Dateline Mexico City: Mexican scientists have discovered how to transform tequila into diamonds. It seems that the venerable Mexican spirit has just the right proportion of carbon, hydrogen and oxygen atoms to produce perfect diamonds. Meanwhile, American retailers were busy turning tequila into gold.

Overall, tequila was up 3.6% nationally in 2008, according to the 2009 Handbook Advance, published by the Beverage Information Group. In the control states, tequila sales were even more robust, up a healthy 5.1%. For years now, growth has been largely driven by the ever-popular Margarita and the ongoing cocktail craze, though it has been slowing somewhat during the current economic crisis. In the past few years, however, tequila has also acquired a certain cachet among consumers, who have traded up in quality, allowing retailers and states to gain important incremental sales (and revenues).

Matt Carroll, chief marketing officer for Patron Spirits Company, noted, “2008 was another good year for ultra-premium tequila, and for Patron.” According to Beverage Information Group, Patron was the second leading tequila brand nationally, with 2008 sales of more than 1.72 million 9-liter cases, a gain of almost 6.0%. In the control states, the fast-growing brand gained 7.5% last year.

“We saw a positive trend for the whole tequila category last year,” added Antonio Portillo, Sauza senior brand manager. Owned by Beam Global, Sauza is the number-three brand nationally, and recorded sales of almost 1.5 million 9-liter cases in 2008 (number two in the control states and up 1.4% last year). “Sauza’s growth was led by Hornitos,” said Portillo.

Another fast-growing brand is 1800, actually ranked fourth in the control states. “Tequila has been doing phenomenally well over the past few years and we don’t see that trend slowing radically,” opined Elwyn Gladstone, marketing director for Proximo Spirits, Inc. Among Proximo’s four tequila brands is 1800, the sixth best-selling tequila in the U.S. It sold 525,000 9-liter cases nationally in 2008, a 20.7% increase. “Our 1800 Silver is doing phenomenally well,” said Gladstone.

El Jimador is also making a mark nationally. “We are gaining share within our competitive set, which is 100% agaves in the $20-$30 price band,” reported John Hayes, senior vice president for tequila at Brown-Forman. El Jimador is ranked ninth in U.S. tequila sales, with 169,000 9-liter cases in 2008, an 8.3% increase over the previous year.

Meanwhile, two LUXCO brands showed substantial growth in 2008: Juarez gained 14.5% to 630,000 9-liter cases nationally, and Margaritaville forged ahead by 15.0% to 230,000 9-liter cases nationally.

But the Big Daddy of the category, as always, is Jose Cuervo, with its impressive lineup of tequilas. “The full calendar year of 2008 was quite good,” noted Toby Whitmoyer, brand director of the Jose Cuervo portfolio for Diageo North America. It represented a solid year for Jose Cuervo, which is the leading brand with U.S. sales of more than 3.7 million 9-liter cases nationally, an increase of 0.2%, even in a tough economy.

With this notable growth has come a great deal of activity within the category. Established producers have been busy launching new products and line extensions. The thriving segment has attracted plenty of new players, aided by the current surplus of agave, the raw material of tequila.

One of the most active arenas is the superpremium segment, continually raising the quality bar. Customers trading up to better quality quaffs have plenty of tequilas to choose from. That includes extra anejos, a totally new tequila classification created just a few years ago. Flavored tequilas, another new classification, have also entered the market.


Some Debuts

Sure indicators of the health of a category are new product introductions, packaging revamps, brand repositionings and advertising and promotional campaigns, by players big and small, and tequila has seen all of these recently

In the first quarter of 2009, Jose Cuervo launched the premium-priced Jose Cuervo Especial Silver, which joins Especial Gold. “We are supporting Especial Silver with a full through-the-line marketing campaign, including advertising, on-premise sampling, off-premise point-of -sale and programming, as well as media, which is a key element,” noted Whitmoyer.

“We’ll be putting a lot of energy into off-premise channel marketing programs, given that the consumer, because of the economy, has been moving from on-premise to off-premise,” added Whitmoyer.

The new Cuervo Silver has a well-balanced aroma that combines spicy black pepper and hints of agave, with a smooth, clean finish and is best enjoyed chilled as a shot, the company said. It has a suggested retail of $17.99 for a 750 ml bottle.

