I enjoy making my own hot sauce and have recently decided to research selling it. I know that the hot sauce industry has been growing for the past five years and it is continuing to grow through 2020 but what about growth for the next five years? Will the hot sauce market be strong enough to sustain yet another hot sauce product?

A market analysis of the hot sauce industry indicates that it will continue to grow through 2026 and that most sales are currently made through mass merchandisers. The market is heavily saturated but there continues and will continue to be a demand for hot sauce.

This article was written to perform a market analysis of a hot sauce business to determine if it would be profitable to enter the hot sauce market with a new product. I used the following 5 areas to research the industry for 2020 and through 2026 to determine the profitability of a successful hot sauce business. An analysis of the market overview, target market, competition, pricing and challenges gives strong indication that a start up hot sauce business can be successful for the next five years.

MARKET OVERVIEW

What is the market saturation of the hot sauce industry? Is it saturated or just popular?

There is heavy saturation in the hot sauce market but there continues to be a demand for new flavors to be introduced. The market is split between names brand sauces and artisan or gourmet sauces. Brands like Franks Red Hot and Tabasco, a Louisiana style hot sauce using cayenne peppers, dominates shelves in stores. Smaller manufactures who produce specially sauces are found online, at festivals, trade shows and farmers markets. There are hundreds of these sauces and the flavor combinations continue to expand.

Online stores such as Hot Sauce Fever lists 534 brands of hot sauces. These sauces are available primary online and some specialty shops throughout the US due to hot sauces becoming more and more popular among current generations. Walmart and Amazon have name brand products and websites like Etsy.com lists hundreds of independent sauces as well as related products. No pun intended but the hot sauce industry is “HOT”. With the market being heavily saturated it could prove difficult to enter the market successfully.

Is there room for another business?

The hot sauce market is saturated with hot sauces and related products. Web sites like hotsauce.com and the above mentioned hotsaucefever.com list hundreds of varieties where stores will often only have a few dozen. It would be easier to sell online but more profitable in the long run with getting your product on the shelf at local stores. This gives indication that the growth of the online sales is increasing.

Online sales have made room for the addition of another hot sauce brand through sites like Etsy, hotsuace.com, hotsaucefever.com and more. The steps taken to post products for sale can easily be made in an afternoon. The increasing availability of online sales have has removed much of the footwork of a brick and mortar shop to make room for another entrepreneur entering the hot sauce business.

Popularity

Fast food restaurants now offer hot sauces, and this gives indication to the popularity and acceptance of hot sauces. This opens up the market for people to explore different hot sauce flavors who may not otherwise. Well known name brands sauces offer products with their logos and specialty stores sell products relating to the consumption of hot sauces which also fuels the industry.

How much money is spent in the industry?

The global hot sauce industry was 2.29 billion in 2018, is expected to reach 3.77 billion in 2026 and is part of a larger condiment market. That is a continued increase from 1.09 billion in 2010, tripling in sales every 8 years. The overall condiment market was worth 130 billion in 2018 and has proven to be as strong since. The consumption of condiments is shifting towards healthier more nutritious condiments and this is a great reason to introduce a hot sauce as organic, low calorie, gluten free, fat free or vegan and is an excellent opportunity to include these marketing strategies in your campaign. Read the complete list of 10 Marketing Strategies for Your Hot Sauce.

Hot sauce has gradually become one of the top condiments among other favorites like ketchup, mayonnaise and mustard due to a variety of reasons. The chili pepper market itself has shown an increase annual growth 3.4% due to the health benefits chilies produce, not just hot sauces. Although hot sauces are consumed globally and there is a cultural based consumption that drives a lot of it, North America alone has 1.02 Billion.

How much is spent compared to other industries?

This may seem like a lot of money spent on hot sauce, and it is, but it is relatively a small amount compared to the alcohol industry and coffee industry. The 2019 global beer market was 500 billion and the Coffee industry is 100 billion.

How to survive in a heavily saturated market

Be creative

Being creative in your approach to sales can give an advantage in an industry that is already blanketed with competition. Lowering your prices to undercut the competition can be one way to enter a highly competitive market. It can also indicate that you are offering a product lower in quality. Simply making a hot sauce similar to Franks RedHot and offering it at a lower cost would only challenge a huge brand name product.  

