In 1947 Dave Pace spiced up America with Salsa and this turned into a 90 Billion Dollar category.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
[ECO Office Ad]
Dave Young:
Welcome back to the Empire Builders Podcast. I’m Dave Young here talking to Stephen Semple. And the listeners may not know this because we only release these every week or so, right?
Stephen Semple:
Mh-hmm.
Dave Young:
But we often record them one after the other. And we just got done recording the episode about Doritos and Tostitos. And now you’re telling me that we’re going to talk about dip, Pace Salsa.
Stephen Semple:
Pace Salsa. Yeah.
Dave Young:
So the picante sauce people.
Stephen Semple:
Correct. Correct. Absolutely correct.
Dave Young:
And that’s great with Doritos.
Stephen Semple:
I never thought about it being with Doritos.
Dave Young:
Really?
Stephen Semple:
Tostitos, I would, but not Doritos.
Dave Young:
How about both?
Stephen Semple:
Okay.
Dave Young:
I say you can dip a Dorito into anything. I’m in that camp. I’m firmly in the camp that anything dippable is-
Stephen Semple:
You’re all-inclusive in your attitude towards Doritos and dip. Very open-minded. Here’s the thing I’m going to say. If someone has not listened to the Doritos, Tostitos story, you really should go back and listen to it before listening to this one because there’s certain things that kind of come together in terms of what’s happening in the world.
Dave Young:
Like chips and dip.
Stephen Semple:
And these stories are kind of linked even though this story starts in 1947. Well, the Doritos story starts in the late ’50s. They still have kind of a bit of a shared history.
Dave Young:
These stories that are on a collision course, a deathening.
Stephen Semple:
They are. And this story’s also not just about pace salsa, but it’s really about the origin of the salsa in the United States as a category, which is a $90 billion category. And the business was started by David Pace in 1947 in San Antonio and was sold to Campbell Soup in 1995 for $1.1 billion.
Dave Young:
All right.
Stephen Semple:
So not a bad little payday.
Dave Young:
Not a bad deal.
Stephen Semple:
Yeah. So now David Pace was from Louisiana and he moved to Texas after World War II. He had been running a small food business processing sugar substitutes, which were popular both during the war and shortly after the war with rationing because of the sugar rationing. But as rationing was coming off, what he knew is there was going to be less and less of a need for these sugar substitutes. So he was looking for a new idea. And so we have to remember, it’s 1947, food’s kind of boring in the United States. It’s not diverse. It’s bland. It’s meat and potatoes. The condiment that was used to improve food was ketchup. That was the condiment to improve food, right? And Mexican food was not really a thing. About the only thing that people knew about Mexican food, it was spicy. Here’s the part that I came across that really surprised me the most.
In New York City, one of the most diverse cities in the world, and certainly the most diverse city in the United States, there was just one Mexican restaurant in the city and New York at the time.
Dave Young:
In the ’40s? City.
Stephen Semple:
In the late ’40s, ’47.
Dave Young:
Okay. Wow.
Stephen Semple:
There was only one. That was it. Now, you could get Mexican food in the South because let’s face it, 100 years previous, a lot of parts of the South were part of Mexico, right?
Dave Young:
That’s right.
Stephen Semple:
As we like to remind ourselves. So here he is in-
Dave Young:
Well, Tex-Mex started just spreading in.
Stephen Semple:
Yeah. So here he is in San Antonio. He was stationed in Texas during the war and he’d settled in San Antonio, but he had never had Mexican food because now he’s off the base living in San Antonio and he tries salsa for the first time. And he’s like, wow, this is great. And he decides he needs to bring it to the market. A couple of challenges he ran into. First is how to make it. There’s lots of recipes around. He wanted to make his own version to sell the non-Mexican, so he wanted to tone down the intense flavors. He also needed to be able to jar it so it had shelf life. Here’s one of the fun challenges he ran into. A couple of the recipes he worked with would ferment once put in a jar. Well, what happens in a jar when something ferments?
