Whether in China or overseas, Lao Gan Ma is undoubtedly one of the most famous Chinese sauces. If you only talk about the chili sauce field, Lao Gan Ma’s popularity must be number one.
As a Chinese seasoning that has never focused on overseas markets, Lao Gan Ma(in Chinese this brand means your Godmother) has gained a good reputation overseas. It has made headlines in many English food blogs and has been bought and tried by many Youtuber.
In 2015, Glit.com also sold Lao Gan Ma hot sauce for two bottles of 11.95 USD, compared with 7.9 RMB ($1.11) in China. By 2020, you will still have to buy a bottle of Lao Gan Ma chili sauce on Amazon for $10, which is almost 10 times the price in China.
We have seen a lot of compliments or recipes about Lao Gan Ma Hot Sauce, and even entrepreneurial stories about its founder Tao Huabi. But what many foreign consumers do not know is that Lao Gan Ma’s market position in her country of origin, China, was once in jeopardy.
Since 2017, China’s hot chili sauce market has maintained a growth rate of more than 5% every year. But Lao Gan Ma’s sales were declining in 2017 and 2018. According to reports, Lao Gan Ma’s annual income reached 4.549 billion yuan in 2016, 4.447 billion yuan in 2017, and 4.389 billion yuan in 2018.
According to Euromonitor, Lao Gan Ma accounted for only 3.6% of China’s seasoning retail market in 2018, lower than Haitian Flavouring and Li Jinji.
Jiemian data show that Lao Gan Ma took the lead in pushing products to occupy the top sales list of JD.com Mall, and several other new hot sauces are lagging behind their competitors. On Tmall, another Chinese e-commerce platform, the Lao Gan Ma series of hot sauces did not make it into the top 10.
The fact that Lao Gan Ma stepped down from the altar has something to do with the changes the company has made in the past few years.
The taste of Lao Gan Ma has changed
Among the many analyses of Lao Gan Ma’s loss of the Chinese market, one of the most frequently mentioned is that Lao Gan Ma’s taste has changed.
As a hot sauce, chili pepper is the most important raw material for Lao Gan Ma. But after 2011, the chili they used changed fundamentally.
In 2015, Business(a Chinese Magazine) published a report about Lao Gan Ma replacing Guizhou chili with Henan chili. According to the report, the company used Guizhou chili at the beginning of its business, and began to mix Guizhou chili with Henan chili with the sauce get popular.
In a video titled “Discovery made in Guizhou” filmed by Guizhou TV Station, after the interviewer entered the Lao Gan Ma factory, the three kinds of chili in front of the staff were “Zunla-1” from Zunyi of Guizhou province, “Sanying chili” from Henan and “Daban chili” from Xinjiang.
This statement was also confirmed in a report in Henan Luohe Daily, which quoted a pepper wholesaler as saying: “Lao Gan Ma chili sauce comes to their town to pick up goods every year.”
It is even rumored that until 2011, Lao Gan Ma stopped using Guizhou chili peppers and completely used Henan chili and Xinjiang chili.
Zunyi of Guizhou Province is the best producer of chili in China, and the chili produced here are also the most expensive chili in the Chinese chili market. Different from chili peppers in other regions, chili in Zunyi are large in size, full in body and contain more water. This difference makes Guizhou chili more suitable for making hot sauce, which can give the sauce an aroma other than the spicy flavor. In contrast, chili peppers from other regions are more suitable for direct cooking or making chili powder.
After changing chili peppers, or at least mixing some Henan chili peppers, Lao Gan Ma’s taste changed. This change in detail will not attract consumers’ attention at first, but over time, consumers will find that Lao Gan Ma no longer seems to have fragrance, so they will no longer be addicted to it.
In 2015, Zhu Danpeng, an analyst of China’s food industry, said in an interview: “many friends say that the taste of Lao Gan Ma is different from what it used to be.” There are also many such comments on Chinese social media.
Why did Lao Gan Ma change chili?
Since Lao Gan Ma is not a listed company, there is relatively little information on why it changed the formula.
One of the common theories is that Henan chili is cheaper than Guizhou chili. According to the 2015’s price, the price of hot pepper in Guizhou is about 12-13 yuan per kilogram, while that in Henan is only 7 yuan. In order to make hot sauce, Lao Gan Ma buys nearly 40,000 tons of chili peppers every year. This means that the switching of pepper varieties will save it about 240 million yuan in cost.
You are reading Panda!Yoo
A blog about modern Chinese culture and consumption trends. If you are interested in Chinese food, drinks, games, movies, novels, dramas, please follow us.
