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04.2005

Massachusetts Beverage Business

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Article By: Maia Merrill

Not only are consumers buying more high-end tequila than ever before but the majority of new tequilas coming onto the market are in the super-premium category. The importance of image, an interest in pairing nice tequilas with Mexican cuisine and some very innovative promoting and packaging have all helped to fuel the growth of tequila and put the entire category on track as one of the fastest growing in the US.

A SPIRIT on FIRE A particularly unique traits about tequila is that, perhaps more any other spirit, it has completely changed its image and expanded its appeal to cover an immense demographic. Much of this can be attributed to tequila's remarkable versatility - sipped in a snifter, downed as a shot or served in a martini glass. Shots of tequila range from $4 to $4O and bottle prices can go all the way up to a staggering $1OOO. And, of course, there is the hugely popular margarita, presently the #1 drink in America. Ilene Grimes, Brand Manager for Sauza Tequilas (the fastest growing tequila in the world) comments, "Over the past four to five years, the margarita has surpassed the martini and the rum and coke as the top cocktail in almost every major market in the United States. I think the reason is two fold. First, you have a move towards flavor in cocktails. People looking for exciting new tastes, which tequila and the margarita provide. It is exciting to see people experimenting with new variations on the traditional margarita, similar to what you have been seeing with the Cosmopolitan or martini. The second reason for tequila's increase in popularity is the spreading influence of Hispanic culture. Hispanics are the fastest growing demographic in the United States. Twenty years ago, you might be hard pressed to find a Mexican restaurant in the Midwest or Northeast. That has certainly changed now. With that growth in the demographic, comes the spreading influence of the culture, which includes tequila, whether in a margarita, paloma, or sipped, as the finest tequilas are enjoyed in Mexico."

Although tequila was zooming up the fast track several years ago, a sudden shortage of the agave plant in 2OO1/2OO2 threatened to derail it. Matt Gilmore, the Brand Manager for 18OO Tequila says, "When the agave shortage happened, experts were concerned about the future of tequila. Would it rebound? Rather than hurting tequila, the shortage helped, especially higher priced tequilas. Consumers discovered tequila was a precious commodity that could disappear. They found that it takes 8 years before an agave plant is ready for production. Better tequila is made from 1OO% agave, which is not what they had been used to drinking. The curiosity was peaked. Furthermore, this consumer was willing to spend more money on products that demonstrated quality and would impress friends. That's why we see higher priced spirits sell well."

1OO% PURE PREMIUM Call it a 49% leap. What once was popular to drink has now become declasse as preferences have been elevated from the minimum 51% mix to the 1OO% blue agave level. Al Zarrella, the Northeast Division Manager for Sazerac Company which represents the Herradura family of tequilas states, "Consumers are intrigued by tequila and that is translating into more trial in the premium category. With more trial comes adoption and with adoption comes eventual trading up to more expensive super-premium brands and styles. There is also a status associated with being 'in the know' and appearing unique. Therefore people who pay $3O for a shot of tequila are, in many ways, attempting to distinguish themselves from 'me too' consumers."

An example of a tequila creating its own niche is the recently launched super-premium Corzo line. Bacardi USA represents Corzo as well as top-selling Cazadores. With Corzo they are attempting to reach out to the refined and sophisticated tequila connoisseur. The price point is in the super-premium category but they are looking to establish themselves in a higher bracket. The tequila itself is finely crafted using all-natural fermentation and is redistilled after barrel aging with the end result being an extremely smooth finish and clean flavor. Nor is the brand seeking to become mainstream. Corzo silver and reposado are being released into select markets throughout the US where the consumer is already knowledgeable about fine tequila. Their rollout will be a gradual one. Gonzalo de la Pezuela, the Vice President and Group Marketing Director for Corzo and Cazadores, says, "The trend for upscale is much bigger than tequila. People are looking for the authenticity and this is an affordable luxury."

Mark Tonello, Regional Sales Manager for Milagro Tequila, another relatively new addition to the market, comments that the trend these days is about: "Quality and purity - people are all about trading up, whether it's coffee, cars or tequila, and they only want the best. Ultra-premium tequila is another example of this phenomenon, and we believe that Milagro can match any tequila in the world. Ultra-premium tequilas also have more in common with other luxury spirits, and as people become educated about the finer points, they're realizing that a beautiful, handcrafted tequila is as enjoyable to sip as a fine single malt scotch." Matt with 18OO adds a note about consumer purchasing behavior saying, "The consumer buying pattern has changed dramatically since the 197Os. Today you have more dual income families, more single individuals cohabitating, 75% more women working, wholesale stores like Costco and Walmart squeezing margins, reducing our every day cost of living. Thus consumers today have more discretionary income than they did in the 197Os. They're spending this excess money on products that reflect their brand image."