Dave Young:
Botulism?
Stephen Semple:
No, kaboom. They blow up.
Dave Young:
Kaboom. They blow up. Okay. Yeah.
Stephen Semple:
So exploding jars, exploding jars of salsas, not really the objective.
Dave Young:
That’s never a good look either.
Stephen Semple:
Not really. But he gets it figured out and he brands it as Pace Picante Sauce. So it was first of all, promote it as a sauce, not a dip. And he starts selling it locally. He advertises it in the newspapers, but again, not as a dip as a sauce, like a marinade, something you brush on meat before baking. That was how it was being positioned.
Dave Young:
Well, it’s still, that’s the label on the jar is Pace Picante Sauce.
Stephen Semple:
Yeah.
Dave Young:
I’ve always wondered about that. He did that so he didn’t have to… Well, go ahead.
Stephen Semple:
But that was just kind of how he thought about it. And so for over a decade, he works on building up a following in Texas. It was building slowly. He liked spicy food, but most people didn’t, because even though he took the spice down, it was still spicy. Now he hires his son-in-law, Kit Goldsbury, and Kit hates spicy food, like can’t stand it, but still thinks he can sell it. And Kit starts at the bottom working every job and works his way up. And there’s a point where Kit becomes more senior. And Pace is now in five states and is making some money. They’re having some success.
Dave Young:
Good.
Stephen Semple:
But Kit’s goal is he wants us to become coast to coast. He wants to turn this into a big thing. But here’s what he notices. It’s too hot for northerners, but northerners want flavor because they’re eating Doritos. They’re eating nacho Doritos and cheese Doritos. They’re eating those things. So it’s not like they don’t want flavor. They just don’t want the heat.
Dave Young:
Yeah.
Stephen Semple:
There’s a marker for something interesting, unique, and different, but to go national, he needs to mute the heat.
Dave Young:
Needs to call it mild.
Stephen Semple:
Right. And around this time, Tostitos takes off and which is being used for dipping and it’s a massive success. So he decides to lean into the dip angle because he saw what was going on with Tostitos and he said, “You know what? We need to make this as a dip, not as a sauce, but I still need to take down the heat.”
So he hires tasters to try all the jalapenos out there to find out which is the one that would work the best. Here’s the problem. Taster’s results were really inconsistent. He goes, “Okay, so I’ve still got to solve this heat problem.” So he hires a food scientist to engineer a heat-free jalapeno. Dr. Rasplicka, I think is how you pronounce his name, who basically created this measurement system for capsaicin, which is about how hot it is. And from this, they were able to figure out how to remove the heat because they were able to identify each one, able to identify the source of it and create this non-heat version of salsa.
Dave Young:
Okay.
Stephen Semple:
Now, you jump the gun on it a little bit, as you often do. So remember, while Americans didn’t want heat, they wanted something interesting. So of course they didn’t call it bland. What did they call it?
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Using Stories To Sell Ad]
Dave Young:
Let’s pick up our story where we left off and trust me you haven’t missed a thing.
Stephen Semple:
Well, Americans didn’t want heat. They wanted something interesting. So of course they didn’t call it bland. What did they call it?
Dave Young:
Mild. Well, they’ve got the three. They’ve got mild, medium, and hot.
Stephen Semple:
Right. And that’s exactly what they did. They had the other spice levels, but they didn’t go with bland. They went with mild.
Dave Young:
Yeah, yeah, yeah. This the Goldilocks rule, right?
Stephen Semple:
Yeah.
Dave Young:
Wow.
Stephen Semple:
And so therefore, and with mild, everyone can enjoy it. And then of course they offered the other spice levels and they market it as a dip. Very quickly, sales went from $3 million to over $50 million.
Dave Young:
I can imagine.