For Sauza, this year brought a relaunch of new packaging of its Tres Generaciones line. “It repositions the brand in the superpremium segment,” said senior brand manager Portillo. “We upgraded the packaging for a more premium look.”

The front label features medallions of the three founding Dons of Sauza (Cenobio, Eladio and Francisco Javier); the Sauza family crest adorns the neck while the back of the bottle has engraved agave leaves; and the bottle is topped with an elegant wood and cork bottle stopper. The 750ml bottle has a suggested retail price of $45.99 for Plata, $47.99 for Reposado and $49.99 for Anejo. Sauza’s other big news is its new campaign for the Hornitos brand. “It’s a big investment for the company,” noted Portillo. The title of campaign is Mischief. “It features stories about mischievous attitudes, but mischief in a good way, playful and social,” commented Portillo. A feature of the campaign is recipes that give new tequila twists to classic cocktails. “We will show consumers that there are other cocktails besides Margaritas they can make with tequila.”

Sauza also recently introduced the new Margarita-in-a-Box. “You can keep the box in the refrigerator and have a Margarita with dinner or anytime,” pointed out Portillo. “Or take Margarita-in-a-Box on a picnic.” The product is made from a blend of lime juice, Sauza Blanco Tequila, triple sec and Margarita mix and needs only ice to make a Margarita. The box has an easy-to-pour spout and keeps fresh refrigerated for up to six weeks after opening. The launch will be supported with shelf talkers, case cards and displays. The 20 proof Sauza Margarita-in-a-Box is available in a 1.75 liter package at a suggested retail price of $17.99.

Brown-Forman’s El Jimador brand has gotten a reformulation and a new look. “We’ve taken El Jimador back to 100% agave, which it was originally was in Mexico prior to the agave crisis in the early 1990s,” explained senior vp Hayes. With its purchase of the brand, Brown-Forman has restored the tequila to the original recipe. That’s been accompanied with a new look, new package, new label and a new ad campaign.

“We believe it’s a more premium image,” stated Hayes. “The taller, more angular bottle provides greater visibility, both on the shelf and on the bar. The label looks more contemporary and more premium.” The relaunch is supported by national in-store advertising, using artwork from a well-known Guadalajara-based artist.

New York-based Proximo Spirits debuted two new brands and a line extension in recent months. In addition to its 1800 and Gran Centenario tequila brands, the distributor launched Azul. This 100% agave tequila is available in silver and reposado variants, with a suggested retail price of $19.99 per 750ml bottle. “We have great expectations for the brand,” declared marketing director Gladstone, who adds that Azul is the fastest-growing 100% agave tequila in Mexico. An advertising and promotional campaign will run through the year in trade and consumer publications..

Proximo’s Gran Centenario brand got a line extension with the national introduction of Rosangel, a reposado infused with hibiscus flowers (see sidebar on Flavored Tequilas).

Another recent launch from Proximo is not just a new tequila, but a new category, according to Gladstone. “With Maestro Dobel we are trying to create a new category we call diamond tequila.” Created by Juan-Domingo Beckmann, Maestro Dobel is a blend of extra anejo, anejo and reposado tequilas, specially filtered to remove the color but not the character. “It’s crystal clear,” noted Gladstone, “and has the sophistication of a luxury vodka, but the taste complexity of a Cognac.”

Each bottle of  Maestro Dobel is filled and labeled by hand, and individually signed and numbered. The bottom and cork are forged from metal, to create a striking package, which retails for $74.99.

Lunazul, a brand brought to the U.S. by Heaven Hill Distilleries last year, has had an impressive launch, notching 20,000 cases out of the gate in 2008. While priced at about $20-$22 suggested retail, Lunazul Blanco and Reposado are both suerpremium, small-batch, estate-grown 100% agave tequilas, and both recently won silver medals in the San Francisco World Spirits Competition. The Blanco has a citrusy finish, while the Reposado is highlighted by fruit, spices and semi-sweet vanilla (from being aged in American oak). Heaven Hill also handles the ultra-premium 100% agave La Certeza tequilas ($60 suggested retail for the Anejo).

