Tequila

Not
only are consumers buying more high-end tequila than ever
before but the majority of new tequilas coming onto the
market are in the super-premium category. The importance of
image, an interest in pairing nice tequilas with Mexican
cuisine and some very innovative promoting and packaging
have all helped to fuel the growth of tequila and put the
entire category on track as one of the fastest growing in
the US.

A
SPIRIT on FIRE A
particularly unique traits about tequila is that, perhaps
more any other spirit, it has completely changed its image
and expanded its appeal to cover an immense demographic.
Much of this can be attributed to tequila’s remarkable
versatility – sipped in a snifter, downed as a shot or
served in a martini glass. Shots of tequila range from $4 to
$4O and bottle prices can go all the way up to a staggering
$1OOO. And, of course, there is the hugely popular
margarita, presently the #1 drink in America. Ilene Grimes,
Brand Manager for Sauza Tequilas (the fastest growing
tequila in the world) comments, “Over the past four to five
years, the margarita has surpassed the martini and the rum
and coke as the top cocktail in almost every major market in
the United States. I think the reason is two fold. First,
you have a move towards flavor in cocktails. People looking
for exciting new tastes, which tequila and the margarita
provide. It is exciting to see people experimenting with new
variations on the traditional margarita, similar to what you
have been seeing with the Cosmopolitan or martini. The
second reason for tequila’s increase in popularity is the
spreading influence of Hispanic culture. Hispanics are the
fastest growing demographic in the United States. Twenty
years ago, you might be hard pressed to find a Mexican
restaurant in the Midwest or Northeast. That has certainly
changed now. With that growth in the demographic, comes the
spreading influence of the culture, which includes tequila,
whether in a margarita, paloma, or sipped, as the finest
tequilas are enjoyed in Mexico.”

Although tequila
was zooming up the fast track several years ago, a sudden
shortage of the agave plant in 2OO1/2OO2 threatened to
derail it. Matt Gilmore, the Brand Manager for 18OO Tequila
says, “When the agave shortage happened, experts were
concerned about the future of tequila. Would it rebound?
Rather than hurting tequila, the shortage helped, especially
higher priced tequilas. Consumers discovered tequila was a
precious commodity that could disappear. They found that it
takes 8 years before an agave plant is ready for production.
Better tequila is made from 1OO% agave, which is not what
they had been used to drinking. The curiosity was peaked.
Furthermore, this consumer was willing to spend more money
on products that demonstrated quality and would impress
friends. That’s why we see higher priced spirits sell
well.”

1OO%
PURE PREMIUM Call
it a 49% leap. What once was popular to drink has now become
declasse as preferences have been elevated from the minimum
51% mix to the 1OO% blue agave level. Al Zarrella, the
Northeast Division Manager for Sazerac Company which
represents the Herradura family of tequilas states,
“Consumers are intrigued by tequila and that is translating
into more trial in the premium category. With more trial
comes adoption and with adoption comes eventual trading up
to more expensive super-premium brands and styles. There is
also a status associated with being ‘in the know’ and
appearing unique. Therefore people who pay $3O for a shot of
tequila are, in many ways, attempting to distinguish
themselves from ‘me too’ consumers.”

An example of a
tequila creating its own niche is the recently launched
super-premium Corzo line. Bacardi USA represents Corzo as
well as top-selling Cazadores. With Corzo they are
attempting to reach out to the refined and sophisticated
tequila connoisseur. The price point is in the super-premium
category but they are looking to establish themselves in a
higher bracket. The tequila itself is finely crafted using
all-natural fermentation and is redistilled after barrel
aging with the end result being an extremely smooth finish
and clean flavor. Nor is the brand seeking to become
mainstream. Corzo silver and reposado are being released
into select markets throughout the US where the consumer is
already knowledgeable about fine tequila. Their rollout will
be a gradual one. Gonzalo de la Pezuela, the Vice President
and Group Marketing Director for Corzo and Cazadores, says,
“The trend for upscale is much bigger than tequila. People
are looking for the authenticity and this is an affordable
luxury.”

