Iconic spirit
beats the blues

It is the fastest-growing spirits category in the US - and now tequila producers are looking to other shores. Larry Walker reports
27 August, 2008
Page 38 
Fed by an apparently unquenchable thirst for tequila in the US, the iconic Mexican spirit is the fastest -growing spirits category with the super-premium segment of the market leading the way.

Total tequila sales grew by US$147 million in 2007 to a total of US$1.6 billion. Total US case volume was up by 4.2 per cent to 10.5 million, according to numbers from the Distilled Spirits Council of the United States .

The super-premiums grew almost 15 per cent to US$78 million in sales, according to David Ozgo, chief economist at DISCUS. "The tequila segment should maintain its strength ," he says. "It's very mixable - the margarita is still the most popular cocktail in the US, and premium growth has been strong for several years in a row." He adds : "Tequila marketers have done an excellent job."

He would get no argument from Matt Carroll, chief marketing officer for Patrón Spirits Company. Carroll expects continued growth, not only for Patrón, the second best -selling tequila after Jose Cuervo, but for the overall market. "Many people still remember a bad experience they've had with tequila in the past, but they are coming to realise that 100 per cent agave spirits like Patrón are sophisticated, versatile, premium spirits that can be enjoyed in a cocktail or simply sipped over ice."

There is also some evidence that tequila drinkers, who tend to be younger than other spirits drinkers, are sticking with tequila as they get older and are buying into the premium and super-premium categories.

Another sign of the strength of the market is that the US is now consuming more tequila than Mexico. This is partly due to a trade agreement reached in 2006 allowing unrestricted bulk shipments of tequila into the US and to the growing Hispanic population of the US that regard tequila as a source of national pride.

Of the total 10.5 million -case global tequila market, brand leader Jose Cuervo accounted for over half with sales of 5.6 million cases of full -strength tequila, according to Gerry Reid, managing director of Jose Cuervo International. Cuervo also sold 2 million cases of its ready-to-serve Golden Margarita, a very successful brand extension.

He is bullish on the overall tequila market. "I do think tequila has a bright future. From the standpoint of on-premise sales, tequila does not have the exposure that many other spirits do. Outside a few parts of the US, notably California, very few bars anywhere have more than two tequilas behind the bar. There is the possibility of huge growth there," Reid says.

Looking at the global picture, Reid says he believes Cuervo is "on the right track now" in the UK. "We are at about 90,000 cases and growing nicely at about 15-20 per cent. We have focused our marketing programmes there on popularising the margarita. Selling shots is not a growth engine," Reid says.

He admits they were a little slow off the mark making the move on margaritas. "It seemed like such an American cocktail that we weren't sure how it would play."

How about other cocktails?

'We've done a lot of work in the area of cocktail culture. It isn't that hard to come up with new drinks, but getting the consumer to accept them is a different story," he says. People don't tend to opt for tequila in a cocktail because of the "organaleptic qualities, it simply isn't as flexible as vodka ." Reid says there had been some success with the introduction of Jose Cuervo Black, an anejo tequila designed to be compatible with cola.

One of the remarkable tequila stories of the past few years has been the success of Patrón - the 100 per cent blue agave tequila. In 2007, Patrón edged ahead of Sauza to become the second best-selling tequila. Patrón's compound annual growth rate from 2002 through 2007 was about 50 per cent, compared with the overall tequila category growth of about 7.5 per cent in the same period.

Who is buying all that Patrón? Carroll says the brand appeals to a broad cross-section of consumers, male and female, in every age group. "Patrón is an affordable luxury - so even if people can't necessarily go out and buy a new Rolex watch, they can still spend a few extra dollars on a good drink. And because high-quality tequila like Patrón is so versatile, we're finding that a lot of people who drink other white spirits, such as vodka, gin and rum, are also drinking Patrón."

The UK is the top market for Patrón outside the US. Carroll says there is also strong growth in Japan, Australia and France. "The duty -free sector is growing quickly, especially in major international hubs such as Heathrow, Gatwick and Singapore."

Patrón is in no hurry to rush brand extensions to the market. Last year the company introduced an añejo called Gran Patrón Burdeos, a limited- production añejo racked in French Bordeaux barrels. "While we are always working to develop new offerings, products like this take years to perfect," Carroll says.

Patrón will continue its Simply Perfect print, broadcast, online and outdoor brand campaign which was launched in 2006.

Cazadores is a 100 per cent blue agave tequila with a solid reputation in Mexico among those who know their tequilas.

The brand came into the European market a bit over a

year ago when it launched a new -look package and global ad campaign in the UK. Guy Lawrence, global brand director, says the aim of the campaign is to educate consumers on the premium tequila category.

"In key European cities the trend for trading up has spread across all the spirit categories . This trend has been helping to increase demand for Cazadores ," Lawrence

says. "The focus is very much on the top-end

of the on-trade; the very best bars and restaurants.

"We are nurturing these markets by running a bartender -training programme, which helps raise awareness and develop an appreciation of how a premium 100 per cent agave tequila is created and how it is best served."

Cazadores entered the US market about six months before breaking into Europe. Early concentration was on California, Texas and Illinois but, with a new advertising campaign, the brand is now in national distribution.

Casco Viejo is another fairly new player in the international market. José Sandoval, international sales director for the brand, says it is now in over 20 countries and is especially strong in duty -free. Overall, it is the fifth -largest brand by volume, according to trade sources.

Sandoval g ives credit to the marketing clout of the big brands for driving growth in the category. "Even though they are promoting their brands, they are also building the category - as they are pulling consumers in at an entry level. Later on, those consumers will be looking for something more authentic and sophisticated," he says, referring to the growth of the premium 100 per cent blue agave market.

However, brands have to be able to take advantage of the growing market and many small brands, what some call the boutiques, simply don't have the capital to compete, especially in the US market where spirits distribution is controlled by a few giant firms.

Brands like Fortaleza, 7 Leguas, Arette and 4 Copas (an organic tequila) may be served at a few bars that specialise in super-premium tequila, but it is difficult for them to break out of the boutique category and every bottle is virtually a hand sell.

The other side of that particular coin is that many of the smaller producers have no desire to grow beyond their present production limits. What they do accomplish is ensuring the quality bar is set high, which, given the growth of the super-premium market, is a good thing all around for the tequila category.
----=== The Agave supply ===Tequila is more closely linked to the boom/bust cycle of agriculture than any other spirit. Like wine grapes, there is a lag of several years from the time an agave plant goes into the ground until it is harvested - ideally about eight years. If the tequila market is growing rapidly, as it is now, there is likely to be a shortage down the line.

Gerry Reid of Jose Cuervo expects a short supply of agave within the next 18-24 months. "That will slow the growth, but I don't think it will be as severe as the shortage of about a decade ago when sales went almost flat," he says.

However, a new wrinkle in a possible agave shortage is the concentration of growth in the 100 per cent blue agave premium end of the market. Most tequila authorities agree that highlands agave is superior to lowland agave. It isn't simply a question of planting more agave

- it must be planted in the right place as well.---- === Top three tequila brands ===(by volume of US case sales only)

Brand Sales % Growth

Jose Cuervo 3.9 million 2.2

Patrón 1.6 million 53

Sauza 1.5 million 5.5

(Source: industry estimates)



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