On the day that the foundation of Craig Underwood’s business collapsed, he was on vacation—at the beach with his wife, daughters, and grandchildren in Hawaii.
It was November 2016, and the fourth-generation California farmer had just completed a perfect pepper harvest—another high point for a business, Underwood Ranches, that had grown exponentially over three decades on the strength of a single crop. As the sole supplier of the juicy red jalapeños for sriracha, Huy Fong Foods’ iconic fiery-red chili-garlic sauce, Underwood’s empire of peppers had spread from a 400-acre family farm in the 1980s to 3,000 acres across two counties outside Los Angeles.
Sriracha’s rise had by then become the stuff of business legend. That spicy, slightly sweet, good-on-everything sauce, in the instantly recognizable bottle with its white rooster emblem and bright green nozzle, was the brainchild of David Tran, who had first devised the recipe and sold the stuff in L.A. in 1980 as a Vietnamese refugee starting a new life for his family.
Tran’s business motto is “make product, and not profit,” but Huy Fong had become the No. 3 hot sauce brand in America—all as a private company, without selling even the smallest share to the country’s Big Food titans. At the time, Tran’s green-tipped bottles could be found in one in 10 American kitchens and on the International Space Station.
So the chili sauce maker switched up the deal, and then tried to poach from the chili grower. What a dumb move.
On the other hand, it’s a really bad idea to be locked into a single source for your raw materials. It sounds like Tran was trying to mitigate that risk in a fairly reasonable way. If he can buy and sell from other farmers, there’s a buffer if the OG farm can’t deliver. And he could also continue to use the OG farm as primary supplier, while selling off excess chilis to other producers.
All of this is why supply contracts and backup supply chain plans exist. Risk mitigation is normal. Like they said near the end of the article, businesses sometimes need to have an adult in the room.
Tran’s attempt to force Underwood out of their shared enterprise, while still dependent on his supply, was clearly a lapse in judgement. The results speak for themselves in this case.
I wonder if Tran and Underwood ever had a conversation about the precariousness of both of their positions - one having a single source for product, and the other having a single buyer? Was there an attempt to find a win-win solution? Or did Tran simply think he could leverage Underwood into competing with slave labor imports?