Tequila’s Rising Star

What do George Clooney, Justin Timberlake, P Diddy, Carlos Santana and Sammy Hagar all have in common? They are all hitching their stars to tequila, with category sales volume and revenues both enjoying robust growth. Much of the interest and sales center around the super- and ultra-premium levels, with many new entries. Messaging puts an emphasis on artisanal craft and traditional techniques. Experimentation with barrel finishes has created a synergy with the whiskey category. Generating waves in the media and blogosphere are a surfeit of category news, including distribution deals, acquisitions and new products. Tequila is moving upwards, as consumers buy into this versatile spirit, that’s both sippable and mixable.

“It’s such an exciting time to be in the tequila category, with the growth we are experiencing,” says Ann Stickler, senior vice president, managing director of tequila for Brown-Forman.

 

A Sprinkling of Stardust

A few tequila brands have long been associated with celebrities, but lately the stars have really come out. Actor George Clooney, singer Justin Timberlake and rapper Sean Combs are all getting into the act. Whether this is good or ill for the brand depends upon how the stars are aligned.

Cabo Wabo Tequila, for example, was born in 1996 on the back roads of Guadalajara by legendary musician and tequila aficionado, Sammy Hagar. “With so many tequilas on the market, celebrities are often used to break through the clutter and give consumers a human connection to the brand,” says Kathleen Schuart, senior marketing director, White Spirits, for Campari America. (The company’s portfolio also includes the Espolon Tequila brand.) “The difference for Cabo Wabo is that Sammy Hagar is not just a spokesperson, he is a true founder and visionary of the brand as a whole,” she adds.

“Celebrities are driving interest in the category. Of course, we expect some of these celebrity associations to come and go and some will ultimately disappear,” comments Jose Hermosillo, founder of Casa Noble Tequila, which has long been associated with musician Carlos Santana.

Academy Award winner George Clooney is the dazzle behind the Casamigos brand, which was launched early last year. The brand was conceived by Clooney and longtime friends Rande Gerber, founder of Gerber Spirits, and Michael Meldman, CEO of Discovery Land Company, after some tequila-filled nights and years of working with a master distiller. Casamigos is currently available in Blanco and Reposado, with a suggested retail price of $44.99 and $49.99 respectively.

This April Casamigos teamed up with Sidney Frank Importing, as the exclusive importer and distributor of Casamigos Tequila in the U.S. and the Caribbean. The privately-held and family-owned importer is best known for turning Grey Goose Vodka and Jägermeister into iconic superpremium brands.

Rapper Sean “Diddy” Combs was instrumental in propelling the ultrapremim Ciroc Vodka brand to stellar heights, and Diageo is no doubt betting on a similar boost for its newly acquired DeLeon Tequila brand. The company has entered into a 50/50 partnership with the musician. DeLeon is available in diamante, reposado, anejo and extra anejo expressions, ranging in prices from around $140 to more than $800.

Singer Justin Timberlake co-founded the superpremium 901 Tequila brand with Kevin Ruder in 2009. Now, Timberlake has teamed up with Beam to relaunch the brand as Sauza 901. With a suggested retail price of $29.99, the tequila is being rolled out in select markets this year. The 80-proof, 750 ml bottle will feature new co-branded packaging, including a distinctive bottle and a unique label design.

“Justin has a real passion and love for tequila, had that for awhile” says Gary Ross, senior director of tequilas for Beam. “He’s not a celebrity endorser; he is the founder of a brand that makes the connection more meaningful and a more interesting partnership.” Beam will support the rollout with social and digital advertising. Timberlake will integrate Sauza 901 as the lead brand sponsor of his global tour, the 2020 Experience, which kicked off last year and is running through this year.” Support will also include on-premise sampling and in-store programming.

“Celebrities are a quick way to gain awareness for a brand,” says Stickler at Brown-Forman. In a twist on that theme, Herradura offers culinary or mixology celebrities an opportunity to become personally involved, to visit Casa Herradura and select their own barrels. Chef and restaurateur Rick Bayless recently did just that, then bottled and auctioned off the bespoke tequila to benefit a charity.

 

Mas Arriba

Celebrities aside, tequila is a rising star in terms of volume growth and revenues.

