TEQUILA: Shooters out

In a remarkably rapid about turn, Tequila has shaken off its associations with binge drinking and horrible hangovers. Ben Grant traces the Mexican tipple’s rise in popularity and assesses its future prospects

Just a few short years ago the global perception of Tequila could scarcely have been lower. The mere mention of the spirit was enough to send a shiver down the spine of most drinkers, bringing back vague memories of late night excess followed by the hangover from hell; the T-word was shorthand for pretty much everything the drinks industry wanted to move away from – cheap, harsh and alarmingly irresponsible. Fast forward to 2008, however, and the Mexican spirit has undergone a quite staggering transformation.
Admittedly, it remains a shooter of choice for the Binge Brigade – an association that will be incredibly hard to shake once and for all. But the category is increasingly turning its back on this market and has cleverly repositioned itself as a paragon of sophistication, authenticity and complexity, staking its claim for a prominent placing on the back bar of the most stylish on-trade outlets and winning the affection of bartenders in a host of markets around the world. What’s more, not only has the category managed to radically change its identity, it has engineered this metamorphosis in a staggeringly short period of time. Tequila’s reinvention must surely go down as one of the most dramatic turnarounds that has occurred in drinks for quite some time – but how on earth has it happened? And is the category’s new positioning sustainable in the long term?

Another clear favourite
Perhaps the most compelling factor that has driven the increase in premium Tequila sales can be summed up by the acronym ABV – nope, not “Alcohol By Volume”, but “Anything But Vodka”. In the US in particular the blandest of the spirits has been dominant for a generation, so growing numbers of consumers are getting tired of the category. “People have begun exploring Tequila as it gives more flavour to traditional vodka consumers,” says Corralejo CEO Raffaele Berardi. “I think the word ‘bored’ is a little strong,” continues Patrón global brand manager Chris Spake, “but vodka is the perfect category to recruit drinkers from as consumers are perplexed by the constant new launches, and also they are keen experimenters.”

Notably, last year the US overtook Mexico as the largest market for the agave liquor and the rapid growth shows no sign of letting up – but the current explosion of the premium category elsewhere is clear evidence that North America continues to set the trends that the rest of the world duly follows.
While vodka brand owners evangelise the subtle nuances of their own brand’s flavour characteristics, ostensibly the category is driven more by lifestyle association than organoleptic profile. This is in marked contrast to Tequila: while the successful brands are indeed carving out impressive lifestyle links, flavour remains the number one factor in differentiating between brands. “There’s an understanding that Tequila actually brings something to the drink, rather than just being masked,” says Sauza brand manager Daniel Deephouse, making it an appealing selection for “people who are looking for something extra in their drink”. InSpirit Brands marketing director Stuart Ekin argues that the “diversity of flavour shows consumers that it is a serious category”, while Berardi points out that the opportunity to keep on “exploring” the world of Tequila makes it ideal for contemporary consumers who like to be continually challenged.
With such a diverse church of flavours the Tequila category is, of course, home to an impressive rostrum of brands. And there is absolutely no doubt that this plurality is a major benefit to the overall business. “A strong range of brands is always a good thing,” says Ekin. “It’s fantastic to be involved in a category where different brands are so very different … it shows that there’s real diversity for consumers to enjoy.” And bartenders in particular – who are constantly on the lookout for a defining point of difference – are particularly enamoured by this aspect of the premium Tequila segment. According to Ricardo Gonzalez, international sales executive at Casco Viejo, “You can find something to suit everyone’s taste, the market is beginning to recognise this and choose for themselves their particular preference.”

