Spice and seasonings group McCormick & Company announced it has reached an agreement to buy Cholula Hot Sauce from private equity firm L Catterton for $800 million as companies seek to capitalize on a jump in sales amid the COVID-19 pandemic.
McCormick said it planned to help Cholula expand its e-commerce sales and improve its restaurant business, where about 40% of customers first encounter the brand. McCormick, more known for its baking and cooking spices in grocery store aisles, entered the hot sauce market in 2017 when it bought Frank’s RedHot, the biggest brand in the hot sauce category. According to data from Euromonitor International and Nielsen, Frank’s and Cholula combined make up about 30% of the hot sauce market in the U.S.
“Hot sauce is an attractive, high-growth category and, as an iconic premium brand, Cholula is outpacing category growth,” McCormick Chief Executive Officer Lawrence Kurzius said. “As McCormick continues to capitalize on the growing consumer interest in healthy and flavorful eating, Cholula, a brand known for authentic bold and spicy Mexican flavors, is a strong complement to our portfolio providing consumers and foodservice operators with an even more diverse product offering that we expect will strengthen our growth opportunities.”
Sales of hot sauces jumped 24.6% for the twelve months ended November 7, according to Nielsen. The market has grown by an average of 9.7% per year for the past four years. McCormick said its sales grew 8% in its latest quarter.
Cholula was bought by L Catterton in April of 2019 for an undisclosed sum. McCormick said Cholula has reported annual net sales of approximately $96 million. It said it expects sales to grow at a rate in the “mid-to-high single digits in a normalized environment beyond the COVID-19 pandemic.”
McCormick plans to retain the Cholula brand name in both the retail and foodservice channels.
The transaction is expected to close by the end of the calendar year, and will be financed with a combination of cash on hand and commercial paper.
McCormick said the deal would be accretive to earnings by the end of 2021.