On Avery Island, LA in 1868, Edmund McIlhenny first created Tabasco Sauce. Now known as the quintessential pepper sauce, Tabasco can be easily found around the world and has even been brought to space. The company’s success has been significantly driven by strong alignment between its business and operating models, and thus, this is an example of a highly effective organization.
Business Model – Value Creation and Capture
The self-proclaimed creator of the hot sauce market, Tabasco provides customers with a consistently delicious pepper sauce. Due to its extensive distribution networks, the “original red sauce” can be found in 180 countries and territories (as well as in soldiers’ MREs) and is often requested by brand name. The bottle’s label is recognizable around the world and has been customized to cater to 22 different languages and dialects. Simply put, Tabasco is synonymous with hot sauce.
Operating Model – Transforming Assets into Valuable Actions
Production of the iconic pepper sauce has changed little over the company’s 147 year history. The process begins with a McIlhenny family member selecting the ideal Capsicum Frutescens seeds, which are grown onsite on Avery Island. Originally, peppers were only grown on Avery Island; however, now the majority of the volume is farmed in Latin America, where the peppers can blossom better protected from hurricanes and diseases.
In August, once the peppers have matured to exude a red hue, farmers assess the color of the pepper with a small wooden dowel, “le petit baton rouge,” to ensure that the pepper is appropriately ripe for picking. The next step, following the handpicking of the peppers, is to mash the peppers and mix them with Avery Island salt. The mixture is then stored in oak barrels, which are covered in more Avery Island salt to create a protective barrier.
This “pepper mash” is aged for three years and, after being inspected by a McIlhenny family member, is combined with 100 grain distilled vinegar. This final mixture is stirred daily and, after thirty days, is strained to remove any skins, pulp, and/or seeds in the fluid. Lastly, the sauce is bottled via a modern bottling system. Originally, cologne bottles were used and a sprinkler filament topped the bottles.
Critical to Tabasco’s success are several key competitive advantages.
- First, in 1870, the company patented the original sauce formula.
- Secondly, the company’s management and Capsicum Frutescens seeds have stayed within the family. The operations have been overseen by five generations of McIlhennys and the original pepper seeds are used in the growing process.
- Additionally, the McIlhanny family owns Avery Island, which (in reality) is a three-mile long salt dome that serves as the salt supply for the sauce and sauce making process.
These factors (patent, family, seeds, and salt) significantly impact the business’ performance because they help to ensure a consistent product and flavor. Moreover, by growing the peppers in a more protected environment, pepper crop yields are more predicable, which enables the company to regularly produce 720,000 bottles of Tabasco sauce a day.
Lastly, employment opportunities in the region surrounding Avery Island are limited and Tabasco employee loyalty is extremely high – in fact, being a second or third generation employee is not unheard of (i.e. mothers and fathers, along with their grown children, can all be found working for Tabasco). The company is also an attractive employer since it offers full health and dental benefits, along with retirement plan. Thus, employee turnover is not a challenge the company faces.
All of these factors have contributed to the creation and maintenance of the Tabasco product and brand, the original hot sauce.