- McCormick & Co. is acquiring hot-sauce maker Cholula from private equity company L Catterton for $800 million in cash, the company said in a statement.
- Cholula's annual net sales are approximately $96 million and are expected to grow mid-to-high single digits in a normalized environment beyond the coronavirus pandemic, McCormick said.
- While McCormick is best known for its spices, seasoning mixes and other flavorings, it has moved aggressively into condiments. In 2017, it purchased Reckitt Benckiser's Food Division for $4.2 billion, adding the iconic French's mustard and Frank's RedHot brands to the fold.
Few companies have been hotter in recent years than McCormick. The Maryland company has benefited from consumers' demand to eat better without losing the flavor and taste they covet.
Growing interest from people cooking more at home, especially millennials experimenting with new flavors, benefits McCormick and other taste-making companies. During its last quarter, sales rose 8% as at-home consumption more than offset losses McCormick faced from a drop in revenue at restaurants and other establishments.
The 131-year-old company has been a reliable but strategic acquirer in recent years, focusing mostly on the condiment category to broaden its portfolio beyond the spices and seasonings that have defined it for much of its history. Just three years after buying French's mustard and Frank's RedHot, McCormick's purchase of Cholula for more than three-quarters of a billion dollars allows it to tap into a number of trends.
"Given McCormick's experience in sauces — it also owns the French's mustard and Cattlemen's BBQ condiments — it is hard to see a downside to a deal that ticks so many boxes in terms of trends, growth, and category expansion opportunities," GlobalData analyst Andy Coyne said in an emailed statement.
Not only can McCormick take advantage of the surge in demand for packaged foods during the pandemic, but it can further tap into the growing interest in spicy condiments and new flavors that has only intensified in recent months. At the same time, McCormick has had several years to integrate, learn about and grow Frank's RedHot after the acquisition — lessons it can also apply to Cholula. For example, McCormick expanded its Frank's RedHot sauce to the frozen foods space through the introduction of products such as chicken wings.
In a statement announcing the latest deal, McCormick CEO Lawrence Kurzius called hot sauce "an attractive, high-growth category" and said Cholula, known for its iconic wooden cap, is outpacing category growth. Data from Statista showed hot sauce sales have been steadily climbing since around 2010 as consumers look to cut calories without sacrificing taste. In 2022, hot sauce sales in the U.S. are forecast at $1.65 billion, an increase of 50% from $1.1 billion in 2010.
"As McCormick continues to capitalize on the growing consumer interest in healthy and flavorful eating, Cholula, a brand known for authentic bold and spicy Mexican flavors, is a strong complement to our portfolio providing consumers and foodservice operators with an even more diverse product offering that we expect will strengthen our growth opportunities," Kurzius said.
While analysts noted the purchase is complementary to McCormick, CNBC reported the possibility that regulators might oppose the deal given the company's current exposure in hot sauce. The Federal Trade Commission has objected to some food deals in recent years, and they were eventually scuttled because of antirust concerns. These include Post Holdings' intended $110 million acquisition of TreeHouse Foods' private label ready-to-eat cereal business and J.M. Smucker's planned purchase of the Wesson oil brand from Conagra Brands.
For now, the deal looks like a shrewd acquisition that will help McCormick further grow sales where it dominates in the flavor space by nurturing the Cholula brand and allowing it to further take advantage of the continued interest in flavor.
"Consumer demand for flavor seems to be endless," Kurzius said in 2018. "Take the whole perimeter of the store and it's our products and our categories that make that perimeter taste good. There is a tailwind for us.”