McCormick buys hot-sauce maker Cholula

McCormick & Co. agreed to buy hot-sauce maker Cholula, seeking to capitalize on record demand for spicy condiments. The seasonings company said Tuesday it reached a deal with L Catterton, the private-equity firm that has owned Cholula since 2019, to pay $800 million for the brand. The Wall Street Journal first reported Monday that such a deal, culminating an auction of the business, could come together as soon as Tuesday.

McCormick, famous for its red-capped bottled spices and rectangular tins, owns brands including French’s yellow mustard, Old Bay seasoning and Thai Kitchen products. It already owns another popular hot sauce, Frank’s RedHot, best known for its buffalo-wing sauce, which it acquired in 2017.

McCormick, which is based in Hunt Valley, Md., and has a market value of around $24 billion, sells both to consumers and restaurants. Its revenue soared in its latest quarter as the coronavirus pandemic lifted sales of spices and sauces with more people cooking at home and adding flavor to takeout food.

Cholula, with its distinctive wooden cap, is made with a blend of peppers and vinegar. It was named after a city in Mexico and introduced in the U.S. in 1989. One of the fastest-growing hot sauces, it holds a special place in pop culture, as evidenced by a recent “Saturday Night Live” skit in which Cholula breaks up the wedding of two ketchup bottles.

U.S. retail sales of hot sauces have jumped more than 40% since 2015, according to Euromonitor, as consumers look for low-calorie seasonings and millennials flock to spicy flavors. The rising demand for hot sauces, which also include Sriracha and Tabasco, has in part been fueled by growing immigrant populations, increasing familiarity with global cuisines and thrill-seeking food shows.

U.S. hot-sauce retail sales this year are on track to near $1 billion, which would be just shy of ketchup sales, according to Euromonitor estimates. Smaller brands account for more than 40% of hot-sauce sales, which has led established food makers to seek acquisitions in the sector.

McCormick said Cholula’s annual net sales are around $96 million and growing. When L Catterton agreed to buy Cholula just under two years ago, it said it would expand the brand’s global distribution. The firm also hired the former chief executive of cookie maker Tate’s Bake Shop. 

After purchasing Cholula with the help of debt, L Catterton is expected to make more than four times its money on the brand, people familiar with the matter said.

Based in Greenwich, Conn., L Catterton has around $20 billion under management and primarily invests in consumer brands. Other investments include consumer-products brand The Honest Co. and Equinox gyms.

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