“Overall, the category has been growing and interest in the category has been growing,” observes Ross. Fueling that interest, he says, is the proliferation of new brands, coupled with a trend towards premiumization. “Consumers have been gravitating towards 100% agave tequilas, which by their nature tend to be the premium and superpremium brands. That’s a big trend.” Beam brand Sauza is a category leader, which was up more than 13% to 2.033 million cases in 2013, according to Beverage Information Group’s Handbook Advance. Other tequilas in Beam’s portfolio include Sauza Hornitos and Tres Generaciones and El Tesoro de Don Felipe.

Tequila category sales volumes were up 5.2% in 2013, according to Beverage Information Group’s Handbook Advance. For its part, tequila supplier revenues rose an impressive 7.9%, accounting for $148 million in new supplier dollars, according to the Distilled Spirits Council of the United States (DISCUS). That sales increase was largely driven by the premium (up 9.2%) and superpremium (10.2%) segments. Indeed, many of the new product introductions have been in the superpremium arena, generating much of the publicity ink and consumer interest in tequila.

“The biggest trend is premiumization,” says Stickler at Brown-Forman. “People are looking for premium quality, craftsmanship, demanding more from tequila. We are seeing the fastest growth in the super- and ultra-premium segments, a transformation of the category toward the high end.” The Brown-Forman portfolio includes the Herradura and Don Eduardo brands, as well as El Jimador, one of the leading labels, showing 4.4% growth to 331,000 cases in 2013, according to Beverage Information Group statistics.

“We do well with tequila, and it’s showing steady growth,” says Rick Ostrand, spirits buyer for Stateline Liquors in Elkton, MD. The store carries a solid but not extensive selection, says Ostrand. “There’s been lots of interest, especially in the higher-quality range.”

New brands are entering the market all the time.

Suerte Tequila recently extended distribution of small-batch, single-estate, double-distilled expressions to the Rocky Mountain Region, California, New York Metro area, New Jersey, Wyoming and Connecticut. Boulder, CO-based entrepreneurs Laurence Spiewak and Lance Sokol co-founded Suerte Tequila in 2012.

“On average each year 30 to 40 new tequila brands are introduced, with over 1,200 in the U.S. market already. Most of that innovation is in the superpremium segment, which is growing the fastest,” says Rene Valdez senior brand manager for Tequila Cazadores. The Bacardi USA brand is among the top 10 suppliers, at some 293,000 cases in 2013, according to Beverage Information Group.

The top 10 tequila brands accounted for some 11 million 9-liter cases in 2013, according to Beverage Information Group statistics, up 4.4% for the year.

Accounting for nearly a quarter of that volume was category leader Jose Cuervo at 3.03 million cases. For over two decades, Diageo North America had handled Cuervo’s distribution and was negotiating to buy the brand. However, last July, the Beckmann family, owners of Jose Cuervo, moved distribution to sister company, New Jersey-based Proximo Spirits. Reportedly, Proximo plans a major investment to build the brand. Currently, the importer’s portfolio includes Maestro Dobel, Gran Centenario and Zarco tequilas as well as 1800 Tequila, which grew 11.6% in 2013 to 1.032 million cases. Now, 1800 has just released an ultra-premium extra-aged anejo tequila finished in cognac barrels called Milenio. This limited-edition expression is matured for five years, spending four months being finished in cognac barrels. This is the second edition of Milenio, the first having been released in 2000. It is 80 proof and has a suggested retail price of $125.

For its part, Diageo acquired two ultra-upscale tequila brands: Peligroso is a 100% blue Weber agave tequila from the highlands of Jalisco, Mexico, which was founded by two avid surfers; it is available in silver, reposado and anejo expressions, as well as a cinnamon variant, with an suggested retail of $30 to $55 per 750 ml. Additionally, Diageo is partnering with rapper Sean Combs in the luxury label DeLeon. Diageo’s portfolio also includes the Don Julio brand.

The biggest gainer among the top 10 brands last year was relative newcomer Familia Camarena. Launched in 2011, the E&J Distillers’ brand posted gains of a whopping 36%, to 571,000 cases last year; now it ranks sixth among the leading labels. Available in just silver and reposado expressions, Camarena is 100% blue agave, priced $20 for a 750 ml bottle.

