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McCormick To Acquire Cholula For $800 Million

As the demand for packaged foods booms during the pandemic, the spice giant McCormick has decided to buy the parent company of the premium hot sauce brand, Cholula Hot Sauce, from the private equity firm, L Catterton, for $800 million.

L Catterton had acquired the hot sauce maker in 2017 to expand its global distribution. Now, with the deal of $800 million, L Catterton would be earning four times the money that it had paid to acquire Cholula.

As people cook more at home during lockdowns, the sales of several food companies have jumped during the pandemic. For hot sauces specifically, the demand grew even before the pandemic owing to the rising popularity of spicier cuisines including Thai and Szechwan. Credit also goes to the YouTube web series, Hot Ones, which involved interviewing celebrities while they had progressively spicy chicken wings.

The local retail sales of hot sauce have increased more than 40% since 2015, according to WSJ. Moreover, smaller brands make up more than 40% of sales of hot sauce – making them more suitable for acquisition by larger companies.

Cholula’s yearly net sales are around $96 million which are expected to jump in the mid-to-high-single digits in a normal environment post the pandemic, according to McCormick. The company offers six distinctive flavors made in Mexico, based on a century-old recipe.

As for McCormick, it already owns Frank’s RedHot and Old Bay hot sauce brands. According to the latest reports, the seasoning giant’s sales soared by 8% as the decrease in sales at its restaurant partners was covered by higher consumption of at-home food products.

With the acquisition deal, Cholula’s products will add to the existing hot sauce portfolio of McCormick, leading to more variety for customers and foodservice operators. Cholula has strong brand equity with passionate fans and differentiates itself through positioning its brand as an authentic Mexican hot sauce, which would allow McCormick to reach a wider customer base.

By offering Cholula’s products in new formats and increasing the availability of the products, McCormick plans to increase the brand awareness of Cholula. McCormick’s wider presence across all foodservice channels is also expected to strengthen Cholula’s go-to-market business model. The combined model will lead to increased distribution of products and penetration into existing markets.

The deal is likely to conclude by the end of this year and is estimated to add to McCormick’s adjusted earnings per share in 2021, said McCormick. According to analysts, the rising brand Cholula is a great fit for McCormick’s product portfolio, yet they remain cautious to see if the deal gets regulatory clearance.

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