At Bodega Negra, located in the Dream Downtown hotel in New York City, patrons have a choice of more than 100 Tequila brands, usually consumed at the bar or with a meal. Those Tequilas, offered by the bottle ($260 to $4,000 a 750-ml. or 1-liter bottle) or by the 60-ml. pour ($12 to $250), represent Tequila’s current and likely future positioning within the U.S. spirits business.
“High-quality Tequilas have redefined this drink to the consumer,” says Bodega Negra’s beverage director Drew Sweeney. “It’s no longer viewed as only a cheap shot with lime and salt, but as a premium artisanal spirit—perfect for cocktail creation or all by itself.”
Standard mixto Tequilas are now outshined by the super-premium and luxury end, where 100-percent agave is the baseline. Complex production methods, along with careful long-term aging, have created a more crafted approach to the Mexican spirit. In fact, 100-percent agave Tequilas accounted for about 42 percent of total Tequila exports from Mexico in 2014, compared to less than 15 percent of exports in 2002, according to the National Chamber of the Tequila Industry.
In the United States specifically, super-premium Tequilas have experienced a nearly 570-percent volume increase since 2001, with the segment growing to 2.4 million cases last year, according to the Distilled Spirits Council of the United States. Value offerings saw an 80-percent increase from 1.6 million cases to 2.9 million cases between 2001 and 2014. Last year, value Tequilas grew in volume by 1.7 percent and generated $225 million in revenue, while the super-premium segment advanced 15 percent and totaled $860 million.
Patrón, the largest-volume super-premium Tequila on the market, was the early catalyst in a push toward the high-end. Originally launched in 1989, Patrón ($44.99 a 750-ml. bottle for the Silver) struggled in its early years as consumers were skeptical of top-shelf Tequila. The brand carved out a super-premium niche by the late 1990s and reached 2 million cases last year, according to Impact Databank.
Over the past several years, the landscape has changed considerably. Patrón still dominates in the upper pricing tiers, but many major spirits marketers and a slew of new players are all vying for a slice of the growing super-premium and luxury Tequila pie. Lee Applbaum, global chief marketing officer at Patrón Spirits International, welcomes the competition, but is concerned about the numbers and qualities of the brands invading the super-premium space. “The red flag in my mind isn’t so much about the rate of growth, but about the brands and products fueling it,” Applbaum says. “As long as the new players are committed to producing authentic, artisanal Tequila, it’s great for the category and the consumer—and ultimately great for Patrón because we’re all having a conversation with consumers about Tequila.”
A number of smaller brands are making big headway. Higher-end labels like Don Julio, Herradura, Espolón and Casamigos performed well last year. Don Julio grew to 270,000 cases from 230,000 cases, while Herradura added 14,000 cases for a total of 127,000 cases, Espolón gained 12,000 cases to reach 112,000 cases and Casamigos more than doubled volume to 45,000 cases in 2014, according to Impact Databank. “People appreciate that Casamigos is something you can drink straight or pour on the rocks,” says Rande Gerber, founder of the brand owner Gerber Spirits.
Don Julio Tequila brand director Jeff Parrott says American consumers have become much more Tequila-literate than in the past and are more appreciative of individual brands nuances. “Founder Don Julio González began making Tequila more than 70 years ago,” Parrott notes. “He was a true industry innovator, dedicated to boosting quality levels within the category.”
Smaller players are also looking to make waves, using heritage, quality and authenticity to appeal to the growing pool of Tequila aficionados. Blue Nectar Tequila ($39.99 to $49.99 a 750-ml. bottle) launched six years ago and is now in nine U.S. markets. Blue Nectar cofounder and COO Nikhil Bahadur says consumer education is key. “We really like to emphasize Tequila terroir,” he says, noting that the brand is produced from agave grown in the lowlands of Jalisco. “The Tequila tastes like its place of origin. The lowlands have rich volcanic soils, which give Blue Nectar more minerality and earthiness than Tequilas in the highlands, which are typically sweeter, more floral or more citrusy.”
