Case Study Company             Tayto Hunky Dorys               

Regions Involved                    Ireland, North America, UK

Case Study Date                     2^nd January, 2006

                                                 Damian O’Connor, (Technical Services Manager)

Lessons Learnt

• Be careful that the Licensing Agreement works in your favour. In this instance Tayto Hunky Dorys had to undertake all the investment required to produce and localise the product; they had to bear all the risk at the outset. Damian believes this risk should be shared between the beneficiaries i.e. the licensor and the licensee.

• Building a constructive, pro-active relationship between the two companies is vital. Both need to see it as a positive partnership.

Background

Tayto Hunky Dorys manufacture own-label and branded crisps, including Tayto, King, Hunky Dorys, Perri and Sam Spudz for local and export markets. In 2002, the M.D. of the company visited a trade exhibition in the U.S. and came across Cape Cod Chips, a manufacturer of American-style, hand cooked potato crisps with a reduced fat content. Damian says “Securing these deals is all about networking – you’ve got to get out there and talk, talk, talk to people.”

At that time, Cape Cod was trying to gain a foothold in Europe to compete more effectively against the dominant U.S. Chip (crisp) manufacturer, Fritolay The key sales advantage for Tayto Hunky Dorys was the low-fat aspect of the manufacturing process, which was entirely new to the European marketplace.

After discussions, both Tayto Hunky Dorys and Cape Cod were satisfied that an agreement could offer a real business opportunity for the two companies. This involved licensing the IP on the process itself, as well as the necessary training and technical back-up to establish the manufacturing process in Ireland. As Cape Cod had registered the Intellectual Property on the process a legal agreement was drawn up based on a royalty on sales. Tayto Hunky Dorys would manufacture the crisps here and distribute them in Ireland, while a local distributor was appointed for the UK market.

Introducing the Production Process

To establish the production process in Ireland “required significant investment on our behalf at the outset, in terms of capital equipment, human resources and general overheads; I think we are more judicious now about the need to share some of these up-front costs to spread the risk.” Damian says.

Once an exchange of information was initiated on the licenced process, it became clear that the two companies would have to work closely together to produce a similar product in Ireland. Cape Cod used white potatoes for example and Tayto Hunky Dorys had to look to source these locally. “Throughout this process, quality control and teamwork was critical,” Damian explains, “We had our challenges but we were able to solve them effectively working together” Another issue that arose was that the oil used by Tayto Hunky Dorys was deteriorating during the “Kettle-Cook” process, due to the reduced fat step, which introduced a lot of mechanical work and high temperatures into the system. “In the States they use a genetically-modified oil and we couldn’t do that here so again we had to work with suppliers to find an oil that would be suitable and stable during this particular cooking process, in the event we both used the same supplier, who came up with a suitable product. Overall though we found it easy enough to work through these challenges as we had a good working relationship – that’s critical”.

A key benefit for both companies throughout this relationship has been the general exchange of know-how. “We went over to the States to see their manufacturing process and one of the things we learnt was the way in which they load crisps for cooking to prevent them from sticking together, which is useful for all our manufacturing.”

Distribution and Sales

“We did have a few hiccups in managing the distribution process in the UK ” Damian says. “Essentially there were probably too many layers in the communications loop between the consumer, retailer, sales and distribution teams and ourselves at the point of manufacture. For example if a complaint comes in you need to respond within 24 hours”.

Ultimately the commercial value of the agreement with Cape Cod has proven to be   satisfactory, however increased competition and new innovations in the marketplace has meant that the current agreement is coming to completion. “This is an evolving relationship and we are working together on new developments so although the initial agreement has had some commercial success, the ultimate partnership is good for business”