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.
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.
The Fool's top stock for 2014
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!
The article Will New Court Ruling Raise Sriracha's Price? originally appeared on Fool.com.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.