In the United States, if you think of sriracha sauce, you immediately think of Huy Fong’s Sriracha Sauce with the rooster on the bottle.
Unfortunately, customers in the U.S. have seen a shortage of Huy Fong’s popular sauce for the last three years. And it may continue.
Part of the problem comes from droughts impacting the production of the red jalapeño peppers that go into the sauce. However, there is more to the story.
For over 28 years, Underwood Farms provided the peppers for Huy Fong’s Sriracha Sauce, until a legal battle in 2017 ensued over an overpayment, and ended their relationship (see this OM in the News post for more).
One consideration in ending the relationship with Underwood Farms was Huy Fong’s belief the peppers could be sourced for less money on the open market.
Unfortunately, this change of suppliers coupled with the drought resulted in a pepper shortage for Huy Fong’s Sriracha sauce.
Interestingly, Underwood Farms has a reliable source of water for irrigation, and wasn’t substantially impacted by the drought. If Huy Fong had stayed with Underwood Farms, its shortage may not have occurred.
Furthermore, Underwood Farms, having an excess of peppers, decided to make its own brand of sauces, including a sriracha sauce—thus creating a new competitor for Huy Fong.
This post is based on the Go Banking Rates article, These 4 Items Are in Short Supply — What It Means for Your Wallet, by Andrew Lisa, October 13, 2023; the CNBC article, Huy Fong Foods’ Sriracha Shortage Has Been Ongoing for Three Years. Here’s Why It Could Have Been Prevented, by Ryan Baker, August 19, 2023; and the YouTube video in the spotlight. Image source: flashgun/iStock/Getty Images
1. What did Huy Fong Foods lose when the company ended the relationship with Underwood Farms?
Guidance: Huy Fong ended the supplier relationship with Underwood Farms over a dispute, and a search for cheaper ingredients in the open market. Before the drought, the open market strategy may have resulted in lower costs. With the drought, Huy Fong lost the reliability of its pepper supply, which has resulted in shortages of sriracha sauce for over three years. The company may have lost other benefits of a long-term supplier relationship.
2. What benefits are gained by supplier partnerships?
Guidance: Potential benefits gained include higher quality, increased delivery speed and reliability, lower inventories, lower costs, higher profits, and improved operations. The dissolution of Huey Fong’s relationship with Underwood Farms illustrates the added risk to supply of not maintaining that relationship.