But this may oversimplify the problem. Apart from the fact that Guizhou pepper is more expensive than Henan pepper, its price volatility is also greater than that of Henan pepper. The average annual rainfall in Guizhou Province is about 1200 mm, while that in Henan Province is about 700mm. Rainfall will significantly affect the yield of hot pepper, which affects the price of hot pepper. In 2019, for example, it was reported that the price of chili peppers rose by about 50% due to a sharp increase in rainfall in Guizhou that year.
This kind of price fluctuation makes Lao Gan Ma and local pepper farmers in Guizhou unwilling to cooperate with each other.
From the beginning of its launch, Lao Gan Ma’s retail price has been around 8 to 11 yuan, which is only due to the difference between retail and logistics in different regions, and has never been raised, which makes Lao Gan Ma have certain requirements for the price stability of raw materials.
In a report, a local chili businessman in Zunyi said he was not willing to sell chili to Lao Gan Ma, who not only adopted the purchase policy of “goods before money”, but also stipulated in the contract that the agreement price would not change with the fluctuation of the market price. This means that if prices rise as a result of reduced production of chili peppers, farmers who grow chili peppers will not get extra money.
But the price is only a superficial reason for replacing chili peppers. After all, for a hot sauce company, the decision to change chili peppers is tantamount to Coca-Cola announcing a change in formula.
In some analyses, Tao Huabi, the founder of Lao Gan Ma, the woman printed on her bottle, withdrew from the operation of Lao Gan Ma’s company, which may be the main reason for the change in the company.
Lao Gan Ma Company is a typical family business, and its initial ownership structure is only founder Tao Huabi and her two sons Li Hui and Li Guishan. In 2014, the youngest son Li Hui withdrew, and Tao Huabi’s stake will reach 1%. By 2017, Tao Huabi was no longer a shareholder of the company.
Try to be reborn
In early 2020, Lao Gan Ma released her 2019 income figures. According to the data, Lao Gan Ma’s sales reached 50.23 in 2019, the first increase after the brand’s sales fell for two years in a row.
According to the company’s official, the company’s founder, Tao Huabi, has returned to management to direct the front-line business, and the company has begun to re-purchase Guizhou chili peppers. This is considered to be an important factor in the rebound in sales.
In 2019, the company is trying to launch a new flavor of hot sauce: tomato chili sauce.
Unlike Heng’s Mexican spicy tomato sauce, the sauce contains more tomato pulp and is a semisolid sauce like the classic Lao Gan Mama, with the main ingredients of tomato, pepper, garlic, salt and monosodium glutamate. This hot sauce has less oil and uses garlic instead of Douchi to set off the aroma of chili and tomato. The overall taste is lighter and has a sweet and sour taste.
Lao Gan Ma tomato chili sauce is considered a new attempt by the brand for young people, because the traditional hot sauce is being abandoned by young people in recent years. Although young people in China like to be spicy more than ever, it is generally believed that traditional hot sauces are unhealthy because they use too much oil and salt.
On the other hand, due to the expansion of China’s condiment market, more and more brands are pouring into the market. At present, there is full competition in China’s seasoning market. The top five seasoning companies account for only 20.3% of the market, which means that Lao Gan Ma will not be able to gain the same market share as in the past, even if she has achieved faster-than-expected growth.
In recent years, some emerging hot sauce brands are becoming popular among young people in China. In addition to the brand-new flavor, they tend to adopt a more up-to-date marketing style than Lao Gan Ma.
For example, Fanye, the chili sauce brand founded by Chinese singer Lin Yilun in 2014, has its own sales because its founder is a well-known Chinese personality. Another popular brand, Hubang Hot Sauce, sponsors many well-known online TV series in China, which are often referred to as “meal dramas” in China. One of the main scenes for people to watch online TV series is to watch them on their mobile phones during lunch on weekdays.
More importantly, these new hot sauce brands have more elaborate packaging and more adaptable product strategies than Lao Gan Ma, enabling them to sell to young people through convenience stores and takeout channels. For example, Hubang hot sauce has launched bags of hot sauce from the beginning, each bag is only 15g, just enough to meet the needs of a meal, and many food takeout services offer the option of buying more Hubang hot sauce. The chili sauce sold in bags usually costs only 1.5 yuan (about 21 cents), but if you calculate its unit price, you will find that its price is 2 to 3 times that of bottled chili sauce, which will generate more profits for the company.
Overall, Tao Huabi returned to the management of Lao Gan Ma, so that the company began to show signs of recovery. But it remains a challenge for a 73-year-old to cope with the changes in the market.