Tag Archives: DISCUS

Diddy Disses Tequila’s Jimadores….

What’s Wrong With This Picture?

Diddy looking conspicuously out of his element.

Diddy looking conspicuously out of his element.

By now, many of you may have already seen both of these distasteful photos on Diddy’s Instagram account for his new venture with Diageo and DeLeón tequila that began in early 2014.

Dressed in his trademark dark suit, Diddy attempts to sacrifice a blue agave piña while at the same time asking for a moment of silence for “Mr. Pat Ron,” a thinly veiled dig against beverage behemoth, Patrón.

Those in the Tequila Community who make their living day after day selling,

Note the look of disdain on the jimador's face.

Note the look of disdain on the jimador’s face.

serving and producing tequila, as well as growing and harvesting agave, have been outraged at the clownish way in which Diddy and Diageo have disrespected and belittled the value of one of the last major pillars left in Tequila Culture–the jimador (agave harvester).

The Plight of the Jimador

In an age where modern technology and cost saving methods like the diffuser have been introduced in the Tequila Industry to replace everything from donkeys to bottlers to label applicators, the one skill that it has not yet been able to replace entirely is the hard labor of the jimador.

Jimador, courtesy of Tequila G4.

Jimador, courtesy of Tequila G4.

Those who have seen these men in action, and those of us who have tried to hack off the pencas (leaves) from a blue agave piña using a razor sharp coa, know that it’s not as easy as it looks.

The following video is courtesy of the Tequila Interchange Project, a non-profit organization and consumer advocacy group for agave distilled spirits made up of key influencers such as bartenders, consultants, teachers, researchers, consumers and tequila aficionados.  It illustrates just how arduous this work is, and the dangers these men face each day for minimal pay.

For Diddy to be allowed to be photographed attempting a jima wearing a suit and spotless shoes was unconscionable.  It makes light of the skill and experience of these journeymen laborers, as well their hardships, in a deplorable and condescending way.

Diddy Commits Commercial Suicide with DeLeón Tequila

If it’s true that Diddy knows what liquor Millennials want to drink as he states in this November 2014 article in Fortune, and wants to “disrupt how [liquor advertising] has been done,” he has already failed miserably.

Claiming that his image won’t be used for DeLeón like it has been attached to his

Jimador lifting piñas.  Courtesy of Tequila G4.

Jimador lifting piñas. Courtesy of Tequila G4.

Ciroc vodka ads (his first successful partnership with Diageo), then he should stick to his word.

The Distilled Spirits Council of the United States (DISCUS), the national trade association for America’s top distillers, and of which Diageo is a long time member, has strict guidelines when it comes to responsible digital marketing communications.

It is obvious that Sean Combs believes he is above adhering to these regulations, and in the process, managed to insult an entire country.

How Diddy Should’ve Done It

Jimador at work.  Courtesy of the Consejo Regulador del Tequila.

Jimador at work. Courtesy of the Consejo Regulador del Tequila.

The self-proclaimed tastemaker has proven to be very successful in everything he touches.  From music and clothing, to spirits and even reality TV, Diddy has left his indelible mark with sophistication and style.  So, when he hooked up with Diageo once more for DeLeón tequila, we expected more from him.

We expected this $700 million dollar mogul to immerse himself in Tequila Culture.  To get to know the process and the people of the new spirit he was embracing, and to bring a fresh look to an otherwise unremarkable brand like DeLeón.

We expected he would slap on some Sean John boots and venture out into the

Sean John Kingswood Moc boot.

Sean John Kingswood Moc boot.

agave fields to absorb its magic.  Who knows?  Maybe he would become inspired to design a whole new line of menswear made from agave fibers that would appeal to all ethnicities, just as he desires to do with DeLeón’s advertising.

How’s that for doubling your ROI and gaining street cred?

We’re NOT Laughing With You

Instead, we get this…

"So, if I wanna be number one, there has to be a number two."

“So, if I wanna be number one, there has to be a number two.”

Perhaps, we expected too much?

[In 2010 there were 6 other brands besides Ciroc that the San Francisco World Spirits Competition bestowed double gold medals to in the vodka category.]

Craft Tequila–WTF Does THAT Mean? Part 2

Blurred Lines

Throughout Part 1, we employed the use of more adjectives and descriptors to define, describe and distinguish one booze from another in the same category, as well as to give the illusion that it is actually closer to another booze in the leading categories.

Words like award-winning, artisanal, small-run, limited-production, hand-crafted, and boutique are reused over and over.  So are micro-distilled, limited edition, small batch, small lot, organic (which we’ll cover in-depth in a future article), single village, homespun, authentic, small-lot, prestige, signature, high end and reserve.