 

The Big Tahona

Many tequila houses are messaging the traditional, artisanal aspects of production, like the dexterity of jimadores in the fields, the use of mule-driven tahona stones to grind the agave pinas, exotic barrel finishes and the terroir differences among the growing regions. That tactic seems to be working. As consumers better understand the provenance of quality, they are trading up to finer expressions of the master distillers’ art. And, especially in the anejos and extra anejos, there seem to be some affinities and synergies with whiskey. The Mexican spirit is poised for further acclaim and more experimentation.

Launched nationally late last year, Pernod Ricard’s Olmeca Altos brand plays up its use of the volcanic millstone in the tequila’s production. “We’re proud of Olmeca Altos for standing out as the most affordable brand that still uses the ancient method of production, the 2-ton tahona wheel, to extract the rich character of the agave,” says Dominic Alcocer, brand director of tequila for Pernod Ricard USA. Available nationwide in Plata or Reposado, the 100% agave Olmeca Altos retails for a suggested price of $24.99 for 750ml. Alcocer observes that tequila is especially versatile. “Great tequila can either enhance the flavor of a cocktail or be sipped like a fine bourbon or whiskey.”

Superpremium brand Tequila Avion made news when it launched Avion Reserva 44, an extra anejo tequila, just in time for the holiday season. The limited-edition (744 cases) extra anejo is packaged in a fire-polished, crystal bottle, with an suggested retail of $150. “Tequila aficionados are trading up to Avion Reserva 44,” says Jenna Fagnan, president of Tequila Avion. Not only that, she says, but the Avion extra anejo expression has also created a whole new fan group out of traditional Scotch and whiskey drinkers.

“There is an interest in and appetite for artisanal brands, tequilas that are made in traditional ways, which is great,” says Greg Cohen, vice president of corporate communications for the Patron Spirits Company. “Even though we’ve become a big brand, we still take great pride in that we produce Patron in an age-old traditional way with the tahona. Even though we sell quite a few bottles we still hand craft it in small batches.” The second biggest tequila brand, Patron grew 3.8% in 2013, to 2.075 million cases.

Patron recently released its first extra-anejo, Gran Patron Piedra, which is an homage to the tahona; “piedra” translates from Spanish as stone, and the bottle’s iconic shape refers to the tahona. The limited-edition tequila was aged for more than three years in new American and French oak barrels. “All the excitement around whiskey is leading drinkers to try anejo and extra anejo tequilas,” Cohen points out.

“There is interest in the extra anejo category, driven in large part by tequila aficionados; we see them trading up from the anejos,” says Ross at Beam, who adds that he sees consumers trading up in general, to more premium products across the expressions. Recently, the company launched Casa Sauza XA, Edicion Limitada, the first global extra anejo expression for the brand. “We got a lot of good feedback on Sauza XA’s sophisticated and complex flavor notes,” says Ross. Only 12,000 750 ml bottles of the extra anejo have been produced, packaged in an elegant glass decanter accented with a distressed leather strap and metal buckle. Suggested retail is about $150.

Casa Noble introduced two unique, high-end tequilas late last year. Joven translates from Spanish as young, and this high barrel-proof, unfiltered spirit was aged only six weeks in French oak. “Casa Noble Joven is a very pure expression of tequila,” says Hermosillo. The limited-production Casa Noble Single Barrel of Santana was aged in French White oak barrel for five years. The company is also planning a repack for its current expressions. “The Casa Noble statement on the new packaging is a bit clearer in terms of identifying the brand.”

 

Cask Conditioning

Like their whiskey counterparts, tequila master distillers are experimenting with finishing the liquid in a variety of barrel types.

“The selection and use of different barrel types has been part of our recipe since the beginning,” says Cohen, commenting upon the trend toward experimenting with various barrel finishes. As an example, he points to Patron Gran Burdeos, which is aged in Bordeaux barrels.

Tequila Herradura has instituted a program of annual releases of different wood finishes, called Coleccion de la Casa Reserva, which began in 2012 with a Port Cask Finish. “Experimenting with different barrels is hot in the category right now,” says Stickler at Brown-Forman, who adds that the brand has always had a tradition of innovation. “Our master distiller looks at different wood finishes every year. Last year it was Port, this year it’s Cognac. That offers consumers a different craft experience each year. The tequila is matured twice, first in American oak barrels for 11 months and then again in French oak casks sourced from the Cognac region for an additional three months. Another cask finish is schedule for next fall.

