It isn't easy being in the potato chip business these days.

Just ask Gerald Schmalz, chairman and chief executive officer of Humpty Dumpty Snack Foods Inc., a regional player in Canada's nearly $1 billion a year salty-snack market.

He has to deal with the usual headaches. The price of frying oil is at a 16-year-high. The plunging U.S. dollar is eating into profits. And his biggest competitor, Frito Lay Canada Co., belongs to a U.S. multinational with marketing muscle he can only dream about.

But on top of that, he's in the food-processing business, an industry that finds itself in the eye of a growing storm of consumer and health controversies, from rising obesity rates and low-carbohydrate diets to genetically engineered foods and trans fatty acids.

So, why is Schmalz smiling? Because his Kitchener-based company's share of the salty-snack market is on the upswing after five years of tinkering with everything from the packaging to the product.

"Since we've taken these measures, our market share has skyrocketed," Schmalz says of the company's six percentage point gain over that period and last year's sales of $170 million.

Meanwhile, the salty-snack category, which includes potato chips, corn snacks, pretzels and variety mixes, is growing by 4 per cent to 6 per cent a year.

No single initiative can account for the company's success, Schmalz says. But a closer look at its decision to get an early jump on trans fat conerns provides an intriguing glimpse into the complexities of manufacturing something as lowly as the potato chip.

What it cost, how it went about it and whether it paid off will also be of interest to the legions of snack-food and baked-goods companies that, in recent months, have jumped on the fat bandwagon.

Schmalz credits his vice-president of marketing, Lynda Murray, with overhauling the 50-year-old brand and putting the company Schmalz bought out of bankruptcy in 1994 back on the map.

In the past five years, the company has changed its branding strategy, its flavourings, even the thickness of its chips based on truckloads of consumer research. Canadians prefer their ketchup chips spicy, their cheese sticks cheddary and all of their chips thinner, the company concluded.

Along the way, it has responded swiftly to consumers' concerns and emerging health issues, removing allergens from its seasonings, producing low-fat chips and eliminating trans fatty acids.

Some initiatives flopped. The low-fat chips were taken off the market. Schmalz says they were ahead of their time. "Are we planning to relaunch a low-fat chip? Stay tuned," he says.

Schmalz says he's also closely monitoring the development of a low-carbohydrate potato, even though he thinks the Atkins diet is a passing fad.

Other moves have proved prescient. Take trans fatty acids, for example.

Now a recognized health risk, trans fatty acids were barely on the food-industry radar screen when Humpty Dumpty decided to start eliminating them nearly five years ago.

Exactly why the company chose to focus on trans fats is unclear. Consumer awareness of the problem was low, cost-savings were minimal and federal regulations prohibited advertising the health benefits.

Still, Schmalz decided to act.

"There were some indications about five years ago that trans fats might be a negative. It hadn't been scientifically proven," Schmalz recalls. His statement isn't unusual among food-industry executives, but it might surprise some independent nutritional experts.

People like the University of Guelph's Bruce Holub say they've been sounding the alarm about trans fats for 20 years. A byproduct of a process called hydrogenation that turns liquid vegetable oils into semi-solids, trans fats were linked to higher levels of artery-clogging cholesterol and therefore higher risk of heart attacks. Nobody was listening.

But five years ago, Schmalz decided to take a closer look.

"Hydrogenation had a lot of positives going for it," Schmalz says. It prolongs shelf life and improves texture and taste, things no food processor would tamper with lightly.

"We asked ourselves, do we need to be in hydrogenated oils?" The answer was no. Although hydrogenation prolonged shelf life by roughly 25 per cent, to 120 days, Schmalz figured a product with high turnover such as potato chips could do without it.

Actual shelf life depends on the type of potato, time of year and packaging, Schmalz says. Summer field potatoes absorb oil differently from winter-stored potatoes. As well, products stored in see-through cellophane bags, such as cheese sticks, go rancid faster than chips sold in metallic bags. Time of year matters because summer heat and the sun's ultraviolet rays can also shorten shelf life.

Still, Humpty Dumpty's product turnover rate is six to seven weeks, well within the outer limits.

The tougher issue was taste and texture. Foods made with hydrogenated vegetable oil have a certain richness and crispiness more closely associated with the also unhealthy saturated fats they had in many instances replaced. Changing oils meant potentially alienating consumers.

Humpty Dumpty eventually settled on canola oil, partly because it's the most heart-healthy of the vegetable oils on the market and partly because canola is grown in Canada, Schmalz says. Unlike cottonseed or soybean oils, canola doesn't have any overriding flavour.

"So it lets the flavour of the potato come through," says Schmalz. "The downside is it's a genetically engineered crop."

When it came to its corn-based tortilla chips, it opted instead for corn oil, which is slightly more stable, he says.

The move brought the company's cost of frying oil down, but only slightly. Eliminating the hydrogenation step at the oil refinery cut costs, but not enough to offset the generally high price of frying oil, he says.

Prices for frying oils of all types are at 16-year highs following an excessively hot U.S. summer and a labour dispute in Brazil, both of which hurt the market-leading soybean crop, he explains.

It's hard to say whether moving away from trans fats measurably increased sales, either, Schmalz admits. In fact, the company worried consumers would seize on the move to genetically engineered oils and miss the point.

That's all changing now that new federal labelling laws require companies to declare the presence of trans fats on their nutrition labels. Meanwhile, consumer awareness of the health risk has skyrocketed. Many competitors are seizing the opportunity to score points by announcing plans to eliminate trans fats.

Whether that means consumers will see "trans fat free" in big letters on the package remains to be seen. "We're still looking at that," says Murray.

Humpty Dumpty has made so many changes in the last five years, it's hard to say which one helped boost sales the most, Schmalz says. But whatever it is, he adds, it's working

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