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Tequila on Fire

Posted on  | March 23, 2015   Bookmark and Share
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There’s no arguing with the numbers: high-end and super-premium tequilas have never before been as popular and successful in the U.S.

 

 

Just-released 2014 sales data compiled by the Distilled Spirits Council (DISCUS) reveal what most retailers and many marketers already knew: higher-priced tequilas have caught fire. Super-premium (SRP $30+) brands shot up nearly 15% in volume, while high-end premium ($18-$30) and premium ($12-$18) grew at the same healthy but more modest 3.7% rate. So strong is the top end of the market now that super-premium accounts for about 40% of supplier revenue in the tequila category.

Brian Bowden, a VP overseeing spirits, beer, beverages and tobacco for the California-based BevMo! stores, notes that customers are more often open to higher-priced tequila expressions. “We’ve seen an increase in our price points toward more of the premium and super-premium and a decrease in mixtos. During the holidays, for instance, whether for gifting or personal consumption, some of our best SKUs were between $75 and $125 in terms of sales.”

Those people in charge of producing, branding and packaging tequila have a few ideas why the market is changing. “Different expressions, premiumization and personalization—those are the trends, along with craft cocktails, that can be said to be driving the discovery of quality tequila,” says Ann Stickler, SVP, Managing Director for Brown-Forman’s Herradura, El Jimador and Antiguo tequilas.

“Overall, consumers want to drink better,” says Andrea Sengara, Director, Tequilas at Diageo, where Don Julio was joined last year by ultra-premium DeLeon. “They’re more interested in a quality story and brands that have credentials. We see that across Scotch and whiskey and we see it in tequila. It’s truly a beautiful spirit to be appreciated.”

PRICEY, BUT LED BY QUALITY

DeLeon is a prime example of how tequila’s price limits are being pushed. Now with two lines priced at the top of the category, there are the three expressions in the ultra-premium line retailing for $60 – 70, and three in the the Luxury line; a joven mixture of blanco and añejo at $150, a cask-strength extra añejo at $350 and the $850 Leona, finished in Sauternes barrels.

Other high-end brands have joined the fray. Not surprisingly, with every upscale expression sharing a common denominator of being 100% agave, communicating points of distinction often involve other aspects of production, notably piña preparation and distillation techniques, blending, aging and wood treatments.

For example, Terlato Wines recently added the $45-$65 super-premium Riazul to their Artisan Spirits portfolio. The añejo spends two years in French Limousin oak, teasing hints of caramel, honey and vanilla out of the barrels. Lunazul’s  Primero añejo is aged 18 months in American white oak. Tres Agaves ages their añejo in Woodford Reserve barrels for 18 months.

Corzo points to triple distillation as crucial to their añejo being “the fullest, most complex expression of modern tequila.” Baron “Platinum” is another tequila brand that is distilled three times, “resulting in an extract that gets cleaner and cleaner,” eliminating any off odors or tastes.

Casa Dragones Joven takes a different route to distinction, employing creative blending on top of multiple distillation and “ultra-modern” filtration. Their twist: hand-finishing their silver tequila with five-year-old extra añejo. Casa Dragones then goes into a handmade bottle of lead-free crystal, individually engraved with the brand’s “pepita” signature design element.

As packaging goes, extra credit is surely due to 1800 Tequila, whose newest offering, 1800 Colección, an extra añejo, comes in hand-numbered bottles, within a custom-designed pewter decanter designed by artist Gary Baseman. The design is inspired by the tragic love story between a Mexican warrior and a magical mermaid. Only 40 bottles have been made available—at a suggested price tag of $2,000.

 

Two-grand is a bit steep for most aficionados, but a sure sign that consumers are in fact willing to trade way up came last year with the launch of Patrón Spirits’ Roca Patrón line, with a 90 proof silver, 84 proof reposado and 88 proof añejo, Roca retails between $69-$89 and is made using the traditional “tahona” stone-ground as well as aging in single-use bourbon barrels, unlike the standard Patrón which uses a mix of new and used barrels.

“The Roca roll-out has far exceeded our expectations, and our expectations are usually very high because new products are so few and far between for us,” says Patrón Chief Marketing Officer Lee Applbaum. He attributes the success to Patrón’s brand equity and the growing consumer appreciation in general for higher-priced spirits. “The category is growing with a lot of new entrants, and the interest in artisanal, hand-crafted spirits is good for us in tequila,” he notes.

DEMAND FACTOR

As tequila consumers look to broaden their palates, brands like Roca, with a different production method and higher proof, become more appealing. Three years ago Herradura launched a limited release program that foresaw just such a level of interest, called Colección de la Casa, in which reposados are finished in different types of casks (in 2014 they used Scotch whiskey barrels).

Brown-Forman’s Stickler says the limited expressions sell out, encouraging further experimentation at the high end. “The category is really turning to more premium offerings and as consumers are rediscovering the craft of tequila, getting interested in añejo and reposado and exploring the other expressions. It’s a joy to be having the conversation about tequila and quality.”

