TEQUILA, BABY

Nature abhors a vacuum — and so, apparently, does the spirits business, where suppliers rush to fill in the gaps between what consumers want and what is already on the market. Case in point: tequila.

Like bourbons, Scotches, cognacs and vodkas, tequila suppliers have been marketing an increasing number of super- and ultrapremium tequilas, benefiting from the American consumer’s move to upscale spirits with cachet and a story to tell. At the same time, the premium and popular brands, chiefly Jose Cuervo, continue to power the tequila engine forward. Once again, 1998 sales were strong, with preliminary results showing the tequila category growing 10.1%, to 6.6 million 9-liter cases, according to the 1999 Adams Handbook Advance.

499teq2The category powerhouse remains Jose Cuervo, which increased sales volume in 1998 by 10.2% to just under 3 million 9liter cases. Other top tequila brands also saw growth: Sauza (up 45.1%), Montezuma (up 5.3%), Pepe Lopez (up 23.2%), Giro (up 7.6%) and Juarez (up 7.1%).

New tequila introductions seem to be happening monthly, with one supplier noting that about two dozen new tequilas appeared on the market in 1998. In addition, more tequilas are boasting of high quality, craft-like aging, new flavors, more sophisticated packaging and slick advertising and promotional support. Like their counterparts in those other spirits categories, tequila marketers are sparing no effort in educating drinkers about the history, quality and variety that can be theirs.

“The high end is exploding,” declared Kathleen DiBenedetto, director of superpremium brands for Jim Beam Brands Co., which markets a trio of tequilas: Chinaco, El Tesoro, and its newest, Paradiso. “In general, all the high-end spirits are growing, but I think what’s different in tequila is that even the base business is growing. People are really discovering it and drinking it.”

Ted Hissey, senior vice president and general manager for UDV North America’s Cuervo tequilas, said tequila’s allure stems from the fact that there are two primary ways to consume it — straight, through shots or sipping, and in the wildly popular Margarita. He predicts a lot more activity in the high end, as well as the beginnings of some shake-out there “because there just isn’t enough room on the back bar or on that top shelf in the liquor store for all these brands. The one category that’s really hot right now is the 100% agave reposado.”

Cuervo 1800 Añejo, introduced in early 1998, is priced at about $40. The company is rolling out its newest product, Cuervo Añejo, nationally throughout 1999. It sells for $35 to $40.

Leading Brands of Tequila
(Thousands 9-Liter Cases)

BRAND COMPANY 1997 1998 % CHANGE
Jose Cuervo/1800 IDV North America 2,686 2,960 10.2%
Montezuma Canandaigua Brands 627 660 5.3%
Sauza Allied Domecq Spirits USA 355 515 45.1%
Giro Allied Domecq Spirits USA 395 425 7.6%
Juarez David Sherman 308 330 7.1%
Pepe Lopez Brown-Forman Beverages 146 180 23.3%
Rio Grande Tequila McCormick Distilling 153 156 2.0%
Two Fingers Heaven Hill Distilleries 80 90 12.5%
Torada Sazerac 90 80 -11.1%
El Toro Canandaigua Brands 56 60 7.1%
Total Leading Brands 4,896 5,456 11.4%
Others 1,101 1,149 4.4%
Total Tequila 5,997 6,605 10.1%
(p) 1998 Preliminary. Source: Adams Handbook Advance 1999

“One of the things that fuels tequila sales is, of course, its own success,” suggested Chris Morris, marketing manager Brown-Forman Select Brands. “It’s a self-injection of vitality. Because of the success of Cuervo and, obviously, other brands, this has invited or encouraged other tequila companies to start saying, ‘Hey, we’ve had this great product that we’ve been keeping pretty much close to home, and we can send it up north now and do well with it.'”

Brown-Forman markets Pepe Lopez Gold and Silver tequilas, and in January introduced its entry into the superpremium category, Don Eduardo Tequila. Don Eduardo Silver sells for about $40, and the Añejo for about $38. The Silver is triple-distilled, and the Añejo is aged for two years in first-use bourbon barrels. The brands are now available in Southwestern markets and will roll into major national metro markets throughout the year. Later this year, the company will roll out 8-year-old Don Eduardo Anniversario.

“The 100% blue agave tequilas are hot, and typically synonymous with premium,” said Jay Maltby, president and chief operating officer of Todhunter Imports, whose tequila brands include Porfidio (Single-Barrel Añejo, Plata and Reposado) and Barrique. Americans, he added, have “begun to discover the flavor of the agave, and the cognac-like qualities of the 100% blue agave tequilas that are oak-aged and treated very much like cognacs, fine rums or single malt Scotches. It’s happening in every category.”

