DB CONFERENCE 2011: Making a name

Under COO John McDonnell, Patrón Tequila has become the epitome of the profitable, successful and credible luxury brand. Lucy Shaw heard him speak.

Last to step up to the mic was John McDonnell, chief operating officer for The Patrón Spirits Company, who has helped take the ultra-premium Tequila brand’s profits from US$75m to US$450m in six years by connecting with the consumer. “You need to know how to communicate with the consumer,” McDonnell began boldly, joking that he has two consumers of his own: a son and daughter.

McDonnell’s definition of reinvention is “letting go of the past and creating a new future”. A slide popped up of a cowboy in chaps necking Tequila, while McDonnell fired negative descriptors into the air: “cheap”, “strong”, “foul”. “Tequila used to be associated with cowboys and bandits,” McDonnell said, confessing that it was a tough image to shake off and build a new brand from.

Patrón, meaning “boss” in Spanish, has re-written the rules, risen above the Tequila cliché and successfully entered the ultra-premium white spirits category. In 1989, founders John Paul DeJoria and Martin Crowley realised that there was a gap in the market for a premium Tequila. The aim was simple: to create a premium Tequila from 100% blue agave to rival the quality of the best Cognacs.

Their distillery, in the small town of Atotonilco, is now a multi-million-dollar facility and guest hacienda with 700 employees. Patrón takes an artisanal approach: the blue agave is distilled in copper stills, produced in small batches and aged in American oak. Everything is done by hand, including the making of the bottles, which are hand-blown.

So who is Patrón targeting? Affluent, successful, educated, sociable consumers – or those who want to be seen that way. McDonnell made the pertinent point that luxury goods are tied up with self-image. “There is a close relationship between brands and self-image,” he said. “Certain brands communicate a message of sophistication and good taste.”

Patrón is currently the world’s number one ultra-premium Tequila, accounting for 70% of sales in the category and outselling its nearest competitor in the US by eight to one. The brand went from producing 200,000 bottles to 1.8m bottles in the space of two years, with UK sales currently up 45% year-on-year. On sale in 115 countries, Patrón has been rated the 18th most important spirit brand in the world in terms of retail value.

Looking ahead, McDonnell spoke of the need for companies to keep reinventing themselves. “In a world that’s changing so fast, you can’t afford to wait, but you must remain true to the essence of who you are.”

He recalled the following story as a cautionary tale for brands looking to cut spending during the recession: “In the late ‘20s, Kellogg’s and Post dominated the cereal market. It was still a relatively new category, as Americans didn’t see cereal as a viable alternative to oatmeal until the ‘20s. So when the Depression hit, no-one knew what would happen to consumer demand.

"Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg’s doubled its advertising budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. By 1933, even as the economy cratered, Kellogg’s profits had risen almost 30%, and it had become what it remains today: the industry’s dominant player. Most people have never heard of Post.”

McDonnell credits Patrón as having set the standard for the ultra-premium Tequila category. “It’s a luxury, but an affordable luxury,” he said, going on to list what he believes are the essential criteria for a luxury product: exceptional product credentials – from the ingredients to the craftsmanship – and the creation or projection of an aspirational world.

Echoing so many of the speakers before him, McDonnell stressed the importance for a brand to have a story – which could even be a myth – entwined with the product.

Another key issue for McDonnell is the importance of being selective about where your brand is on sale, as the restaurants and bars that house your brand become a reflection of the brand itself. McDonnell advised those with a luxury brand to restrict distribution to only the top hotels, bars and restaurants in their chosen cities, name-checking Claridge’s and the Dorchester as two London points of sale for Patrón.

Along with hotels and bars, Patrón has also carefully cultivated its image on television, in films and in songs, appearing in popular US series Entourage, behind the bar in the film Vanilla Sky, and over the airwaves in aspirational R‘n’B and hip-hop records.

McDonnell urged brands to be confident about pricing in order to maintain a premium position, and to protect your brand’s image by steering clear of discounting. A luxury image can be upheld, according to McDonnell, through immaculate presentation,
and awareness raised through well-targeted marketing campaigns, such as the pop-up Patrón Silver Bauble bar at Harvey Nichols, which allowed for high in-store visibility.

McDonnell defined “new” consumers as “millennials”, who will account for 40% of all Americans in the next 10 years. Millennials, he said, are techno-savvy, active online, and likely to trade up with their drinks brands in order to project a favourable self-image.

Touching on technology, McDonnell named Russia as the most technologically engaged nation in the world. “The internet is forcing all of us to reinvent, so the interactive environment in which we place Patrón is very important. We founded the Patrón Social Club online, target predominantly at single, male, college-educated, ambitious, adventurous individuals aged 21-44. We have over 100,000 members, which we hope will result in long-term relationships with the brand.”

McDonnell ended by warning brands not to neglect the products they already have, recounting the success story of Tequila-coffee liqueur Patrón XO Café’s reinvention. Previously unknown, unloved and apparently impenetrable with its wax seal, the decision to re-house Patrón XO Café in the popular hand-blown Patrón bottles and market it with the slogan “Perfection has a darker side” turned the little-known liqueur’s fortunes around.

The revamped brand is proving particularly popular in South Africa, and is being served across the globe in Espresso Martinis, over ice cream, in hot chocolate and even in cakes, highlighting how the more flexible and multi-faceted a brand can be, the better. “We’re being attacked left, right and centre by competition – that’s how I know we’re successful,” McDonnell said, bringing the conference to an end.

Lucy Shaw, April 2011