Be unique

Have a unique product to introduce to the market and include added service your competition does not offer. Taste and sample other products that the competitors are producing so you are not duplicating. Create off brands relishes and dips to expand your target audience. All artisan hot sauces offered for sale online have a unique flavor combination that allows them to stand out among their competitors.

Be consistent

Be consistent with selling your sauce and don’t fade efforts base on the first few rejections. There will be rejections. Don’t give up because a couple merchandisers declined your offer. Try several approaches to selling sauce to find the one that makes you most successful and research who you are selling to.

TARGET MARKET

Why is there so much hot sauce sold?

Latin Americans, Asians the Millennial generation comprise the hot sauce target market. These groups are the largest consumers of hot sauce but there are sub groups to target as well.

Latin American

Ethnic foods featuring spicy cuisine and enhanced by hot sauces are being introduced with the increase in the immigrant population. These sauces compliment native cuisines and are being offered more in restaurants and stores.

Asian influences

Like Latin American influences, Asian foods featuring spicy dishes are being consumed which causes products related to making them increase in sales as well. It is this same introduction to ethnic cuisines featuring hot and spicy dishes that the millennial generation has embraced.

Millennials

More than 83% of millennial’s consume hot sauces and it is this generation that will soon become the largest living population above the baby boomers. Marketing towards an entire generation is very broad so finding your audience within will help pinpoint your target.

Other potential customers

Educate consumers on the benefits of hot sauce and why consumers have been eating so much of it. Web sites and blog post are a great way to introduce hot sauce benefits on a global market level.  Attend festivals and trade shows to share information with fellow competitors and also reach potential customers.

Thrill seekers

Other potential consumers of hot sauce would be the thrill-seeking personality who would dare to consume a sauce that would cause the sensation that some hot sauces produce. It is this type of personalities that are inside of the millennial and Asian and Latin American population.

Baby boomers

The baby boomer generation is a population who are reaching for hot sauces to excite their dulling taste buds. This is a large generation of people who will be, for obvious reason, decreasing and the millennials will take over as the largest living generation.

Can you reach your target audience?

The target audience, the millennial generation and young ethnic groups, are very reachable through online marketing strategies. This is this generations preferred way of purchasing. The heavy online presence of hot sauces and gradual increase of internet sales shows this method of purchasing to be promising through 2026 as well.

Market Trends

The market trend for hot sauce sales is leaning heavily on the small independent producer of hot sauce to create unique spice combinations to cater to the immigration influences and taste preferences of the millennial population. Hot sauce is relatively easy and inexpensive to make therefore it can an attractive business opportunity for the enthusiastic entrepreneur which allows the many smaller companies to enter business.

An additional trend is that online sales and social media are gaining momentum over mass merchandisers. More and more varieties of sauces are being produces and making sales through internet websites, online store, online communities and advertising in forums.

Factors effecting demand

Product demand is crucial in successful sales and there are questions and concerns associated with this as well. Does the market want what is being offered? Is it something they can’t live without? There is currently a demand for hot sauces and the increase or decrease of this can be broken down further. We know there is an increasing demand so it would need to be juxtaposed with the negative properties or lack of demand.

Taste and preference of consumers

This category of demand is only increasing as stated above as the immigrant population increases and the millennial generation continues to explore these flavorings. There are of course factors that influence this and currently the demand has been increasing.

Population

Decreases in population will directly affect the demand for products and specifically the reduction in the demography of hot sauce consumer, millennials, would cause a drop in sales. In addition, a reduction in immigrant population would cause for drop in demand.

Income

When incomes rise so will the demand for the products and when incomes drop so does demand. Pew Research states that the American income is rising. This growth in income is partly driven my millennial women who are working more than their equals in other generations and are earning more as well. This is good evidence of the demand will continue to increase.

The price of products offered

Inflation has a continued hindrance on the demand of products as it always has. In the hot sauce industry companies have listed the fluctuating cost of products, specially peppers and spices to make sauces, as being difficult to find a consistent price. By raising the prices of products you could negatively effect the demand. Companies may need to cut cost elsewhere to make up for the differences. Always analyze the pricing of your competitors.