Porfidio Single-Barrel Añejo, known for the glass cactus in the bottle, sells in the $80 to $90 range. Plata Porfidio is a triple-distilled white tequila priced at $39. The Reposado sells for $70 to $80. Barrique, which is aged in French limousin oak casks and packaged in hand-blown crystal liter bottles, sells for $500.

“We keep hearing from the field that Martinis and Margaritas are the hot drinks,” said Sharon Keld, marketing manager for tequilas for Barton Brands, which markets value-priced Montezuma and El Toro tequilas as well as Monte Alban Mezcal. “Anything can be called a Martini now — any basically white spirits and any mixer is the ‘so-and-so’ Martini. I think the same thing is happening to Margaritas. It’s not just tequila plus Margarita mix. It can be an ‘X’- Margarita now, also.”

The more consumers get to know about a spirit, the more importance is attached to the specifics of ingredients and production. “If you’re looking for tequila in its purest form, 100% agave really is the single malt of tequila,” said Mike Ginley, Allied Domecq Spirits USA’s marketing director for Sauza Tequila. “By standard of definition, all tequila must contain at least 51% agave, and the other 49% can be made up of grain-neutral spirits. So those tequilas are more like blends. But 100% agave products are pure tequila.”

Hundreds of varieties of agave plants grow throughout Mexico and the Southwestern U.S., but tequila can only be made from one, the blue agave, which only grows in the area immediately surrounding the Mexican town of Tequila.

New Products Galore

The story of the tequila market continues to be the explosion of product introductions hitting the market.

Allied Domecq Spirits, USA, which markets Sauza Gold and Silver, Conmemorativo, Tres Generaciones, Hornitos and Galardon introduced Triada most recently. Retailing at $45 a bottle, Triada was first rolled into markets in Texas and Florida, and has since gone national. Sauza Gold and Silver retail for $10, with Conmemorativo and Hornitos for $18 to $20 range. Tres Generaciones sells for $35 to $40, while Galardon is priced at $30 to $35.

With more and more new product activity “and more consumers seeking out those ‘discovery’ brands in the ultra-premium arena,” said Ginley, “we wanted to strengthen our position in that segment of the market.”

Triada becomes the third leg, along with Tres and Galardon, of what the company refers to as its Sauza Estate Collection. It is differentiated by its aging process, in which 100% agave is distilled in copper pot stills. It is then aged first as a reposado, then is placed in añejo barrels that have been decharred by hand to give the product more exposure to wood. It is then held until it attains its añejo status. Its story is told to consumers via educational neckers on each bottle.

Jim Beam’s new Paradiso is a 100% agave, double-wooded (American white and French limousin oaks) tequila that combines the expertise of a cognac blender, Alain Royer, with that of a tequila blender. Introduced in last August, it is retailing in higher-end liquor stores across the U.S. for $99 per 750 ml bottle. Its taste profile is different enough so that DiBenedetto said executives “don’t even see this as a new brand to clutter the marketplace. I see this as a new taste experience.” She concedes that it is “not going to be a 100,000-case brand, and it’s not intended to be. It’s just going to be for those who are connoisseurs.”

Las Vegas-based St. Maarten Spirits Ltd. regained marketing and distribution rights for Patron Tequila last April from Seagram Americas. Patron comes in three varieties: Añejo (aged a year in oak and retailing for $49 per 750 ml), Reposado (aged a minimum of six months in oak, $45) and Silver (100% agave, unaged, $41). The newest, Patron Reposado, was rolled out last summer.

Still, warned some, where there is boom, there is bust not far behind, and the gold rush of brands and line extensions must inevitably mean that some players will fail. “There have been so many new products introduced in the last two years, most of them in the high-end area, and obviously all of them are not going to make it,” said Cuervo’s Hissey.

Education Needed

Consumers still may not know all that the industry thinks they know about tequila. Education is still key as the segment steps into the 21st century.

“You’ll find some sophisticated consumers of tequila who aren’t totally aware of all the different terminology,” Hissey revealed. “It’s not easy to keep up with agave contents and añejo and aging and all those kinds of things.”

Educating consumers, he admitted, is “not an easy process. You need to start with making sure your sales force, the distributors and the trade are educated. It’s a fairly long communication channel we have to get to the consumer on the high-end products.”

The information challenge to which Hissey refers must be dealt with, if for no other reason than that the rewards are so great. Tequila is ascending, and how high it may ultimately go remains anyone’s guess.

Howard Riell is a veteran business reporter who is a contributing editor to Beverage Dynamics and Cheers.


Marketing Programs

Tequila suppliers are going to market with a variety of enticements aimed at spurring trial if not building outright brand loyalty. A cross-section of the approaches shows a mixture of innovation and tried-and-true methods.