They all have real core meanings, but because we see them repeatedly in ads, billboards, packaging, shelf talkers and point of sale (POS) materials, the lines between meaning and true definitions get blurred.

Has anyone actually ever been to Los Camachines, where Gran Centenario is made?

Has anyone actually ever been to Los Camachines, where Gran Centenario is made?]

For instance, the definition of the word premium as defined by the Distilled Spirits Council of the United States (DISCUS) is actually a pricing term.  To the average consumer, however, it has come to mean quality.  And when consumers’ buying habits change and trade up, it has become known as premiumization.

There’s no chance of spirits marketers discontinuing the use of the Tequila Marketing Myth of borrowing benefits any time soon.  How, then, do we really define and measure a craft tequila?

We’ll show you how in a moment, but let’s get two things straight right here–

Remember Fact #1?  Tequila belongs in Mexico.

Though some American micro-distilleries have attempted to distill small batches of agave spirits, it has proven difficult and labor intensive due to it being produced from a plant that takes years to mature as opposed to grains, hops, and grapes that yield more frequent harvests.

It would be silly to define and measure craft tequila in ways that relate to wine, beer and other spirits created in the United States and abroad.  There may be no boundaries in spirits marketing, but to impose limits on the number of barrels, bottles and cases manufactured and sold by a tequila distillery in order to measure a craft product would have no jurisdiction whatsoever in Mexico.  Secondly–

There Is No Backpedaling

The Beer Wench, Ashley Routson said it best when interviewed for this article:

“No one wants to fault the big guys for being successful–that is not what this argument is about.  My main question is–how big is too big?  And as long as a company stays independently-owned, does that mean it will always be craft?”

Indeed, both the craft beer and spirits segments are growing at such a fast rate, that the Brewer’s Association has changed its definition multiple times.   This has allowed the burgeoning brewers more room to expand.  And as spirits writer, Wayne Curtis, discusses in this article from The Atlantic, the alarming growth rate of small distilleries is having an effect on the quality of the finished craft product due to a shortage of experienced distillers.

As a consequence of this exponential growth, in both the craft beer and craft spirits categories, the process–the art form itself–is getting watered down.

*Rant Alert!*

Let’s face it–

No backpedaling!

No backpedaling!

No one gets into the tequila business to be a failure.  Everyone wants to be on top.  And once you get there, the challenge is to stay on top.  We know how arduous the tequila hero’s journey is.

No one with a business plan ever said, “I’m going to mass produce my lousy tequila and once I’ve flooded the shelves with my swill and lost market share, I’m going to distill a tequila the old fashioned way.”

Don’t pretend to continue to still make your tequila like you have over the past 250 years, either.  You are not that home based family operation still harvesting agaves by mule and macerating piñas with a tahona, any more.  That family’s history was forgotten when the brand was sold.

And just because you build a separate, smaller facility on your distillery property to produce a more labor intensive line (and even petition to do so under another NOM number!) when you have never attempted to do so in the first place, does not make your more expensive line a craft tequila.

Moreover, just because you happen to be a colossal consumer of agave, still being emulated for your unique style of 80’s spirits marketing, and prefer to see things differently, don’t expect the rest of us to swallow your slant.

The Craft Tequila Gauntlet

El Tesoro handmade tequila.

El Tesoro handmade tequila.

Following are some tips and suggestions that may help guide you in making more informed decisions when selecting, defining and measuring a craft tequila.

#1:  NOM list

By Mexican law, every tequila must display a number that corresponds to the legal representative, tequila producer or distillery in which it was produced.  Tracing that number to the CRT’s list of distilleries, you can discover what other brands are manufactured under that specific number, and presumably, in that specific factory.

Logic dictates that the fewer labels a fabrica (factory) produces means more care should be taken with its one or two flagship brands.  Logic also dictates the opposite when you see many different brands appearing under a particular NOM number.

Whether the distillery produces only a few lines, or many contract brands for others, is not necessarily a sign of the tequila’s craftiness or quality, but it’s a start.

You can view and download the most recent NOM lists from our website here.

#2:  Pedigree

Don Felipe Camarena

Don Felipe Camarena

Taking a pointer from panel expert, Chriz Zarus’ now industry classic article, “Change is at Hand for the Tequila Market, Part II,” a craft brand with a good chance of survival in the market will be one that “You, your distillery, and your brand have generations of lineage.”

Meet-the-Maker dinner pairings, industry meetings and on-premise tastings showcasing a craft tequila will more than likely feature the brand owner or the master distiller behind the brand.

