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The Greasy Economics of Potato Chips

How a potato in the ground eventually ends up in crumbs all over your shirt — and who makes what along the way

The U.S. potato chip market is projected to be worth $10.5 billion this year — and, just like Americans’ bellies, it’s been growing for a while. But although you see chips pretty much everywhere, the business behind them is a bit less clear. How much work and science goes into making them taste yummy? What’s with those gross flavors, like cappuccino? How much profit is there to be made on frying, salting, bagging and selling a kajillion potatoes? Alongside Dirk Burhans, who literally wrote the book on potato chips (Crunch! A History of the Great American Potato Chip) we’re slicing up some answers.

How do they make chips, anyway?

Well, it starts at the farm, obviously. And Frito-Lay — which, functionally, pretty much has a monopoly on potato chips — is really picky about how they want their potatoes. Burhans once interviewed a second-generation small farmer whose potatoes were great, just not quite as consistent as Frito-Lay wanted, and the company cut him loose.

Utilizing farms from around the country, potatoes can be grown year round, just as people eat chips year round. The potatoes are literally dumped from a truck into the factory — sometimes pre-washed, other times the factory does it. (Frito-Lay has a bunch of factories in key regions around the country versus just one massive factory somewhere.) Then they’re peeled, washed again, sliced and sometimes washed yet once more (depending on the flavor profile). 

Next, they’re fried and come down the production line. In small factories, people are picking out the brown and ugly chips by hand, but in more sophisticated facilities, cameras are trained to spot bad chips. The cameras are synched to an air gun that literally blows the bad chip off the line — it’s all impressively high tech. Then they’re flavored and packaged automatically.

Kettle chips are a little different, Burhans says. They’re made in smaller batches rather than in a continuous production, and they sit in an actual container full of oil, boiling in it for up to eight minutes. 

How many potatoes are we talking about here?

It takes a lot of potatoes to make a few chips! Four pounds of raw potatoes will only make 1 pound of potato chips, because the water in a potato evaporates during the frying process. So that 8-ounce bag you tend to find everywhere contains six to eight potatoes in it, hard as that may be to believe. 

How does a brand stand out in such a crowded market?

Pretty much like in any industry, smaller brands innovate, while bigger brands tend to engineer and focus-group their way to a product. Burhans mentions many of the smaller, artisanal chip makers around the country making crispy chips with strong, sometimes strange flavors — much like small craft brewers, who take an artistic approach to chip-making. Frito-Lay, meanwhile, employs a bunch of people with MBAs who do market research, taste tests and trial flavors.

“To me, the analogy would be Hollywood making movies by committee instead of following the inspiration of a creative director, like a Spike Lee,” Burhans says. To Frito-Lay’s credit, the company has a lot of success doing what they’re doing, but the inspiration tends to come from the little guys.

Those little guys often don’t care so much about market share, either — they aim for distribution in gourmet markets and other places where their target demographic shops. Then in between are a few midsize brands, like Utz or Herr’s, which, Burhans says, want to be big and have market share like Lay’s, but they just tend not to be as innovative as either the big or the small brands.

How much science goes into the flavoring?

Oh man. It’s a crazy amount. Frito-Lay employs hundreds of chemists and psychologists, and has spent up to $30 million a year on this stuff. They have a machine that simulates a chewing mouth to figure out how to improve chip design (hopefully they’ll one day find a solution to that apocalyptic feeling when a chip gouges into your gums). Frito-Lay has even figured out the perfect break point, supposedly: a chip that breaks with 4 pounds of pressure per square inch. But it’s not just about the flavoring or the crunch. Aroma and a sensation we call “mouth feel” are big, yet overlooked factors in what people like.

Is it a profitable industry?

Not so much, actually. Burhans says the really big money was to be made in the middle of the 20th century, when there were a lot of regional chip makers — not just one big fish and a bunch of smaller fish. What Frito-Lay did back then, though, was innovate the distribution strategy, which is what set them up to continue to dominate. 

Many decades ago, Burhans explains, rather than just dropping off chips outside a supermarket, Herman Lay encouraged his people to bring them into the store and talk to the managers. They’d ask about placement, and specifically whether they could have end caps (those displays at the end of aisles) and freestanding displays. That extra visibility turbocharged the brand.

Eventually, supermarkets started charging money for shelf space and placement — they’re called slotting fees. It’s pretty much like charging rent for the good real estate in a supermarket. “These can be in the thousands of dollars per store per visit,” Burhans says. “Businesses with deep pockets like Frito-Lay could afford to pay these big slotting fees and get the great Fourth of July or Memorial Day weekend prominent display, and get their chips distributed. But the smaller, mom-and-pop companies couldn’t afford that, for the most part.”

Are potato chips the most profitable snacks, at least?

Nope, not even close. Corn chips are far more profitable: It costs less to grow, and you’re basically creating a mash, rather than slicing whole vegetables. There’s also the water aspect: Corn has less of it to lose in the frying process than potatoes do. As a result, Burans has been told that corn chips are much more profitable.

What’s done with all the waste from making chips?

Farmers and paper factories end up with some of it. The waste is turned into a powder, which is then made into cake form and fed to cattle. There’s also a starch recovery system that takes leftover potato starch, which goes to paper producers. Wastewater is a problem, but some factories have mitigation strategies for that.

So how bad are potato chips for you?

Pretty bad, honestly. In 2011, a study in The New England Journal of Medicine determined that the food that promotes the most weight gain wasn’t red meat or even sugary drinks, it was potato chips!

From the New York Times: “The coating of salt, the fat content that rewards the brain with instant feelings of pleasure, the sugar that exists not as an additive but in the starch of the potato itself — all of this combines to make it the perfect addictive food. ‘The starch is readily absorbed,’ Eric Rimm, an associate professor of epidemiology and nutrition at the Harvard School of Public Health and one of the study’s authors, [said]. ‘More quickly even than a similar amount of sugar. The starch, in turn, causes the glucose levels in the blood to spike’ — which can result in a craving for more.”

Well, that sucks. Maybe instead just stuff them in a sandwich? Yeah, that’ll do.

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