Mark Tonello,
Regional Sales Manager for Milagro Tequila, another
relatively new addition to the market, comments that the
trend these days is about: “Quality and purity – people are
all about trading up, whether it’s coffee, cars or tequila,
and they only want the best. Ultra-premium tequila is
another example of this phenomenon, and we believe that
Milagro can match any tequila in the world. Ultra-premium
tequilas also have more in common with other luxury spirits,
and as people become educated about the finer points,
they’re realizing that a beautiful, handcrafted tequila is
as enjoyable to sip as a fine single malt scotch.” Matt with
18OO adds a note about consumer purchasing behavior saying,
“The consumer buying pattern has changed dramatically since
the 197Os. Today you have more dual income families, more
single individuals cohabitating, 75% more women working,
wholesale stores like Costco and Walmart squeezing margins,
reducing our every day cost of living. Thus consumers today
have more discretionary income than they did in the 197Os.
They’re spending this excess money on products that reflect
their brand image.”

BEYOND
the BURRITO Mexican
and Mexican-inspired food has had a tremendous influence
over tequila’s integration into our culture. National chains
such as Chili’s, and local ones such as the Border Cafe,
which serve casual Tex-Mex fare, sell huge amounts of
margaritas. These days, however, consumers are interested in
more than fajitas and tacos. The well-known Ole Mexican
Grill in Inman Square, Cambridge, serves high-end Mexican
cuisine – and to complement the food, owner Ivan Torres
carries an expansive collection of approximately 4O tequilas
including the ultra-premium Herradura Seleccion Suprema for
$4O a shot. The restaurant is renowned as much for its
margaritas as for its food. Ivan has definitely been seeing
an upgrade overall in consumer choices of tequilas. He
comments, “Before, people were asking for Gold tequila but
now they want sipping tequilas and they ask us for our
recommendations.” He also offers flights of tequila as a way
to introduce people to the various levels and brands that
are out there. Customers can select three different
reposados to compare, or a blanco, reposado and anejo from
the same brand to sample.

Pairing food
with tequilas has caught on, and over the last year Ivan has
focused on hosting some tequila tastings and dinners with
very good results. The informal tastings typically entail
serving various tequilas with simple finger food and feature
a speaker, while the dinner is a 4-course meal that has
select tequilas paired with each course. And its not just
Mexican establishments that are choosing to highlight
tequila. Tremont 647, in Boston’s South End, has hosted
several tequila dinners over the years. Joy Richard, who
handles the restaurant’s marketing and promotions comments,
“Until our most recent Tequila Night in November, we always
hosted a “Sauza Tequila Night” where we would start with a
Margarita Reception with Latin inspired passed appetizers,
followed by a four-course dinner served with a Sauza Tequila
Tasting. Each guest would get four tequila samples. The same
format followed with our “Milagro Tequila Night” in
November.” Commenting on Sauza events, Ilene states, “I feel
they are key for helping us broaden the usage and frequency
for the brand. It is important to demonstrate things such as
sipping fine tequilas, or demonstrate to the consumer how
they can make an easy paloma cocktail at home, if they don’t
have the time or the mix to make a margarita. The great
thing is they are relatively easy to conduct. You must work
with the account to establish what works for them and their
consumers. Some can be as easy as a table, some POS and a
knowledgeable sales person. Others can be as extravagant as
full dinners with cigars. It all depends on what works best
for the account.”

For retail
stores, on-premise tastings are a terrific way to expose
customers to various tequilas. At Gary’s Liquors in Chestnut
Hill, owner Gary Park has done several successful tequila
tastings. He comments, “Tequila is a misunderstood category.
People still remember their bad experiences with having had
too many shooters back in college. But it is a great
alternative to scotch and many of the high-end tequilas are
similar to single malts. It’s a growing category all round
and that has made it easier for the higher end tequilas to
sell.” He also points out that, even though there is plenty
of tequila now, the prices continue to go up. At Blanchard’s
in Allston, store manager and liquor buyer Joe Gomes has
found that one of the best ways to learn about tequila is to
talk with customers about what they prefer. Even though the
store is in a densely student populated area, Joe still
finds a strong interest in higher-end tequilas. In fact, one
of the biggest obstacles he’s encountered has been keeping
the super-premium, in-demand tequilas in stock due to lack
of availability.