In some cases, a well respected Brand Ambassador (not the gal or guy with the tight t-shirt!) will stand in for the owner if there is a scheduling conflict.

Again, this is not a guarantee of craftiness or quality, but most family owned brands will stand behind (or in front) of their tequila with pride.

#3:  Distillery ownership/partnership/co-op

Another tip from Zarus’ treatise that could be useful in determining whether a craft tequila will be successful or not is, “Your company does…own at least a portion of the distillery that produces your product.”

This was successfully accomplished by the owners of Suerte Tequila, one of the few still produced with a tahona (milling stone).  In order to ensure the quality of their tequila and to regulate the brand’s eventual growth, Lance Sokol and Laurence Spiewak purchased the distillery.

Does your craft tequila have some skin in the game?  Most good ones do and will proudly make that information public.

#4:  Agave and land ownership

Similar to #3 above, some craft brands are owned by families with ties to the land and own their own agave.  In some instances, they may or may not own all or a portion of the distillery where they produce their tequila.

In the midst of this current agave shortage, this one asset could make or break a craft brand.  This information should be readily available in POS material, but is also not a guarantee of quality or craftiness.

#5:  Use of a Diffuser

While considered a legitimate tool in tequila production efficiency and has the full blessing of the CRT, it is a dead give away that shortcuts are being taken.

As noted agave ethno-botanist, Ana Valenzuela so succinctly declared in this open letter

“…prohibir el uso de difusores (hidrólisis de jugos de agave) que les quita “el alma” (el sabor a agave cocido) a nuestros destilados, únicos en el mundo por su complejidad aromatic y de sabores.”

[“…to prohibit the use of diffusers (in hydrolysis of agave juices) that takes the “soul” (the flavor of baked agave) out of our native distillates, singular in the world for its complexities of aromas and flavors.”]

El Tesoro's tahona, still in use.

El Tesoro’s tahona, still in use.

This is also in keeping with Zarus’ definition of preserving the process as the art form or craft outlined in Part 1.

Using a diffuser is a closely guarded secret by most mid-sized to large distilleries and hard to spot.  You can read more about them here.

#6:  Organic

If there are any products that deserve to be described with the aforementioned adjectives that spirits marketers are freely throwing around these days to denote a handcrafted tequila, mezcal, or other agave distillate, they are in the organic segment.

Stringent regulations are required in both farm to distillery, and then from factory to bottle, to be given the designation organic and the permission to use the USDA seal that appears prominently on the labels.

By virtue of being organic, the process is considered much more natural and is inherently small batched.

But, not every brand has the budget to become a certified organic tequila.  In addition, some brands may simply not see the value of being certified as organic, especially since some organic certifying agencies have been looked upon distrustfully in recent years.

Still, it could arguably be the most reliable indicator of a craft agave distillate.

#7:  Transparency

This might be the toughest test of all.

As we mentioned above, many brands prefer to play their cards close to the vest.  By the same token, many family owned brands are fiercely proud of their origins and will gladly tell you the truth, the whole truth, and nothing but the truth.

Is your craft tequila brand willing to tell you their story, or just tell you a story?

Many of the more popular craft tequila brands are helmed by creators who are delightfully flamboyant and outspoken, as well.

 Craft by Any Other Name

As our reader in Part 1 stated, the meaning of craft is “all over the place” and then some.

Spirits marketers using their powers for evil.

Spirits marketers using their powers for evil.

With mixology being the leading trend driving the spirits industry and demand for better ingredients on the rise, this means quality tequila is essential for those creating crafted cocktails (there’s that word again!).

But, with  the invention of the wildly popular michelada cocktail, a margarita (which is the favorite way Americans consume tequila) served with a beer bottle upside down in a margarita glass, and chilled tequila on tap, there will surely be more cross pollination between adult beverage categories.

We’ve already seen this with tequila brands selling their used aging barrels to small brewers to create signature craft beers, as well as tequila aged in barrels bought from other brand named spirits.

This will only lead to even more crossovers between categories caused by inspired spirits marketers, PR firms, uninformed spirits journalists, and multinational corporations.  Borrowing benefits has been the norm for some time.

There will always be those who deliberately hide the truth or feed false information to the media and practice opacity.  We can’t control what they will say and do.

The key is to become educated and informed about a tequila’s recipe and process.  Using the Craft Tequila Gauntlet above can certainly help in making the right choices.

 

 

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Craft Tequila: WTF Does THAT Mean? Part 1

What does that mean for tequilas?

What does that mean for tequilas?

An interesting question crossed my desk concerning the term craft as it relates to tequila.