COMPETITION

What is the competition doing?

These are the leading manufacturers of hot sauce are and what share of the market they had for 2017, 2018 and 2019; McLlehenny (Tabasco) 17.1%, McCormick (Franks RedHot)11.3% and Huy Fong Foods (Sriracha) 8% hold the largest market percentage states Statistica.com. The completion is expanding their varieties of sauces they have to offer to cater to the expanding exploration that consumers have with hot sauce flavors. There are many varieties of Franks Red Hot to expand their brand name, ultimately reaching a larger audience.

What is your competitive advantage?

One competitive advantage a new hot sauce product could have is the availability to offer a sauce that is low in calories and does not produce any health risks when consumed. Other sauces, dips, dressings and condiments can be high in fats.

With the rise in health-related concerns for condiments hot sauce ranks on top due to its unique health benefits. Another marketing advantage are the specialty flavors that have increased in popularity and demand. The many pepper varieties and combinations of flavors has dominated online hot sauce sales.

Tell your story

Start a marketing campaign that highlights your personal success story building a hot sauce business from the ground up. Post the story on web sites, blogs and YouTube videos and share it through social networking as a way to extend to new customers.

What is the availability of trade information?

Specialty Food Association

Join the Specialty Food Association to connect to trade shows, events and other members to market your product. There is also a product market place to advertise and follow unique hot sauce flavors and related products.

Are there and hot sauce festivals?

There are almost 60 festivals in the world centered around the enjoyment of hot sauce. Find a local festival and set a stand to sell your product or attend to gather other trade information. This is a focus specifically on the hot sauce industry.

Get to know your competition

Know who your direct competition is and what they are doing currently in the market. Research where they are selling products and how much they are selling them for.

PRICING

The pricing of your product is a huge factor in determining your position in the market. Do more than THINK about the pricing of your product and do sophisticated calculations on the bare bones cost of what it takes to produce your product. The profit calculator breaks down costs per single bottle to determine where your product stands among your competitors.

Feasibility Analysis

The feasibility study should begin with your business plan with all costs associated with starting and operating a hot sauce business. This is the research and does not include producing 1,000 bottles of hot sauce to see if they sell or not.

How much do you expect to sell?

Make a goal of your sales forecast. You want to cover your startup costs, operations cost and you will want to make a profit to cover all other costs you may have such as marketing and advertising. Be prepared to be able to produce more sauce if there is a sudden increase in sales.

Startup cost

The Cheryl La Brown Hot Sauce Production Company states that the majority of startup cost are on equipment. Working out of a home kitchen and producing small batches of hot sauce is achievable for under $2,000. List all the equipment you will be using to include costs. This is a list of the typical equipment used in making hot sauce.

Equipment: Blenders, Sanitizers, Bottle filling, capping and labeling machine, Bottles

Products: Peppers, Vinegar and Spices

Advertising: Send out letters, emails, word of mouth. Print media, billboards. Grass Roots marketing.

Checklist of additional costs:

□ Availability of business name

□ Business Registration

□ Online payment platforms

□ Tax Payer ID (EIN)

□ Business license or permit

□ Insurance

□ Design logo

□ Create website

How much does it cost to start selling at farmers markets?

Entering the hot sauce market is an easy start up for any entrepreneur and avoiding any FDA regulations is possible selling through farmers markets. Startup costs to begin selling hot sauce at a local farmers market are very inexpensive. Equipment can be purchased for under $500 and a pallet of hot sauce (600) bottles can be produced for under $800. Add in the costs of renting space, if there are any costs associated, and it could be a very profitable venture.

How much does it cost to produce a bottle of sauce?

A bottle of hot sauce can be produced for about $1.32 and those cost are estimated on a small amount of manufactured goods. Economies of scale (savings in cost due to an increased level of production) could reduce the cost of producing each bottle even more.

How much does it cost to sell in stores?

Selling your hot sauce in stores would mean additional costs for health permits, business registration and other licenses that is required by the FDA. These costs vary from state to state and within the county you live in as well.

