Sriracha Changing for Better

Almost all big companies face some problems related to their activities in the local community. Since the production is the basis for their business, they have to make some managerial strategic decisions in order to find a solution and have the least losses. Rather often the disputes are pollution-related. The city or town with some factory might claim that the production makes some gas emissions, pollutes water with the chemicals, or causes much noise that deprives citizens from comfortable life in the neighborhood. The similar situation happened to the company Huy Fong Foods Inc., a large producer of hot chili sauce called Sriracha in the country, when the citizens demanded the factory to stop its work for toxic gases emissions. Looking for the solution to the issue, the owner of the company evaluated all options in order to find the least harmful for the company and the community. Therefore, the paper will focus on the overview of the Huy Fong Foods Inc., the producer of Sriracha sauce and the managerial approaches the company owner chose to deal with the problem. 

1. History and Organization

Huy Fong Foods, a privately owned company, was founded in 1980 in Los Angeles, California by the Vietnamese refugee David Tran (Nuwer). When the Southern Vietnam became controlled by the communists, Tran, being a major in the army, decided to move to the United States. Being unable to find the job in LA, where David and his family settled at first, and the hot sauce he liked, a man tried to make some chili by himself (Shyong). Producing the sauce in the bucket, bottling it and selling from the van, Tran started the multi-billion business, naming the company after the freighter that helped Tran and his family to get out of Vietnam (Shyong). 

In 1986, Tran decided to relocate his business to Rosemead, California, but, as the official site of the company states, was not able to cope with the demand and produce more bottles of hot sauce (Huy Fong Foods). In 2013, the business experienced another relocation to Irwindale, California. Despite the unpleasant precedent of public nuisance, Tran plans to continue developing his company there (Associated Press). Huy Fong Foods is a family business, so its owned does not intend selling some part of it or making it corporate. Although Tran received many lucrative offers to sell the company, he fears compromising his vision, so none of the offers was accepted (Shyong). For this reason, the president of the company is Tran’s son, and the vice-president is his daughter.  

Sriracha has become the most popular sauce that Huy Fong Foods has ever produced. The probable cause of that is the origin of the recipe. The similar sauce is prepared in Si Racha, Thailand (Shyong), so it is really Asian-spicy. Now Sriracha is used in many spheres as it is reported to have relation to cookbooks, T-shirts, iPhones, water bottles and many other things (Shyong). Frank Shyong states that Sriracha became a real mainstream. 

2. Objectives and Strategies

Huy Fong Foods is aimed at producing hot sauces and selling them at an affordable price. The key concepts the company focuses on in order to satisfy the need of the greatest number of the customers and encourage more people to buy the products are high quality of the ingredients, absence of artificial coloring agents, water and genetically modified components, affordable price and ensuring good taste (Huy Fong Foods). Moreover, Tran focuses on the pricing strategies as well as on quality of the sauce since he follows the principle “Make a rich man's sauce at a poor man's price” (Shyong). Therefore, the owner of the company tries to make the price appropriate for both business and people. Another strategy is cooperation with the supliers of ingredients used in the sauce. For this reason, Tran established a relationship with the pepper producer in Ventura County and now controls the overall process of planting, growth and gathering the harvest to get the highest-quality pepper and make the sauce as hot as possible within a day the pepper is harvested (Shyong). Another principle the company is based on is preserving the heat of the sauce since it is the thing the customers value the most. Another aspect related to principles is deliberate omission of advertising. The company is reported to have never spent money on advertising (Shyong). The only advertising technique is the voluntary feedback from the customers and the bright look of the bottle of Sriracha: although the bottle is plastic, the sauce makes it fire-red and the rooster on the label makes it noticeable. 

3. Products, Services, and Customers

Today, the company produces three items: Chili Garlic, Sambal Oelek, and Sriracha hot sauce (Shyong). Sriracha became the most honored and loved sauce since it is produced in large amount. The first sauce Tran has made on his own, before he became an owner of a multi-billion company, was Pepper Sate Sauce. Another recipe Tran created was Sambal Badjak (chili paste with onions) sauce (Huy Fong Foods). Huy Fong Foods does not provide any services except for making the sauce. The production is sold by the retailers. The customers that consume the products are different. They can be Asian and Mexican restaurants that make spicy meals or individuals cook spicy dishes at home. Since the company is interested in selling the sauce as well in engaging people to support them, they provide their consumers with some recipes of the sauces that can be made at home (Huy Fong Foods), increasing, in such a way the number of customers and admirers. Since Tran likes the way his company works, products it produces, and the profit it makes, he does not plan to change the focus or inventing some other recipes in order to broaden the variety of tastes for now, however, if the production continues to be admired by the customers, the company will be growing (Shyong). 

