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PRICING

What Is Sriracha's Secret Sauce?

Among other things, keeping prices consistently low.
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Huy Fong Foods -- maker of the popular Sriracha Hot Chili Sauce--has achieved $60 million in sales the hard way. According to the Los Angeles Times, the company has kept wholesale prices constant for more than two decades. The sauce retails for roughly $4 per 28-ounce bottle; that's roughly 420 million ounces sold each year.

"I make sauce good enough for the rich man that the poor man can still afford," founder David Tran tells Bloomberg Businessweek.

Clearly, Tran believes that retailers and consumers expect the sauce--special as it is--to be low-priced. Indeed, Businessweek observes that "many stores in this suburb of L.A. use discounted Huy Fong as a loss leader to attract customers. One advertises an industrial-size bottle offered for less than a dollar, about a 75 percent markdown."

By keeping his prices low, Tran competes (and, ostensibly, wins) on both price and quality. Given the increasing competition he faces--and given that the market has precious few barriers to entry--winning in both realms matters more than ever.

As Frank Shyong (@frankshyong) at the Times notes, "The popularity of Huy Fong Foods' Sriracha sauce has spurred many copycats and competitors. Because the sauce is named for the Thai city, the company cannot trademark the name. Roland Foods in New York makes its own variety, Sriracha Chili Sauce, in a similarly shaped, yellow-capped bottle featuring two dragons instead of a rooster. Frito-Lay is testing a Sriracha-flavored potato chip, and Subway is experimenting with a creamy Sriracha sauce for sandwiches."

All this, plus the looming elephant-competitor in the room: McIlhenny Company, the veteran manufacturer of Tabasco sauce, "is working on its own version of Sriracha to compete with Huy Fong," Businessweek reports.

Keeping prices low may help Huy Fong continue to thrive in the wake of new competition for one obvious reason: retailers and consumers, now and always, look for discounts. But how can it afford to? According to Businessweek's Caleb Hannan (@calebhannan), "the company has never advertised in the U.S. It also has no Facebook page and no Twitter account, and the home page of its website serves as a kind of memorial to its nonchalant relationship to the wider world: It states plainly that it was last updated on May 10, 2004. Yet despite this aloofness, Huy Fong's Sriracha has earned a passionate following that's helped make it an icon."

In other words, it invests in spice, not marketing.

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Prices Going Up? How to Tell Your Customers




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