ALLIED DOMECQ SPIRITS, USA

All of the Sauza Estate Collection tequilas are being promoted by Allied Domecq’s Original Sin tour, a traveling photographic exhibit supported locally with print ads. Ellen von Unwerth follows George Holtz as the featured photographer. The tour kicked off in New York City earlier this year.

There will also be tactical promotional support in the form of Sauza Margarita Mix co-packs with 750 bottles of Sauza Gold. Noted Allied Domecq’s Mike Ginley, marketing director for Sauza, “That has been a very effective promotional tool for us over the last couple of years.”

For Sauza Conmemorativo and Hornitos, Allied Domecq will promote a program called “Let There Be Sauza,” a key element of which will be a special hand-made Margarita glass in a glass pack.

UDV NORTH AMERICA

Cuervo will repeat its participation in Cinco de Mayo promotions. “It has become a very big holiday for us both on- and off-premise,” said Ted Hissey, senior vice president and general manager for Cuervo tequilas. UDV’s move to decentralize its promotional activities will result in each of its six regions (including one in Canada) enjoying new freedom to develop their own Cinco de Mayo and summer programs this year. “They’ll be very much tailored to what is important in their local markets, within the framework of an overall national strategy.”

BROWN-FORMAN BEVERAGES WORLDWIDE

Said Chris Morris, marketing manager for Brown-Forman Select Brands: “We are going to introduce cocktails that use both Silver and Añejo to elevate usage of superpremium tequila, as one would use a superpremium small batch bourbon in a fine Manhattan or an Old­Fashioned.”

JIM BEAM BRANDS

El Tesoro’s promotional efforts are featuring a sangrito mix. Sangrito is a tomato juice-based, citrus-flavored beverage that is traditionally sipped along with tequila in Mexico. Chinaco drinkers will find a free snifter glass, a gift designed to highlight the brand’s sipping and savoring aspect.

ST. MAARTEN SPIRITS

St. Maarten is preparing a new advertising campaign for this spring. The print ad features Playboy magazine’s Playmate of the Year Karen McDougall in a white tuxedo with a hat on her hand. The hat’s top tears off to reveal a bottle of Patron Tequila. The tagline is, “Taste the magic.”


Tequila Terminology

6804TEQ1 AGAVE: The juice of this plant, specifically the blue variety, is used to make tequila. A distant relative of the lily, not the cactus, there are more than 300 agave species. Only the blue agave, cultivated primarily in the state of Jalisco because of its arid, volcanic soil, is used for tequila. An agave takes eight to 10 years to mature, and the plant has a bulbous base and spiny, blue-green leaves that shoot out at all angles. By Mexican law, a product must contain at least 51% blue agave to be called tequila. Products made from 100% blue agave cost more to produce and require government inspection to insure authenticity.

AGUAMIEL: The Spanish word (meaning “honey water”) to describe the sweet, sap-like juice that is extracted from the piña of the agave plant. It is fermented for several days and then double-distilled to produce tequila, which is typically reduced from 110 proof to 80 proof before bottling.

AÑEJO: Literally translated, this means “aged” tequila. For a product to be called añejo, it must have been aged for at least one year. Usually, this aging is carried out in smaller oak casks, like those used for bourbon. Añejos are usually aged between three and seven years.

GOLD: Tequila aged in large oak vats. The products gains some color due to contact with the oak, but often caramel coloring is added as well, depending on the producer.

GUSANO: The worm which lives in the heart of agave plants. Mostly placed in mezcal as a gimmick, the gusano is not found in tequila.

JALISCO: The central Mexican state in which the town of Tequila is located and where the vast majority of the agave used for tequila is harvested and distilled. It is an officially demarcated region (like Cognac for brandy or Bordeaux for wine) where tequila is produced, located roughly 40 miles north of Guadalupe.

JIMADOR: Name for those who harvest agave plants using machete-type knifes.

MEZCAL: The native Mexican word for the agave, “mezcal” is also used commercially to describe the lower-grade distilled spirit made from agaves not of the blue variety. Mezcal, the two most popular brands of which are Monte Alban and Gusano Rojo, is a separate and distinct product from tequila.

PIÑA: The heart of the agave plant, which resembles a pineapple after its long, spiny leaves have been cut off. Harvested piñas, which can weigh as much as 150 pounds each, are trimmed, cut into chunks and either steamed or compressed to extract the aguamiel, which is then fermented and distilled.

PLATA: Literally translated as “silver,” refers to a white, or clear, unaged tequila.

REPOSADO: Another aging term, meaning “rested.” By definition, reposado tequilas have been rested in oak barrels for a period of six months to a year.

TEQUILERO: A master tequila maker.

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