Originally Posted: 11/23/2009 by Nostrazarus at Tequilarack
By MICHAEL VOLPE Orange County Business Journal Staff
Two former executives of Aliso Viejo-based Nolet Spirits USA Inc., importer of Ketel One vodka, have traded martinis for margaritas. Kirk Gaither, former vice president of sales for Ketel One, and Jim Riley, former vice president of public relations and events for Ketel One, have started Newport Beach-based Intersect Beverage LLC, an importer of Azuñia Tequila from Mexico.
The two started the business after being laid off. The pair left Nolet Spirits USA after the company’s Dutch vodka maker parent sold a 50% stake in 2008 to Britain’s Diageo PLC, which has taken over a lot of the vodka maker’s U.S. distribution and marketing work.
Gaither and Riley secured a deal with Sergio Partida Zuniga and Liliana Partida, two members of a tequila making family in the Mexican state of Jalisco. They had approached Riley weeks prior to the Diageo deal about doing business.
“It was kind of like fate since Kirk and I had always talked about doing a side project together,” said Riley, chief executive at Intersect.
The tequila importer brought on Newport Beach-based Blue C Advertising to handle advertising, including social media campaigns and store displays.
Marketing Azunia Tequila
“They hired us to do their ongoing integration into social media and retail marketing in bars and out of them,” said Eric Morley, principal at Blue C. Intersect is leaning on social media campaigns. The company has various campaigns including “Follow Jim Wednesdays,” where Riley offers to buy margaritas for anyone following him on Twitter, and “Margarita Mondays,” where the company posts a margarita recipe.
“Regular advertising doesn’t work for the spirits business when you’re trying to break into it,” Blue C’s Morley said. “You have to do something different.”
Will KIRKLAND prove to be the category killer for high-end Extra Anjeo like it has for ultra-premium Vodka? As you can see from the below insert from December’s Costco Connection magazine, Kirkland 3 year Anjeo hits the shelves in select US markets. In CA it is currently selling for $23.99 per bottle.
I’m sure to buy one to put on my ever expanding Tequila shelf, most likely next to “Black Death Tequila” and others of similar ilk. I’m also sure to do a proper tasting and write down my thoughts to share with you as a future commentary to this article.
But the thought I have for you to ponder today is simply this: Why didn’t Costco start with Blanco? Blanco is the largest volume category style of 100% Agave Tequila by far. It is also much less expensive to produce, and much easier to maintain product consistency and taste profile (due to the differences in barrel wood, especially amplified over three years).
My best guess is that Costco wants to accomplish two things: apply pricing pressure to the high end that will ultimately drive down all other Tequila pricing, and… Costco does not want to mess around with the volume and profit surrounding the massive amounts of 1.75L Patron Blanco that it sells through its stores.
So, as an update to our most recent topic above, “How low can the price of Tequila go?” now that the new Costco 3yr Anjeo is out in stores @ a very low $23.99/L. Simple Economics say that this pricing pressure at the high-end will no doubt exert pricing pressures throughout the tequila markets where Costco sell Liquor.
Well, I believe the next shoe, Premium Mixto Pricing, has just dropped.
In the mail today, courtesy of this week’s Ralph’s grocery flyer, Sauza Gold Premium Mixto is featured for a mere $6.39 a bottle with a -$3.00 instant redeemable coupon (that arrived in the same flyer bundle), for a net price to consumer of only $3.39 / 750ml. Stater Brothers Holiday Ad features Sauza for only $2.99 net after both a Southern Wine & Spirits -$3.00 in ad coupon plus the manufacturers -$3.00 instant redeemable coupon. At these prices, which are very near the cost of production after taxes, bottle cost, shipping, its really time to stock up on every segment now through Q1 of 2010.
Perhaps this is the answer, at least the near term, regarding the low end of Premium Mixto Tequila pricing.
If it gets any cheaper, we may all find ourselves giving a whole new meaning to “Two Buck Chuck”(up?) Tequila. – Z
Hotels find effectively merchandising food and spirits and getting staff involved in the story behind the product directly affects the bottom line.
By Mary Boltz Chapman, Contributing Editor — Hotels, 6/30/2009 11:00:00 PM
When The Peninsula Chicago began offering single-malt scotch flights, its public relations staff spread the word through local newspapers and magazines. Its finding, however, was that the best marketing is the buzz that spreads through the bar when someone orders it: Three 1-ounce pours in etched glasses are stacked on a handcrafted wooden ladder.
“We knew it would take off,” says Director of Food & Beverage Pradeep Raman. “We started getting regular guests ordering it, which attracts onlookers.”