4. Profitability

Being a humble company at the beginning, the Huy Fong Foods grew to a large company that earned $60 million last year, selling the products of its own manufacturing (Nuwer). The revenue has been growing each year, now making approximately 20% (Nuwer). Although after relocating from Loss Angeles to Irwindale the company had some minor losses because of the conflict caused by the Irwindale residents concerning air pollution, the company owner managed to preserve business, continue production, amend the quality of air filtration, and satisfy the needs of both customers and citizens of the town without relocation or stopping operating that was suggested as an option. The discussion of the problem in press and social media unintentionally made a good advertisement for Huy Fong Foods and its Sriracha sauce in particular. Therefore, one can expect that after the conflict is resolved, the profitability of the business will grow. 

5. Reputation

The Huy Fong Foods Inc. is considered to be one of the largest producers of hot Asian sauce in the United States. The reputation of the company is important since it determiners the amount of consumers of the sauce. Since the customers rarely complain the quality of the product and bottles with Sriracha do not remain on the shelves for a long time, the company can be regarded as reputable. Moreover, Tran is known for special price policing, which preserves the prices for the products almost unchanged for many years (Shyong). Nuwer analyzed the attitude to the company, or rather it production and estimated that generally Sriracha along with other sauces is very popular among the consumers. Thus, the official Sriracha Rooster Sauce Facebook page, according to Nuwer, has 285,000 likes. Clearly, the company is very popular and it would not have had that success its reputation was questionable. The disputes around factory public nuisance in 2013 did not destroy reputation of the company, but raised it since the situation proved that customers are put first and the demands of people are satisfied, so the company can be trusted. 

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6. External Opportunities and Threats and Internal Strengths and Weaknesses

Since the Huy Fong Foods Inc. is a fairly large company, it has some external opportunities and threats. The opportunities can be the development of the business and increasing the number of factories producing the sauce if the demand remains high or grows (Shyong). Another opportunity is increasing the cooperation with other countries to export more bottles of sauce. Tran may create the subsidiary company and locate it in Mexico as the business can bring some profit there due to the kind of company’s production and the demand for these products there. The external threats can be the competition with some developing companies and some legal issues. The way company functions allows it to survive competition even in hardest times (Shyong), however, the threat still exists. Another threat the company has already faced and needs to address with more attention is local laws and regulations that can prevent the factory from operating. 

The company has its internal strengths and weaknesses as well as external opportunities and threats. Thus, the strength of Huy Fong Foods Inc. is its private owning and family orientation. Being the members of one family, the directors of the company trust each other more and can openly discuss all business issues, future changes and strategies that must be chosen to solve the emerging problems. However, this strength can be regarded as a weakness in case Tran, his son and daughter cannot reach the consensus. Under such circumstances, the productivity of the factory can decrease and the overall dispute can cause internal reorganization and division of the company. On the contrary, the same can happen in corporate business as well, so the risks are equal in both situations. 

7. Analysis of a Management Problem

The owners of the company, along with local Sriracha factory directors considered different options that can be chosen in order to solve the problem. Since the local authorities support the illegal actions of Irwindale in the court proceedings and making immediate orders to forbid Sriracha factory to operate because of unpleasant odors and smell-emission related health problems that were not detected and documented (Hernández-López), David Tran, the owner of Huy Fong Foods, considered relocation as the only appropriate solution that could stop ungrounded attacks concerning the production process. The vaguest point here is that the court of Irwindale decided not to wait till the air-quality regulators involved in the proceedings make the assessment of the overall state of odor emissions and create a bunch of recommendations for the factory in order to stop emitting unpleasant smells and, in such a way, satisfy the demands of the households. It is clear, that the corruption problem of the state is remarkable, since community decided to ignore the law and one of the first people to sign the complaint was the son of the local council member (Hernández-López).  

The major point is that different management interventions can be done in order to solve the dispute without court trials and numerous attacks from both publicity and local authorities. For example, the Huy Fong Foods company could have wait till the air-quality regulators make their decision of the solutions, change the equipment that prevents toxic gases from getting to the air, change the process of pepper grinding or sauce preparation, substitute some ingredients that could have unpleasant odor with those that have weaker odor, or relocate the factory.  However, demanding the owners of the company to “stop any operations that could be causing the odors and make changes to mitigate them”, judge Robert H. O'Brien, the one who made an announcement, did not explain which operations must be stopped (“Sriracha Factory Shut down over ‘Offensive’ Odors”). Huy Fong Foods indicated that there will not be a problem anymore till they find another solution (at least for a few months) since the harvest season of red-hot Jalapeno peppers used in the sauce as the most important component of the product ended. With the end of the harvest season, the process of grinding of the peppers ends as well, and mixture and bottling of the sauce will not cause the factory to produce unpleasant odors that can cause watering eyes and breathing problems the judge O'Brien reported about in the announcement of his decision (“Sriracha Factory Shut down over ‘Offensive’ Odors”). 

