THE SPIRIT OF MEXICO

Americans are, indeed, drinking better these days, with the superpremium segments of several spirits categories — such as Scotch, bourbon, vodka and cognac — seeing lots more activity. Now, tequila has joined the growing list of spirits that are appealing to a growing niche of high-end consumers.

In the case of tequila that means either raising the perennial favorite, the Margarita, to new upscale heights or moving right on past it to more sophisticated sipping occasions.

Among the more recent additions to the upscale market: Reserva del Dueño from William Grant & Sons; Sauza Galardon Gran Reposado, from Domecq Importers; Don Julio Tequila from Remy Amerique; Gran Centenario from Carillon Importers; Porfidio Reposado from Todhunter Imports; Tequila Casta, from Zuma Importing Co.; El Conquistador (three varieties) from Heaven Hill Distilleries, and Cuervo 1800 Añejo from United Distillers & Vintners North America.

A key to growing this business, as with the other spirits mentioned, is trial, which is why most marketers are spending so much time trying to connect with consumers on-premise. In retail outlets, many stores are pumping increased amounts of space and effort into showing off their high-end tequilas.

On- or off-premise, the efforts are paying off. Sales of tequila continue to rise: nationwide, the category posted 1997 sales gains estimated at more than 3%, driven by Jose Cuervo’s estimated 8% increase, according to the Adams Handbook Advance 1998. And overall, for the first time the tequila category now accounts for more than 4% of all distilled spirits sales in the U.S.

So, while most of the sales volume resides with the top-selling Jose Cuervo Gold and Silver — and a lineup of other mid-priced brands — most of the new product activity is taking place at the high end, helping to create interest in — and usage occasions for — the category.

Moving Upscale

“Tequila is a fun product,” said Ted Hissey, general manager of the Cuervo Business Team at United Distillers & Vintners North America (newly formed as a result of the merger between Grand Metropolitan and Guinness plc). “A lot of people have been drinking Cuervo Gold for a long time, and love the excitement and the Mexican imagery of the tequila category. Even if their taste becomes more mature, more sophisticated, they still want to enjoy that tequila experience. But they’re probably not partying as much as they were in their younger days, so it’s kind of a natural upgrade — to go from what they drank when they were younger to the superpremium products that are available now.”

UDV has a number of high-end tequilas, starting with Reserva de la Familia de Jose Cuervo ($75 a 750 ml bottle), followed by Cuervo Traditionale ($20-$25) and a pair of 1800 products, Cuervo 1800 ($20) and the recently introduced 1800 Añejo ($40).

Cuervo’s original 1800 was formulated for “superior” Margaritas and shots, “and we felt we needed a product in the 1800 line that was designed for sipping and those kind of more relaxing, high-end-type occasions,” explained Hissey.

Allied Domecq executives point to young adult consumers who are into microbrewed beers and willing to spend a premium to drink something better. It makes them more curious about spirits. Allied Domecq markets Tres Generaciones Gold, its highest-end product ($35), followed by the new Galardon Gran Reposado ($29), as well as Sauza Gold and Silver, Conmemorativo and Hornitos. Sales of Tres were up 27% in 1997.

A sign of how tequila has evolved was Allied Domecq’s participation at the Aspen Food and Wine Classic in Colorado last year. During the event, the company ran a successful tequila dinner — attended by wine aficionados — at the trendy Caribou Club.

Interestingly, Seagram Americas has also leveraged the food and tequila connection, according to Carlos Arana, category director for tequila and cordials for Seagram, marketer of the superpremium Patrón (Silver and Añejo). “In one of our marketing programs for Patrón, we try and teach the consumer that these [high-end] tequilas go well with fine dining.” One of the first tequilas to stake out a superpremium position in the marketplace, Patrón is also one of the leaders of the high-end segment.