PRODUCT
KNOWLEDGE and TRAINING
Exposure to new products almost always happens first on a
bar and restaurant level. As Ivan pointed out, patrons
consistently ask his staff for their personal
recommendations. Creating brand loyalty, particularly for
the higher-end brands, is obviously very important. Brands
that recognize this tend to devote substantial time to
educating staff. Sauza has long maintained a commitment to
working with on-premise accounts and it has paid off. Many
restaurants, bars and retail stores cite Sauza as their
preferred brand both to work with as well as to suggest to
customers. Ilene says, “We have dedicated programs that
teach the trade about not only Sauza, but the entire history
of tequila, how to serve it, how to pair it with food, etc.
Both consumers and trade are hungry for knowledge on the
brands they really enjoy.”

Herradura is
another brand that devotes substantial time to on-premise
product training. Al comments, “We continue to educate
restaurant owners, managers, wait staff, and consumers.
Tequila education seminars and dinners are requested more
often these days. Not only do consumers, owners and staff
wish to be educated about tequilas, but we prefer to have
restaurants with trained and educated staff. Tequila
knowledge regarding quality, production and aging for staff
and high-end restaurants is much like having a wine steward
on the premises to ask questions.” Staff tend to be very
interested in these educational tastings as they are a
departure from the typical wine tastings they all must
routinely sit through.

PACKAGING
with PANACHE There
are virtually hundreds of tequilas on the market with new
brands being introduced every year. In order to get noticed,
marketing and packaging play a large roll in grabbing a
consumer’s attention. Just as there are many different types
of tequila, there are that many marketing strategies.
Tequilas such as Gecko and Sammy Hagar’s Cabo Wabo have a
hip fun image, attracting the younger drinker who wants to
party but is still interested in the 1OO% Blue Agave
quality. Corzo on the other hand is marketing to the refined
connoisseur. The campaign is rooted in the desire to sell a
sleeker more modern Mexico as opposed to the stereotypical
‘old Mexico’ of filmdom. Bacardi USA has always intended for
Corzo to be a luxury experience from purchase to palate and
to that end worked with world-renowned designer Fabien Baron
to create a bottle and marketing package which embodied
their sleeker more sophisticated image. Vice President and
Group Marketing Director Gonzalo De La Pezuela notes that
they are hand-selling their concept to their accounts
one-on-one with detail and care. Thus far they have enjoyed
great success with selling it into all of their target
accounts.

While it is
what’s on the inside that ultimately counts, an alluring
bottle, particularly for the higher-end products, can often
determine the first purchase. Mark Tonello states,
“Packaging is something Milagro is very proud of and what we
believe separates us from the rest of the tequila’s in the
marketplace. Each bottle is handcrafted by Mexican glass
artisans with a premium cork finish, including Romance,
which is probably our most recognizable bottle. A handblown
crystal bottle – its two-vessel chambers are made up of
25Oml of our select barrel reposado and 75Oml of our select
barrel anejo.”

PROMOTIONS
and MARKETING
Herradura has a particularly innovative marketing concept
for select restaurants: The Herradura Embassy program. Al
explains that the program “Recognizes those special accounts
that demonstrate a passion for promoting 1OO% blue agave
tequilas. They are accounts that assist Herradura with the
ongoing efforts to heighten consumers’ sophistication for
tequila. Sazerac currently has recognized over 15O such
accounts in the US who are helping educate consumers about
quality tequila.” The “Embassy” accounts host events and
tastings with Herradura. In essence, Herradura becomes the
establishment’s highlighted tequila and gains great
exposure. In Massachusetts, Casa Romero and Ole Mexican
Grill are Herradura Embassy accounts. At Ole, Ivan says that
the brand has positioned itself in a good niche but he also
adds that Herradura happens to be a personal favorite of
his.

Al makes an
adamant point about a particularly unethical industry issue
saying, “Sazerac will not allow an account that uses tequila
substitutes in place of tequila to be recognized as a
Herradura Embassy account. These restaurants are using
substandard products for their margaritas and cheating their
consumer for the sake of a few dollars. City restaurants
charge top dollar for a margarita and the consumer deserves
what they pay for. Some even list true tequila or even a
reposado tequila (by brand name) for their house margarita
on their menu and still substitute.”