This person asked…

“The one thing I am finding is the definition of ‘craft’ is all over the place. What does craft mean to you?  Do you think it is based on the method, quantity, who makes it or maybe all of these factors?”

This reader went on to ask if I considered a particular big name brand as a craft tequila, and if not, would I consider a certain higher priced line from this same transnational corporation that owns the brand as a craft tequila.

Further, he confessed that two other well-known brands could be considered “craft” tequilas even though one of them had reported sales of over 50,000 cases in 2013.

 Craft by Definition

According to Merriam-Webster’s online dictionary, my favorite definition is–

“…an activity that involves making something in a skillful way by using your hands.”

The word handcraft is defined as…

“…to make (something) by using your hands.”

There are even deeper meanings to craft as it relates to the beer, wine and spirits industries, but before I get to them, let me remind you of some tequila facts and a huge marketing myth.

Fact #1:  Tequila has its own geographic indication (GI).  The blue weber agave from which it is made can only be grown, and tequila can only be produced, in specific states and regions in Mexico.

Fact #2:  According to the Distilled Spirits Council of the United States (DISCUS), despite 13 million 9 liter cases of tequila sold in 2013, it is still–and always will remain–virtually last in sales volume behind whisk(e)y, gin, vodka and rum due to Fact #1.

This brings me to the…

Tequila Marketing Myth–Borrowing Benefits

So, how does a PR or marketing firm with no real knowledge of what good or bad tequila is, convey the message that its client, usually a high powered, non-Mexican owned tequila brand (and all that that implies), is just as cool as the other kids who may or may not be as well funded?

Tequila disguised as...?

Tequila disguised as…?

Simple–

You “borrow” benefits from the guy ahead of you.  You compare your tequila brand’s features and benefits to the leader in the field, thus making your client “worthy by association.”

From the moment that Herradura rested tequila in used Jack Daniels barrels to attract the American whiskey drinker decades ago, marketers have tried to disguise tequila (and mezcal, now, to some extent) as something else.

And because of Facts #1 and #2 above, tequila marketers have for years misled the public by borrowing benefits from wines, beers and all other spirits in a seeming effort to gain tequila’s acceptance into the mainstream drinking public, and to increase sales.

Craft by Design

Here’s what it means to produce a craft product in each of the following arenas.

The Brewers’ Association defines craft as small (“6 million barrels of beer or less per year”), independent (“less than 25 percent of the craft brewery is owned or controlled by a beverage alcohol industry member that is not itself a craft brewer”), and traditional (“a brewer that has a majority of its total beverage alcohol volume in beers whose flavor derives from traditional or innovative brewing ingredients and their fermentation”).

The American Craft Distillers Association’s (ACDA) definition of craft gets trickier–

“…those whose annual production of distilled spirits from all sources does not exceed 750,000 proof gallons removed from bond (the amount on which excise taxes are paid.)”

According to the Alcohol and Tobacco Tax and Trade Bureau (TTB), a proof gallon needs an entire conversion table to figure out.  We’ll let you do the math, here.

The American Distilling Institute’s (ADI) guidelines are similar but allows certified craft spirits a “maximum annual sales of 52,000 cases where the product is PHYSICALLY distilled and bottled on-site” and “maximum annual sales are less than 100,000 proof gallons.”

Where wine is concerned, the Department of Revenue defines a “small winery” as any winery that produces less than 25,000 gallons of wine in a calendar year.  A “farm winery,” however, can produce up to 50,000 gallons of wine annually.

Some have even arbitrarily issued their own definition of small winery as one producing as little as 10,000 gallons per year, and a nano winery as generating only 500 gallons per year.

A simple Google search shows that each state has its own slightly different definition of what a craft wine or spirit is, and several states with popular wine growing regions like California, are constantly updating their definition to accommodate growing wineries.

The same growing concerns in the craft beer industry have prompted the Brewer’s Association to update their ground rules to allow for larger craft producers.

The Revenge of Brewzilla

According to Impact Databank, a large chunk of the beer industry has surrendered significant market share (some 6.7 million barrels, or 93 million 2.25-gallon cases since 2009!) to the spirits industry.  The only bright spot for the entire category is the resurgence of locally brewed craft or specialty beers increasing in volume by 14% to 20.2 million barrels.

These stats have not been lost on spirits marketers who follow trends in similar markets to practice borrowing benefits.  The big brands like Miller-Coors, Anheuser Busch-Inbev (Budweiser) and others also have jumped onto the craft bandwagon by either investing in small breweries or by inferring in their marketing that they still make their beer by hand.

It's not a craft beer.  Just well-crafted.

It’s not a craft beer. Just well-crafted.

