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Will New Court Ruling Raise Sriracha's Price?

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The latest court ruling in the rooster sauce rumble has Sriracha fans squawking on Twitter. LA Times reporter Frank Shyong last week tweeted the news foodies have been dreading: a Los Angeles Superior Court judge ordered Sriracha hot-sauce maker Huy Fong Foods to stop any operations that create strong odors. But, as Shyong points out, it's not clear exactly what that means.

Sriracha at Crissy Field, John Loo

Residents near Huy Fong's Irwindale, Calif., plant have filed complaints of breathing trouble and other health problems they claim are caused by spicy pepper fumes. The city sued in October to get Huy Fong to stop its odor emissions, and on Halloween a judge denied the city's request for a temporary restraining order to stop Sriracha production. After that ruling, Huy Fong issued a statement that a temporary shutdown would have cost $10 million and risked pushing the company into bankruptcy.

So far there's been no word from Huy Fong on how the recent ruling will affect day-to-day operations. The chili-grinding season—typically the most pungent part of the process—is over until next September, meaning the coming year's supply is already in the pipeline for blending and bottling. Whether that part of production can go on without raising a literal stink remains to be seen.

So is it time to hoard Sriracha? Should you have your real estate agent scout industrial-zoned land in Philadelphia and Denton, Texas? (Both cities have invited Huy Fong to relocate if Irwindale proves unworkable.) Or can hot sauce buyers chill out for now?

How realistic are Sriracha relocation considerations?

Sriracha's Irwindale plant is not its only facility, but it is larger, newer, and a much bigger investment than the company's plant in nearby Rosemead. The Irwindale plant was built close to the company's longtime exclusive supplier, Underwood Family Farms, because its specialty peppers must be processed the day of harvest.

That means Philly and Denton are off the table—unless someone comes up with an inexpensive cross-continental same-day delivery service for 100 million pounds of peppers.

Will Huy Fong be forced to raise Sriracha's wholesale price?

Sriracha's long-unchanged wholesale price was a closely guarded Huy Fong secret until recently. Founder David Tran told Marketplace reporter Davey Kim earlier this month that it goes for $1.75 per 28-ounce bottle, down from the original $2 price. Unless something changes, Huy Fong will likely be adding expensive air-filtration equipment or fighting an expensive court battle—both of which could force the company to charge more for its flagship sauce.

If that happens, grocers, restaurant chains, and consumers will all feel the effects—but Sriracha retails for such a low price ($3 to $4 per bottle) that even if it doubled, it would still cost less than many premium hot sauce brands. Restaurant chains that feature Sriracha in their dishes, such as PF Chang's and Subway, or on their tables, as many Asian diners do, would have to factor in the higher cost or find a substitute that customers would accept.

On the consumer side, devoted fans would probably stick with Sriracha, but budget-minded grocery shoppers might switch to other brands such as Cholula, Dave's Gourmet, and Pure Habanero. DIY types might decide to experiment with the many sriracha recipes online.

One winner in the wholesale price-hike scenario could be Trader Joe's, the privately held grocery chain, which debuted its own version of Sriracha earlier this year, complete with a white line-drawing of a dragon on its green capped-bottle. According to a taste test by LA Weekly, Trader Joe's version is thinner and milder than Huy Fong's, but price-conscious shoppers might be willing to make the switch if Sriracha's price goes up.

To hoard or not to hoard?

The wild card in this situation is nervous Sriracha customers. Will they actually start hoarding the sauce out of fear and brand loyalty? If so, supplies might run short ahead of next year's pepper harvest, with no clear resolution to Huy Fong's legal issues in sight.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2013, at 12:36 PM, soxrat wrote:

    I lived in California and left for reasons like this, not a business friendly state, just like the surfboard maker on the coast this guy will be ran off, he needs to pick a better spot like upper high desert, Im glad I left and went to Vegas a state that welcomes expansion, not the choke hold of the California people on business that is trying to grow, and TX would have been my next place to move and grow, not the neckhold of California, enjoy those taxes and all the welfare your state and illegal "aliens" generate cause like San Bernadino you will be broke, O wait half the state already is!

  • Report this Comment On December 02, 2013, at 2:48 AM, VictorAdam wrote:

    I think if Huy Fong played it's cards right, they could move to Texas, and have Texas pay to get them there! It's a shame that the city of Irwindale and local Govt. agencies are creating a hostile business environment. Huy Fong has already stated that the cooking/harvest season has passed! Let them do business!

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