The afternoon sunlight is scorching the Tequila Highlands, but within the walls of Hacienda Patrón, the world’s leading luxury Tequila maker, all is cool and sheltered. In the distillery’s cavernous aging room, the sweet scents of wood and slumbering agave spirit fill the darkened, hushed air.
“This is my chapel,” smiles Francisco Alcaraz, Patrón’s master distiller, looking up at the barrels that line the cavernous space. He speaks in whispers, as if careful not to disturb the resting liquid. There’s much discussion about Alcaraz’s latest creation—a Sherry Cask Añejo that’s been aged in Oloroso barrels for over two years. It’s the first entry in a new tier called the Patrón Cask Collection, whose name promises more to come. Sherry Cask Añejo is currently available in travel retail at around $90 a 750-ml., and its U.S. arrival is expected soon.
Also resting in the barrel hall are Tequilas that will compose the Gran Patrón collection, the distillery’s top tier. Those offerings include Gran Patrón Piedra ($400 a 750-ml.), made using a 2-ton, volcanic stone milling wheel called a “tahona,” which crushes the cooked agave and extracts its juices in the traditional fashion. After distillation, Gran Patrón Piedra is aged for four years in French Limousin and new American oak. There’s also Gran Patrón Burdeos ($500), a triple-distilled Añejo finished in Bordeaux barrels and packaged in a Cognac-like crystal decanter. The third entry in the Gran Patrón line is Platinum ($200), a Silver Tequila that’s also triple-distilled.
A generation ago, the presence of such luxury items in a Tequila portfolio was limited, to say the least. Mixto Tequilas—those containing at least 51-percent blue agave and 49-percent cane spirit—were the norm for decades. Today, higher-end 100-percent blue agave Tequilas are spearheading a remarkable growth drive. Since 2005, total Tequila exports to the U.S. market have nearly doubled to almost 18 million cases, with the lion’s share of that increase coming from 100-percent blue agave labels.
“People have come to understand value,” says Francisco Soltero, Patrón’s director of strategic planning and public affairs. “Back in 1995, global exports were at 65 million liters, and 100-percent blue agave Tequilas comprised only 1.2 million liters of the total. Today we’re at nearly 200 million liters—and almost 90 million liters of that are 100-percent blue agave.”
In the U.S. market, 100-percent blue agave Tequila took a majority share for the first time last year, accounting for 50.3 percent of the category. “Exports of standard mixto Tequilas to the U.S. are flat, while 100-percent agave Tequila is growing at nearly double digits,” notes Luis Velasco, president of the Camara Nacional De La Industria Tequilera and proprietor of Mexican drinks importer and Tequila maker La Madrileña. “That appears to be a trend that won’t stop anytime soon.”
For U.S. suppliers, that trend has been a boon to the bottom line. According to the Economic and Strategic Analysis Department at the Distilled Spirits Council, gross U.S. supplier revenues of Tequila (including federal excise tax) have risen by nearly 160 percent since 2003—from $962 million to almost $2.5 billion last year. Leading the charge are super-premium-and-above Tequilas (priced higher than $240 a case by suppliers), whose sales have risen from $142 million in 2003 to more than $1 billion last year—an increase of 641 percent.
“Tequila’s premiumization began in Mexico and is now expanding in the United States,” notes Carlos Humberto Suarez, director of corporate affairs at Casa Cuervo Mexico, the industry’s dominant player by volume. “It has pushed everyone to improve quality—and we still have a lot of space for expansion.”
Indeed, there’s room to roam: Tequila currently comprises only about 7 percent of total U.S. spirits volume, according to Impact Databank, compared to 34 percent for vodka and 9 percent for Bourbon. And at the super-premium and luxury tiers (above $25), Tequila’s 5.8 million cases are eclipsed only by vodka at 6.4 million cases—and vodka’s premiumization has slowed considerably in recent years.
Tequila’s super-premium tier alone (between $25 and $40) totaled 2.6 million cases last year and rose by an aggregate 11 percent, according to Impact Databank. Among the super-premium top players, Cuervo’s 1800 brand cracked the 1 million–case mark, while competitors Cazadores, Milagro, Espolòn and Olmeca Altos all posted strong double-digit growth rates.
Among luxury Tequilas (above $40), volumes advanced by 11 percent to 3.2 million cases in the U.S. market last year. The luxury segment now comprises about 21 percent of the Tequila category in the United States, up from 13 percent a decade ago. Patrón, creator of the luxury movement, remains its dominant player with a 70-percent share. Last year, the Patrón portfolio posted another stellar performance, advancing by nearly 10 percent to 2.3 million cases.
The core Patrón expressions are Silver ($45), Reposado ($50) and Añejo ($55), and the brand launched Roca Patrón three years ago. Made using the tahona process, Roca Patrón features Silver ($70), Reposado ($80) and Añejo ($90), with the latter two expressions aged in single-use Bourbon barrels for five months and 14 months, respectively. Last year, Roca Patrón rose by 16 percent to 44,000 cases in the U.S. market.
