Watch Out, Tabasco.

Mexico-made Cholula aims to become the hot sauce of choice north of the border.

FOR THREE GENERATIONS, A FAMILY IN Chapala, an hour's drive from Guadalajara in western Mexico, quietly produced a hot sauce called Cholula. They named it after the oldest inhabited city in the country that is also famous for its 365 churches (the name was derived from chollollan, meaning "the place of retreat"). Cholula hot sauce was primarily used as an ingredient in Sangrita, a bloody red mixture of orange, tomato and lime juices, onion and hot sauce used by traditional tequila drinkers as a chaser.

Executives from Jose Cuervo heard about the hot sauce and began inquiring about it. The Mexico City-based tequila company ended up buying the license for Cholula more than 10 years ago and began marketing it in Mexico. In 1989, the company introduced the hot sauce stateside, in Austin, Texas. By the early 1990s, Cholula started finding its way into specialty food shops and on tabletops in restaurants across the southwestern United States, from taco stands to fine dining rooms.

"It's the best out there; we buy it by the half gallon," says Steve Kraft, who's been using it in recipes at his acclaimed San Antonio burrito shop, Habanero's Grill, since it opened three years ago (his specialty: onions grilled in Cholula). "It's got the right level of heat and flavor. Out of the 20 hot sauces we have in our kitchen, it's the smoothest."

Spicy coupons. Two years ago, Cuervo began to really push its fiery sauce into the United States. In the spring of 1998, Jose Cuervo hired Charlie Watkins, a wellknown Houston chef and co-owner of Sierra Grill, as Cholula's spokesperson. The company sent him on a 12-U.S. city tour to cook up Cholula-laced dishes for food editors and TV talk shows. It began running advertisements in trade magazines and coupons in newspaper circulars, calling Cholula "the perfect complement." It even offered a US$1 booklet featuring 22 recipes that use Cholula, from "Tequila Filet Saute'" to a drink called "The Mexican Standoff"--a mixture of one cup ice, 1 1/2 ounces of Cuervo Especial, one teaspoon Cholula and four ounces of pink grapefruit juice.

As a result of those efforts, Cholula has taken off. From Florida to Colorado to California, the hot sauce is being shaken over everything from tacos to eggs to pasta Many noted chefs use it as their secret ingredient, from Hans Rocken-wagner, who sprinkles it on Spanish paella at his eponymous restaurant in Santa Monica, California, to David Wooley, who folds it into his "Wrangler's Meatloaf" at the Antero Grill in Salida, Colorado, to Tony Sindaco, who includes it in his mango salsa at the Sunfish Grill in Pompano Beach, Florida.

With the growing presence of Mexican-Americans in the United States, spicy food is hot. Sales of hot sauce continue to grow, to $1.7 billion per year in both restaurant and retail sales. "It's gone from being a specialty item to a common supermarket item," says Robb Walsh, editor in chief of Fort Worth-based Chili Pepper magazine.

Cholula is riding that wave. According to Information Resources Inc., a market research firm in Chicago, Cholula is the eighth-ranked hot sauce in the U.S. in terms of retail sales, with 2.7%, or $3 million, of the $111 million market in the 12 months ending July 18. While it obviously has a long way to go to reach granddaddy Tabasco, which controls 23.2% of the market with $26 million in sales, Cholula is growing fast: The brand showed sales growth of 27.6% in the period, versus 8% for Tabasco. (A spokesman for Tabasco, which is produced on Avery Island, Louisiana, by the McIlhenny Co., wouldn't comment on Cholula's inroads, noting that it is still far down the list in terms of market share.)

Allison Parker, national food service sales director at Jose Cuervo International in San Antonio, says the company has been focusing its marketing efforts on the food service business, Indeed, it's become the number-one bot sauce sold through distributors in the United States. (Tabasco has its own distribution system). As far as consumers, it's been pretty much word of mouth. "Our marketing is still very grass roots," she says. "We've really built the brand case by case."

What's in Cholula that makes it so special? Unlike Tabasco, which is made with Tabasco peppers, Cholula is made with piquin peppers, which are smaller, have softer skins and exude a more delicate flavor. Piquin peppers are also not as hot: Tabasco peppers rank near the top of the scale in terms of spiciness--30,000 to 50,000 heat units (HU's) on the Scoville scale, which was developed by Wilbur Scoville in 1912 as a test to measure the hotness of different peppers. Piqufns create only 3,600 HU's.

Houston chef and Cholula pitchman Watkins says the difference is also in the mix of ingredients Cholula uses. Tabasco ages mashed peppers and salt in white oak barrels, then blends the two with vinegar, which he thinks dominates the taste. "Cholula is better than Tabasco, because you taste the peppers, not the vinegar and wood:' he says.

Cholula's packaging is also appealing. It comes in tiny, clear glass bottle with an illustration of a smiling Mexican woman on a rustic-looking orange label. But what has fascinated most is its wooden cap, which screws tightly into the top of the bottle. It's become something of a totem: Members of the California Carving Guild hold annual contests in which woodworkers carve images into the caps.

Besides pointing out its distinctive packaging, promoters like to talk up Cholula's health benefits. Studies have shown that capsaicin, the compound that makes chilies hot, stimulates the glands in the mouth, throat and stomach to start producing water fluids, which flush out bacteria. Capsaicin has also been shown to trigger the brain to release the body's natural painkillers, endorphins, creating a sense of euphoria. Some have even found chili peppers effective in treating "la cruda," otherwise known as a hangover, by stimulating the need to drink fluids. To play up these uses, Cholula has developed recipes for "Cholula Chicken Soup" and an orange juice, honey and Cholula drink that it's circulating on its website (www.cholula.com).

Cholula has had less luck with brand extensions. Last year, it tested a Cholula picante sauce in Denver. But the competition proved fierce, so it pulled it from the market. It's now trying co-branding, teaming up with Irvine, California-based Classic Foods Inc. to market a Cholula-flavored potato chip under the Kettle brand. The perfect complement to a shot of Jose Cuervo tequila?