It’s The End of the Tequila World As We Know It…and I Feel Fine Part II

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.

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Lisa Pietsch is the Chief Operations Officer of Tequila Aficionado Media, a USAF veteran, a multi-published novelist and freelance writer, a social media marketing consultant, and the mother of two boys. She has a passion for good tequila, foreign languages, and travel in all forms. Lisa currently makes her home in San Antonio, Texas.