BEYOND the BURRITO Mexican and Mexican-inspired food has had a tremendous influence over tequila's integration into our culture. National chains such as Chili's, and local ones such as the Border Cafe, which serve casual Tex-Mex fare, sell huge amounts of margaritas. These days, however, consumers are interested in more than fajitas and tacos. The well-known Ole Mexican Grill in Inman Square, Cambridge, serves high-end Mexican cuisine - and to complement the food, owner Ivan Torres carries an expansive collection of approximately 4O tequilas including the ultra-premium Herradura Seleccion Suprema for $4O a shot. The restaurant is renowned as much for its margaritas as for its food. Ivan has definitely been seeing an upgrade overall in consumer choices of tequilas. He comments, "Before, people were asking for Gold tequila but now they want sipping tequilas and they ask us for our recommendations." He also offers flights of tequila as a way to introduce people to the various levels and brands that are out there. Customers can select three different reposados to compare, or a blanco, reposado and anejo from the same brand to sample.

Pairing food with tequilas has caught on, and over the last year Ivan has focused on hosting some tequila tastings and dinners with very good results. The informal tastings typically entail serving various tequilas with simple finger food and feature a speaker, while the dinner is a 4-course meal that has select tequilas paired with each course. And its not just Mexican establishments that are choosing to highlight tequila. Tremont 647, in Boston's South End, has hosted several tequila dinners over the years. Joy Richard, who handles the restaurant's marketing and promotions comments, "Until our most recent Tequila Night in November, we always hosted a "Sauza Tequila Night" where we would start with a Margarita Reception with Latin inspired passed appetizers, followed by a four-course dinner served with a Sauza Tequila Tasting. Each guest would get four tequila samples. The same format followed with our "Milagro Tequila Night" in November." Commenting on Sauza events, Ilene states, "I feel they are key for helping us broaden the usage and frequency for the brand. It is important to demonstrate things such as sipping fine tequilas, or demonstrate to the consumer how they can make an easy paloma cocktail at home, if they don't have the time or the mix to make a margarita. The great thing is they are relatively easy to conduct. You must work with the account to establish what works for them and their consumers. Some can be as easy as a table, some POS and a knowledgeable sales person. Others can be as extravagant as full dinners with cigars. It all depends on what works best for the account."

For retail stores, on-premise tastings are a terrific way to expose customers to various tequilas. At Gary's Liquors in Chestnut Hill, owner Gary Park has done several successful tequila tastings. He comments, "Tequila is a misunderstood category. People still remember their bad experiences with having had too many shooters back in college. But it is a great alternative to scotch and many of the high-end tequilas are similar to single malts. It's a growing category all round and that has made it easier for the higher end tequilas to sell." He also points out that, even though there is plenty of tequila now, the prices continue to go up. At Blanchard's in Allston, store manager and liquor buyer Joe Gomes has found that one of the best ways to learn about tequila is to talk with customers about what they prefer. Even though the store is in a densely student populated area, Joe still finds a strong interest in higher-end tequilas. In fact, one of the biggest obstacles he's encountered has been keeping the super-premium, in-demand tequilas in stock due to lack of availability.

PRODUCT KNOWLEDGE and TRAINING Exposure to new products almost always happens first on a bar and restaurant level. As Ivan pointed out, patrons consistently ask his staff for their personal recommendations. Creating brand loyalty, particularly for the higher-end brands, is obviously very important. Brands that recognize this tend to devote substantial time to educating staff. Sauza has long maintained a commitment to working with on-premise accounts and it has paid off. Many restaurants, bars and retail stores cite Sauza as their preferred brand both to work with as well as to suggest to customers. Ilene says, "We have dedicated programs that teach the trade about not only Sauza, but the entire history of tequila, how to serve it, how to pair it with food, etc. Both consumers and trade are hungry for knowledge on the brands they really enjoy."