As far as
promotions go, few are larger than the Cinco de Mayo. It’s
ironic that a holiday that has virtually nothing to do with
America should be one of the biggest drinking holidays of
the year. The holiday of Cinco de Mayo commemorates the
victory of the Mexicans over the French army at The Battle
of Puebla in 1862. It is primarily a regional holiday
celebrated in the Mexican state capital city of Puebla and
throughout the state of Puebla, but is also celebrated in
other parts of the country and in US cities. It is not, as
many people think, Mexico’s Independence Day, which is
September 16. So why is it so popular here with so many
people who have no particular connection to it? Matt with
18OO Tequila remarks, “Cinco de Mayo is like Valentine’s
day. There was a point in history where this day had
political importance, but today that’s forgotten and now
it’s evolved into a mainstream occasion made popular by
local communities and corporate America. Consumer’s are
inclined to celebrate the day because companies give them
incentive to – spirit brands throw promotions, food
companies give away coupons, local communities organize
festivals, fairs or public concerts to create good will and
drive dollars back into the economy. It can’t not be a
popular day, because each year it needs to be better than
the last.” Interestingly, it is really just 18OO, Cuervo and
Sauza who run large promotions through print and television
media as well as in the off-premise. Many brands, though,
use the internet for marketing. Matt says, “The internet has
huge potential if effectively managed. We know usage is
increasing at a quicker rate than any other media.
18OOtequila.com receives good impressions, but we are
looking into developing more comprehensive campaigns
promoting the various activities behind the brand from
consumer sweepstakes to announcements of new
products.”

FRUIT
BURST After the
phenomenal success that vodka and rum have had with flavors
it only makes sense that tequila should be eyeing the
potential. There have been some flavored tequila products on
the market over the last few years that have done fairly
well, namely Tequila Rose, a blend of strawberry-flavored
cream liqueur and tequila, and Tarantula Azul, a blue
citrus-flavored tequila product. Blanchard’s Joe Gomes says
that the Tequila Rose sells well when there is a trendy
cocktail that has it as an ingredient. Regarding the
Tarantula, he notes that, “Anything with color sells,” and
blue happens to be an extremely popular color right now for
spirits. Still though, this is nothing when compared with
the flavored vodka and rum industry. However, there are
strict regulations governing production and adding flavors
to tequila bottled in Mexico is illegal. And, of course, if
it’s made anywhere but Mexico, it isn’t technically even
tequila. But even the oldest of traditions can be subject to
change. According to the Distilled Spirits Council of the
United States (DISCUS), Mexico will soon allow some tequilas
to be flavored. Provisions for flavored tequilas were
included in the latest draft of the NOM-OO6 – Mexico’s
Tequila standard, which is expected to be finalized by the
end of 2OO5. Once finalized, the NOM will allow flavored
tequilas that are 51% agave but 1OO% agave tequilas would
not be permitted to have any flavors added.

Hoping to get a
jump on the market, a Las Vegas-based company, Tukys, is
launching a line of flavored tequila that has been in
development for the last few years. The company buys its
certified tequila in bulk from Mexico but then bottles it in
the US. President David McQueen says, “We started the
project in 1997 to develop a flavor infused tequila. No one
had attempted to go into the market because of the Mexican
influence to keep the tequila pure . . . no added
flavoring.” Flavors include Mandarin Orange, Watermelon,
Strawberry and Coffee. Regarding the interesting decision to
create a coffee-flavored tequila, David remarks, “It is a
departure, but a good one. No one has done flavored tequila
and I though coffee would be unique. It turns out that in a
taste test we won over Starbucks new coffee liquor. It is
the highest rated flavor in the group and was ‘very highly
recommended’ by the Beverage Testing Institute, achieving an
89 rating.” Tukys will be launching on the West Coast this
spring and working its way to the East Coast. What happens
in the industry when the Mexican approval is finalized
remains to be seen.

While fruit
flavors certainly have interesting potential, it is the
super-premium category that has the most promise and where
attention is really being focused. As long as consumers
continue to develop their tastes for fine tequilas, there is
no ceiling. Perhaps Gonzalo de la Pezuela sums it up most
accurately when he says: “The cornerstone of tequila is
about fun. The great thing about super-premium tequilas is
that you can have fun and sophistication at the same time.”
And that is what the super premium industry is banking
on.