Potential earnings

Potential earnings can be calculated once you have the initial start up costs and the cost of producing your product. Estimating the number of sales you need to make in order to make a profit can be done using bottom up estimating to determine the cost of producing one bottle and the cost for your products. Keep in mind some great products like Texas Pete’s can be purchased for $1.00 but other gourmet sauces can come in under $10.00.

Deciding your niche

Louisiana style hot sauces are very simple combination of ingredients but there are several brands that already dominate the market. Gourmet sauces are trending right now and they are expanding their flavor combinations. Deciding the niche market within the hot sauce industry will determine your cost to produce your product.  

Using profitability software

No one can predict the future. But profitability software will allow you to determine the price point of your product and how many bottles, cases or pallets you will need to sell per month or year to make a profit. Check out and download this spread sheet called the Profit Calculator that I programmed to determine the price point of your product.

Funding

There are several ways to fund a small business startup. Using your own savings and purchasing equipment and supplies a little at a time is one method. This is achievable in the hot sauce industry as the cost to produce a bottle of hot sauce is very low. Saving up $2,000 dollars and producing sauce from your home kitchen is not outside of the realm of a startup business.

Business Plan

All lenders and most people who are giving you or lending you money are going to ask for your business plan. This is a formal, written document indicating how you plan to profit from your hot sauce business. Download a simple business plan template or research the methods of composing one.

Small Business Association

The SBA can match you up with a lender to provide you with loans to meet your specific needs. You will probably need to provide some owner equity but review the eligibility requirements here.

Bankers and Lenders

Business.org has posted the 11 best small business lenders and they don’t require a very high credit score. Local banks and credit unions will have loans in the form of personal loans and offer low interest rates if you are already a member.

Family and Friends

Parent and grandparents always want to see their children and grand children become successful and if you can present a reasonable business opportunity to them then this could be a viable option. Maybe in the form of a gift.

Distribution methods and costs associated

Mass merchandisers

This would include the availability of grocery stores in your area either, a chain or independently owned companies. Reach out to nearby cities within 50 to 100 mile radius. Our city that we call home is about an hour in each direction from cities about the same size. The Food, Conservation and Energy Act of 2008 states that “local” means within 400 miles but should be within your state.

Specialist retailers

Specialty hot sauce shops? I never knew such a shop existed until I started researching this market report. In our nearest city of a population of just under 2 million we have three specialty hot sauce and hot spice stores. That is three more than I would expect. Get to know these stores. Display and sell your product.

Convenience stores

Every city and town has a gas station on just about every corner, sometimes owned by a chain. I often see a local section featuring products produced in our area. Every city will have local products featured so this could be an opportunity to sell more product.

CHALLENGES

Industry Specific challenges.

The industry specific challenges would be the current heavy saturation of the market and the ever fluctuation in pricing for the products to make hot sauce. Market saturation indicates a lot of competition, but it can also indicate a high demand. Entering the hot sauce market with a unique product can prove to be challenging among so many other products.

Prices for products, specifically peppers and spices are not consistent. These products are controlled by the climate and unpredictable growing conditions. Top producers of chilis are China and top exporter of chilies is India and these markets can always present challenges.

Regulations or restrictions on the hot sauce industry

On a smaller scale hot sauces sold at farmers markets do not need to follow FDA regulations making it easy to enter into the market. These sauces can be produced relatively easy with little or no equipment and can me bottled right in a home kitchen.

The Food and Drug Administration has strict regulations on the bottling of hot sauces and some of these requirements could change regularly. Keep current and on top of related news.

Can consumers live without this product?

Hot sauce is a product consumer CAN live without. It has rapidly been purchased by more consumers and the market will continue to grow. Market fluctuation could occur in times of global crisis such as the recent outbreak of COVID – 19. Of course the entire economy is effected by a global pandemic but it identifies a consumers needs and hot sauce is not to be considered on the list of needs.

There is a demand for hot sauce and specifically the demand for new flavors or an expansion flavor of a popular brand. The hot sauce industry is on fire and is not showing signs of slowing down over the next five years. There is a demand for new products to be introduced and there is the potential for new consumers within the market. Entrepreneurship in the hot sauce industry proves to be achievable at very low costs. If you have a great hot sauce recipe and a desire to become a business…sell hot sauce…now!

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