The Peninsula created the flights and added them in October to try something unique for its guests, whom Raman describes as “urban yuppies. A mixture of affluent younger generation who come in with friends and businessmen entertaining clients.” Nine flights, ranging from US$25 to US$95, were assembled to take customers “on a journey.” Each flight holds three scotches ranging in complexity. They are grouped by region, body or tasting notes.
Raman says the flights are selling well, at a pace of about five to 10 on weekdays and 20 or more on weekend days. He credits in part the merchandising that happens when a guest sees someone else drinking it. The server or bar manager will walk customers through the experience, discussing each single malt and its characteristics. Guests also receive a card listing details on each scotch.
The handcrafted, etched glassware bearing the hotel’s name is prominently on display behind the bar, and bartenders are happy to tell inquiring guests about the flights.
Executive Chef Scott Walton grows vegetables and herbs in a deck garden for the hotel’s Markethouse restaurant. Taking a cue from the restaurant’s seasonal slant, Walton began infusing vodkas with fruits from local purveyors for the hotel bar, which was completed in December. A recent US$15 flight included raspberry, vanilla and pomegranate.
This summer, Walton will include infusions from the fruits of his own labor, such as lemon balm, chocolate mint and tomatoes. He also is planning a bacon-infused vodka with pork from a local farmer. Flights combine flavors from savory to sweet.
Walton says depending on flavor, the bar goes through a decanter of infused vodka every seven days. As at The Peninsula, glassware set out on the bar and customer buzz act as merchandising.
Originally posted December 11, 2009 by Chris Zarus of TequilaRack.
In reading the article below today, I find myself curious to know, and understand, the key differences and distinctions between this new “Luxury” Tequila brand and all the many others that have traveled this road before it. Perhaps you can distill it out of the below article or their website.
Please (really) post your comments back at the appropriate section below. I really want to know what I’m missing here.
I’m not trying to be a PaQui buzz kill, but much like life, unless a brand is born from “Luxury Linage”, it is a long, hard, “New Money” road to Luxury status. So, you’re either born with it or you have to buy into it. And, for the many owners of Tequila Brands out there, they just don’t have the resources, or the patience, to make their way into Luxury Brand status.
Therefore, the bigger question here, “What does it really take to make a Luxury Tequila brand?” is at the core of what many in the biz fail to grasp completely. They believe that if people like it and they price it the same as Patron, it somehow magically becomes so. It is by far a more complex sum of factors that eventually, equates to a luxury brand, …or not. It’s a dynamic process where the building of a luxury brand takes a lot of money, money, money, marketing, and time. Did I mention money?
So, just how does one go about building Luxury brand status for ones muy fabuloso Tequila?
Well, for those out there that care to know, here is the not so secret recipe to establishing a Luxury Tequila Brand:
1 Good quality Tequila recipe
1 Good quality & consistent set of ingredients
1 Good quality distillery
1 Set of replicable processes that will produce a consistent, quality product
1 industrial produced bottle, trademarked
1 Consistent Message
Great Global Distribution system
Time (10-20 years)
Preheat distillery, add quality ingredients, apply good Tequila recipe. Stir
Using replicable processes, make Tequila, set some aside in barrels to age
While waiting for Tequila, produce distinctive trademarked industrial bottles and closures
Use some of the money to buy into a great global distribution system
Fill Tequila bottles and ship to Great Global Distribution system
Sprinkle Consistent Message liberally with money, add Time
As always, your thoughts and comments are most welcome. Now for the article:
Making People Happy Through Tequila? ‘PaQui’ Says ‘Si’
Dec. 10, 2009, Jeremy Nisen–HispanicBusiness.com
Dr. Javier Martinez was born in Mexico, but has lived in England. His journeys have taken him from the business sector into the study of politics, in which he earned his doctorate. But Dr. Martinez’s path has led him back home, at least in a career sense. While he currently lives in Los Angeles with his wife and children, he’s heard and answered the call of his family business. Dr. Martinez is the President and CEO of Tequila Holdings, Inc., the company behind the new luxury brand known as PaQui.
PaQui, which is an Aztec word for “to be happy,” is Dr. Martinez’s answer to the opportunity he sees in the American alcohol market. It’s been on the market for only five months, but its creation was a long time coming.
Starting in 1997, from his position as an importer and distributor of bulk tequila brands, Dr. Martinez saw the shift in the premium tequila landscape, wherein brands like Patron began to take off.
“We, in Mexico, were not realizing how exciting the word ‘tequila’ is to the American consumer,” said Dr. Martinez. “I sensed potential was huge in the U.S.” At about 6 percent of the market, luxury tequila is the fastest-growing category, says Dr. Martinez, “but the base is small.” His segment of the market, he believes, could be 10 percent in the next 10-15 years.
