MIT Sloan Management Review Article on A Tale of Two Hot Sauces: Spicing Up Diversification

It was the best of times, it was the worst of times. The divergent fates of two rival condiment businesses — the best of times for McIlhenny Company, maker of well-known Tabasco-brand hot sauces, and the worst of times for Huy Fong Foods, originator of the U.S. version of the popular Sriracha pepper sauce — highlight the power and perils of diversification. While McIlhenny took strategic steps to diversify with future performance and risk in mind, Huy Fong failed to capitalize on its wild initial success, making missteps that ultimately rendered the former market leader an also-ran in hot sauce, even in the subcategory Huy Fong itself created.

The cases of McIlhenny and Huy Fong illustrate the right and wrong ways to diversify.

About the Author

Achal Bassamboo is the Charles E. Morrison Professor of Decision Sciences at Northwestern University’s Kellogg School of Management. James G. Conley is a clinical professor of operations at Kellogg. The authors acknowledge the generous support of the Center for Research in Technology & Innovation at Kellogg.

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