Laura Bogart, brand manager for Tequila at Luxco, says farming and production methods are becoming increasingly important to consumers. “Many higher-end Tequilas are cultivated in ways that can be compared to wine, where climate and terrain have an influence,” she says. Luxco markets the Tequila brands El Mayor ($25 to $35 a 750-ml. bottle), Exotico ($11.99 to $14.99) and Juarez ($9.99 to $10.99).
Higher production standards are becoming more prevalent, both for new brands and in line extensions to existing brands. “We maintain the highest standards, such as using a narrower cut of the distillate and filtering up to 10 times longer than the competition,” says Dominic Alcocer, brand director for Avión Tequila ($49.99 a 750-ml. bottle for the Silver) at Pernod Ricard USA. Other brands are extending their lines with extra-aged expressions, offerings matured in whisk(e)y barrels or Tequilas produced via traditional methods. The ultra-premium Roca Patrón line ($70 to $90) is made using agave that’s crushed beneath a 2-ton tahona stone—a centuries-old technique for producing Tequila.
For many small brands, the lack of marketing and advertising budgets means slow growth in volume. Marko Karakasevic, master distiller of Charbay Distillery, says the company’s Tequila Tapatio ($31 to $140 a 1-liter bottle) is making slow and steady progress. “The market is very competitive, but we’re here for the long haul,” Karakasevic says. “We don’t have a multimillion dollar marketing campaign. As a result, it grows slowly.”
Tromba Tequila ($32.50 to $45 a 750-ml. bottle), another relatively new entrant, is relying in part on the notoriety of its master distiller, Marco Cedano, who is the former master distiller for Don Julio Tequila. “We’re getting incredible reception from the trade, which values the authenticity and pedigree behind our brand,” says cofounder Eric Brass. “We have one of the best master distillers in the world making Tromba, and he’s putting his family legacy behind it.”
Brass says consumers are eager for information. “People want to know where the drink comes from, who’s making it and why they’re drinking it instead of something else,” he explains. “They want credibility, not jargon and marketing gimmicks.”
Some Tequilas are gaining traction due at least in part to their links to celebrities. For example, Casamigos is co-owned by actor George Clooney, along with Gerber and Discovery Land Co. CEO Mike Meldman. Gerber says the story of how they initially made the Tequila for themselves to enjoy resonates with consumers, and the brand’s quality is backed up by support from the trade and its various awards. “When you have Tequila aficionados giving their stamp of approval, along with bartenders and mixologists really supporting the brand, it definitely helps in getting the word out,” Gerber says.
Singer and actor Justin Timberlake collaborated with Beam Suntory on the launch of Sauza 901, a super-premium line extension to the company’s flagship Sauza Tequila brand. The offering’s triple-distillation process “eliminates the need for the lime ritual,” says Megan Frank, senior brand director of Tequila at Beam Suntory. Sauza 901’s latest advertising campaign features Timberlake chronicling the downfall of limes in a tongue-in-cheek way.
Hip-hop producer Sean “Diddy” Combs has partnered with Diageo on DeLeón Tequila, though he won’t appear in ads for the brand. But he plays a behind-the-scenes role, according to Alex Tomlin, senior vice president of marketing for Tequila at Diageo. “In conjunction with Diageo and his team at Combs Wine & Spirits, he’s been intimately involved in the development of brand positioning and marketing for DeLeón—everything from taste to look and feel,” Tomlin says. “He was also a driving force behind the brand’s new, full-scale marketing campaign.”
Blue Agave Bargains
While some ultra-premium brands are gaining notoriety, much of Tequila’s volume growth is being driven by lower-priced 100-percent blue agave Tequilas. Brands like Espolón, El Jimador, Lunazul and others typically carry sub-$30 price tags. Umberto Luchini, vice president of marketing for Campari America, says Espolón’s price is resonating. “Espolón is in a sweet spot for consumers,” he says, noting that it’s “a great value for 100-percent blue agave Tequila.” The company also markets the Cabo Wabo brand ($39.99 to $49.99 a 750-ml. bottle).
