Case Analysis: Huy Fong Foods’Sriracha

Introduction

Huy Fong Foods was founded in 1980 by David Tran, a Vietnamese refugee. The business started with fill bottles of hot sauce by hand and sold them door to door. The business grew continuously and in 1987 Hui Fong Foods opened a processing plant in nearby Rosemead, California. After another 25 years the company has increased its volumes and demand, so it has to move its operations to a brand new and much larger foot plant in Irwindale, California. (California State University, 2017)

The local community and company were so happy with the opportunities provided for new jobs on the one hand and making money on the other.

The perspectives for the company were promising and its development steady.

The Problem

Soon after the opening of the factory residents began to complain that the strong chilly odors had caused to some of them health problems, others reported that they had to reduce their outside activities, and one of them even went further saying that he would move away to seek relief from the odors.

Based on the complains, the city of Irwindale took legal action against Huy Fong Foods. Тwo years later, after a new lawsuit was filed the company countersued pretending that the city had been involved in a campaign of harassment.

In that situation the move to Irwindale no longer seemed “irresistible” and David Tran started thinking about moving the factory to another location.

Yet, the question of changing the location of the business seemed doubtful.

Analysis

Ÿ Competitive rivalry

Huy Fong Foods faces intense competition from McIlhenny Company, Reckitt Benckiser, Southeastern Mills, TW Garner Food and other smaller companies. McIlhenny Company and Reckitt Benckiser, who have significantly more resources and a rich portfolio, play within the efficiency market to gain market share in this product category, while other players launched their own sriracha flavor to compete with Huy Fong Foods.

Ÿ Bargaining power of suppliers      

The supplier of peppers is only one. This can lead to disruption of the work process and severe financial loss if there is bad season, deteriorating relations between buyer and supplier as well as other force majeure circumstances.

Ÿ Bargaining power of customers

All products have been sold either to wholesale distributors or directly to large retail stores, such as Wal-Mart. Wholesale customers hold a certain degree of leverage for lucrative deals, as they can replace Huy Fong Foods products with those of their competitors to get higher margins. The beneficial power of end-user customers is lower, as Huy Fong Foods enjoys strong brand recognition.

Ÿ Threat of new entrants

The sauce industry is growing and the market is expanding. Large capital expenditures are not required for branding, advertising and product search creation, so new players can quite easily join the business and they will compete for market share.

Ÿ Threat of substitute products

The spicy sauce industry is expected to continue growing. Therefore, this force does not threaten Huy Fong Foods in the foreseeable future.

Conclusion

If the business is relocated, it will affect disruptions in many ways. Moving away from the only supplier they have can be worse than having only one supplier. Since the production process requires fresh peppers to be delivered and processed. Logistics will become more complicated and transport costs will increase, thus replacing a highly reliable supplier would be a great challenge. Moving the business from a place with favorable economic indicators compared to the national average would be, to put it mildly, a reckless strategic move (Bestplaces, 2017). The construction of new facilities will require investments greater than the investments in a new modern filtration system. In addition, there is no guarantee that the problem will not occur elsewhere.

Actions to take

Investing in a new, more efficient filtering system combined with better and more flexible communication between David Tran and locals seems to be the best course of action. To make the locals feel the company as their own, it can provide people with various activities  such as an open day, a tour in the factory and getting them familiar with the work process, the opening of a gift shop, etc. This should solve the existing problem and eliminate poor publicity. In addition, this would be less expensive, complicated, risky and destructive for the business than relocating the factory.

In conclusion, the company has to work for an alternative supplier, to build extensive and memorable advertising initiatives and to develop a broader and more diverse portfolio in order to increase its market power. BoomBV