[It has since been announced that St. Maarten Spirits, the brand owner of Patrón tequila, exercised a contractual right to terminate the marketing and distribution contract with Seagram Americas for Patrón as well as Patrón XO Café. Upon payment of a substantial termination fee, the effective date is due to be some time at the end of April. ]

Though high-end tequilas are a small percentage of the category’s overall volume, their sales generate significant profit margins, noted Harrison Jones, brand manager for the 100% blue agave Herradura. Imported by the Sazerac Co., the brand comes in Añejo, Gold and Silver versions and grew 40% to 45% in 1997, according to Jones.

Sharon Kelb, Barton Brands’ marketing manager for tequilas, explained that the Margarita’s popularity is still pushing the category. “In terms of volume, the whole category is up, but upscale is where the interest is in terms of new products and advertising activity.” Barton Brands markets the mid-priced Montezuma, the second-largest selling tequila in the country (350,000 9-liter cases in 1997), the popularly priced El Toro and Monte Alban Mescal.

Part of helping a high-end brand stand out depends on product knowledge. Said Sazerac’s Jones, “To understand high-end tequilas, you have to understand some of the history of tequila itself.”

Allied Domecq also emphasize the importance of tequila education. The company began its educational program five years ago, and still holds tastings for waitstaffs so they can discuss the different product attributes of the company’s line with customers.

Cuervo spends a lot of time training its own sales force and distributors so that their salespeople can talk to bartenders and off-premise store managers about the benefits of its line and educate them about tequila in general. “There really still is a lot of ignorance out there about the tequila category,” noted UDV’s Hissey. “It’s changing though. People are starting to learn more and more.”

For example, at Jim Beam Brands, which markets the superpremium Chinaco and El Tesoro, the company notes that El Tesoro is the only 100% blue agave tequila that has no water added after distillation.

Cuervo’s Hissey explained that “We’re already the leader in the superpremium segment, but to expand that leadership we’re going to need to differentiate our new products on things other than just how long the product is aged or its agave content. Almost all these products are 100% agave.” He noted that Cuervo is currently developing several new products that “will be focused on delivering real points of difference.”

Another high-end tequila line, Porfidio, is imported by Todhunter International Inc., the corporate parent of U.S. marketing company Todhunter Imports Ltd., of West Palm Beach, FL. The 100% blue agave tequila comes in several versions — Añejo, Plata, Single-Barrel and Silver. The company also brings in the limited-edition Barrique Tequila, which sells for about $500 a bottle (suggested retail). “We’ve marketed Porfidio now for three years, and we’ve doubled our availability every single year,” said Jay Maltby, president and coo of Todhunter International Inc. “There’s still not enough supply.” The company shipped 20,000 cases of Porfidio in 1997, Maltby said.

“You get a really high-end Margarita with the silver,” said Maltby. “When we do tastings, people are absolutely shocked that it tastes like a brandy. They’ve always perceived that tequila had a harshness to it.”

Retailers

Some suppliers feel retailers are not taking as full an advantage of the upsurge in upscale tequila’s popularity as they might. Stores also need to feature tequila during more of the year. “Some people still think of tequila as a summer drink, and it really isn’t,” said Barton Brands’ Kelb. “It’s a year-round drink. So maybe more year-round attention would be nice.”

“The retailer should basically carve out a section in the tequila category for 100% blue agave tequilas,” said Tom Valdes, president of Todhunter Imports. “If you went into Mexico, for example, you would see an entire wall — that is probably 20 feet wide and 10 feet tall — of 100% agave tequilas. In the U.S. you’d probably find a handful in each store.”

With upscale tequila’s increasing popularity, there is little wonder that more players are moving into the segment.

Wayne Rose, group brand director for Brown-Forman Beverages Worldwide’s Select Brands division in Louisville, KY, said executives are watching the high-end tequila category closely. “We have some ideas in mind. We don’t have anything to announce.” The company has had good success marketing the mid-priced Pepe Lopez, which has grown at healthy rates for the past few years.

The trend shows no signs of abating, nor should it in the foreseeable future. “The category has a much higher potential than exists today,” said Todhunter’s Maltby. “We don’t know exactly how high this is, but certainly it’s going to grow for years to come.” *

LEADING BRANDS OF TEQUILA