Tequila All Around

Today’€™s tequila marketers continue to innovate, with new and established creating category-expanding sparkling and flavorful line extensions, launching scores of 100% agave entries at a variety of retail price points from $25 on up to triple-digits, and devising new promotional, merchandising and advertising programs with greater frequency and reach as never before.

Yet for all that activity, surely the biggest news in years in this growing category is that the Jose Cuervo brand is moving on July 1 from worldwide drinks giant Diageo, its longtime global and U.S. marketer, to Proximo Spirits, a New Jersey-based importer owned by the Beckman family, whose ancestor, Jose Cuervo, founded the Mexican distillery in 1795.

Cuervo remains the U.S. leader, with sales of more than 3.1 million cases nationally in 2012, exceeding the next leading tequila brand, Patron, by more than a million cases, according to the Beverage Information Group’€™s 2013 Handbook Advance. For the record, Diageo North America said through a spokesperson: ‘€œDiageo remains committed to the tequila category and Don Julio will be our main tequila offering for the time being.’€

For his part, Juan-Domingo Beckmann, Casa Cuervo’€™s chief executive officer, said in a widely reported statement, ‘€œDiageo has been a significant partner of Jose Cuervo for many years, but with 10 generations of tequila-making in the family, Casa Cuervo is excited to embark on this next chapter in the strategic expansion of its world-renowned tequilas.’€

Shortly after Beckman’€™s announcement, Proximo’€™s CEO and president, Mark Teasdale, commented in a prepared statement: ‘€œJose Cuervo is the world’€™s biggest tequila brand, and we are excited to take over its sales, marketing and distribution for the USA and Canada.’€

For Proximo Spirits, which was formed in late 2007, the arrival of the Jose Cuervo juggernaut is bound to be a transformational event. It will surely place new operational pressures on its sales and marketing departments, while simultaneously offering it greatly increased sales leverage with its distributors as well as merchants, on- and off-premise. All this for a company which has since its formation turned in an impressive record of performance with its premium 1800 Tequila brand, whose sales chalked up a dazzling 14.9% gain to 925,000 cases nationally in 2012, according to the 2013 Handbook Advance, not to mention its other successful brands such as Three Olives Vodka, Stranahan’€™s Colorado Whiskey and Matusalem Rum.

So, on July 1 then, Proximo will assume control of almost one out four bottles of tequila sold in the U.S., now that Cuervo is joining 1800 in its portfolio. (At press time, Proximo executives were unavailable for comment concerning either its 2013 plans for Jose Cuervo or about promotional programs for its 1800 brand.)

An Evolving Market

Meanwhile, the tequila market is fast evolving, even as the product continues to attract more consumers and, increasingly among them, greater numbers of discerning aficionados. And it is the latter group that is helping to drive robust growth and sales in the favour of 100% agave products at all price points, but especially notable at premium and ultra-premium prices from $30 a bottle on up to $90 and above.

As the tequila market evolves, then, tequila marketers of mixtos are facing stiff headwinds. [Mixtos are those tequilas, like Cuervo, that are made with no less than 51% agave, but whose products do not reach the 100% agave level.] While overall tequila sales rose last year by 5.6% to 12.9 million cases nationally, tequila marketers and leading merchants alike see consumers continuing to move to those brands made with 100% agave, particularly as they learn more about the product. In the control states, the category showed more modest overall gains of 2.7%.

While the marketplace is still dominated by the Margarita, in a wide variety of offerings, and in some quarters tequila shots still rule, more activity is being noticed among sipping and connoisseurial brands. ‘€œOur customers are shying away from mixtos ‘€“ the golds and the clear or silvers ‘€“ and moving into 100% agaves,’€ says Brian Bowden, vice president of spirits, beer, tobacco, beverages, at BevMo, the California-based 131-store retail group with stores in California, Oregon and Washington. Bowden adds, ‘€œAt BevMo, 100% agave tequila is becoming a premium spirits class for our customers. It’€™s the third largest spirits category after vodka and liqueurs.’€

Lindsey Lewis, brand manager, Sauza Tequilas, at Beam Inc., identifies three key trends driving growth and innovation in the current category: ‘€œFirst, there has been a proliferation of 100% agave tequilas entering the U.S. market over the past few years. Second, the category is also seeing a slew of new flavored tequilas, including the launch of our new Sauza Sparkling Margarita line of Lime, Wild Berry and Mango-Peach entries. Third, we see the premiumization trend intensifying, with more consumers trading up to higher-priced, 100% agave brands.’€

And now Sauza has just launched new marketing program, the second iteration of its successful ‘€œMake It’€¦’€ campaign launched last year, specifically targeted at female consumers. Last year’€™s ‘€œMake It With a Fireman,’€ went viral and was named to YouTube’€™s 2012 Most Watched Ads list. This year’€™s nine-month-long program is titled, ‘€œMake It With a Lifeguard,’€ and will include PR and retail extensions, as well as a digital and social plan, a national sampling tour, customized online and mobile content and a series of online videos featuring the Sauza Lifeguard, the company says.