Similarly, Reid Hafer, senior brand manager at Heaven Hill Brands, touts Lunazul’s $20 price point. “Previously it went from Jose Cuervo to Patrón in the price spectrum,” she says. “A lot of brands have relaunched in this space, but Lunazul was the first.” The Tequila jumped by 9,000 cases to reach 94,000 cases in 2014, according to Impact Databank.
Retailer Kenny Lee, president of the 17-unit Las Vegas–based Lee’s Discount Liquors chain, says consumers are jumping in. “There are a lot of 100-percent agave Tequilas right around $20, and people are beginning to realize that some of these are just as good as the high-end brands,” he says, adding that the luxury end of the market is still performing extremely well in his stores. “There is also huge demand for very high-end Tequila like Don Julio 1942 Añejo,” he adds. “We’re now buying that offering by the pallet, which was unheard of before.” Lee sells the brand for $109.99 a 750-ml. bottle, which he calls “very aggressive pricing.”
Indianapolis retailer 21st Amendment carries Tequila across the range of price points. Top-sellers include the 100-percent agave brands Patrón Silver ($37.99 a 750-ml. bottle) and Don Julio Blanco ($39.99) and the mixto offering Jose Cuervo Tequila Especial Gold ($16.99). Jose Cuervo, marketed by Proximo Spirits, remained the No.-1 Tequila in the United States in 2014, with a 0.9-percent increase to 3.35 million cases last year, according to Impact Databank. Patrón moved up to No. 2 with a 3.8-percent rise to 2.025 million cases, while Sauza dropped to No. 3 with 3.3-percent growth to 2.02 million cases. Proximo’s other Tequila brand, 1800, stayed flat in the No.-4 spot at 1.045 million cases. Juarez, another mixto, ranked fifth with a 5.4-percent gain to 685,000 cases.
Some marketers of those brands predict a move away from the mixto style. “Juarez has always been the workhorse in our Tequila portfolio,” says Luxco’s Bogart. “But based on what we’re seeing from a trends perspective, there’s great opportunity in the more premium 100-percent agave category.” Beam Suntory’s Frank notes that Sauza is the company’s primary Tequila focus in the United States and globally, but increased emphasis is being placed on the brand’s 100-percent agave line extension, which is being rebranded as Sauza Signature Blue. “With consumers continuing to trade up worldwide, we anticipate 100-percent agave Tequilas will become the category standard, and Sauza Signature Blue will become the heart of the Sauza brand,” Frank says.
Margaritas remain the mainstay of Tequila cocktails, but ongoing innovation in craft cocktails has given Tequila a new outlet for growth. At Dirty Habit in San Francisco, bar manager Brian Means notes that one of the venue’s best-selling cocktails is the Date in India ($13), made with Herradura Blanco Tequila, Luxardo Maraschino liqueur, St. Elizabeth’s Allspice Dram, tamarind and lime.
John Stanton, head bartender at Sable Kitchen & Bar in Chicago, has seen significant interest in Tequila cocktails. “Whenever we put out a new cocktail menu, at least a couple of cocktails will feature Tequila, and there’s definitely demand on the consumer side.” Popular drinks include The Misunderstood Cocktail ($16), comprising Corralejo Reposado Tequila, Del Maguey Vida mezcal, fresh-pressed ginger syrup, honey, muddled cucumber and fresh lime juice, topped with Miller High Life.
Both Means and Stanton report that Tequila consumed straight or on the rocks is a small but growing part of their business. Means says Tequilas and mezcals are showing solid sales, with patrons moving around the different styles of agave-based spirits. Stanton notes that consumers are curious, while sipping Tequilas are a niche but increasing market. “A relatively small crowd of people have discovered how good Tequila can be to just sip neat,” he says.
Tromba Tequila’s Brass says a transition will come over time. “The process takes a while,” he says. “It’s a change from the Margarita mind-set to a more appreciative approach, but the trend is definitely moving in the right direction.”