While Patrón’s position remains unassailable, the competitive field is growing fast. Three luxury competitors—Don Julio, Herradura and Casamigos—advanced at double-digit rates last year, albeit from smaller bases. Don Julio’s most upscale labels include the signature Don Julio 42, a 30-month Añejo that’s among the more sought-after luxury labels at $100-and-over, as well as Don Julio Real, an Extra Añejo that’s aged 40 to 45 months.
While Patrón might be the dominant luxury player, Casa Herradura launched the world’s first aged Tequila, a Reposado, in 1974. It also pioneered the Extra Añejo category with the 1995 release of Seleccion Suprema ($350), its highest-priced expression, which is barrel-aged for 49 months. Seleccion Suprema was initially classified simply as an Añejo, but Herradura appealed to the Consejo Regulador de Tequila (CRT) for the new designation of Extra Añejo, which was finally granted in 2006. “We’re proud of making the Tequila industry’s first Reposado and its first Extra Añejo,” says Ruben Aceves, Herradura’s master taster and director of international brand development.
Herradura also excels at the art of cask finishing, particularly with its Colección de la Casa ($90)—an annual limited release of just 13,000 bottles. The first offering came in 2012 with a Reposado finished for two months in Port casks and was followed in 2013 by a Reposado, which is aged in American white oak barrels for 11 months and finished in French oak casks for three more. The 2014 Colección de la Casa release was a Reposado aged for 11 months in American white oak barrels and finished for three months in single malt Scotch casks from the Highlands and Islay. “In 2015, we went in the opposite direction and released Directo de Alambique—a Silver Tequila bottled direct from the still at 55-percent abv that was meant to be a permanent expression,” Aceves says. Directo de Alambique did become a permanent SKU in 2015 and retails today at $90. The Port Cask Finished Añejo was the most highly acclaimed of the Colección de la Casa series, and it was brought back as the 2016 release. Though there has been talk of making it a permanent SKU, that hasn’t yet happened.
Tequila’s arrival on the global luxury stage is perhaps best signaled by the entry of Moët Hennessy. In May, the company launched Volcan De Mi Tierra, produced in a joint venture with the Gallardo family, whose lineage in Mexico dates back to the 17th century. The partners chose a distillery near the town of Huaxtla in Tequila’s Lowlands valley—not far from the Volcan de Tequila, a long-dormant volcano that’s Jalisco’s most famous landmark. “We looked at many properties—small, medium and large—before acquiring this distillery, which was a great, family-owned working facility that simply needed the love and attention that we could give to it,” says Trent Fraser, the joint venture’s president and CEO.
To oversee production, Moët Hennessy has tapped Ana María Romero Mena, one of the Tequila region’s few female master distillers. Romero Mena has created what she sees as a unique blend of the two principal Tequila terroirs: the Lowlands, which are northwest of Guadalajara and around 3,600 feet above sea level, and the Highlands, which are east of Guadalajara and rise to more than 6,000 feet. Highlands agave has a floral, fruity and sweet flavor profile, while the volcanic soils in the Lowlands produce an earthier, more herbaceous style.
While Moët Hennessy’s entry is significant, Diageo made an even bigger splash in June with the announcement that it’s acquiring the Casamigos Tequila brand for an upfront price of $700 million, plus $300 million in potential payouts based on future performance.
Casamigos launched in 2013 amid great fanfare, mainly due to its glamorous ownership team, which is led by actor George Clooney and nightlife entrepreneur Rande Gerber. Clooney’s cinematic resumé is well known, while Gerber is the founder of nightlife company Gerber Group. Third partner Mike Meldman founded Discovery Land Company, a leading real estate concern that develops private golf club communities across North America.
Casamigos’ founding partners will have “active participation” in the future direction of the brand, Diageo says. With Clooney and Gerber as the face of Casamigos thus far, their continued involvement will likely be key to its future. Casamigos Spirits CEO Lee Einsidler will stay on, and the brand will be run as a separate unit.
Retailing between $45 and $55 a 750-ml., Casamigos offers a Blanco, a Reposado and an Añejo. The brand has posted average annual compound growth of 54 percent over the past two years, and last year reached 120,000 cases, primarily in the U.S. market. For 2017, it’s on track to reach between 175,000 and 200,000 cases. Diageo has set a five-year goal of reaching 1 million cases and establishing a major presence in the luxury Tequila segment with Casamigos.
