Vertically Integrated Companies

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yochannontzvi

For small hot sauce or spicy food companies is vertical integration lucrative? When I see videos of people growing 2400+ pods of Dorset Naga, I tend to think anyone with even a relatively small plot of land and some experience growing could effectively cut out the necessity to contract a grower. Obviously it depends on how hot your sauce is going to be and how many peppers you use per unit, but, it still seemed kind of like a more viable idea to just grow yourself unless you're moving tons of units.
 
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It all depends on how much time you have to spend on your sauce business and how big you want to go. 
 
Red Hawk Peppers in PA grows a lot of their own peppers to use in their sauces that they make in the community kitchen and sell at markets and festivals and online.  Lucky Dog contracts for peppers, uses a co-packer to make the sauces and sells, sells, sells at 11 markets in the summer and 6 markets in the winter, in addition to store distribution and online sales. 
 
I buy peppers from growers, make the sauces myself and sell locally and online.
 
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Well, you buy your chiles as opposed to growing them yourself. That's what I was meaning. ☺ and if you're not the terminator, at least the energizer bunny...keeps going and going....,.
 
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:rofl:
Correct I think most vertically integrated hot sauce companies are farms that started making hot sauce, not the other way around. As a hot sauce maker without a large piece of land it would be an expensive endeavor for me to launch a pepper farm business to grow the peppers to sustain my hot sauce production

There also limiting factors with vertical integration. One would be more limited in terms of the peppers mom could use, and one would be more heavily impacted by seasonality

And less you had an apple orchard so that you could produce your own cider vinegar, salt dome or access to a salt flat so that you could produce your own salts you it' and less you had an apple orchard so that you could produce your own cider vinegar, salt dome or access to a salt flat so that you could produce your own salts you woJLS still have to bring in a large percentage of your product from the outside.

I'm not saying it can't be done, but unless you have the land & the farm already it seems like the juice would not be worth the squeeze.
 
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And  GREAT small batch(s) you are making, RTF!  You actually have a couple extra notches in the belt for growing your own peppers, doing your own processing, doing your own marketing.  I'm not up on all of the sauce makers in the market right now, but I'm pretty sure you are on of the VERY few who have that full vertical integration. 
 
Processors /growers/sellers have to make that decision pretty early on in the business endeavor.  You can try to do it all, and that does work like REDTAIL does, or a person can decide what they are good at and stick to that.
 
farmer, chile grower, sauce maker, marketer, FrontMan, there's lots of jobs to be filled.
 
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This is a really interesting thread.
 
I see two sides;
 
1) The Henry Ford model where you buy rubber tree plantations in Brazil (auto industry, of course).  You have complete control but, switching to peppers, you're in the agriculture biz.  Do you want to acquire land to be a serious player?
 
vs.
 
2) "Out-sourcing", which is more 21st century.  It might be cheaper to outsource, without sacrificing quality.  
 
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Dr Pacheco said:
This is a really interesting thread.
 
I see two sides;
 
1) The Henry Ford model where you buy rubber tree plantations in Brazil (auto industry, of course).  You have complete control but, switching to peppers, you're in the agriculture biz.  Do you want to acquire land to be a serious player?
 
vs.
 
2) "Out-sourcing", which is more 21st century.  It might be cheaper to outsource, without sacrificing quality.  
Click to expand...
 
Kinda...I think context has a lot to do with it. 
 
Using myself as an example...I was an ag-hort major in college. I believe I'm pretty capable of growing hot peppers on a slice of land. But I (sadly) don't have a slice of land. And land in CA is expensive as hell.
 
So in that context, it wouldn't be worth my purchasing a slice of land to grow ingredients to make sauce in order to start a sauce company. 
 
And even if I had the money for that I'd probably be better off buying a kitchen instead, with a nice production line. 
 
However, IF I had a little slice of land to farm, it would only make sense to grow peppers, garlic, onions, etc to make sauce. The volume would likely be different, but my income wouldn't be solely tied to the sauce since I'd also be selling produce, dried pepper powders, and all the other possible byproducts of my farming endeavors. 
 
But since I don't, it makes more sense for me to use a copacker, or "outsource". It's probably not cheaper though - after all, the copacker has to make a buck too, or they wouldn't be in business. But it's potentially more scale-able, and certainly less overhead/investment than building a production line in a commercial kitchen and dealing with licensing, insurance, staff, etc.
 
So yeah - seems like if you're a farmer, you can start making hot sauce easier than if you're a hot sauce maker and you want to start farming. 
;)
 
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Lucky Dog Hot Sauce said:
 
 
Using myself as an example...I was an ag-hort major in college. I believe I'm pretty capable of growing hot peppers on a slice of land. But I (sadly) don't have a slice of land. And land in CA is expensive as hell.
 
So in that context, it wouldn't be worth my purchasing a slice of land to grow ingredients to make sauce in order to start a sauce company. 
 
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That's sort of the dilemma with a lot of places.  Have you ever looked into urban farming? I've seen some brilliant things done on roof tops and unused courtyards or alleyways. Here in Jerusalem everything is apartment living. I'm unaware of there being more than 5 actual houses in the city... I'm sure there are, I just haven't seen them. So, what most the apartment buildings have here is sort of a "front yard" type of thing. Since nobody actually does anything with them, since they're all from Eastern European and Arab countries where gardening is foreign to them (or from New York), they're essentially these unkempt patches of grass, dirt, and parasitic trees that only devalue the real estate here. My guess is, were we to clear out one of those yards, we could probably get the whole thing for free. They don't do anything with them. Point being, if you look for things like that, where people don't use their land, you can often find things for free or super cheap.
 
Roof rentals are viable, too. But, there's too much liability imo to make it worth while unless you find a parking garage with an unused top floor. The questions is whether or not is lucrative to take this approach when you can just contract someone else to do it who's already set up.
 
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yochannontzvi said:
That's sort of the dilemma with a lot of places.  Have you ever looked into urban farming? I've seen some brilliant things done on roof tops and unused courtyards or alleyways. Here in Jerusalem everything is apartment living. I'm unaware of there being more than 5 actual houses in the city... I'm sure there are, I just haven't seen them. So, what most the apartment buildings have here is sort of a "front yard" type of thing. Since nobody actually does anything with them, since they're all from Eastern European and Arab countries where gardening is foreign to them (or from New York), they're essentially these unkempt patches of grass, dirt, and parasitic trees that only devalue the real estate here. My guess is, were we to clear out one of those yards, we could probably get the whole thing for free. They don't do anything with them. Point being, if you look for things like that, where people don't use their land, you can often find things for free or super cheap.
 
Roof rentals are viable, too. But, there's too much liability imo to make it worth while unless you find a parking garage with an unused top floor. The questions is whether or not is lucrative to take this approach when you can just contract someone else to do it who's already set up.
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I work 7 days a week, 12+ hours a day trying to make it with one business...I doubt I'd have time for another.

"Free" is a relative term. Sort of like getting a "free" puppy that then needs time, food, shots, toys, bedding, crate, etc.

Time isn't free. Material costs aren't free. Everything from seed to equipment to labor to fretizer to packaging materials, etc.

So yeah - I understand the concept you're getting at, but again - instead of starting/running one business, I'd be starting/running 2. I barely have time for the 1.
 
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