Noting that besides Sauza, Beam also markets Hornitos, Tres Generaciones, El Tesoro and Cien Anos brands, Lewis explains that because Mexican farmers added acreage and planted thousands more blue agave plants in recent years, this has now resulted in ample supplies of the raw material. In contrast to severe agave shortages of only a few years previously, this ‘€œoversupply’€ makes it now possible to find 100% agave tequilas sometimes retailing for less than mixtos, says Eric Goldstein, of New York City’€™s Park Avenue Liquors in Manhattan. ‘€œWe tell our customers to look for 100% agave on the label.’€ And while Cuervo and other mixto brands remain huge and enormously popular sellers, retailers like Brett Pontoni, specialty spirits buyer at Binny’€™s, the 29-store group based in the Chicago area, notes, ‘€œThe 100% agave segment is continually and rapidly growing.’€

Innovation Works

At Brown-Forman, marketer of the line of Herradura Tequilas, brand manager Valdemar Cantu says, ‘€œIn the past 10 years, we’€™ve seen more sophistication among the trade and consumers.’€ To tap into this thirst for unique, unusual tequilas, for the second consecutive year, Cantu say Herradura is offering merchants two interesting programs. The first involves Herradura’€™s Coleccion de la Casa, one of whose tequilas is an ultra-premium, limited-edition tequila reposado, which has been aged a minimum of 11 months, plus an additional 2 months in port casks. This port cask-finished tequila retails for a suggested $90 for a 750 ml.

Herradura’€™s second program involves participating merchants more directly, where the merchant is intimately involved in tasting and then selecting specific barrels for purchase and bottling. Again with the Herradura Coleccion de la Casa brand, Brown-Forman arranges participating merchants to partner with Herradura’€™s Master Blenders in creating unique double-barrel aged, limited-edition reposado tequilas. Working together, the merchant buyer enters a direct dialogue with Herradura Master Blender, via tequila samples sent back and forth between them, with the aim of selecting two or three barrels of tequila for special aging. Once aged, these tequilas are then bottled in Mexico, and ultimately sent to the merchant.

BevMo’€™s Brian Bowden cites one of the key advantages of this special Herradura bottling program: it’€™s a product exclusive to BevMo and it results in a ‘€œhigher ring.’€ That’€™s music to Bowden’€™s ears, as it retails for $54.99, where it’€™s described as: ‘€œBeyond the ultimate, the exotic Herradura Double Barrel brings up the pure essence of the Agave plant; accented with a shading of oak; sniff, savor and sip; take this one neat.’€ Bowden says out of each special barrel ordered, BevMo get about 35 cases for sale across the entire group of stores.

Back at Beam, Amanda Lamb, senior brand manager for Hornitos says merchants are responding strongly to the newly launched Hornitos Lime Shots, a 70 proof product with natural lime flavors with a suggested retail of $17.99 for a 750 ml. Besides the brand’€™s new packaging, Beam is partnering with Playboy for a series of in-store promotions and sweepstakes, culminating in invitations to attend celebrations at the iconic Playboy Mansion in Los Angeles.

Patron’€™s Halo Effect

From its modest launch in 1989 to today, Patron Tequila has ushered in a remarkable series of changes in how tequila is perceived, in the trade and with the public. In this journey to now the country’€™s second largest tequila brand, Greg Cohen, spokesperson for Patron, says, ‘€œEducation has always played a very large role in our efforts and still continues.’€ Nevertheless, Cohen adds, ‘€œWe still battle poor perceptions of tequila in some quarters, but we hit a milestone in 2012 when we hit two million cases sales.’€

Acknowledging the above-premium tequila segment is getting more crowded, Cohen observes, ‘€œWe have seen numerous brands come into this segment. We are proud of the fact of widening the entire tequila category.’€

