Feuding over the world’s best hot sauce
The red Sriracha hot chili sauce bottle is recognizable around the world. With the proud white rooster as its emblem, the spicy-sweet sauce was the product of the decades-long friendship between Vietnamese refugee David Tran, 79, who migrated to the US in the 1970s, and California farmer Craig Underwood, 82, who since the late 1980s had been Tran’s exclusive supplier of jalapeño peppers.
Due to the high quality of Underwood’s peppers and the winning formula of Tran’s sauce, Sriracha catapulted both parties to wealth and fame. Underwood’s 400-acre family farm grew to encompass 3,000 acres in Ventura County, California, which increased pepper yield while reducing other crops, while Tran presided over a 600,000 square-foot state-of-the-art chili sauce plant in Irwindale.
The two men and their families became close friends, and discussed succession in their respective businesses. In 2016, they came to their usual verbal handshake agreement—with no written contract—over the payment of the crop for the next season. But in the days that followed, squabbles over the payment occurred, severing the friendship. The two patriarchs remain enemies to this day.
“The schism turned out to be even more catastrophic than either company could have imagined,” says reporter Indrani Sen in Fortune Magazine. “It left Tran without the peppers he needed to meet the ever-growing demand for his sriracha. Since he lost Underwood’s chilies, his massive factory … has operated sporadically, at a fraction of its capacity. For the first year after the split, [his company] got by on stock-piled mash and Mexican chilies … But supply has often been spotty since then: In the first half of 2023, [he] had no chilies at all.”
It was as bad, or even worse, for Underwood, who “faced financial ruin,” says Sen. “The vast swaths of land that he had purchased or leased to grow jalapeños could not be planted without a buyer. He was locked into 25-year leases on much of the land he had expanded into, and he did not have cash on hand to pay his own suppliers … Both businesses lost millions.”
Lawsuits pinged back and forth, while hurt feelings festered. Sriracha lovers spun scenarios online, even as both men gave Sen contrasting accounts of what actually happened. A few facts: “To reassure [Underwood] that he wouldn’t be financially wiped out if one year’s pepper crop failed, [both men] agreed in 2008 to switch to a system of acreage instead of volume, with [Tran] assuming the risk by prepaying at the beginning of the growing season to cover the costs of seeds, equipment and labor. Working this way, the two … kept ramping up yields and production, to a height of 100 million pounds of peppers in 2015.
“That was the year that trust between the two … began to erode. Tran started a separate company … to buy and sell chili peppers. Underwood didn’t want to work with [this company] because he feared it wouldn’t have the assets to guarantee payments. To make matters worse, Underwood says, Tran … made several failed attempts to hire his COO to work for him.”
On that fateful day in 2016, Underwood’s COO went to Tran to look at equipment and then fought over the price for the next season’s crop, among many other arguments.
“The row raged on and on,” says Sen. “Things were said that could not be taken back. And by the time [he] left a few hours later, a 28-year business relationship was effectively over.”
The winner? Food behemoth Tabasco, which became the top sriracha brand in the US in 2023. The losers? Foodies who stockpiled the original sauce, fearing copycats, which thrived in its wake. And of course, the two founders.
This feud might have been averted, say business experts, if the founders turned to arbitrators (rather than lawyers), and placed professionals on the board of their companies. While the founders had passion and perseverance, “the skills and disposition necessary to make a startup a success are quite different from the competencies that people running large companies need.” Level-headed advisers might have saved the two proud patriarchs from disaster.
Queena N. Lee-Chua is on the Board of Directors of Ateneo’s Family Business Center. Get her print book “All in the Family Business” at Lazada or Shopee, or e-book at Amazon, Google Play, Apple iBooks. Contact the author at blessbook.chua@gmail.com.