Patron, says Dr. Martinez, got the packaging right. With PaQui, he sees an opportunity to make a similarly beautiful bottle, but pair it with a tequila that he feels “represents the best of the industry.”
“I thought, ‘Let’s bring tequila back to tequila,'” Dr. Martinez explained to HispanicBusiness.com, noting that his priority is to highlight the agave,
“Vodka is neutral, for example,” he said, “but tequila — particularly white tequila — is very rich in flavor and aroma compounds.”
PaQui is made with a process he calls “selective distillation,” a method that his company spent two years developing. The result, said Dr. Martinez, is “very drinkable, clean, smooth, and finishes with ‘I need some more!”
It’s a far cry from the tequila many people aged 35 or older may have experienced. The perception imparted in the 1980s and 1990s by lower market brands, notorious for causing headaches, is what PaQui — and indeed the Mexico-based tequila industry in general — is attempting to overcome.
“The consumer trading up,” said Dr. Martinez, “for less quantity, more quality.” Those making high-end, premium tequila are attempting to answer that call.
For the neophyte premium tequila drinker, Dr. Martinez says “the ‘silvera’ first.” That will give the best idea of what the agave plant tastes like. From there, consumers can figure out how they prefer drinking it — trying it neat or with ice or in a margarita.
“One of the advantages of good tequila is that it’s very mixable,” Dr. Martinez advised. “You can mix it with almost anything and retain the characteristic of the tequila. Even in a margarita, you can tell what brand is being used. It’s an amazing spirit, unlike any other.”
After trying the silvera, Dr. Martinez said should a consumer want to experience “more exotic flavors,” try the “reposado,” which is slightly aged and retains some flavors imparted by the wood barrels used in the aging process. After that, one should try the “anejo,” which has been aged even more.
Source: HispanicBusiness.com (c) 2009. All rights reserved.
As the dooms day clock ticks down, all but the biggest distilleries, short on cash and heavy in liquid inventory, will soon be courting anyone with a US dollar. But that market is rather small, and unless the CRT (Consejo Regulador del Tequila, Tequila’s governing body) changes the law and allows 100% Agave Tequila to be bottled outside of the appellation area, the price of a “pipe” of 100% Agave Tequila will begin to drop faster and farther than that of its half brother mixto. Too much 100% Agave Tequila chasing too few in-zone buyers and/or bottlers will cause another price collapse, except this one will be a price collapse on the finished product.
As this scenario starts to unfold, a few things will begin to happen simultaneously:
1) The largest producers (top 5) will buy out the top 20 as their values will be diminished. Larger or well-financed producers will be able to buy out their smaller rival producers with little cash and mostly their own corporate stock. These bigger players will do this not just to shut down a competitor, but to get their hands on their vast value depressed inventory of 100% Agave Tequila for their own use, and perhaps get some under marketed brands of promise as a bonus to develop or sell.
2). The next tier of 25-75 producers will die out.
3) The smaller producers, like micro-distillers, will survive by remaining small and being content just making incredible craft Tequila.
“Both the Hopi and Mayans recognize that we are approaching the end of a World Age… In both cases, however, the Hopi and Mayan elders do not prophesize that everything will come to an end. Rather, this is a time of transition from one World Age into another. The message they give concerns our making a choice of how we enter the future ahead. Our moving through with either resistance or acceptance will determine whether the transition will happen with cataclysmic changes or gradual peace and tranquility...” — Joseph Robert Jochmans
However, as far as I’m concerned, the Mayan’s have it right regarding the current business economy of Tequila and its transition from one World Age into another. In my opinion, the Mayan’s prophesy that the end of the world is rapidly approaching for many in the Tequila system, is spot on.
2012 The Mayan Curse of the US Bonded Warehouse
Many have already made their containers of US tequila brands and now they reside in bonded warehouses across the US, mostly in the Southwestern Border States (Arizona, California, New Mexico, and Texas). Few ever thought they needed to know that the US federal spirit taxes are due either prior to withdrawal or when the clock strikes five years, then the Tequila will be considered as invulnerably abandoned and shall be transferred into General Order Warehouse for liquidation.
The fifth year for many young Tequila importers has already begun; for others, it is fast approaching. My phone has already started ringing regarding pallets of product being liquidated. Trailer loads will be next. It seems that the US economic crisis almost exactly coincided with the CRT report of over 1200 Tequila brands. This inverse relationship of too many brands chasing a down world economy will, by my calculations, put the bulk of the bonded brands ready for liquidation near the end of 2012.