She notes that while Herradura’s Selección Suprema extra añejo, one of the stalwarts of the category and retailing near $400, is clearly meant for the connoisseur, the Coleccion line is generally priced under $100 and allows the tequila aficionado the opportunity to step up. “But even the fact that people are regularly paying $40 for a bottle is so encouraging’” adds Stickler. “And now, whenever people start to take the next step in exploration in the category, there’s something there for them.”

“Extra añejo has tremendous opportunity to grow,” notes a spokesperson for Proximo Spirits, which now includes Jose Cuervo, 1800 and Gran Centenario in its portfolio. According to Nielsen tracking, extra añejo has grown by about 8%in volume last year. 1800 XA is fairly new to the market, but producers don’t see it as just tequila, but rather “more as a fine brown spirit for special occasions,” according to the Proximo spokesperson. That places extra añejos in competition against high-end Cognacs and Scotches, with producers consciously targeting those luxury consumers.

“This is an exciting time for the extra añejo category,” says Avion’s president Jenna Fagnan. “We launched our Reserva 44 last year and have seen an incredible reception. Both tequila consumers as well as whiskey consumers are drawn to the complexity and depth of a good extra añejo tequila.”

BARREL POWER & BEYOND

Among current initiatives, Avion is rolling out a by-the-barrel program for retailers with their reposado expression. By-the-barrel programs, quite common among whiskey producers, are fairly new to the tequila world. Herradura has for a while been inviting on-premise customers to select their own barrels, a program with a premium attached. Recently, some retail customers are asking about añejo barrels. “It’s a very personal thing that allows them to be part of the experience. What a great trend to have customers coming to us to have that experience—you wouldn’t have seen that five to ten years ago,” says Stickler.

All these evolutions are only the beginning, say many in the tequila business.

“The tequila market in U.S. was, and still is underdeveloped, especially in the higher segment,” says Jose Hermosillo, founder of Casa Noble Tequila. “In the super-premium tequilas growth is almost 500% since 2002. I believe we still have a ways to go.” The versatility of tequila fits many drink occasions, he notes—shooting, sipping, classic and contemporary cocktails.

Casa Noble, now in Constellation’s portfolio of spirits, has an edge: it has been certified organic, and also has been pushing other “green” practices. Beam Suntory’s Tres Generaciones has done well in the organic space created by high-end specialty bars and hotels since its certification in 2012. “There is a passionate and growing niche of places that are focusing on that,” says Gary Ross, Beam Suntory Senior Director of Tequila, who oversees Sauza, 901, Tres Generaciones and El Tesoro.

Ross echoes what other tequila marketers highlight: more educated consumers interested in well-crafted spirits willing to pay more for better and different. “Plus there are a lot more players in super premium using more interesting techniques,” he adds.

Sauza has increased its attention to the recently-acquired 901, focusing on the connection to brand founder and pop star Justin Timberlake. Celebrity tequila, with Sean Combs involved in, is part of the category’s curiosity factor lately, as with Casamigos, founded by entrepreneur Rande Gerber with partner George Clooney.

“When George and I decided to create our own tequila, we did it out of our desire to have the best tasting, smoothest tequila for us to drink and share with friends,” says Gerber. “Word started to spread and we realized that others were looking for something similar. Consumers know what they like and appreciate the time, effort and patience we took to create Casamigos. To us, Casamigos is a lifestyle brand.”

While many smaller brands continue to aim for the on-premise as a place to break in, the move to higher end means greater retail involvement. Diageo’s Don Julio has done very well in the on-premise, where the brand has been focused for some time, says Sengara. “That eventually set strong off-premise growth once scale was built,” she explains. “We’ve definitely seen the off-premise start to pick up in the past two years.”

The power of more pricey tequilas is just beginning to emerge, and there are still many possibilities for developing new expressions. Says Avión’s Fagnan, “We are eager to see tequila become a greater force in the spirits industry well beyond North America, and we sense it’s coming. The time is certainly right to be in the ultra-premium tequila business.”

NOT A MARGARITA

While high-end tequila has increasingly gained traction as a fine sipping beverage, bartenders are still inclined to tinker.

One of them, Chris Simmons, General Manager at The Patio on Goldfinch in San Diego, started something he now calls the Ocho Project, inspired by the makers of the unusual single-estate and vintage brand but interested in seeing how different aging techniques would alter the flavor.

Simmons connected with Tomas Estes and Carlos Camarena, co-owners of Ocho to get their approval before aging one of the blancos in five-liter new American Oak barrels. His goal: to craft a tequila with oak-driven characteristics (as opposed to original Tequila Ocho aged in used barrels). Simmons serves the two different styles of tequila side-by-side for guests to experience first-hand the differences the aging process imparts.

“I wanted to focus on one particular component, the aging process, since some producers use brand new oak and some use barrels several times, like Ocho,” says Simmons. He removed samples at 14, 28 and then 42 days, and serves them paired with reposado, añejo and extra añejo Ochos. “They show that if you start in the exact same place and change the next step, you end up in an entirely different place,” he says.


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