Big Hot Sauce Wants More Hot Sauce
Spice king McCormick’s acquisitions of Frank’s RedHot and Cholula give it the edge to own “the next ketchup.”
By Austin Carr
January 26, 2022, 5:00 AM PST
Aisle A3-7, the condiments section of the Walmart Supercenter north of Baltimore, might as well be a theater of war. Shelves of rival ketchups, mustards, mayonnaises, and dressings stand at attention, ready to bombard taste buds. The fight isn’t only about flavor, of course, but also about branding. There’s the classic red coat and bold-black lettering of Heinz, the stout blue-and-white Hellmann’s jar, the proud yellow bottle of French’s. Cheaper, healthier, and perhaps tastier options are available, but these iconic products, conjuring familiar and delicious memories, most often prove victorious at checkout.
Minutes up the road, at McCormick & Co.’s headquarters in Hunt Valley, Md., Chief Executive Officer Lawrence Kurzius has been plotting to send reinforcements to Walmart’s shelves, which accounted for 12% of McCormick’s $5.6 billion revenue in 2020. The 132-year-old company is best known for the crimson-capped seasoning and herbs sold up the aisle, in A12, Walmart’s spice section. But Kurzius, looking for growth beyond spices, has been aggressively targeting the hypercompetitive condiments business. In recent years his company has bought up French’s mustard, Stubb’s barbecue sauce, and Frank’s RedHot, a Louisiana-style pepper sauce that’s been dousing Buffalo wings since the 1960s.
The addition of Frank’s, in particular, was a coup. Acquired with French’s in 2017 for $4.2 billion, it’s the biggest hot sauce in the U.S. (ahead of Tabasco) in the hottest condiment category, according to researcher Euromonitor International. Globally, hot sauce sales are up 54% since 2015, to about $5 billion, with China’s Lao Gan Ma—a savory chili oil that’s huge in Asia and has a cult following in the U.S.—outselling both Frank’s and Tabasco worldwide. Kurzius, who’s gotten in on the trend himself, dumping the stuff on his eggs and even injecting it into his Thanksgiving turkey, wanted more than a stake in a growth market. He wanted total world hot sauce supremacy. And so, just two years after the Frank’s deal, he set his sights on another powerhouse in the space: Cholula.
Cholula, then No. 3 in the U.S. after Tabasco and Frank’s, had grown popular thanks to its distinctive rounded-wood cap and piquancy, which makes it spicier than Frank’s but just mild enough for American tastes. (On the Scoville Heat Unit scale of hot sauce hotness, Cholula scores as high as 2,000 SHUs, a bit less than a jalapeńo pepper.) Brand-wise, Cholula also offered an authenticity to McCormick that Frank’s and its 900 SHUs seemed to lack, even if the made-in-Mexico sauce was actually owned by a Connecticut-based private equity firm, L Catterton, and run by executives in Stamford.
Kurzius’s mergers-and-acquisitions team had been meeting with L Catterton over tea and Zoom since mid-2019 to feel out what a sale could look like. Things got more serious when L Catterton put Cholula up for auction in September 2020. Naturally, there was competition: A slew of food conglomerates went after the brand, including Kraft Heinz Co., according to two people familiar with the negotiations. If McCormick was to become Big Hot Sauce, it would have to fight off Big Ketchup first. Kurzius asked McCormick’s board for *permission to make a cannonball offer that would clear the field of competitors. Director W. Anthony Vernon, who’d been CEO of Kraft Foods before it merged with Heinz, says the board’s response was blunt: “Go get it.”
McCormick’s $800 million bid beat out Heinz that November. “When I read that, I said, ‘Oh my gosh! That’s a lot of red peppers!’ ” recalls Luis Saavedra Jr., chief operating officer of Tapatío, a family-run rival to Cholula based in Southern California. Between Frank’s and Cholula, Kurzius suddenly controlled about a third of the U.S. market, according to Euromonitor, with lots more room to expand.
McCormick already has wholesale relationships with many of the world’s largest retailers and restaurant chains through its condiments and spice business, the same international network of buyers who are now adding Cholula bottles and squeeze packs to their bulk orders. “They want to see their hot sauce on every tabletop in the world,” says Sharif Rod, who previously oversaw Cholula’s Latin America exports. “It’s the next ketchup.” (Kraft Heinz spokesperson Jenna Thornton declines to comment on the Cholula deal, but notes that the company’s “Taste Elevation platform” is experiencing significant growth. She points to advances such as Buffaranch, a spicy buffalo sauce mixed with ranch dressing. “Our innovation agenda is beginning to take hold,” Thornton says.)
McCormick’s turmeric production line in Cockeysville, Md. Photographer: Chris Gunn for Bloomberg Businessweek
McCormick’s hegemonistic ambitions were catalyzed, in part, by the Covid-19 era. Although its sales to restaurants declined in 2020, revenue from consumers shot up in the early months of the lockdowns as shoppers frantically replenished their pantries. Overall, customer purchases of McCormick products at U.S. stores jumped 55% in the spring quarter of last year, a wild swing for a company accustomed to single-digit growth and known for selling your grandmother a tiny jar of paprika once every couple of decades. The company, which reported record annual sales growth on Jan. 27, has seen its stock soar to all-time highs during the pandemic. It’s worth roughly double what it was in 2016, when Kurzius took over.
To keep the growth going, he’s betting on products you might not even realize McCormick owns or touches. That includes seasonings and condiments sold in stores, but also the foods and drinks that McCormick develops for PepsiCo Inc. and other food brands. The company won’t comment on which convenience-store concoctions it’s had a hand in, but sources familiar with the operation, who requested anonymity to speak candidly about the secretive industry, say McCormick has helped craft top-sellers including Bud Light Lime and Cool Ranch Doritos. Just weeks after the Cholula deal, Kurzius pushed deeper into this world by acquiring FONA International LLC, a flavor manufacturer, for $710 million.
“Not until Lawrence did McCormick go after these bigger acquisitions to put it on the map as a major food player,” says Vernon, adding that the company’s goal is to evolve beyond “vanilla McCormick,” a reference to the company’s formerly restrained approach as well as its extract business. That means going up against the likes of Kraft Heinz and Hellmann’s, owned by Unilever Plc, to invade more grocery aisles. “I remember saying to Lawrence: ‘We’re in an arms race with far bigger players with far deeper balance sheets,’ ” Vernon says. “ ‘How do we ensure this doesn’t get away from us?’ ”
At the start of 2020 things did seem to be getting away from McCormick. That January, Kurzius flew to China for a trip that included an uneasy Lunar New Year celebration at the company’s Shanghai office. “There were probably 1,000 people in that room,” he recalls. “Everybody was toasting and shaking hands.” The chatter among the crowd was about the dangerous new virus that had appeared in Wuhan, home of a McCormick subsidiary, Wuhan Asia-Pacific Condiments Co. “Our China leadership team was really scared,” Kurzius says.
The situation grew worse after he got home to Maryland. McCormick’s three factories in China, where seasonings to be sold in the country are mixed and packaged, were unable to reopen after the holidays because of lockdowns, threatening sales in the company’s second-largest market. McCormick’s supply chain is vast, with about 14,000 raw materials procured from 80 countries, including China. The entire ecosystem—farms, factories, shippers—was imperiled as the pandemic gathered force. So was its food-service business; restaurant sales had historically accounted for a fifth of revenue.
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