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That's Spicy! How Cholula Hot Sauce Sold for $800 Million

Capitalism.com
|
January 12, 2021
Cholula hot sauce

Cholula Hot Sauce set tongues on fire for generations. McCormick found it irresistible, too. 

Hot Is Hotter Than Ever

If you travel to London, you'll discover one culinary surprise right away. The Brits take their curry very seriously. Step into the Standard Balti House on Brick Lane in London, and take the "vindaloo" challenge if you dare. Vindaloo is one of the hottest curries going.

Back over to America, and you can set your mouth on fire at Hot Sauce and Panko in San Francisco. Their wings feature two of the world's spiciest peppers: ghost peppers and Carolina Reapers.

In epicurious homes all over the world, hot sauce is a staple. Especially under quarantine conditions, more of us are eating at home. Whether we cook dinner ourselves or get takeout, there's nothing like a splash of fiery flavor to add to the experience. Hot sauce is a hot trend that's getting even hotter.

Hot Sauce Market to Reach US$ 3.77 Bn by 2026, Riding High on Rising Demand for International Cuisines, says Fortune Business Insights

The Family Recipe that Sold for Millions

The private equity firm L Catterton just sold Cholula hot sauce to McCormick for $800 million. L Catterton made more than 4X its money on the deal, as they financed the deal with debt. (Debt financing is usual for private equity firms.)

$800 million. For hot sauce.

McCormick already owns Frank's RedHot Sauce and French's Mustard. It seems they're building a hot sauce empire. These "rollups" are an important strategy to get your company bought. We'll talk more about them later on.

From Grandma's Kitchen to a Corporate Boardroom

More than a hundred years ago, the Harrison family created Cholula hot sauce in Chapala, Jalisco, Mexico. For three generations, the family produced their hot sauce, a prominent ingredient in sangrita.

(No, not sangria. Sangrita is a customary partner to a shot of straight tequila blanco. A palate cleanser in case your shot of tequila wasn't enough already.)

The company's founders might never have imagined a nine-figure exit. They certainly didn't build their brand with an eye toward such a huge payout. But there's no reason you can't! 

How Little Brands Like Cholula Hot Sauce Sell to Big Companies

Venture Capitalists (at the sharp end of private equity) call this an exit. What would an exit look like for your company? An acquisition can take many forms.

  • You could sell your firm to a strategic acquirer. 
  • Or you could merge with another startup. 
  • You could sell to a private equity firm that specializes in the sort of business you're creating. 
  • You could even IPO your company on the stock exchange.

It doesn't matter which exit you take. What matters is that you imagine the possibilities and get started building a brand you and your audience believe in. By starting with the end in mind, you can build a brand that's irresistible to buyers.

Why Would a Big Company Buy Your Brand?

There are many ways a sale could play out. Here are three possibilities worth understanding so you can cast a vision as you start or grow your business.

#1: A Thematic Rollup

A rollup is a process private equity firms use to acquire and merge multiple small companies in the same market. McCormick, the strategic buyer, seemingly used this strategy to build its hot sauce business.

Tip: Don't be afraid of competition. Rather than worrying about how you'll get your piece of the pie, just make a bigger pie. In theory, McCormick (or some other buyer) could acquire multiple hot sauce brands for its lineup. 

#2: An Acquisition to Fill a Capability Gap

Could your grandmother's recipe fill a gap in a company's arsenal? In March 2007, Cholula embarked on a joint promotion with national pizza chain Papa John's, offering complimentary hot sauce packets with every order. The collaboration didn't result in a merger or acquisition, but it was a great way to test the waters.

Tip: Look for opportunities to collaborate. By cooperating with other brand owners who serve your audience, you can both grow faster by expanding into new markets.

#3: An Adjacency, or Buy-and-Build Acquisition

Your grandma's secret recipe may interest big industry players who want to scoop the company up to compliment their already existing stable. A great example of this is how George Clooney and Rande Gerber sold their tequila company, Casamigos, to Diageo for up to $1 billion.

Tip: Focus on building and serving your audience so well that a bigger company takes notice. As a small brand, you can innovate, connect, and serve better than a big corporation can. They don't see your brand as a threat; instead, they're hoping it grows big enough that it'll make sense to acquire it.

One Century to $800 Million? (You can go faster!)

A hundred years ago, as Cholula hot sauce's inventor decided to make her recipe available for sale, she probably had no idea what the future held. To go from a home kitchen to an $800 million acquisition might have been unfathomable then.

But there's absolutely no reason you couldn't create a brand that reaches $1 million in about a year. It's never too soon to plan for your exit, even if you're just starting. If that's you, be sure to start by going through this free 10-part mini-training, so you know what to do first.

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