Stephen Semple:
So successful, supermarkets started placing salsa in the chip aisle because it was not in the chip aisle previously. In 1991, salsa passes ketchup as the number one condiment in the United States.
Dave Young:
Not till ’91.
Stephen Semple:
Not till ’91.
Dave Young:
Okay.
Stephen Semple:
1995, Campbell’s buys the business for over a billion dollars.
Dave Young:
All right.
Stephen Semple:
Now, I forget what year it was. I think it was ’92, but anyway, early ’90s, Campbell’s actually created a Heinz Salsa.
Dave Young:
Really?
Stephen Semple:
Yes. And it failed miserably.
Dave Young:
Sure.
Stephen Semple:
But if you think about it, we often bump in these situations where companies do these line extensions, right? Where it’s like, “Well, why not? It’s tomato. It’s a condiment. It’s all this other thing. We can do a Heinz Salsa.” Why wouldn’t a Heinz Salsa work? People love Heinz ketchup. They’ll love Heinz Salsa.” It bombed. It totally bombed. Like bombs so much to the degree that it only existed for about three years and they went, “You know what? Instead, we’ll spend $1.1 billion buying a competitor rather than trying to develop our own.”
Dave Young:
Heinz is what it is and you know what you’re getting.
Stephen Semple:
But how often do we see that whole line extension happen and it fails?
Dave Young:
Yeah.
Stephen Semple:
Right? Like Gerber’s wanting to make adult food.
Dave Young:
No.
Stephen Semple:
Doesn’t work. Heinz making salsa.
Dave Young:
Make adult food and call it something else.
Stephen Semple:
Coke understood this when they went into the energy drink market because it was not Coke energy drink. They knew that would fail. Coke understood that. They were like, “No, no. Coke’s a pop. It’s a soft drink. It’s not an energy drink. We’re going to have to do something completely different.” But it’s amazing how often businesses will make that mistake of, “Oh, well, we do this thing. Let’s also market ourselves this thing and do this line extension.” And it doesn’t work. It doesn’t work.
Dave Young:
I think there are just invisible boundaries that if you don’t know them and you try to cross them. And in this case, it’s the style of food, right? Heinz goes on certain things, but it doesn’t go on Mexican food. You don’t dump ketchup on Mexican food. You don’t dump mustard on Mexican food. And Heinz makes ketchup and mustard and relish.
Stephen Semple:
And pickles.
Dave Young:
Pickles and all of those things, but they’re definitely not things that you put on Mexican food.
Stephen Semple:
It’s interesting. I was having this conversation with Michael Torbet, one of our partners, because we’re dealing with a situation with a client, an existing client where we’re struggling with getting them to think about not doing a line extension. And I was sharing with him this whole story of Heinz and we were talking about Gerber and a bunch of other companies that tried to do line extension and have failed. And we got talking about ketchup. And I was saying to him, “Well, I think the reason why it didn’t work because ketchup is something that you put on hamburgers.” But I like how you put it. It’s not specifically about hamburgers, but the foods that you put ketchup on, because again, Heinz is successful in pickles and they’re successful in mustard, but there’s foods where pickles, mustard, and ketchup go together.
Dave Young:
Yeah.
Stephen Semple:
And none of those foods does salsa go on it. It’s a different food category that salsa goes on. So you could make salsa and you could probably make cheese and that would actually work. Where you think about it, ketchup and salsa from a manufacturing standpoint are closer than salsa and cheese.
Dave Young:
Yeah. Those are weird associations.
Stephen Semple:
In fact, those companies do make cheese. They make cheese with a little bit of jalapeno.
Dave Young:
Yeah, absolutely. They’re right there next to the picante sauce.
Stephen Semple:
But I loved how you expressed it, hidden barriers, but they exist. And if you cross those barriers, it doesn’t work.
Dave Young:
Yeah.
Stephen Semple:
Yeah. Very cool. I didn’t think about them as being hidden barriers. That’s an amazing observation.