Batrachian Spirits and Señor Frog’s restaurant chain have expanded the distribution of Señor Frog’s Tequilas, available in Plata and Reposado styles. The tequilas were first introduced in Indiana and Illinois in late 2008; and have been rolled out to several other markets since then. Strong brand name recognition was a key factor in producing the 100% Blue Agave tequila, according to the company. The launch will be supported by POS efforts and off-premise samplings. Señor Frog’s tequilas are available only in 750 ml packages at a suggested retail price of $25.99 for the Señor Frog’s Plata and $29.99 for the Señor Frog’s Reposado.

Early this year, Casa Noble unveiled new packaging for its core line of tequilas, which includes a new logo and hand-crafted bottle. A clear bottle displays Casa Noble Crystal, a Blanco; a deep blue bottle identifies the Reposado, and a purple bottle encases the new Anejo. “The brand’s new logo reflects the transformation of a boutique brand into a major contender in a fiercely competitive environment,” said founding partner David Ravandi.

The new Anejo is organically grown 100% blue agave, triple distilled and matured for two years in French white oak; it’s priced $59.95. The new product and new packaging are supported by a national advertising campaign, with the slogan “The One.”

Another new type of tequila was introduced to the U.S. market this spring by Altamar Brands. Tequila Ocho is an ultra-premium single-estate vintage tequila. The idea behind the concept is that agave can, like wine grapes, express the “terroir” where it’s grown. For the 2009 vintage, Plata and Reposado variants are sourced from Las Pomez estate near Arandas (priced $60-$70); and an Anejo is from El Carrizal estate ($80 a bottle).

Former Ketel One Vodka execs Kirk Gaither and Jim Riley have teamed to launch Intersect Beverage, which is bringing to market an ultra-premium tequila brand called Azunia. They have contracted with the Partida-Zuniga family to produce three 100% agave variants in Amatitan.

These debuts are just a selection of the new products launched in the tequila category over the past year.  

A Few Summer Initiatives

Cuervo Season 2009, which begins on Cinco de Mayo and runs through Mexican Independence Day, Sepember 16, is focusing on Jose Cuervo as the ultimate summer beverage. “We’ll be spending over $30 million this summer on that promotional campaign, including $10 million in advertising,” said brand director Whitmoyer. “That’s a big push for us every year.”

Although it’s not introducing any new products this year, Patron Spirits Company is coming out with a new “Summer Mixability” initiative. The program is designed to promote Patron tequila’s versatility by focusing on three key, easy-to-prepare summertime drinks, made with Patron Silver tequila, Patron Citronge orange liqueur and pomegranate, grapefruit, and pineapple juices.

“Pretty much any drink you can make with vodka tastes great using Patron instead,” said Jennifer Long, Patron brand director. Launching June 15, the national campaign is targeted primarily to off-premise locations, supported by in-store displays, recipe shelf talkers and window displays in select markets (as well as waitstaff cards to help drive on-premise menu placement). The initiative will also include print advertisements, a web presence, and various events.

Corzo Tequila, from Bacardi USA, has initiated an interesting promotion running from Father’s Day until the year-end holidays. The handcrafted, superpremium line of 100% agave, triple-distilled tequilas, including a Silver ($47.99 suggested retail), Reposado ($52.99) and Anejo ($56.99), is offering customized personalization of any of its three marques. The metal engraving with a personalized message of up to 25 characters is also available as an engraved Corzo pourer. Both will be available to consumers off-premise and also online.  


The brightest spot in the tequila picture over the past few years has been the premiumization trend, consumers trading up to better – and more expensive – expressions of tequila.

Indeed, according to the latest figures from the Distilled Spirits Council of the United States (DISCUS), 2008 volume growth for the superpremium tequila segment increased 10.6% over 2007; heady growth, especially compared to value tequila, which grew 6.4%. That volume increase translated to gross revenue growth of 11.3%, thanks to superpremium pricing.

As consumers become more familiar with the Mexican spirit, they are exploring more quality options and, so far, are willing to pay the price.

“More and more people are realizing that tequila is a quality spirit and are enjoying the adventure of tasting better tequilas,” said Casa Noble’s Ravandi.