When it comes to passion, no one is a more fervent advocate of luxury Tequila than Ken Austin, who launched the Avión brand in 2010. Austin sold a majority stake to Pernod Ricard in 2014, but remains very much involved. The portfolio includes Silver, Reposado and Añejo expressions, as well as Avión Reserva 44 Extra Añejo and a forthcoming Port-aged Tequila. Avión Silver’s hallmark is an agave-forward nose, grapefruit and pineapple flavors, and a peppery finish that’s a signature of Highlands Tequila. “Many Tequilas lose the true Blanco finish because they try to accomplish other things,” Austin says. The brand’s Reposado is aged for six months, and aging is extended to two years for the Añejo. “The Añejo is aged long enough to develop the liquid, but not enough to have the wood overtake the agave,” Austin notes. “Otherwise we might as well be selling whiskey or some other barrel-aged spirit.”
The Aging Question
Indeed, as Tequila burnishes its upscale image, comparisons to high-end Cognacs and whiskies inevitably arise. But those parallels are misguided, as aged agave spirit is so different from its grain- and grape-based counterparts. The outside range for aging Tequila is between four and five years—far lower than for whiskies and Cognacs. (Tequila producers take pains to note that a single agave plant also needs to mature for at least seven years before being harvested—making the elaboration of the longest-aged Tequilas closer to a 12-year process.)
At Herradura, developing its ultra-premium Seleccion Suprema was a journey that involved years of experimentation. “We wanted to rest the Tequila as long as possible while still maintaining balance and elegance,” Aceves says. “We tried everything in terms of aging length and barrel selection. In the end, we hit upon what we consider the perfect ultra-aged Tequila—49 months in 55-gallon, very lightly toasted and charred oak barrels. There are many things you can find in Seleccion Suprema—notes of almonds, grapefruit, mango, banana, pineapple, agave, butter, vanilla and pepper. The coloring is 100-percent natural. With the right oak, toasting, charring, timing and temperature, it’s amazing what you get.”
According to Aceves, 49 months stretches the aging process to its outer limits, due to the Tequila region’s climate and the nature of the liquid itself. “You really don’t gain that much after that, and by then you’ve also lost a lot of liquid,” he says. Indeed, some 40 percent of the barrel is lost to the Angels’ Share in Seleccion Suprema’s aging process. “If someone says they’re aging longer than that, they’re probably keeping the Tequila in a very chilled environment,” Aceves explains “You could age a Tequila that way for 25 years, but there would be nothing going on.”
Within the Avión portfolio, the oldest expression is Avión 44 ($150 a 750-ml.), an Extra Añejo aged for 44 months and packaged in a fire-polished crystal bottle. “Avión 44 is aged in small barrels and rotated, so it’s probably closer to a 50-month product in terms of taste,” says Austin, who gladly takes up the challenge against other aged spirits categories. “People who like Scotch or Cognac love Avión 44 because it’s so complex, but wood hasn’t destroyed the agave-forward flavor.”
Avión is nearly ready to launch a Port-aged Tequila at cask strength. “It’s aged in Port barrels, not finished in them,” Austin notes. “I won’t put liquid in a barrel and finish it just so I can state it on the box. This product has a hue like a rosé. And we have different barrels around our facility that we’re testing—Cognac barrels, Sherry barrels and others. I have five innovations done, but I can’t force them down the system, so we’ll wait.”
Amid all the enthusiasm for aged and cask-finished Tequila expressions, there’s still a robust consumer preference for Silver. That trend isn’t wholly price-driven, as many Tequila lovers simply prefer it as being truest to the agave taste. Unaged variants still account for around 60 percent of U.S. Tequila sales, by most estimates. “Even amid the current love of brown spirits, Tequila consumers continue to prefer Silver,” says Christine Moll, category director for Tequila at Campari America, marketer of Espolòn. Herradura brand manager Jennifer Simmonds agrees. “We’re seeing progress across all our expressions, but most growth is coming from Silver,” she says.
Betting On Cristalino
One Tequila style getting greater attention these days is Cristalino, a relatively new expression that has yet to be officially classified by the CRT. It’s an aged Tequila that’s charcoal-filtered—a process that removes the color and strips out some of the wood compounds that result from barrel aging. Don Julio launched the concept in 2011 with Don Julio 70, a limited-release developed to celebrate the brand’s 70th anniversary the following year.
“Don Julio 70 starts out as the same product as Don Julio Añejo, but then undergoes the 48-hour charcoal filtration process, which removes some of the wood flavors masking the alcohol, in order to enhance the agave sensation,” says Don Julio master distiller Enrique de Colsa. “The result is a clear Añejo that resembles a Blanco, but has the smoothness and complexity that’s derived from barrel aging without the wood notes.”
Initially, Don Julio 70 was called an “Añejo Claro,” but today it’s labeled a “Cristal Claro Añejo.” Although the concept seemed somewhat puzzling at first, Don Julio 70 was a success, earning a permanent spot in the portfolio. “A number of brands have since followed, and the Cristalino expression continues to gain fans,” de Colsa says. “So we really changed the Tequila market.”
