Tabasco: The Original Hot Sauce
Effectively aligning business and operating models: the catalyst for creating and maintaining the Tabasco product and brand.
On Avery Island, LA in 1868, Edmund McIlhenny first created Tabasco Sauce. Now known as the quintessential pepper sauce, Tabasco can be easily found around the world and has even been brought to space. The company’s success has been significantly driven by strong alignment between its business and operating models, and thus, this is an example of a highly effective organization.
Business Model – Value Creation and Capture
The self-proclaimed creator of the hot sauce market, Tabasco provides customers with a consistently delicious pepper sauce. Due to its extensive distribution networks, the “original red sauce” can be found in 180 countries and territories (as well as in soldiers’ MREs) and is often requested by brand name. The bottle’s label is recognizable around the world and has been customized to cater to 22 different languages and dialects. Simply put, Tabasco is synonymous with hot sauce.
Operating Model – Transforming Assets into Valuable Actions
Production of the iconic pepper sauce has changed little over the company’s 147 year history. The process begins with a McIlhenny family member selecting the ideal Capsicum Frutescens seeds, which are grown onsite on Avery Island. Originally, peppers were only grown on Avery Island; however, now the majority of the volume is farmed in Latin America, where the peppers can blossom better protected from hurricanes and diseases.
In August, once the peppers have matured to exude a red hue, farmers assess the color of the pepper with a small wooden dowel, “le petit baton rouge,” to ensure that the pepper is appropriately ripe for picking. The next step, following the handpicking of the peppers, is to mash the peppers and mix them with Avery Island salt. The mixture is then stored in oak barrels, which are covered in more Avery Island salt to create a protective barrier.
This “pepper mash” is aged for three years and, after being inspected by a McIlhenny family member, is combined with 100 grain distilled vinegar. This final mixture is stirred daily and, after thirty days, is strained to remove any skins, pulp, and/or seeds in the fluid. Lastly, the sauce is bottled via a modern bottling system. Originally, cologne bottles were used and a sprinkler filament topped the bottles.
Model Alignment
Critical to Tabasco’s success are several key competitive advantages.
- First, in 1870, the company patented the original sauce formula.
- Secondly, the company’s management and Capsicum Frutescens seeds have stayed within the family. The operations have been overseen by five generations of McIlhennys and the original pepper seeds are used in the growing process.
- Additionally, the McIlhanny family owns Avery Island, which (in reality) is a three-mile long salt dome that serves as the salt supply for the sauce and sauce making process.
These factors (patent, family, seeds, and salt) significantly impact the business’ performance because they help to ensure a consistent product and flavor. Moreover, by growing the peppers in a more protected environment, pepper crop yields are more predicable, which enables the company to regularly produce 720,000 bottles of Tabasco sauce a day.
Lastly, employment opportunities in the region surrounding Avery Island are limited and Tabasco employee loyalty is extremely high – in fact, being a second or third generation employee is not unheard of (i.e. mothers and fathers, along with their grown children, can all be found working for Tabasco). The company is also an attractive employer since it offers full health and dental benefits, along with retirement plan. Thus, employee turnover is not a challenge the company faces.
All of these factors have contributed to the creation and maintenance of the Tabasco product and brand, the original hot sauce.
Sources:
- http://www.tabasco.com/
- http://www.economist.com/node/18442091
- http://www.wsj.com/articles/SB10001424127887324338604578324531320663720
- http://www.nytimes.com/2014/08/31/magazine/who-made-that-tabasco-sauce.html?_r=0
- http://www.baxterbulletin.com/story/life/food/2015/10/06/hot-time-visit-tabasco-avery-island/73465180/
Thanks for sharing!
I agree with you that Tabasco has a great operating model that ensures consistency in its product and flavor. I wonder how Tabasco was actually able to gain the intense following that it has. It’s one thing to have a great distribution network. It’s another thing to provide a product that people want to buy. How did the company convince people to buy Tabasco and gain the scale of brand name recognition that eventually became a significant barrier to entry for other players in the hot sauce market?
Thanks for sharing this spicy post!
It is interesting that Tabasco’s apparent barriers to entry have persisted for so long. I would imagine they have changed over time, too. During the company’s early history, these barriers seemed tied to Avery Island’s salt-mining operations (I did a quick search for Avery Island info). The access to cheap, high-purity salt with no distribution costs and on-site storage on Avery Island no doubt made it rather cost-competitive. Combining this with adherence to strict quality standards (the petit baton rouge, for example), seems a rather effective operating model.
However, as you point out, the scale of production today has required moving much of the operation to Latin America. Given the simplicity of the production process and relatively low modern barriers to entry (farmable land, high quality peppers, and labor), it is curious that Tabasco has protected its market share for so long, especially given the proliferation of hot sauces available to consumers. It seems that today’s market share would be more tied to strong unaided brand awareness. This is probably due to Tabasco’s long history and sustained market presence therein, since I do not think I have ever actually seen a Tabasco advertisement.
You mentioned the distribution network as critical to its business model. This seems intimately tied to its branding. For example, there is now Chipotle Tabasco in Chipotle restaurants. I wonder if this asset is perhaps its most important one going forward. This wide-spread availability of the product seems to complement its imagine as “the original red sauce.”
Thanks again for a great, interesting read!
Wow! Just now I find out that Tabasco is the brand and not the product. It looks like the company has grown to be global, but it managed to remain a family business. That shouldn’t have been easy.
I see that one of the most important competitive advantages is the consistency of the formula. Do you know if this consistency policy has been established since the beginning of the company? If so, do you know how did they do in the early years? It doesn’t seem like an easy process with the 1860s technology.