Putting Tequila on the map
But the benefit of a wide range of brands goes beyond just the breadth of offering that can woo consumers; it also means a tight competitive set with a host of players battling for supremacy and, in so doing, drawing a high level of attention to the category. But who’s responsible for the recent spate of new entrants to the category, and is it set to continue?
The first phase of Tequila’s reinvention was, fittingly, very much the work of the Mexicans. As Tequila Espolon international sales director, Miguel Angel Vargas Martinez, explains, “A number of Mexican entrepreneurs bought into the category,” inspired by the belief that if the quality was up to scratch Tequila could make a much bigger impact north of the border, and attracted by the relatively low capital investment required. This belief obviously proved to be well founded, and the fledgling segment’s success was keenly noted by the international drinks fraternity, who were immediately keen to get in on the action. They noted that there was clearly potential for further growth so, says Martinez, “we soon began to see more and more interest and investment from other countries”. The result has been a steady stream of new entrants keeping the sector fresh (though not saturating it to the extent that has occurred in vodka); and in the mid-term this trend shows no sign of letting up. As market analyst Euromonitor concluded in its recent annual category report, “Continued growth of the Tequila category internationally will be supported by the launch of more premium brands from both multinational companies as well as family-owned Mexican Tequila houses.”

As the industry strives to trade consumers up to increasingly premium products, education – of both consumers and bartenders – is the key, and this is particularly true for the Tequila category. Considering the fact that for most people the first thing that Tequila brings to mind is a hazy headache, comprehensive re-education is necessary in order to undo the negative preconceptions.
The drinks trade has been buzzing with excitement about Tequila for a couple of years already, but for most consumers it is still a very new concept. The brand ambassadors thus have a pivotal role to play in order to increase awareness through education – and anecdotal evidence suggests that their pupils tend to be rather surprised by what they discover. “Awareness is still very low [outside the US],” says Patrón’s Spake, “but when I do tastings the response tends to be very positive, people say ‘I never knew Tequila could be drunk that way’.” Sauza’s Deephouse gets a similar experience as he travels the world “getting consumers and bartenders to reconsider Tequila”. “When I first speak to them their initial thought is of a big night out when they were younger – there’s a real surprise when they revisit the category … and the look on their faces when they actually taste it is remarkable.”
After a number of years of hard work, awareness levels are incredibly high in the US (though education programmes continue to take place regardless), but most companies are now looking further afield. Cazadores is one such player, and global brand director Guy Lawrence explains, “In markets that are relatively new to premium Tequila the focus is very much on the top end of the on-trade. We are nurturing these markets by running a bartender training programme.” The large number of brands that are operating within the sector is a major benefit within this context. There are a significant number of brand ambassadors clocking up the air miles as they travel the world enlightening ever more people, and while they each place a special emphasis on their own offer, by banging the drum of brand Tequila the entire category is ultimately the biggest winner.

Clearly the category is performing well at the moment, but looking to the future does the Mexican spirit have the stamina to continue on its current upward curve? Ultimately, only time will answer this question, but the preconditions surrounding the category certainly give plenty of reasons for optimism. The most encouraging factor is the manner in which the segment has expanded to date. “Tequila hasn’t had a sudden surge in popularity,” says Martinez, “the growth has been very constant, steady year-on-year increases,” which suggests it is a more natural – and thus more sustainable – scenario.

Room to grow
But the most encouraging factor that points to future success is quite how much space there is for Tequila to grow. In markets around the globe high-end consumers are awakening to the category, implying near limitless potential. The category has bedded in well in the US, which continues to offer plenty of room for further expansion. Berardi explains that Corralejo continues to enjoy its strongest growth in America, while Spake confirms that Patrón is still aggressively pursuing new accounts in the market. But while the US is currently the principal volume driver, even more encouraging is the traction that is rapidly being generated elsewhere. “As a share of total spirits, as soon as you leave North America, Tequila is still a very small category,” says Jose Cuervo managing director Gerry Reid. He explains that the market-leading brand has attempted to establish its international sales for a number of years. “We tried global markets with mixed success, it took slower than we’d have liked to reach scale” he explains. However, he adds, “in the last year we have been really encouraged by the results”.

Casco Viejo is in fine fettle, as Gonzalez proudly states, “We are seeing growth in all of the 24 countries where we currently export, sometime by as much as 50%.” While Patron’s Spake enthuses that “Tequila really is a global story”.
It’s important to acknowledge that there is still a great deal of work to be done. Those on the inside of the trade have clearly been won over, while the top-end on-trade is performing a sterling job evangelising the category to the early adopters. It will take some time for this message to filter through to the mass market, but there’s every reason to believe that the spirit of Mexico will continue to ride the wave of success.

 db © June 2008