 “It only costs a few extra dollars to enjoy a high-quality drink, and especially these days when people might be cutting back on expensive purchases or vacations, a cocktail made from an ultra-premium spirit like Patron is truly an affordable luxury,” explained Patron’s Carroll.

Nonetheless, this rosy picture is marred by the continuing economic crisis. Some consumers are deciding they can’t afford even life’s little pleasures.

“I think the single biggest trend out there right now is consumers trading down from super and ultra to premiums that they know and trust,” said Jose Cuervo’s Whitmoyer.

“In the first part of 2008, the watchword was premiumization, with a lot of growth being driven by super- and ultra-premiums, with the premium and value segments growing less strongly,” he said. “But by the end of the year, that trend had reversed. Currently, the premium category is growing nicely and value tequila is also on the upswing.”

Extra, Extra, Read All About It

One thing that has given the premiumization trend a big boost over the past four years was the creation of a ultra-high-end variant. In 2005, the Tequila Regulatory Council of Mexico created a new tequila classification: extra anejo. This refers to tequilas that have been aged in oak barrels for a minimum of three years versus a minimum of one year for anejos.

Of course, many ultra-premium tequilas already on the market are aged for three years or more, and could be given the extra anejo label. Some producers are changing their labels accordingly, others are keeping the current designation.

“As a new classification, there is an opportunity in extra anejo,” said Whitmoyer. Jose Cuervo plans two such releases in 2009. “We’re converting Reserva de la Familia to an extra anejo; currently it’s an anejo,” revealed the brand director. Price for this new version, launching this spring, is $125.  “Later in 2009, we’re coming out with the 250th  anniversary edition of Jose Cuervo to celebrate the King of Spain’s land grant to the original Jose Cuervo.” That limited addition tequila will also be an extra anejo. And, at $2,500 per bottle, certainly one of the most expensive entrants on the market.

Gran Centenario debuted its ultra-premium expression Gran Centenario Leyenda in 2006. Made from Highland blue agave, it’s aged an average of four years in French Limousin oak. Packaged in a luxurious burlap and leather box, it retails for about $250. 

“Casa Noble has had an extra anejo for years, which is our five-year-old,” said Ravandi. He added, “Now we will be evolving from this to our Extra-Anejo/Single Barrel, which should hit the market in mid-2009.”

“Herradura created the extra anejo category with Seleccion Suprema in 1995,” said Brown-Forman senior VP Hayes. Seleccion Suprema is priced about $300.

“We are evaluating an extra anejo,” offered Sauza’s Portillo. The company already has the superpremium El Tesoro brand. And, although an extra-anejo might be a good complement to the line-up, “right now Sauza has a strong portfolio and a lot of news.”

Other top extra anejos include Gran Patron Burdeos, Partida Elegante, Milagro Barrel Select Reserve and Cabu Uno Anejo Reserva.

Silver Sells

Many players have found gold in silver tequilas, and predict more growth opportunities for that sub-segment.

“We think silver is going to continue to grow like crazy,” predicted Proximo’s Gladstone. “Silver is more mixable [than reposado and anejo], it’s more approachable for consumers. Most brands lead with their silver variants, which is why consumers think of silver as the most exciting part of the category.” Proximo debuted its 1800 Select Silver in mid-2008. The new expression is made from 100% agave, is 100 proof and is packaged with a stopper that can double as a shot glass. It retails for $29.99 for a 750 ml.

“There’s a lot of growth to be had with silver at all price tiers,” noted Jose Cuervo’s Whitmoyer. That’s why Cuervo has been busy adding silver products to its portfolio. The company launched Jose Cuervo Platino about 18 months ago, in the superpremium slot  (retailing for $50-$60, depending on the market). Now, with the debut of Especial Silver, it has an entrant at the premium price point, too. 

The 100% Solution

The magic marketing tag for many of the new tequila products debuting on the market these days is “100% agave.”

“A lot of 100% agaves have come on the market lately,” noted Hayes.

By law, tequilas must contain at least 51% blue agave, and are often called mixtos; only those products made wholly from agave are allowed to use that 100% phrase on the label.

