Prickly subject

Fears of an agave shortage seem to be having no effect on tequila production as new markets open up and premium products find favour. Holly Motion reports

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LAST YEAR, 27.6M CASES OF TEQUILA WERE SOLD GLOBALLY and the category grew by 3% (IWSR). In tequila’s two biggest markets – the US and Mexico – brands proliferate – but the number of producers do not. “The number of tequila brands produced is frankly too numerous to count – there are easily more than 1,000,” says Patrón president and global CEO Dave Wilson. “But, what’s interesting is that there are only about 150 licensed tequila distilleries in Mexico, so simple mathematics will tell you that many of these distilleries are producing multiple brands.” 

This is no secret, but even though 150 distilleries in Jalisco collectively produce nearly 1,500 brands, there have been suggestions that the agave shortage means there won’t be enough tequila to meet demand. 

But, in the US, Adam Rogers, manager of information services at the Beverage Information Group, says there is little danger of this. “I do believe there is enough tequila to meet the demand even though the blue agave plant takes at least seven years to grow before it can be harvested.” He adds: “If supply is restricted we will see an increase in prices but I believe consumers won’t have any problem finding tequilas, especially taking into account the increasing number of tequilas entering the market. “

El Jimador global brand director Mark Grindstaff says Brown-Forman currently doesn’t see any issues with consumer demand outpacing tequila supplies but concedes projecting category growth is always a balancing act. 

Some brands own and manage their own agave fields and this is proving to be more than just a USP. Beam Suntory’s Casa Sauza agave fields stretch over 10,000 acres, with 13 acres dedicated to the agave nursery. Senior director of tequilas Claire Richards is all too aware that supply and demand will always change, especially when working with a natural product. “Agave takes six to eight years to mature so there is always a fluctuation, reinforcing the importance of owning our own agave supply.” 

Others have long-term contracts with agave growers in the region, such as Patrón, which is confident this relationship will help it meet demand.  

Maybe a shortage isn’t around the corner but the increase in demand is here and it’s being driven by super premium, not mixto, in the US.  

Alex Tomlin, vice president of marketing for Diageo’s tequila portfolio, says: “Tequila has had to reinvent itself because of the distinct shift in our drinking culture, from tequila slamming to the sophisticated cocktail scene. What was once a bottom-shelf spirit known for shooting with lime and salt has evolved into something that can be coveted and savoured.”

Grindstaff adds: “In the past, there was a lot of tequila consumed as unbranded Margaritas and shots. The drinks were typically made with a mixto in the bars and often resulted in a less than quality experience for the consumer. As we are seeing in other alcohol beverage segments, consumers are shifting to quality over quantity. They are becoming more curious and as they become more educated about tequila they are willing to pay a premium for brands of the highest quality and reputation.” 

Patrón was the brand that created the super-premium tequila category and Wilson says this segment is not only growing in the US, but it’s becoming the standard bearer in many other markets as well. The reason? “It’s simple – a high quality 100% agave tequila such as Patrón is a different, much better spirit than a 51% agave tequila.” 

In the US tequila is up 5% in volume and 4% in revenue with the growth concentrated in super-premium (DISCUS 2014). 

The purchases of Don Julio and Avion Tequilas last year by Diageo and Pernod respectively show intent and a confidence that growth is more than a fleeting trend.  

Diageo’s Tomlin says: “Over the past three years super-premium-plus has accounted for 43% of tequila dollar sales, according to Nielsen.” This is due, Tomlin says, to consumers drinking better quality tequila and becoming more “tequila literate”. 

China

Since the lifting of the ban on very high quality tequila in China in 2013, exporters have been falling over themselves to tap into the luxury market and make Asian consumers more tequila literature. So much so that the National Tequila Industry Association recently stated that China looks set to replace Mexico as the second largest market. This followed president Peña Nieto’s predictions that exports would swell to 10 million litres by 2019. 

For Patrón – already available in 100 markets – China is very much a focus. Wilson says Chinese consumers have embraced luxury spirits and appreciate a high quality product. “Our approach in China, just as it is in the rest of the world, is on-trade and consumer education – especially in a market such as China, which only recently opened to ultra-premium tequila brands. We target high-end bars, restaurants, hotels and retail outlets in major cities, where consumers expect to find the best spirits.” 

For Diageo in Asia, by its own admission, tequila is a small category. Despite this, the company says the total category (specific to Asia) is growing, particularly at the super/ultra-premium with 2015 growth up 8.9% on 2014.

Over at Beam Suntory, Sauza is readying itself for its “first foray into China”. In May this year, Sauza rolled out the largest global rebranding in its history to help drive long-term growth in existing North American markets, in addition to expansion efforts in new, emerging tequila markets such as Japan, Brazil and Russia and China. 

Flavour

They are perhaps not in the luxury Asian market, but flavours are an undeniably good way of enticing consumers into a category they might otherwise avoid – just look at vodka, gin and whisky. Tequila brands are currently experimenting with flavours such as chilli to add heat to the already throat-burning beverage and spiced honey to sweeten the deal. 

