In these days of Blair's Death Sauce, Bayou Butt Burner, and Da Bomb, Tabasco sauce, that granddaddy of piquant condiments, has come to seem rather tame. But the history of Tabasco and its creators, the McIlhenny family, makes for a spicy enough tale, and Jeffrey Rothfeder, a former BusinessWeek editor, serves it up nicely in McIlhenny's Gold: How a Louisiana Family Built the Tabasco Empire.



The McIlhennys have controlled McIlhenny Co. since its inception in 1869, excluding nonfamily members from the top job until 1996, and then only for two years. They built an idiosyncratic world on tiny Avery Island, La., keeping their workforce and manufacturing system in a quaint bubble until well into the 20th century. Tabasco has managed to remain first among hot sauces worldwide, and the $250 million company turns out about 600,000 bottles a day in its Louisiana factory alone. But the obstacles to its continued reign have been increasing in recent decades and now loom large. The McIlhennys' challenge, the author concludes, is to maintain dominance when "anyone can create a recipe for pepper sauce in a kitchen in Boise, Berlin, or New Delhi," market it online, outsource manufacturing to Vietnam, and distribute via the Philippines.



Rothfeder's account, though occasionally wandering, paints a vivid picture of just how tough hanging on will be. He spoke with former and current company executives, factory workers, household help, and pepper pickers, and researched archival material. But members of the "extremely guarded" Avery Island branch of the McIlhennys, which runs the company, declined to be interviewed. Nevertheless, Rothfeder weaves a story rich in anecdote and color, and entrepreneurs with family businesses may find it an inspiring if cautionary tale.



Founder Edmund McIlhenny did not, according to the author, invent Tabasco sauce; a local plantation owner did, developing a hot sauce based on Mexican Tabasco peppers in the 1840s. But McIlhenny, a New Orleans banker who married into the land-owning Avery family, did co-opt the idea after giving up banking. In 1870, he patented his mash of pepper juice, vinegar, and salt, as well as the fermenting process that transformed it into a consistent product.



McIlhenny also remade Avery Island into what the author calls a "post-bellum plantation," a workers' community where housing, medical care, schooling, and the like were provided in exchange for lower-than-average wages. The arrangement, which continued until after World War II, may have been morally dubious, but it led to profit margins that sometimes approached 50%.



The company started overseas operations in the 1970s, when a shortage of Avery Island peppers and pickers made expansion necessary. Rothfeder 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. Rothfeder calls this a "silent time bomb" that forces the company to continually boost sales "exponentially." Fourth- and fifth-generation shareholders, he writes, "are increasingly impatient with the company's torpid pace of growth and the lack of imagination in the executive suite." Rothfeder takes a dim view of current president Paul McIlhenny, the founder's great-grandson. Paul "has surrounded himself with family members who lack experience in consumer goods, management, agriculture, or manufacturing." He calls the recent launch of habanero, garlic, and chipotle sauces "unpromising," in part because the company didn't support them with what he considers an appropriate advertising campaign.



The McIlhenny family has long frowned on selling shares to outsiders or taking in investors. That may change, as frustrated family members start asking tough questions. But the McIlhennys, "caught between tradition and modernity—indeed, between Avery Island and the new world—are so far without answers." For the great Tabasco heritage, that really burns.

[Via - BusinessWeek]

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