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October 9, 2019

The ‘flavour explorers’ driving the US hot sauce category forward – deep dive, part one 

Andy Coyne studies the hot sauce category in the US to discover the reasons behind the sector's recent growth.

By Leonie Barrie

Andy Coyne studies the hot sauce category in the US to discover the reasons behind the sector’s recent growth.

US supermarket shelves are full to bursting with hot sauces representing the flavours of Latin America, Asia, the West Indies and America itself.

Hot sauces is a category growing at pace and, what makes it exciting and something of a rarity, is it is one in which small brands have a meaningful market share.

Every few months brings forward a new hot flavour of the day, it seems, whether it be sriracha, ghost chilli, naga or Carolina reaper, to add to the jalapeños, habaneros chipotles, bell peppers, Scotch bonnets et al already in circulation.

But what is driving this chilli-based category on?

The answer would seem to be a mixture of demographics, generational preferences and, perhaps, a little boredom with what else is available in the condiments aisle.

Statistics quoted in a Wall Street Journal article in June revealed retail sales of hot sauce in the US jumped by almost a quarter over four years to reach around US$700m in 2018, the biggest gain amongst condiments. 

And it further revealed small brands make up 41% of the hot sauce market in 2018, compared to 14% in mustard, 7% in mayonnaise and just 3% in ketchup.

Market watchers see this growth continuing (more of which in part two of this feature tomorrow) because the factors underlying it are not temporary.

Susie Fogelson, a New York-based food marketing strategist who runs her own consultancy, F&Co., says: “There is a lot of data around now about its growth as a category and projections of where it is headed but it is just growing every year.

“Obvious things, such as different groups coming into the US and craving the flavours from home, whether Latin America or Asia, come into it. But is also providing a bold flavour experience. It can be spicy, sweet, tangy, sensory, sometimes all these things in one. Really people just want a memorable experience. Something like sriracha has so much flavour.”

Andrew Csicsila, managing director at consultancy firm AlixPartners, has a similar take.

“The growing immigrant population is interested in a lot of spicy cuisine which is the reason supermarkets have picked up on it,” he says. “The growing Spanish/Hispanic population in particular uses these sauces in daily life. And then there is the growing purchasing power of Millennials who are more adventurous in their choices.”

US government statistics reveal that, in 2017, the number of US residents born overseas topped 44 million, with 75% coming from hot sauce-loving countries in Latin America and Asia.

It is not something that has passed big food companies in the US by.

McCormick’s bought the well-known Frank’s RedHot sauce brand as part of a $4.2bn acquisition of condiments assets from Reckitt Benckiser in 2017 and is pleased with the way it is performing.

In a presentation in September, McCormick CEO Lawrence Kurzius said: “Frank’s RedHot sauce in the US [has] continuing strong growth with total distribution points and household penetration reaching record highs in Q2.”

Ketchup giant Kraft Heinz, meanwhile, has dipped a toe into the hot sauce category, helping the Momofuku restaurant brand launch a range of hot sauces – Ssam Sauce – through its incubator Springboard Brands.

And Conagra Brands introduced three hot sauces this spring based on its Rotel tomatoes brand.

The newcomers are attempting to muscle into a category where the likes of Frank’s RedHot, New York-based Mexican hot sauce brand Cholula, Louisiana-based Tabasco, manufactured by McIlhenny Company, and California-based Mexican sauce brand Tapatio all have strong followings, as do the makers of the various brands of the popular Thai hot sauce sriracha.

The growing popularity of hot sauce has also attracted the interest of private-equity firms.

Last December Cholula was acquired by US private-equity firm L Catterton for an undisclosed amount. It was previously backed by a group of investors including Mexican tequila producer Jose Cuervo.

Named after the oldest still-inhabited city in Mexico and introduced into the US in 1989, Cholula, with its signature wooden cap, has grown to become one of the best recognised hot sauce brands in the world.

Maura Mottolese, who took over as the company’s CEO this summer, is in no doubt why L Catterton finds the company, and the larger category, attractive.