While the one container per month business plan is long lost, the taxes will come due. With no money left in the coffers, products will begin to liquidate. At first, prices will be reasonable, perhaps as high as $7.00 per 750ml. But prices will rapidly erode as a still saturated Tequila market will not be able to absorb the extra inventory. Prices will continue to decline for these unknown and ill-marketed brands.
I predict that the bottom feeders with cash will be able to get 100% Agave Tequila FOB (Freight on Board) bonded warehouse for as little as $3.14/750ml. Just enough to cover the federal taxes, plus $1 for the broker and warehouse fees.
Run, Don’t Walk to the closest Exit Strategy
If any of the following describes your business, you need to be a seller or begin the shut down process:
You do not have a business plan, or the boilerplate business plan you bought states that you will sell 10-12,000 in the first year (and you are not even close in year two).
You are undercapitalized and do not have access to at least $1M per year for the next 10-20 years.
Your company does not own at least a portion of the distillery that produces your product.
You have pre-ordered and pre-paid for containers of product at a price higher than you could buy it for today (or tomorrow).
If however, any of the following describes your company, you may be a survivor:
You’ve won PowerBall or similar lottery and have the resources to stay afloat for 8-10 more years.
You have distribution in most of the US states and Duty Free.
Your brand is backed by a very large multinational corporation.
You, your distillery, and your brand have generations of lineage.
My recommendation for all those that do not have at least $10M worth of investment to weather the storm? Find the funding or get out while you still have your home and sanity. The Tequila market will remain saturated until at least 2016. Pricing will continue to drop in order for Tequila to compete with other spirits categories, primarily vodka and rum.
This is a Time of Transition from one Tequila World Age into Another
The Future Ahead
Unless some government interference changes the course of this tsunami and rescues the lot, 100% Agave Blanco Tequila pricing will fall in line with other white spirits, vodka and rum, with the bulk of the volume at $9.99 per 750ml for the low-end, and $29.99 at the Grey Goose/Belvedere high-end. Aged Tequilas will march down in lockstep to accompany their Blanco brethren at a $5-$10 spread on the shelf. Exotic Tequilas will still command higher prices, but the volume to run a business will be the same range as vodka.
How should we enter the New Age of Tequila Transition?
An updated industry survey showed that nearly 100 percent of respondents feel drinkers are now more focused on value. Only 75 percent felt similarly last year, according to the annual survey conducted by Robert Smiley, director of wine studies at University of California-Davis.
With continued education and time, Tequila will mature into its own. Maturity will cause a further divergence in pricing for Tequila. Mixto will remain the mixer of choice as prices continue to decline so that only mega producers of mass volume will be able to make any money. The money-makers in this segment will have to go to larger, more efficient containers beyond 1 and 1.75 liters. Think of large, aseptic packaging such as boxed wines and bigger. Also, kegs of mixto Tequila, like beers, in up to 50 liter sizes.
Blanco, and perhaps to some extent Reposado 100% Agave Tequila styles, will begin to follow the pricing of other mainstream spirits, vodka and rum. In this $9.99 – 29.99 price category volumes will grow. The big players are already in this segment with Patrón, Cazadores, Cuervo’s Azul and 1800, Sauza’s Hornitos, Brown-Forman’s El Jimador, and the new Gallo entry, Camarena. This category with be dominated by the big manufacturers that have the distribution muscle and can afford the promotions support of at least $10M per year.
Sure, there will be other Blanco’s in the stores, but unless they are store supported as a “house brand,” volumes will be relegated to 5-10% of the segment. Why buy a $39.00 Blanco when you can get an Añejo at the same price? Yes, some will continue to buy Patrón Blanco, but the pricing will fall to that of comparable high-end vodkas like Grey Goose and Belvedere, at least a $10 discount from today’s price, about $29.99 per 750ml in the volume liquor and chain grocery stores.
Añejo, and extra-aged products, will begin to command the ultra premium price points and above. Moreover, Añejo’s (Tequila and Mezcal) will begin to follow pricing similar to Irish and Scotch Whiskey, with its own price segmentation based on perceived quality and marketing. This will be the market of the small survivors with the ability to make consistently great, aged craft Tequila.
As the clock ticks down to the end of 2012, a new world order is approaching. It may come gradually enough for some that it is hardly noticed until it’s too late. I foresee the slow starving of all but the nimble and mighty Tequila brands, producers and farmers alike.
Some will fight this impending consolidation, I’m sure. But this change will come nonetheless, and it will be a profitable event for the few that survive their trip through the sucker hole. I myself have decided to remain nimble, strapped into my dingy, Riedel in hand, waiting out the storm.
Copyright 2010 International Tasting Group (ITG), All rights reserved. Unless otherwise noted, ITG is the legal copyright holder of the material on our blog and it may not be used, reprinted, or published without our written consent.
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