China Consumer

Spicing up sales

What led to Laoganma’s first TV commercial?

Laoganma-w

China’s most famous chilli sauce

Consumer products tend to bank on publicity. But not Sriracha. For 40 years, the chilli-garlic paste’s maker Huy Fong has never paid a penny for advertising. And yet the company churns out 12,000 bottles per hour, with revenues reaching $154 million last year. Its cult following has spawned a vast array of souvenirs including bags, magnets, mugs and even tattoos. All feature a rooster, which is Huy Fong’s trademark. It also happens to be the Chinese zodiac sign of its founder David Tran, a Chinese-Vietnamese immigrant who started selling hot sauces in Los Angeles’ Chinatown in 1980 from his Chevy van.

In many ways, Tran’s corporate doppelgänger is Tao Huabi, who established China’s best-known chilli sauce Laoganma – literally “old and dry granny” – in 1997 (see WiC143). Like Tran, Tao is in her seventies now and she has also steered clear of all forms of advertising – until last month, when the company released a commercial for a marketing campaign on Alibaba’s group-buying platform Ju Huasuan.

Against an upbeat country song, the two-minute TV ad is dominated by a short-haired lady in a black dress and white apron, apparently impersonating Tao in her youth. The first half of the ad follows how a boy and girl – who both enjoy adding Laoganma sauce to their food (including to durians) – move up the career ladder and become lovebirds. The latter half showcases the popularity of Laoganma among foreigners. It ends with the lady in black leading a group of people in dancing and twisting their wrists as if opening a jar of Laoganma.

The TV ad immediately became one of the most searched topics on weibo, partly because many viewers found its old-school style off-putting. More significantly, it is Laoganma’s unusual bet on advertising that is raising eyebrows. For some observers, it signifies the brand’s desperation to defend its market share in China’s Rmb32 billion ($4.49 billion) chilli paste market.

Since transferring her controlling shareholding to her two sons in 2014, Tao has washed her hands of the empire she built. Her retirement, however, also opened the company to changes, including some of the ingredients used in her successful recipe. Instead of sticking to Guizhou chilli, Laoganma has switched to the much cheaper Henan chilli to maintain its gross profit margin, according to a report by China Economic Weekly in August.

“Since the beginning of this year, prices of Henan chillies have been rising, and yet they are still lower than Guizhou chillies by Rmb2-3 per 500 grams. The difference between the two chillies was as big as Rmb10 per 500 grams at one point in the past year,” an insider told the state-owned magazine, suggesting that is how the Guiyang-based company has kept its selling prices stable at around Rmb12 a jar over the years.

Some consumers, however, feel that the change in chilli sourcing has altered Laoganma’s flavour. While 73% of the respondents to a recent survey by Beijing Business Today still regard Laoganma positively, 22% think that the brand’s products do not taste as good as before. That perception is dampening the storied brand’s competitiveness in an increasingly crowded market, targeted not only by traditional condiment brands such as Lee Kum Kee from Hong Kong, but also entertainment stars.

Lin Yilun, a popular singer and TV host, for instance, launched his own brand Fanye Chilli in 2014 and started selling it on e-commerce platforms in 2016. He managed to generate revenues of over Rmb3 million within 12 hours through marketing his products (priced between Rmb26-39) to middle-income groups through a live-streaming platform (for more on this sales technique see WiC448). Its success helped the company attract Rmb83 million in financing, giving it a valuation of Rmb260 million, according to Sina.com.

Lin and other newer players are making inroads into China’s chilli market. That could be what’s worrying Tao’s sons. After all, if 22% of Laoganma’s customers are put off by the newer taste, they might consider switching – that equates to around Rmb990 million-worth of chilli sales that Fanye and other brands could hope to capture.

Particularly if Laoganma’s TV commercials don’t improve…


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