two flavors released were cheese and onion and salt and vinegar, flavors that would later become some of Lay's most in-demand products.
Securing the rights for flavored potato chips, Lay's began to release flavors of their own. This innovation helped catapult the company to a new level, where its competitors were left behind. By the early 1960s, Herman Lay was still the head of H.W. Lay & Company, which was generating $45 million in annual sales. That would be half a billion dollars in sales in 2023.
But one huge competitor was standing in the way of total market dominance, and that was the Frito Company, a corn chip company outselling Lay's by 30%. Frito had a similar origin story to Lay's when founder C.E. Doolin bought the recipe for corn chips from a small cafe in San Antonio and baked the chips from his mother's kitchen. Just like Herman Lay, Doolin didn't have a shop and was forced to sell them from his Ford car. Luckily, they quickly became popular, growing into a regional empire.
The two entrepreneurs were operating 900 miles from one another, but their interests were about to collide. Instead of waging a war, Herman Lay orchestrated a deal that merged the two companies to make Frito-Lay, creating the first national American brand. And in a testament to his business genius, he had kept himself in power as CEO of the new company after the merger.
In 1961, Frito-Lay quickly released a range of new chips, including many now-iconic brands like Doritos, Funyuns, Munchos, and Pringles. And the stage was set for the genesis of a second business move that would create one of the biggest food companies of all time.
In 1965, Herman Lay met with a businessman named Don Kendall about another potential merger. This time, it would be with a beverage company. Lay saw that joining the two would consolidate power over the American market and allow for aggressive international expansion. After Lay wrote the proposal on the back of a napkin, Don Kendall accepted. At the time, Kendall was the CEO of Pepsi-Cola, which had been around since 1868, developing a variety of drinks, including Mountain Dew, Diet Pepsi, and 7UP. Their chief competition was Coca-Cola, and Pepsi was eager to try and build itself an edge.
Frito-Lay continued to function as a subsidiary of Pepsi, but the extra backing gave them more power to expand internationally into the global behemoth they are today. Frito-Lay now employs 55,000 people, producing enough potatoes to reach the moon and back. This has helped to grow PepsiCo's annual revenue to $85.5 billion in 2021. Lay's accounted for a staggering 41% of the potato chip market, and behind them were Ruffles and Pringles, which are also owned by Frito-Lay.
Frito-Lay products occupy as much as 80% of shelf space in convenience stores. A large part of their success comes from their ability to innovate new flavors. There are country-specific and region-specific flavors that cater to local tastes, which is why there are now over 200 varieties of Lay's chips, ranging from Nori seaweed to baked scallop. The company even offers up to $1 million for contestants who submit great new ideas, and their head flavor researcher is an ex-restaurant chef. Lay's has moved into international markets, where Lay's chips were renamed Walkers in the United Kingdom, Smith's in Australia, Sabritas in Mexico, and Chipsy in Egypt.
Herman Lay started Lay's chips after delivering chips to his customers as a traveling salesman. He converted a $2,000 loan into a global empire that twice merged to become a key part of PepsiCo, where he sat on the executive council until his death in 1982. He turned to philanthropy later in life, establishing the Lay's Scholarship in hopes that he would help another entrepreneurial young mind create the next sensation. Lay has been described as a mastermind in the food that built America, and his legacy lives on in almost every supermarket and convenience store in the world.