A chip off the energy industry block
In the mid-1980s, Ron Zappe’s fortunes went south. The Houston resident owned small companies supplying pumps and other machines to Texas and Louisiana oil producers. When falling oil prices slowed these producers, Zappe’s companies were no longer profitable.
What’s a guy in his early 40s to doâ¢ Demand that government subsidize oil producersâ¢ Lobby for price supports for pumpsâ¢ Seek government funding for career retrainingâ¢ Or collapse helplessly under the weight of cruel circumstances?
Not Zappe. He founded a new company — a company in an industry that Ross Perot would later famously deride as backward and unprofitable: potato chips.
With a $150,000 bank loan, helpful advice from friends in the snack-food industry and lots of gumption, in 1985 Zappe bought a building once used as an automobile dealership in Gramercy, La., and converted it into a potato chippery. At the time, Gramercy’s unemployment rate was 19 percent, for, being a town heavily dependent on the oil industry, Gramercy, too, was temporarily in the dumps.
Zappe also concocted a special spice mix to coat his extra-crispy chips, calling the final product Zapp’s Cajun Crawtators. He dropped the “e” from his name for a snappier-sounding brand name.
At first, sales were slow. Successfully introducing a new product into an established market usually takes more than good quality and fair prices. Getting noticed requires energetic marketing. Zappe soon revved up sales by designing a colorful package, offering original flavors (including Jalapeno and Cajun Dill), and personally visiting supermarkets to distribute free samples.
Zapp’s is now the No. 2-selling snack food in Louisiana and Texas, employing 100 people in its Gramercy plant — a plant that produces 150,000 bags of chips daily. And what chips they are! No other brand — not Lay’s, not Cape Cod, not Pringles — tastes remotely as good as Zapp’s. (My opinion might be biased by my Cajun heritage and love of genuinely spicy foods.)
“So what?” you might ask. “So plenty!” I reply. Ron Zappe’s story is rich with vital lessons.
First, resources — especially human labor — are not stuck in their current jobs. Other productive options exist, which is why U.S. wages are so high. The flexibility of labor and capital to move from lower-paying jobs to higher-paying jobs ensures that firms pay top dollar to attract needed resources and workers. Firms intent on exploiting their workers soon find they have no workers to exploit.
In launching his own company, Ron Zappe chose to employ himself, along with several other workers, in the snack-food industry. In 1983 he was supplying oil-field equipment; in 1985 he was supplying potato chips.
Second, economies grow only by releasing resources from industries that no longer need them as much as they are needed elsewhere. Falling wages and profits are never welcome, but they are both the signal and the incentive for resources to find more-productive employment.
If oil prices hadn’t declined as much as they did 20 years ago — thus enabling Americans to spend less on fuel and more on other things — Ron Zappe might still be peddling oil-field pumps. Maybe he would be even more successful than he is today; maybe less so. But for sure I and other consumers would be worse off.
We’d be paying more for petroleum products and be denied the option of enjoying Zapp’s potato chips. And even consumers who don’t like Zapp’s, or who don’t even like potato chips, would be worse off. The reason is that Zapp’s success puts competitive pressure on other chip and snack-food producers to keep their quality high and prices low.
Third, and with due respect to Ross Perot, there’s nothing intrinsically substandard about producing potato chips, or intrinsically superior about producing computer chips. What’s important is to have both of these things produced, each as efficiently as possible, because consumers enjoy both of these things.
If Andy Grove is better than Ron Zappe at making computer chips, and if Zappe is better than Grove at making potato chips, then both of these men along with their workers and consumers everywhere are better off if Grove makes computer chips and Zappe makes potato chips.
I haven’t the slightest idea how to make either type of chip, yet at this very moment I’m using Grove’s computer chips to write while I munch happily on Zappe’s potato chips. Both men’s efforts better enable me to specialize in what I do best — teach and write about economics.
Indeed, reflecting on Ron Zappe’s story has me feeling pretty chipper.