“The hot sauce category is on fire. Growth is driven by increases in household penetration and purchase frequency”

“The hot sauce category is on fire. Category growth is driven by increases in both household penetration and purchase frequency,” she says.

Mottolese largely concurs with sector analysts about the reason behind growing demand.

“It is fuelled by four megatrends,” she says. “The first trend is the consumer’s passion for exploring global cuisines; the second, which is an outcropping of the first, is consumers are clamouring for spice; the third trend, which spans categories, is the desire for customisation and, last but certainly not least, is the consumer’s demand for healthier foods.  

“Hot sauce enables consumers to add authentic flavours to their favourite dishes, bringing just the right level of spice without adding unwanted sugar or sodium. For the discerning Millennial population, hot sauce is the perfect condiment.”

New kid on the block Conagra shares this interpretation of events.

Jill Dexter, vice president and general manager for condiments and enhancers at the Chicago-based company, says: “Consumers are increasingly comfortable and curious with international cuisines and spicy foods in general, and hot sauces are an easy way to introduce a kick of flavour to any dish. And by adding as little or as much as you like, the degree of customisation that hot sauce offers is appealing to consumers, too.”

But there are other factors that have aided the category’s growth.

Consumers find hot sauces in street markets and through independent retailers. The real enthusiasts can buy products online from specialist distributor such as Texas-based Hot Sauce Depot which currently offers 600 products and plans to add 200 more.

Their keenness is then carried in to the supermarket when they do their weekly shop – and the category is, in part, being fired by fledgling brands.

“The results I have seen show that the big three have 40% of the market – Frank’s RedHot, Tabasco and sriracha.  The rest is pretty fragmented but does contain a lot of smaller start-ups. Stores are likely to include new entrants as they don’t take up much shelf space but this hasn’t slowed down the growth of the market,” Csicsila at Alix Partners reflects.

Fogelson at F&Co. says: “Frank’s RedHot and Tabasco serve the large percentage of people who like heat whereas the newer brands get traction through speciality. Speciality is on fire. Over 40% of the hot sauce category is made up of small boutique brands. That is unique in the world of condiments when you think of mustards etc. People are so willing to experiment.

“Hot sauce subscription services are growing based on the unique flavours of hot sauce from places such as Belize with incredible stories attached. People are excited on the day the box arrives.”

“The smaller brands can create a direct customer relationship whereas it’s difficult for the larger ones. Smaller brands can then distribute through the the grocery stores into the hands of the flavour explorers.”

That willingness to experiment with new varieties and flavours does present openings – and not just for smaller companies.

Although a newcomer into the market, Dexter at Conagra is convinced even before the product is rolled out nationally that there is space for it to expand in an admittedly crowded market.

“One of the reasons you’re seeing so many players in this space right now is because the barrier to entry is relatively low. With any growth category eventually you reach a saturation point and a thinning of the field, but right now the trends around hot sauces are all positive,” she says.

The product development team at Conagra, home to Hunt’s ketchup, looked at a range of heat levels when coming up with its hot sauces. AlixPartners’ Csicsila notes not all consumers of hot sauce in the US want the hottest stuff. “It is interesting when it comes to heat. Some 60% of the hot sauce market is in the mild segment and only 20% in hot. People want flavour and not always the heat.”

Dexter says: “What is ‘spicy’ means different things to different consumers, and right now you’re seeing a broad range in the category from a little dash of heat to flavours on the extreme end. With the three new flavours we’ve introduced, we think we offer the right variety that will allow us to be competitive in the category.

“Moving forward you’ll see a place for both niche players and big brands. Hot sauce is a category where consumers have an affinity for trying unique new flavours and the start-up brands have found their foothold there. Obviously big brands offer the ability for broader distribution and reach, but you’ll continue to see a balance of the two.”

Tomorrow: In part two of this feature, we will look at the category’s future growth prospects and the likelihood of more M&A activity

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