A Tale of Two Hot Sauces: Spicing Up Diversification

Achal Bassamboo and James G. Conley

The contrasting paths of two hot sauce manufacturers show that managing exposure on multiple fronts is essential.

Hot sauces,used to spice up a wide variety of main dishes, sides,and snacks,are simple products containing a limited set of ingredients such as pepper mash, vinegar, salt, garlic, and sugar. With the exception of the peppers, these are typically commodity inputs.Thus profit in this industry is realized by selling a unique product at scale with strict control over input costs.

The cases of McIlhenny and Huy Fong illustrate the right and wrong ways to diversify.