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July 25, 2019

What’s Red, Green, Spicy, and Growing like a Weed? HOT SAUCE!

MHT Partners  | Consumer Investment Bank

My family and I recently visited a beautiful, historic New England resort where I worked during two college summers.  Exactly 20 years after my first summer as a tuxedo-clad server in the main dining room, I was excited to see the subtle changes at the family-owned and -operated resort known for preserving its dining room traditions dating back to 1910.  While the same fine china, beautiful views, celebrated cuisine, and international wait staff were still present… the most noticeable change in the dining room was a respectable assortment of hot sauce bottles at each waiter’s station!  Back in 1999, ketchup, the primary condiment, was only allowed to be served in a ramekin on a doily-clad side plate.  In my mind, if the global hot sauce craze could reach the hallowed grounds of this main dining room, I wouldn’t be surprised if Queen Elizabeth herself kept a bottle of Cholula or Sriracha next to her marmalade at breakfast in Buckingham Palace.

So, what exactly has happened in the hot sauce category, and why is the category growing faster than other condiments?  Well, quite simply, the American palate has evolved quickly in the last two decades.  Palate evolution is widely seen to be fueled by a rapidly diversifying population and Asian and Latin culinary influences in both restaurants and in the center of grocery stores across the country.  Hot sauces have followed suit, evolving from pantry-bound cooking ingredients to mealtime toppings as popular as salt and pepper.  The old saying ‘variety is the spice of life,’ now applies to pretty much every category of food and beverage (including spices).  Americans from Miami to Seattle are doctoring up scrambled eggs, mashed potatoes, and everything in between, supporting a $702 million domestic market for hot sauces in 2018, representing 23.6% growth from 2013.  According to Euromonitor, hot sauces grew the fastest among liquid condiments during the time period and are nipping at the heels of ketchup ($906 million sales in 2018/13% growth), soy sauce ($870 million/20%) and BBQ sauce ($765 million/12%).

George Milton, founder and CEO of Yellow Bird Foods (https://yellowbirdsauce.com/), had this to say about the category: “The hot sauce category is fascinating to me because just the term hot sauce can mean so many different things. You have this category that is just very loosely defined as ‘sauces of any consistency in any type of packaging that have some non-zero level of spiciness imbued by the addition of one or more of a growing multitude of chili pepper varieties.’  And the chilies themselves can be dried or smoked or fried or fresh or fermented, and on and on. Compare that to something like ketchup which is incredibly tightly defined as far as formulation and taste.  The last 10 years or so have also seen the larger category evolve past the niche, burn-your-tongue-off, novelty brands and into some really wonderful products that are approachable for a wider consumer base. When we first started going to hot sauce shows in 2012, you didn’t really hear anyone referring to their products as ‘flavor-first’ but now that is the norm.”

Like any other highly fragmented food category with low barriers to entry, there will continue to be some winners and many losers.  MHT, a leading consumer growth investment bank, believes that the winners in this category will be those brands that closely follow rapidly evolving consumer trends and master the ever-changing (and expensive) marketing challenge to build aided awareness and drive trial on a national scale.

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