There’s a saying that there is a bottle of Laoganma in every household in China. So many people grew up on the hot sauce that in 2014 when the son of founder Tao Bihua decided to replace Guizhou peppers with cheaper ingredients from Henan, it caused an uproar with many consumers complaining that the chilli sauce tasted different.
Tao, now 73, quickly took the reins back from her son and reverted to her old recipe to pacify her loyal customers.
China’s “national goddess” – a term of endearment bestowed on the business tycoon – will once again have to see if she can convince her customers to stay with her as her the company raises prices for its hot sauce. Jiemian reported that Laoganma has quietly lifted the wholesale prices for all its products by between 6% to 10%. It won’t be long before the price increases are reflected on supermarket shelves.
Laoganma explains in a notice that the “price adjustment” is the result of inflationary pressures from the increases in the cost of raw materials, labour and freight, which “has had a serious impact on the production and stocking of some of the company’s products”.
The price increase is in line with expectations, given Laoganma has been operating in the low-end segment for many years. “Most consumers can hardly recall when was the last price increase by Laoganma,” Beijing News noted, adding that most of its popular products have been selling between Rmb8 to Rmb15 a bottle since it was founded in 1996. However, it also means that Laoganma’s sales margins are now under considerably more pressure from the higher costs it faces for dried chilli and cooking oil, which have risen in the past year.
Laoganma, which controls 20% of China’s hot sauce market, is hardly the only condiment to be raising prices. Late last year, the maker of China’s best-selling brand of soy sauce Foshan Haitian Flavouring and Food also grabbed headlines for raising prices on its range of products by as much as 7%.
Laoganma also needs to find ways to compete against new entrants in the hot sauce market. Since last year, a wave of hot sauce makers have piled into the segment, putting enormous pressure on Laoganma. There is Hubang, which specialises in meat-based hot sauce; Chuan Wa Zi, is another newly popular brand that sells Sichuan-style hot sauce.
In fact, Caijing reckons that there are over 5,000 producers of hot sauce in China.
At the other end of the market there are also more expensive offerings from internet influencers such as Li Ziqi. At Rmb67 a jar, her sauce contains small chunks of beef and plenty of chilli and garlic. “Even though it is much more expensive, the packaging is more pleasing to the eye, which makes you want to buy it again and again,” a fan of Li Ziqi’s chilli sauce wrote online.
Noting the intensifying competition, Laoganma has also broken with a tradition of never advertising. In 2019, Laoganma made its first commercial and the following year, it launched a promotion with Taobao, printing cheeky love messages inside the caps of the chilli sauce.
The company has diversified into new products such as tomato chilli sauce and hotpot soup base to widen its reach. These attempts have also allowed Laoganma to maintain its growth momentum. In 2019, Laoganma achieved sales revenue of Rmb5 billion, a year-on-year increase of 14%. In 2020, Laoganma’s sales reached Rmb5.3 billion.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.