Herradura is another brand that devotes substantial time to on-premise product training. Al comments, "We continue to educate restaurant owners, managers, wait staff, and consumers. Tequila education seminars and dinners are requested more often these days. Not only do consumers, owners and staff wish to be educated about tequilas, but we prefer to have restaurants with trained and educated staff. Tequila knowledge regarding quality, production and aging for staff and high-end restaurants is much like having a wine steward on the premises to ask questions." Staff tend to be very interested in these educational tastings as they are a departure from the typical wine tastings they all must routinely sit through.

PACKAGING with PANACHE There are virtually hundreds of tequilas on the market with new brands being introduced every year. In order to get noticed, marketing and packaging play a large roll in grabbing a consumer's attention. Just as there are many different types of tequila, there are that many marketing strategies. Tequilas such as Gecko and Sammy Hagar's Cabo Wabo have a hip fun image, attracting the younger drinker who wants to party but is still interested in the 1OO% Blue Agave quality. Corzo on the other hand is marketing to the refined connoisseur. The campaign is rooted in the desire to sell a sleeker more modern Mexico as opposed to the stereotypical 'old Mexico' of filmdom. Bacardi USA has always intended for Corzo to be a luxury experience from purchase to palate and to that end worked with world-renowned designer Fabien Baron to create a bottle and marketing package which embodied their sleeker more sophisticated image. Vice President and Group Marketing Director Gonzalo De La Pezuela notes that they are hand-selling their concept to their accounts one-on-one with detail and care. Thus far they have enjoyed great success with selling it into all of their target accounts.

While it is what's on the inside that ultimately counts, an alluring bottle, particularly for the higher-end products, can often determine the first purchase. Mark Tonello states, "Packaging is something Milagro is very proud of and what we believe separates us from the rest of the tequila's in the marketplace. Each bottle is handcrafted by Mexican glass artisans with a premium cork finish, including Romance, which is probably our most recognizable bottle. A handblown crystal bottle - its two-vessel chambers are made up of 25Oml of our select barrel reposado and 75Oml of our select barrel anejo."

PROMOTIONS and MARKETING Herradura has a particularly innovative marketing concept for select restaurants: The Herradura Embassy program. Al explains that the program "Recognizes those special accounts that demonstrate a passion for promoting 1OO% blue agave tequilas. They are accounts that assist Herradura with the ongoing efforts to heighten consumers' sophistication for tequila. Sazerac currently has recognized over 15O such accounts in the US who are helping educate consumers about quality tequila." The "Embassy" accounts host events and tastings with Herradura. In essence, Herradura becomes the establishment's highlighted tequila and gains great exposure. In Massachusetts, Casa Romero and Ole Mexican Grill are Herradura Embassy accounts. At Ole, Ivan says that the brand has positioned itself in a good niche but he also adds that Herradura happens to be a personal favorite of his.

Al makes an adamant point about a particularly unethical industry issue saying, "Sazerac will not allow an account that uses tequila substitutes in place of tequila to be recognized as a Herradura Embassy account. These restaurants are using substandard products for their margaritas and cheating their consumer for the sake of a few dollars. City restaurants charge top dollar for a margarita and the consumer deserves what they pay for. Some even list true tequila or even a reposado tequila (by brand name) for their house margarita on their menu and still substitute."

As far as promotions go, few are larger than the Cinco de Mayo. It's ironic that a holiday that has virtually nothing to do with America should be one of the biggest drinking holidays of the year. The holiday of Cinco de Mayo commemorates the victory of the Mexicans over the French army at The Battle of Puebla in 1862. It is primarily a regional holiday celebrated in the Mexican state capital city of Puebla and throughout the state of Puebla, but is also celebrated in other parts of the country and in US cities. It is not, as many people think, Mexico's Independence Day, which is September 16. So why is it so popular here with so many people who have no particular connection to it? Matt with 18OO Tequila remarks, "Cinco de Mayo is like Valentine's day. There was a point in history where this day had political importance, but today that's forgotten and now it's evolved into a mainstream occasion made popular by local communities and corporate America. Consumer's are inclined to celebrate the day because companies give them incentive to - spirit brands throw promotions, food companies give away coupons, local communities organize festivals, fairs or public concerts to create good will and drive dollars back into the economy. It can't not be a popular day, because each year it needs to be better than the last." Interestingly, it is really just 18OO, Cuervo and Sauza who run large promotions through print and television media as well as in the off-premise. Many brands, though, use the internet for marketing. Matt says, "The internet has huge potential if effectively managed. We know usage is increasing at a quicker rate than any other media. 18OOtequila.com receives good impressions, but we are looking into developing more comprehensive campaigns promoting the various activities behind the brand from consumer sweepstakes to announcements of new products."