Claire Richards, senior director of tequilas at Beam Suntory, says tequila’s unique two-format approach of shot and Margaritas has shaped Sauza’s “innovation strategy with flavours”.

Beam Suntory has recently introduced Hornitos Lime shot to “elevate the salt and tequila and lime ritual”. Its latest innovation is Spiced Honey – a 100% blue agave Hornito Plata infused with natural honey flavour and a ‘special spice blend’ for sweet and heat. Sticking with the hot vibe, Sauza tequila introduced Cucumber Chili tequila in June. The first flavoured offering is designed for a slightly spicy and refreshing twist to the Margarita.   

Richards says consumers should anticipate additional innovation in flavour as the space evolves in the emerging category. Beverage Information Group’s Rogers explains why he thinks this space will evolve: “Added flavours mask the lower quality mixtos while keeping the retail price at affordable levels for the consumer.” 

Mixto

Mixto need not quake in its sombrero as its premium and ultra-premium relation gains favour because it still has its place, Rogers says: “Mixtos will continue to be consumed through Margaritas but I also expect that they will be the core of flavoured offerings, which will keep them in demand.”

Patrón’s Wilson agrees: “There’s certainly still a place for mixto tequilas, but clearly the excitement and the growth in the category will continue to be around ultra-premium brands.” 

Celebrity

Like it or not, the hip-hop and A-List presence in the category has shone a light on tequila and drawn consumers – who might otherwise have attributed horrid hangover memories to the tipple – to a different way of thinking. 

Grindstaff at El Jimador says: “There is no question that celebrities such as Justin Timberlake, George Clooney and Sean Combs drive awareness and intrigue for the tequila category.  In almost all cases, the brands that celebrities are creating or endorsing are priced above $40 per bottle in retail, which helps position the category as more authentic and premium.” 

Analyst Rogers agrees: “Spirits are an affordable luxury and there’s not much more luxurious than the celebrity lifestyle. Clooney’s’ Casamigos is a great example, as is Timberlake’s 901 tequila, which earlier this year was purchased by Beam Suntory and transitioned into Sauza 901. Time will tell if Combs will make lightning strike twice with Deleón after his successful support of Ciroc.”

Diageo says it’s all about finding the right partner for the right brand. Consumers can see through the marketing and won’t buy into certain celebrities cracking open a bottle of spirits just because the billboard tells them they do.  

According to Diageo’s Tomlin, you have to “leverage that partner correctly”. Marketing speak if ever you’ve heard it, but it makes sense. Putting its faith in Sean ‘Diddy’ Combs has paid dividends before and Tomlin thinks millennials will buy into the mogul for a second time.  

He says: “Sean Combs is a living symbol of the lifestyle many millennials aspire to – one that values working hard and celebrating their successes.” The company says it isn’t looking to “leverage” a partner with Don Julio. 

At the other end of the spectrum, Rande Gerber, Casamigos brand owner and business partner of George Clooney, says: “There are big companies that hire celebrities to promote their brands, but Casamigos is different. 

“People appreciate the authenticity of our story. George, Mike Meldman and I own it, drink it, run the company and live the lifestyle. We are just three guys who know what we like and want to share it – one of us just happens to be a celebrity. 

“The numerous awards and accolades Casamigos has received is a result of the spirit itself, not the people behind it.”While Patrón’s Wilson recognises celebrity association has probably helped some brands, he says: “We’ve never felt we need to pay a celebrity in order to sell Patrón – our tequila stands on its own merit.”

Travel Retail

Something that has helped tequila stand out on its own merit is travel retail. “It has contributed greatly to our growth and success, and our commitment to this vital sales channel is stronger today than ever in our company’s history,” Wilson says. 

The company recently established a dedicated division, headed by industry veteran John Kilmartin, to focus on the channel. “And we now also have new products and packaging exclusively dedicated to travel retail,” Wilson adds. 

For Brown-Forman, global travel retail is very important because of the great ‘seeding’ opportunities for its brands. “We’re able to target consumers where they buy and when they are in an exploratory mind-set,” El Jimador’s Grindstaff says. “Global travellers are looking for premium brands with heritage and stories to tell when they travel and our tequilas are a perfect fit to these needs.”

El Jimador’s focus is currently on US airports as well as Mexico, namely Cancun. One would assume that’s mixto rather than the high end in the latter outlet. Grindstaff says his company is “looking for the right opportunities to highlight Herradura and has even focused efforts in South Africa and Moscow”.

Tequila has shaken off its hangover. It’s less about the salt, shot, lime, (grimace) and more about the sipping, savouring, (smiling).  The figures support this and signs show tequila literacy is underway. As more companies, celebrities and continents join the mix, tequila is increasingly being taken seriously. 

Agave shortage might be a future concern but it doesn’t appear to be disturbing brands’ siestas just yet.