Herradura also offers retailers the opportunity to select their own bespoke barrel. The tequila is aged once as repo then aged again for a customized flavor profile, unique to the retailer. “We’ve seen growth in our double barrel business,” exclaims Stickler.

The latest in wood finish experimentation is Hornitos Black Barrel, which was launched this spring. The 100% agave tequila is triple aged: first in traditional American oak barrels for 12 months, then in deeply charred barrels for four months to imbue it with the rich character, golden amber color and smoky notes traditionally found in whiskey; finally, the tequila is aged in specially-toasted American Oak barrels for two months to impart a creamy, vanilla character and depth and complexity. “The idea behind Hornitos Black Barrel is there has been tremendous interest in both bourbon and Scotch, and we wanted to create a tequila that had an interesting taste profile reminiscent of Scotch,” explains Ross. The variant first debuted in Mexico, he says, where the product was highly successful. In the U.S., the suggested retail price is $29.99 per 750ml.

 

Flavored Tequila

Way back in 2004, the Tequila Regulatory Council allowed the production of flavored tequilas. A decade later, flavored tequilas haven’t taken off the way they have in vodka or rum. But a few are appearing on the market.

“When flavors were originally introduced, I think it was too early in terms of consumer involvement with the category and the education level,” posits Valdez at Cazadores. But times and the consumer have changed. “The younger legal-age drinker has grown up with the expectation of having many options. They see all these flavors in vodka and I think they are expecting that in tequila as well.” Cazadores, he is quick to say, is not contemplating any flavored tequilas.

“There is huge opportunity for innovation within the tequila category and the allowance of flavors in tequilas just provides another option for new products,” says Schuart at Campari America. Released late last year, coffee-flavored liqueur Cabo Diablo has seen great success in initial markets, including New York, New Jersey, Connecticut, Massachusetts and Wisconsin, with a suggested retail of $22.99.

Cohen at Patron noted. “Tequila already has such a natural flavor from the agave, and then the flavors between the various expressions are so different; there is no need to mask that.” As for Patron XO Café, he is quick to point out that the product is a coffee liqueur with tequila as its base.

Jose Cuervo, which had tested the flavored tequila arena early on, now has launched a cinnamon-infused silver tequila called Cinge. Available nationwide, the 750 ml bottle is priced $17.99. Ad agency McCann Erickson New York has created animated 15- and 30-second spots, a print ad and a graphic novel featuring a Mexican scorpion, which is to be the mascot for Jose Cuervo Cinge. Sister brand 1800 Tequila recently released a coconut-infused tequila variant.

“Brands are being careful about the flavors they think make sense from taste profile and usage perspectives,” says Ross. The new Hornito’s Lime Shot is a good example. “We took our plata and added the refreshing taste of lime and a hint of salt, which relates to the salt and lime ritual. The idea was to put that ritual in a bottle and have a great-tasting way to drink tequila that is authentic and true to the spirit.” Hornitos Lime Shot is currently available nationwide, with a suggested retail price of $17.99 – $19.99 for a 750 ml bottle; it will also be available in 50 ml and 1 liter sizes.

Other flavored variants in the market are Avion Espresso Liqueur, which launched last year with an suggested retail of $24.99, and Peligroso Cinnamon from Diageo.

Not quite a flavor and not quite a tequila either, Malibu Red is a rum-tequila hybrid. “We’ve seen the blend of Malibu Coconut Rum and tequila as a way to expand our consumer base by appealing to tequila drinkers, with new occasions and with new mixability options,” says Josh Hayes, Malibu senior brand manager at Pernod Ricard. The mash-up came about when Malibu brand ambassador, the rapper NE-YO, was adding tequila to Malibu Coconut Rum to give it an extra kick. “Malibu Red is poised to capture what we refer to as the ‘fun tequila’ occasion,” says Hayes. “Clear spirits are highly mixable. Malibu’s coconut flavor helps smooth out the burn from tequila that some consumers find polarizing.”

