Growing a chip nicheSnack maker Dieffenbach's maximizes regional name, cultivates private label business and expands
While some larger Pennsylvania companies have embarked on mergers or acquisitions, a firm on the Lebanon County line is showing there's still a place in the chip market for smaller manufacturers.
Berks County-based Dieffenbach's Potato Chips Inc. is renovating and adding about 10,000 square feet to its production facility in Tulpehocken Township.
The company will install three new chip lines, company President Nevin Dieffenbach said.
Construction began early last fall. New capacity coming online this spring will more than double the number of production lines.
It has been operating on two cooking lines, which produce a mix of traditional white potato chips and sweet-potato chips. Three shifts run the lines six days a week, Dieffenbach said.
The company has 40 to 50 employees, depending on the season, he said.
The company's customers are diverse and include a regional base of people who have grown up eating the chips, Dieffenbach said. It's not unlike the followings other local chip manufacturers have in their given areas.
Today, the company distributes chips under its own name to retailers within about a 100-mile radius of the plant, Dieffenbach said.
Dieffenbach's markets products through its website, social media and in-store tastings, and it has increased its shelf presence at area chain store locations in the past several years.
Then there's private-label production that swings to the other geographic extreme, Dieffenbach said.
The firms sell chips, which are manufactured by Dieffenbach's, under their own brand names to customers all over the world, he said.
They want something unique to differentiate themselves in the market, Dieffenbach said.
Dieffenbach's originally had a couple of companies approach it to do private-label manufacturing, and the business segment grew from there through word of mouth, he said.
"We don't knock out standard versions of a chip," he said.
The company was started by Dieffenbach's grandfather, Mark, in 1964 after his interest in cooking on the family farm led to experimenting with homemade potato chips.
His son, Elam, took over about 30 years ago. Elam Dieffenbach's son, Nevin, became president about seven years ago.
Around that time, the company started getting into sales through private-label channels, Dieffenbach said.
About three years ago, Dieffenbach's started significant production of sweet-potato chips, he said.
The company was looking to offer something new, and a customer wanted to add a sweet-potato chip to its own lineup, Dieffenbach said.
Dieffenbach's saw that not many manufacturers were making sweet-potato chips, worked up a recipe and was happy with the results, he said.
Today, sweet-potato chips are at least 30 percent of the company's production, Dieffenbach said.
"It appeals to a different customer" who is more health-conscious, he said.
A good share of Dieffenbach's private-label work is for large companies in this healthier product niche, Dieffenbach said.
Dieffenbach's chips do well in the blind taste tests that national companies use to pick private-label vendors, said Dwight Zimmerman, vice president of sales and the company's operations manager.
A quality product that tastes great is always in demand, including by big companies that are seeking something different, he said.
At the same time, on the branded sales side, return customers are intergenerational, Zimmerman said.
People still have the option at the company's outlet store to fill up their metal containers with chips, he said. A lot of them recall coming to do the same thing with their parents.
At retailers, Dieffenbach's has nearly 100 percent market penetration in the region and distributes about 80 percent of its chips from the factory through direct store delivery routes, he said.
Lancaster County-based E.K. Bare & Sons Inc. supplies potatoes to Dieffenbach's and serves regional chip makers, President Bob Horst said.
Competition that regional manufacturers face is fierce from big companies, such as from New York state-based PepsiCo. Inc.'s Frito-Lay, he said.
Many of the successful local manufacturers are 50 or 100 years old and have built a following over the years for local, quality products that helps them succeed, Horst said.
"If you grew up with a certain brand, you have a tendency to like that brand," he said.