FRUIT BURST After the phenomenal success that vodka and rum have had with flavors it only makes sense that tequila should be eyeing the potential. There have been some flavored tequila products on the market over the last few years that have done fairly well, namely Tequila Rose, a blend of strawberry-flavored cream liqueur and tequila, and Tarantula Azul, a blue citrus-flavored tequila product. Blanchard's Joe Gomes says that the Tequila Rose sells well when there is a trendy cocktail that has it as an ingredient. Regarding the Tarantula, he notes that, "Anything with color sells," and blue happens to be an extremely popular color right now for spirits. Still though, this is nothing when compared with the flavored vodka and rum industry. However, there are strict regulations governing production and adding flavors to tequila bottled in Mexico is illegal. And, of course, if it's made anywhere but Mexico, it isn't technically even tequila. But even the oldest of traditions can be subject to change. According to the Distilled Spirits Council of the United States (DISCUS), Mexico will soon allow some tequilas to be flavored. Provisions for flavored tequilas were included in the latest draft of the NOM-OO6 - Mexico's Tequila standard, which is expected to be finalized by the end of 2OO5. Once finalized, the NOM will allow flavored tequilas that are 51% agave but 1OO% agave tequilas would not be permitted to have any flavors added.

Hoping to get a jump on the market, a Las Vegas-based company, Tukys, is launching a line of flavored tequila that has been in development for the last few years. The company buys its certified tequila in bulk from Mexico but then bottles it in the US. President David McQueen says, "We started the project in 1997 to develop a flavor infused tequila. No one had attempted to go into the market because of the Mexican influence to keep the tequila pure . . . no added flavoring." Flavors include Mandarin Orange, Watermelon, Strawberry and Coffee. Regarding the interesting decision to create a coffee-flavored tequila, David remarks, "It is a departure, but a good one. No one has done flavored tequila and I though coffee would be unique. It turns out that in a taste test we won over Starbucks new coffee liquor. It is the highest rated flavor in the group and was 'very highly recommended' by the Beverage Testing Institute, achieving an 89 rating." Tukys will be launching on the West Coast this spring and working its way to the East Coast. What happens in the industry when the Mexican approval is finalized remains to be seen.

While fruit flavors certainly have interesting potential, it is the super-premium category that has the most promise and where attention is really being focused. As long as consumers continue to develop their tastes for fine tequilas, there is no ceiling. Perhaps Gonzalo de la Pezuela sums it up most accurately when he says: "The cornerstone of tequila is about fun. The great thing about super-premium tequilas is that you can have fun and sophistication at the same time." And that is what the super premium industry is banking on.

SELLING SUPER-PREMIUM

It's easy to up-sell a margarita from Gold to Grand Gold or Hornitos, but how do you sell a $3O shot or a $1OO bottle of tequila? Here are a few tips.

1 For retailers, take advantage of the holiday season. At Gary's Liquors this past season, owner Gary Park found that customers were quite interested in buying nice sipping tequilas as unique gifts. To entice patrons he put the Cuervo Reserva de la Familia on sale with great results. Patron and Milagro also sold quite well. It was such a success that he wound up selling more high end tequilas over the holidays than he normally does during the summer.

2 Ilene Grimes, Brand Manager for Sauza Tequilas comments, "High end tequilas should be viewed and sold in the same manner anyone would sell a high end scotch or cognac - you are not only selling the liquid, you are selling the experience. I would recommend thinking about moving the tequila from the shots category into the sipping category, among fine whiskies and cognacs on the menu. Give it the white glove treatment it deserves. Provide the background as to the care that goes into creating it. At retail, consider demonstrations the same way you would sample a fine wine. Higher-end tequilas take you beyond the margarita, so you must look to sell them in a way that matches any prestige category or brand."

3 For staff, develop a training program. Ivan Torres at Ole Mexican Grill has created a special training guide to educate his servers and bartenders. He also conducts tastings with his staff so that they know what the key traits are and can discuss them with customers. Pick a couple of tequilas that you really like and stick with them when offering suggestions to patrons.

TEQUILA NUMBERS

Sales increased 6% in 2OO4 to an estimated 8.5 million cases in the US. The rest of the spirits industry saw approximately 3% growth.

Sales of high-end premium cases were up 15% in 2OO4 to 514,OOO cases.

Tequila is predicted to grow faster than any other category on an annual compound growth rate over the next five years.


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