It is clear that the solution of the situation cannot be an easy one. From the one hand, the Sriracha sauce is widely used in almost all Asian and Mexican restaurants as it is spicy and, therefore, the most appropriate for the hot dishes they offer. For this reason, the closure or relocation of the factory will be uncomfortable and loss-making for both food-producing facilities as they would be made to buy the sauce at a higher price added for transportation or look for the alternative product and the Huy Fong Foods company as well for it would close profitable factory in the comfortable location, transport the equipment and fire the employees. Since the Irwindale City Attorney Fred Galante and some other regulators understand that losing such a profitable business will not bring benefit to the community, the final decision making was postponed (“Sriracha Factory Shut down over ‘Offensive’ Odors”). The attorney stated that the city would like to solve the problem outside the court as it does not want the Sriracha factory stopped operating, it wants only to stop the processes that do harm to people. The judge gave Tran 90 days in order to change the situation and stop producing toxic gases that cause irritated eyes, headaches, and overall discomfort of the citizens (Richards).

From the perspective of company’s abilities and offered choices, continuation to work in Irwindale is the best solution. Therefore, some of the management principles that are usually applied in order to solve the problem will not be appropriate. Merger, acquisition, and divestment could not be accepted by the owner of Huy Fong Foods Inc. as these measures would signify the loss of control over business. Moreover, the situation is not caused by the financial or production difficulty, so, consequently, no acquisition, merger or divestment is needed. Risk control and information management, investment decision making, and pricing strategies are not appropriate for the situation as they do not address the essence of the problem and, therefore, will not be helpful. Compensation management would be needed if the company owner decided to close the factory without its relocation and had to compensate the losses raising the price on the production made by the factory in some other location. Internal re-organization could be used in order to enhance the productivity, but since it would not have helped solve the dispute between the company and the community, David Tran did not adhere to this strategy. The aspect that the company will surely have to address in the future is management of opportunities and threats arising from regulations and laws. Although the law did not make the company to stop working, the Irwindale community neglected it and created the situation that was hard to solve. Future assessment of regulation threats will be needed in order to avoid the recurrent problems of a similar character. Quality management is the approach that Tran chose as the most appropriate for the situation. Since the change of the key ingredient, red-hot Jalapeno peppers, would have substantially changed the taste of the sauce, the owners of the company did not take it as the option. If the recipe was changed, the admirers of the spicy substance would have refused to buy the product for it would lose its taste. Moreover, Tran reported of more than two dozen offers concerning the possible relocation all over the country, which would not have so serious consequences as the change of the recipe (Richards). For this reason, change of the peppers used to make the sauce would have detrimental effect. Instead of changing the production process, the owner of Huy Fong Foods Inc. decided to cooperate with the air-quality regulators in order to find the best solution for the situation (Associated Press). Tran installed stronger filters at the factory that would help, in his opinion, block the odors when they occurred again (in August, when the pepper-grinding season takes place) (Associated Press). The owner of the company made the thoughtful decision to adhere to the professional’s help so that the city regulators could not bother him without good reason for that. From a critical perspective, there could not be better solution for the problem found. If the owner relocated the factory, local restaurants, retailers, community, and, of course, the company itself would have incurred losses. Tran reported that if the factory was closed, he would have gone bankrupt (Associated Press). The producer of sauce could not neglect the petitions of the community as he would be convicted of the ignorance of court decisions. Therefore, changing the equipment – addressing the quality of production process – Tran achieved the most positive outcome. Having chosen the most appropriate principle of problem management strategies, the owner of Huy Fong Foods preserved his business, avoided relocation and consequential money loss. 

8. Conclusions

Huy Fong Foods Inc. is a profitable family business founded in 1980 by a Vietnamese refugee David Tran. The company produces three kinds of sauce. The most popular one became Sriracha hot sauce. For the last year, the company earned around $60 million, with revenue of 20% each year. When Tran relocated the Sriracha producing plant and the company’s headquarters to Irwindale and the factory started operation there, the problem that could stop the production of the sauce occurred. The citizens of Irwindale complained about unpleasant smell from the factory, which caused headache, watering eyes, cough and other symptoms. The court decision stated that Tran had 90 days to change the situation, otherwise the factory would stop operating. The owner of the company denied relocation as he had not worked for a long time in this place and relocation would have been loss-making. For this reason, Tran evaluated all managerial options and decided to change the quality of production. Change of sauce ingredients would have been unprofitable as well since the change of major component would have changed the taste of the sauce. Therefore, Tran adhered to the air-quality regulators and installed stronger filters so that odors could not affect the life of local residents. 

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Feb 7, 2019 in Business
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