Certainly, Avion’€™s rapid acceptance and growth is in part due to Patron’€™s success. Jenna Fagnan, president of Tequila Avion, says of the original impulse to market the brand, ‘€œKen Austin, our founder, and our team looked at consumer trends, and a product based on quality and authenticity, also required a lifestyle component, so we saw a huge opportunity for a No. 2 ultra-premium Tequila.’€ Its success is a big reason why Avion and Pernod-Ricard USA decided to partner in July 2011, says Fagnan, a development which ‘€“ given Pernod’€™s distribution clout combined with the turbo-charged endorsement of the brand thanks to its prominence in the ‘€œEntourage’€ television show ‘€“ lifted Avion to a hot, trendy status other marketers could only envy. In 2013, Fagnan reports that Avion will boost its consumer and trade support across all channels and is still expanding and growing at strong double-digit rates. ‘€œHere in the U.S., we’€™re seeing a natural trend toward premiumization,’€ says Jesus Ostos, Brown-Forman’€™s Brand Manager for the seventh-ranked El Jimador Tequila, which is, Ostos is quick and proud to point out, the number-one selling brand in Mexico. Citing company research, brands priced in the retail range of $20-$40 a 750 ml bottle are selling the fastest at present. With the brand’€™s marketing aimed at legal age to 29, the brand is aggressively backing its partnership with sports, specifically soccer, with both U.S.-related and Mexico-accented promotions and sweepstakes.

With all this growth, celebrities with a taste for tequila’€™s pleasure have also gotten into the act. Sammy Hagar’€™s Cabo Wabo, marketed by Campari USA, has been in the marketplace for several years, and now there’€™s the newly released Casamigos Tequila, launched by George Clooney, Rande Gerber and Mike Meldman, with a Blanco ($42.99 suggested retail) and Reposado ($49.99). The new brand is being handled by Serralles USA. One of the more interesting entrepreneurial efforts at the ultra-premium end of the tequila market is that undertaken by Jacob Lustig, national sales manager of Haas Brothers, a San Francisco-based spirits merchant. Lustig, a long-time tequila and mexcal expert, launched Seleccion de Artenom Tequila, unique in that it is the only brand certified by the Mexican government and tequila regulators as available from three different estates. The trio of estate-bottled tequila’€™s all come from higher elevations, where the agave plant is stressed to send down its roots deeper and deeper to capture nutrients and water. This effort yields a richer, more flavorful agave fruit, which in turn adds more complex flavors to the resulting spirit. As Lustig says, ‘€œThe more you stress your agave, the higher levels of fruit-driven flavors you’€™ll have.’€

From lively bars where shots and frosty Margaritas rule to colourful floor displays of Cuervo or Patron at the nation’€™s chain and independent retailers to high-end artisanal tequilas now widely available off- and on-premise, tequila is alive and thriving. Indeed, thanks to plentiful supplies of agave, strong innovation by tequila marketers large and small, and all turbo-charged by growing consumer interest in aged reposado and añejo bottlings, exciting flavors and imaginative line extensions, tequila aficionados never had it so good.

Extending Tequila

Since the launch of Absolut Peppar in 1986, followed by Citron in 1988, the growth of the vodka category has been aided and abetted by a veritable distiller’€™s vat of flavored line extensions, whose current exemplars include cupcake, bacon and other counter-intuitive savors. Will tequila go down the same path? With the recent rollouts of Herradura’€™s Lime Margarita, Sauza’€™s Sparkling Margarita line of Lime, Wild Berry and Mango-Peach entries, and Hornitos Lime Shots, flavor is fast expanding the world of Tequila. And don’€™t forget Patron’€™s XO Cafe introduced way back in 1992 to 1800 Coconut launched in early 2012. And with Avion’€™s new Espresso made with Avion Silver and Italian espresso coffee beans, which is scheduled for release this May, tequila marketers are definitely adding some punch to the barrel. And then there’€™s Peligroso Cinnamon, a new 84 proof cinnamon-flavored tequila infused with 100% pure cinnamon and a blend of secret ingredients, the brand says. While many merchants welcome all the new products and appear ready to give them a chance, BevMo’€™s Bowden doesn’€™t believe these flavored iterations will ever reach the volume that flavored vodkas have achieved. ‘€œTequila flavors have not gained a lot of traction at BevMo.’€ Only time will tell if tequila producers can expand by employing flavor much as vodka and whiskey marketers have done.

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