Long gone are the days when a company could develop a safe niche, sit back, and count its money. In every industry, niches have become trenches that small companies must defend against one giant after another. Just ask the folks at Pace Foods Inc., in San Antonio.

Until 1980, family-owned Pace had one of the more enviable spots in the entire specialty food industry. Its picante sauces were the best-selling Mexican sauces in Texas; it was moving into other states; and the major food companies had scarcely noticed. But in the past eight years, the Mexican sauce market has exploded, growing 15% per year to around $300 million, while advertising expenditures in the category have shot from $1 million to more than $20 million. At Pace, meanwhile, "we feel like we have a big bull's-eye painted on our back," says sales and marketing vice-president Rod Sands.

The interlopers have included the likes of Campbells Soup, Del Monte Foods, and Pillsbury. Pace managed to survive them all, increasing its market share from around 15% in 1981 to 28% in 1987. Then, in late 1986, Pet Inc.'s Old El Paso (with nearly 30% of the sauce market) took dead aim at its longtime rival. In Texas and a few other markets, it started to test-market a new jar -- that just happened to look a lot like Pace's.

Imitation may be the sincerest form of flattery, concedes Sands, "but we didn't feel flattered at all." With Texas sales declining for the first time in its 41-year history, Pace went to federal court, charging its rival with, among other things, trademark infringement and unfair competition. Finally, in late January 1988, the two companies reached an out-of-court settlement.

Although nobody is claiming victory and no money changed hands, Old El Paso did agree to give up the new bottle and label. As for Pace, it is already bracing itself for the next battle. "Around 95% of our sales come from picante sauce," says Sands. "If we don't sell it, we don't eat."