Competitors in Cristalino today include Cuervo-owned labels Maestro Dobel Diamante and 1800 Cristalino. Casa Cuervo chief executive Juan Domingo Beckmann told shareholders recently that Cuervo is now placing “significant efforts” behind the Cristalino style. Herradura, which launched the Cristalino expression Herradura Ultra ($60 a 750-ml.) in 2015, is also very much in the mix. “We decided to do this expression in a more sophisticated way,” Aceves says. “Herradura Ultra is a blend of three Tequilas—one aged 12 months, one aged 25 months and an Extra Añejo, which is aged 49 months. We also sweeten it with some agave nectar, and then run it through the chill-filtration process.” Brand owner Brown-Forman appears to be expecting big things from Herradura Ultra in the U.S. market.
The newest Cristalino entrant is from Moët Hennessy’s Volcan De Mi Tierra brand, whose Cristalino also retails for $60. It’s a mix of 70-percent Añejo and 30-percent Extra Añejo, with an additional 30 days of barrel-aging after charcoal filtration.
Skeptics see Cristalino as a marketing play, aimed at recruiting new drinkers by offering a sweeter aged Tequila that outwardly resembles Blanco or even vodka. De Colsa adamantly refutes this argument. “Even in Mexico, some people think the charcoal filtering was only about removing the color,” he says. “We weren’t aiming to do that at all. The idea was to remove the compounds to enhance the agave notes, while still retaining an aged flavor.”
But Aceves acknowledges that Cristalino’s clear appearance is a selling point. “A lot of people in Mexico want to drink Blanco Tequila, but don’t always like its more earthy, herbaceous flavor,” he says. “Still, they want to be seen drinking Blanco because someone who drinks Blanco is a true connoisseur.”
It’s worth noting that charcoal-filtering doesn’t create a uniform product, as there are differences between the various Cristalino expressions. Volcan De Mi Tierra’s Cristalino, for example, isn’t entirely clear, but has a light golden hue. Its taste profile is also different—a bit less sweet than the agave syrup–influenced Ultra.
The next step is to see how Cristalino becomes officially classified. No one is sure whether that will happen, but the Official Standard for Tequila is reviewed every five years, and 2017 is a review year. Under that process, producers put forward ideas on changes to the current standard and offer a consensus proposal to the Mexican government, which makes the final decision. Some distillers want to make Cristalino the sixth class of Tequila along with Silver or Blanco, Gold, Reposado, Añejo, and Extra Añejo. Others argue that another classification might confuse consumers. It’s likely that Cristalino will gain an official standing, but not without much debate.
Volume Leaders Alive And Well
Since losing about 10 percent of its volume from 2005 to 2013, Jose Cuervo has undergone a renaissance. Last year, the brand rose by 4.3 percent to 3.6 million cases, according to Impact Databank. Sales of Cuervo Silver have been healthy, and the brand has also been lifted by the performance of the more upscale 100-percent agave Jose Cuervo Tradicional Silver, barrel-aged for one month and based on a recipe from Casa Cuervo’s founding year of 1795.
Sauza, the premium tier’s second-largest player, also posted healthy growth last year, rising 7.4 percent to 2.25 million cases. Sauza master distiller Fernando Avila is bullish on Hornitos Black Barrel ($30 a 750-ml.), which is finished for four months in charred oak and targets the whisk(e)y-drinking demographic.
Other premium brands, such as Herradura’s El Jimador brand (up 16.7 percent last year) and Heaven Hill Brands’ Lunazul (up 22.7 percent), are also performing well. Heaven Hill president Max Shapira predicts Lunazul will reach 200,000 cases this year, up from 135,000 cases in 2016. Lunazul is produced in a joint venture with the Tierra de Agaves estate owned by Francisco Beckmann, brother of Cuervo owner Juan Beckmann.
At all tiers, Tequila abounds with creative new players. New to the scene is Código 1530, which launched late last year. Código’s cofounders are Mexican entrepreneur Federico Vaughn and Crocs Footwear executive Ron Snyder, who built the shoe brand into a global powerhouse. The portfolio includes Blanco ($49 a 750-ml.), Reposado ($69), Añejo ($119) and Origen Extra Añejo ($249) variants, as well Rosa ($65), finished in Napa Cabernet barrels. After launching in Texas, California, Tennessee and Colorado last year, Código 1530 expanded into New York, Illinois, Nevada and Missouri this year and expects to be in 20 states by autumn.
The Tequila shelf is increasingly crowded, but retailers are starting to devote more space to this still-emerging category. The level of international investment, coupled with current growth trends, bodes well for the category’s future. Today, sophisticated drinkers discuss Tequila in reverential tones once reserved for luxury wines, whiskies and Cognacs. But there are many who have yet to be converted—and a host of high-end players that are aiming to do just that.