 

Charming Expressions

Despite the new product emphasis on aged sippable expressions, silver tequila reigns, especially in the shots and cocktail arena. The Margarita is the most popular tequila drink, but mixologists are busy experimenting with new cocktails taking advantage of tequila’s unique flavor profile.

“Silver remains the volume driver for most tequilas, however with Avion, we see a strong mix of reposado and anejo,” says Fagnan at Tequila Avion. “Brown spirits drinkers are moving towards anejos and tequila aficionados tend to drink reposados more often.”

Ross at Beam too sees the category growth trend in silvers and platas, as well as increased consumer awareness of the importance of 100% agave content. “We experienced a lot of success when we introduced our Sauza Blue brand, which is an example of both those trends because it is 100% blue agave, and although have both silver and repo expressions, the silver has by far been the fastest growing.”

“Younger consumers are into shots, but as they mature and experiment more, they tend to move beyond blancos and get into repos and anejos where there is more sipping and appreciation of the complexity of the liquid,” comments Valdez. Unlike other brands, Cazadores positions reposado as its key expression. Reposados, he adds, are the most versatile expression, because they can be sipped or mixed in cocktails.

Barcardi is in the process of tweaking Cazadores packaging, to be ready for the 2014 holiday season. The repack is aimed at attracting a wider audience, says Valdez. The new look will be more masculine, with a more majestic image of Cazadores iconic deer. The bottle will tip its hat towards other brown spirits like whiskey and tout the brand’s heritage and authenticity. “The packaging is a huge investment, which will open up many new doors” he says.

“The occasion for tequila is varied. There will always be people who want to do shots, and that’s great if they equate celebrating with tequila,” notes Cohen at Patron. “Consumers are realizing how many great cocktails they can make with tequila. Although the Margarita is still the number-one cocktail in the U.S., anything you can make with other white spirits, you can make with high-quality tequila.”

 

Tequila Sunrise

The spirit seems poised for continued growth and a bright future, agree industry execs.

“Tequila is one of the three spirits categories that is currently gaining share in the U.S.,” points out Schuart at Campari America. “The biggest opportunity for the tequila market right now is to continue to educate consumers. Consumers are consistently becoming more educated about the spirits they drink, where they come from and how they are distilled. As the cocktail culture permeates the pop culture canvas of the U.S. and the bartender community continues to embrace tequila as part of their craft, tequila will be among the leading spirits to drive growth in the years to come.”

“We are so optimistic, because the outlook for the category is very healthy,” notes Stickler. “Premium-plus is on a roll. The segment is up 13% the last three years globally, and most of that is in the U.S. and is projected to stay at that pace,” she says, adding up all the positives for the category. “There is nowhere to go but up.”

 

Smoke Signals

Mescal is a sister spirit to tequila. It is fermented and distilled from the maguey, a type of agave. Mescal is largely produced in Oaxaca, Mexico, although good examples are found in Guerrero, Guanajuato and Zacatecas. It is a hand-crafted tradition, made by artisans using ancient techniques, including cooking the pinas in pit ovens, which gives mescal its signature smoky aroma and flavor. More and more tequila aficionados bitten by the agave bug are exploring the mescal category.

“Agave spirits as a whole are becoming a bigger segment. Tequila is becoming so popular that people are now embracing mescal,” comments Kathleen Schuart, senior marketing director of White Spirits for Campari America

“Mescals are showing a lot of interest,” says Rick Ostrand, spirits buyer for Stateline Liquors in Elkton, MD. “There are a lot of exciting mescals available, all on the high end.” But, he adds, compared to tequila, sales of mescal are small.

“Mescal may not be for everyone, because of its taste profile,” says Rene Valdez, senior brand manager for Bacardi, USA. The spirit appeals to travelers who have tasted mescal in Mexico and to mixologists who have embraced the smoky spirit as a differentiating ingredient in cocktails. “Mescal definitely is hot right now, on the East and West Coasts.”

“You see more and more mescal in bars; the industry likes it,” concurs Jose Hermosillo, founder of Casa Noble Tequila. “But it will be interesting to see if consumers will accept the taste profile. Mescal is normally very earthy and smoky.”

“Mescal is an acquired taste,” agrees Ann Stickler, senior vice president and managing director of Tequila at Brown-Forman. The category, she notes, is small but growing. “We’re keeping an eye on mescal; it should be interesting to watch.”

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