Dave Young:
Like Rolex should never make a phone.
Stephen Semple:
Right.
Dave Young:
Right? Well, phones keep times like, yeah, but that’s not right. Anyway, that’s just an example. There’s just lanes.
Stephen Semple:
Right. But there’s a couple of luxury watch brands that tried to dip their toe into the smartwatch market and it didn’t work.
Dave Young:
Yeah.
Stephen Semple:
And Rolex was not one of them, but I can’t remember who did, but they did and it failed terribly, failed terribly. Part of the appeal to a Rolex is the handmade and craftsmanship and all this other stuff.
Dave Young:
Well, and I don’t know. I have an Apple Watch and I have an Apple Watch not so much so I can tell time, but so it can do some other things for me.
Stephen Semple:
Yes.
Dave Young:
It can notify me. I use the timer function all the time and I could just carry a stopwatch around my neck or some kind of timer. But I also noticed that Apple sells, you can buy really fancy, upgraded, shiny, gold, sparkly, diamond encrusted versions of Apple Watch cases. The thing still does the same thing, but I don’t know how popular that stuff is. I’m guessing it’s pretty niche.
Stephen Semple:
I’m going to guess it probably is. And again, it’s not a line extension. It’s an add-on to an Apple Watch. It’s not a different watch. It’s an add-on.
Dave Young:
I think the guy that’s buying a Patek Philippe… I don’t know.
Stephen Semple:
Philippe Patek? Yeah.
Dave Young:
Or even a Rolex.
Stephen Semple:
Were you? Yeah.
Dave Young:
You’re not buying it for the same reason you’re buying an Apple Watch of any sort. And you’re not going to be fooled by the glitz and glam of the accoutrement on an Apple Watch into thinking that you’re buying a fancy watch.
Stephen Semple:
Yeah.
Dave Young:
It’s still an Apple Watch.
Stephen Semple:
It’s still an Apple Watch. Yeah. It’s a different thing.
Dave Young:
Interesting. Yeah.
Stephen Semple:
Anyway.
Dave Young:
That’s a fascinating subject to just these invisible barriers.
Stephen Semple:
In a great book that covers this a little bit is the 22 by… Is it Al Ries and somebody?
Dave Young:
Trout and Ries, 22 Immutable Laws of Branding.
Stephen Semple:
Yeah. And one of the laws that they go through is basically don’t do line extension. And they’ve got some great stories in that book around it. And anybody interested in branding, it’s a great… I have it on my desk and it’s a bible I refer to because those 22 laws, yeah, they are like you break them at your peril. With all of Heinz power, it couldn’t extend that and instead gave up and spent a billion dollars buying a competitor.
Dave Young:
And probably didn’t rename it Heinz.
Stephen Semple:
They did not. They kept it as Pace. Yeah.
Dave Young:
And they learned their lesson.
Stephen Semple:
Yeah, exactly. Exactly.
Dave Young:
We’ve spent this time talking about Pace and just before this recording, we talked about Doritos, Tostitos. I’m getting kind of hungry. Are you getting hungry?
Stephen Semple:
Yeah. And of course we also talked a little bit about Taco Bell.
Dave Young:
Yeah. Yeah.
Stephen Semple:
As a sidebar. Yeah. A lot of food conversation here late in the afternoon.
Dave Young:
If people hear my tummy grumbling in the microphone, you know what’s going on. If we weren’t in different cities on the same continent, I’d suggest we go out and grab a bite somewhere, Stephen, but we’ll have to do that another time.
Stephen Semple:
We’ll have to do that another time. Exactly.
Dave Young:
I’ll bring the dip, you bring the chips.
Stephen Semple:
All right, you’re on.
Dave Young:
Thanks for bringing us the Pace story.
Stephen Semple:
All right. Thanks, David.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big, fat, juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire building session, you can do it at empirebuildingprogram.com.
POWERED BY BLUBRRY
