When we analyze companies, we often think about the longevity of a business. It helps us think about the company’s relevancy in the ever-changing world and the possibility of being disrupted by technology. There are several companies that are seemingly boring and quiet yet they amass a strong brand equity over the years.
In the spirit of Christmas, here is a product that is red and fiery… Tabasco!
It earned its slogan of “Fighting Bland Food Since 1868”.
When we think of ketchup, there is Heinz.
What do we think of hot sauce? We think of Tabasco.
Founded by Edmund McIlhenny, the portfolio of Tabasco products are made by McIlhenny Company on Avery Island, Louisiana.
The current President and CEO, Anthony “Tony” Simmons, is providing the 7th generation leadership.
Half of their employees live on the Avery Island.
In 2008, as a testament to its strong worldwide recognition and appeal, Tabasco was bestowed the award of Royal Warrant by Her Majesty Queen Elizabeth II. It has its presence aboard Air Force One, army field rations and thousand restaurant tables across United States and many other countries.
With over a billion revenue reported, here are some reasons why we think McIlhenny company is succeeding:
- Strong characteristics of an owner-operator management: The management are direct descendants of the founder and it is likely that most of their net worth is tied into how well the McIlhenny company is doing. The shares of the company are passed down from family member to family member. Most of the family members are trained to work in the business and act like an owner of the business.
- Consistency: As a consumer product, the management knows taste consistency is important to its customers. Over time, consumers expect and demand the same taste and hot sauce sensation. McIlhenny delivered without fail. President and CEO Tony Simmons made it a point to visit the company’s warehouse daily check the colour of the tabasco mash to ensure consistency.
- Continued Innovation: Innovation does not require diversification. Over the years, new products were introduced such as chipotle, sweet and spicy and Buffalo-styled hot sauces. Just like how Oreos is an ingredient for food products such as McFlurry, McIlhenny company continued to form licensing deals with manufacturers of Spam, A1 steak sauce, Cheez-Its, Empire Bespoke Foods and other supermarkets. This led to an overall market share expansion in the hot sauce category and food service industry.
- Continued Marketing: The McIlhenny company did not rest on its laurels. In 1998, the company paid $1.3 million to run a 30-second television commercial during Super Bowl to extend its reach and build on existing relationships. It continued to strengthen its brand image through social media platforms such as Facebook (3.57 million likes) and Twitter (29k followers). Demonstrating ingenuity, McIlhenny launched a Tabasco Nation app that tapped on the zest and enthusiasm of its loyal followers – deepening the customer engagement one step further.
- Meritocracy: In some companies, nepotism is widespread. Nepotism starves the growth of any thriving company and it destroys the healthy working culture. At McIlhenny, relatives are required to prove their worth based on their executive experience before they are invited to join the company. Most of their executives are relatives who have spent their summers on Avery Island to learn about the businesses in their younger, formative years. This aligns the culture and creates a steady stream of strong candidates for succession.
While McIlhenny is private company, it offers us lessons on the key characteristics we require out of the companies we invest in.
- How are its key management selected?
- Does the company innovate on its product and/or services?
- How much is the revenue derived from new products and/or services?
- Does the key management own a substantial amount of shares or “skin in the game”?
- How does the company ensure the consistency in food quality or service standards?
- How scalable is this business?
- What is the marketing budget as a percentage of sales? Has the marketing resulted in higher market share over time?
- How does this business strengthens its brand equity and increased awareness locally and overseas?
Merry Christmas everyone!
BONUS: To watch how Tabasco sauce is being made, watch this video over here.