The 100% agave boom is a consequence of agricultural cycles and supply and demand.

“There’s a large agave surplus in Mexico now, so it’s easy to buy agave and put out 100% agave tequila,” explained Hayes.

It takes anywhere from six to 12 years for the agave plants to mature. A surge in tequila’s popularity caught many growers short in the early 1990s, causing a shortage. The price of agave skyrocketed and farmers over-planted. Now there’s a surplus and prices have declined, which means it’s relatively easy and inexpensive to produce 100% agave tequilas.

However, low prices have discouraged farmers from planting agave and acreage has decreased over the past few years.

“An agave shortage is predicted some time in the next four or five years,” said Hayes. He predicts a shakeup when that occurs. “The price will go up again and the producers who have managed their supply will emerge stronger.” 

The Future

Currently, however, the agave surplus has been fueling a proliferation of new tequilas, both new brands and line extensions from established companies. Retailers and consumers are bombarded with choices on the shelves. And retailers across the country are wondering where they are going to put all the new brands and line extensions.

“One of the problems with the category at the moment is that there are so many new entries from small producers,” conceded Proximo’s Gladstone. “It’s gotten cluttered and confusing for the consumer; not enough of the brands are differentiated.”

In addition, the current recession has cast a pall over much of the economy, and the spirits industry isn’t immune. But it does appear “recession-resistant” so far. How the financial and other economic markets will play out, only time will tell.

Still, most of the major tequila players remain upbeat about the category.

“The economy has not only been difficult for the brand but also for our distributors, retailers and bars,” pointed out Sauza’s Portillo. But he believes that tequila will be less affected than other spirits categories.

“Despite the economy, we’re confident that 2009 will be another good year for Patron, and the category,” predicted Carroll.

“We are positive on our end; we expect growth even with this difficult economic situation,” said Casa Noble’s Ravandi.

“I think the tequila market will continue to grow,” echoed Jose Cuervo’s Whitmoyer. But, he added, “It will slow from what have been double-digit growth trends.”


The Next Taste Sensation

In 2004, the Tequila Regulatory Council of Mexico permitted the production and sale of flavored tequila. Eying the burgeoning market for flavored vodkas, a few tequila companies have released flavored variants, with checkered reception from consumers.

Jose Cuervo was one of the first out of the blocks with a line of flavored tequilas, in lemon, orange and tropical variations. That line has since been discontinued. “Consumer response was positive but not strong enough to justify continued investment,” said brand director Whitmoyer. “It’s not to say that flavors will never be a factor, but right now we’re building out the category in other ways.”

“No one has gotten flavored tequilas right yet,” stated Elwyn Gladstone, marketing director for Proximo Spirits. Now Gran Centenario has launched Rosangel, a reposado infused with hibiscus. “We don’t call this a flavored tequila,” said Gladstone, “but we think it’s an interesting way to branch out from straight tequila.” Made from 100% highland Blue agave, aged for 10 months in new French Limousin oak, the sunset-hued spirit gets its color and complexity from a further “resting” for two months in port barrels before being infused with hibiscus flowers. Gran Centenario Rosangel is packaged in an art deco-inspired bottle and retails for $36.99.

Late last year, Heaven Hill Distilleries teamed up with McIlhenny Co. to create Tabasco brand Spicy Tequila. The match is a natural because Tabasco Pepper Sauce is often a spicy shooter with tequila. The 750ml bottle features the familiar Tabasco diamond logotype on the label, with a suggested retail price of $21.99. With the tagline, “Heat Up the Night,” the new product is supported by a full range of on- and off-premise point-of-sale materials.

Currently, Sauza markets two flavored tequilas in the U.S.: Citrus Jamaica and Acai Berry.

Jamaica, or hibiscus, is a traditional agua fresca flavor in Mexico, and acai is one of the hot superfruits. “We saw that in the U.S., we had to offer more unique flavors,” explained brand director Portillo. The flavored tequilas were launched with Sauza Gold and Blanco.

Though Patron does not offer a flavored tequila, it does market Patron XO Cafe. Although, strictly speaking XO Cafe is a liqueur, the product is made with tequila and is dryer than most coffee liqueurs and at 35% ABV, higher in proof.


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