Saturday, October 2, 2010

Tabasco’s Long Road, a SWOT Analysis

My father and I love Tabasco sauce. We use it in our cooking to spice up dishes and enhance existing flavours. My father says Tabasco will be around forever, but will it? As Jeffery Rothfeder says, this “closed, quaint family business collides with 21st century realities.” (BusinessWeek, 2007) How does this one and a half century-old company survive in our modern times?

Strengths:
Since 1868 the McIlhenny’s have been making their signature product, Tabasco sauce. By adhering to the original recipe and ensuring consistent quality they have developed a loyal customer base. Their brand is known world-wide and Paul McIlhenny, the current CEO says, “We sell directly to 165 countries and we print labels in more than 20 languages.” (Pepitone, 2010) The McIlhenny recipe is simple, Tabasco peppers, salt and vinegar. They age the mash for up to three years in used white oak bourbon barrels. (Pepitone, 2010) This has the side benefit of creating a noncyclical product – they aren’t dependent on the seasons for selling their product. The McIlhenny Company caters to its fans, offering not just sauces in sizes from 1/8th oz to gallon jugs, but also Tabasco related products - kitschy knick-knacks like the camouflage Tabasco holster and Tabasco bottle shaped flash drives. (Tabasco.com, 2010)

Weaknesses:
The McIlhenny Company’s greatest weakness may be its practice of nepotism. Very few companies that keep the business in the family survive for more than a few generations. The makers of the iconic Tabasco sauce have proven to be the exception to the rule so far. Jeffery Rothfeder, author of the book Tabasco Road, “maintains that the company's set-up demands that it find more ways to expand. When it was established, all family members were deemed shareholders—the only shareholders. Consequently, the dividends owed them multiply with each generation.” (BusinessWeek, 2007) As the family grows, dividends paid will be diluted unless the company increases profits or buys out other family members. Another issue with nepotism is that there may not be a family member with the skills needed for a particular position. Hiring the best qualified person for the position strengthens a company.

Opportunities:
While the McIlhenny Company has expanded its business by selling Tabasco sauce in 165 countries, it has not complemented its newer products with any large scale advertising campaign. There is a great market for both milder flavours and for the extremely hot sauces. Companies are not only advertising in television, radio and print. Today, social media is the hot new way to advertise. MySpace, FaceBook, Twitter, and dozens more websites have millions of potential customers sharing their likes and links to products. To ignore this new advertisement medium would be folly.

Threats:
Complicated labor laws create a difficult environment to do business in. Paul McIlhenny says, “Look at the laws regarding wages, labor relations, 401(k)s, health care. It's all highly regulated now. There was no HR in 1868. It's much more complicated than it was in every area of administration -- the legal requirements of shipping, different laws for each state, tax laws, different laws for every country…” (Pepitone, 2010) Regulations aren’t the only thing that has changed since 1868. With the increased population and economy, boutique sauce companies have sprung up, each with their own products vying for consumers’ attention – and wallets.

Conclusion
My father believes that this sauce will be around forever, and I hope that is true. Few companies are willing to invest the amount of time into their products that the McIlhenny’s do. While I wonder how the McIlhenny’s will deal with the changing business landscape, competitors, and fickle consumers, I’m sure they will adapt. Their flagship product, Tabasco sauce, is worth keeping around for several more generations. Their attention to quality has attracted fans all over the world and in the highest places. “It is said, that to this day, Queen Elizabeth uses Tabasco pepper sauce on her lobster cocktail.” (Stradley, 2004) Who knows quality better than the Queen?

Bibliography

BusinessWeek, Tabasco Road (October/November, 2007)
http://www.businessweek.com/magazine/content/07_44/b4056444.htm retrieved 2010-09-25

Sara Pepitone (March 1, 2010) 142 years old and still hot, CNN
http://money.cnn.com/2010/03/01/smallbusiness/tabasco/index.htm retrieved 2010-09-25

Shevory, Kristina (2007-03-31), The Fiery Family, The New York Times,
http://query.nytimes.com/gst/fullpage.html?res=9F03E7D81130F932A05750C0A9619C8B63, retrieved 2010-09-25

Tabasco website, http://countrystore.tabasco.com/ retrieved 2010-09-25

Stradley, Linda (2004) History of TABASCO Pepper Sauce
http://whatscookingamerica.net/History/Tabasco.htm retrieved 2010-09-25