McCormick Buys Hot Sauce Maker Cholula For $800M

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.