As Ashley Routson, a craft beer advocate famously known as The Beer Wench, and whose upcoming book “The Beer Wench’s Guide to Beer” will be an unpretentious, comprehensive approach to beer, puts it…

“In my opinion, the fight over the word craft should be one of semantics, but instead, its become a battle of the egos.”

Routson goes on to say, “The word ‘craft’ is not a synonym for the word ‘good,’ ‘great’ or ‘better.’  Many non-craft breweries and large tequila producers make world class beer and tequila–there is no argument there.  You don’t need to use the word craft to define your beverage as being good.”

Author, Ashley Routson, The Beer Wench.

Author, Ashley Routson, The Beer Wench.

Beer journalist, Mike Cortez, whose pending book will be a part of the Beer Lovers series of books (Beer Lover’s Texas), is also the co-founder of The Texas Margarita Festival, and feels that craft tequila should be held to the same strict standards as craft beer.

 “We need to separate the garbage from the good stuff.  [Like craft] beer that is only made with the basics, grain, water, hops and yeast, the brewers do not use additives or adjuncts to flavor the beer.”

Cortez concludes, “[Tequila] is a product that takes time, care and only the purest agave extraction.  The distillers depend on the time to harvest the agave, baking the pinas and perfectly extracting the juices.  Once it is distilled it is a product that is pure and only flavored by the barrel with no extra additives.”

Tequila Industry consultant, Chris Zarus, innovator of TequilaRack, the world’s first take home tequila tasting kit that deliberately includes samples of some of the finest small batch, micro-distilled reposado tequilas sourced from family run distilleries, takes the craft argument to a higher level.

“The word craft has unfortunately been abducted by the marketing department and now misleads the masses.  We go to classes that advise us on how to make our brands ‘craftier’ with specialty releases with funny names [and] all owned by multinational conglomerates that work relentlessly to reduce costs via cheaper ingredients and mechanization.”

Zarus believes that there are two industry definitions of craft which differ from what the consumer understands.  They involve a specific recipe and a specific process.

Specific Recipe

Chicken breast after having been used in clay still to make mezcal de pechuga.

Chicken breast after having been used in clay still to make mezcal de pechuga.

In this craft version, the product is consistent and costs are contained.

“The Jim Koch’s [founder of Samuel Adams beer] view that his recipe makes his beer craft regardless of the fact that MillerCoors brews it for the masses,” explains Zarus.  “In [Koch’s] opinion, its like a chef going to your house to cook his special recipe.”

“If you think about it in broad terms,” reasons Zarus, “all consumer products have a specific recipe.  The difference here may be that the recipe is full flavored and is preferred by fewer due to its heartier taste.”

Specific Process

In this definition, the process is the craft.

Tequila Fortaleza, produced by famed fifth generation distiller, Guillermo Sauza, Zarus illustrates, “[Is] very

Las perlas del mezcal.

Las perlas del mezcal.

specific, old world, but not very mechanized.  In this way the outcome varies by batch and the state of the local ingredients.  The craft is the process.”

The downside, insists Zarus is that, “…the product varies by batch, like some wines.  There is a lack of product consistency.  Some batches have more acclaim than others and the maker is not getting to charge the full price of the best batches.”

This last seeming liability has been turned into a profitable tequila marketing plan by some boutique brands like Ocho and Charbay who source their agave from single estates thus promoting the brand’s terroir and creating buzz for individual vintages.

The Meaning and the Art Form

Marketers rethink the word "craft."

Marketers rethink the word “craft.”

The two essential elements that Routson, Cortez and Zarus all agree upon are, first, that the craft process is the art form, whether in beer, wine or spirits.

The other factor that our panel of professionals agrees on is the battle of maintaining the true definition of the word craft.

We’ll explore these issues and how you can define, select and measure a craft tequila in Part 2 tomorrow.


 

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Change is at Hand for the Tequila Market, Part I

tequila market, masa azulPart I of II

Written by Chris Zarus of TequilaRack

Tequila Brands and Producers Have Already Sailed Into the Sucker Hole

For those new to the expression, a “sucker hole” is a colloquial term referring to a spate of good weather that “suckers” sailors into leaving port just in time for a storm to resume at full force and wreak havoc on the ship and crew.

For both Tequila Brand Owners and producers of a certain size, their ship has already sailed, and the storm is now closing in on them. Some in denial, others looking through rose-colored margarita glasses, still believe they can navigate through to that glimmer of light on the horizon. However, the perfect storm of doom looms just past the horizon of hope, and will soon envelope and destroy most, if not all, in its wake.

Oh, and that’s the good news. The bad news is that only a few of the big and the very nimble will survive.

This is because of a number of factors, primarily that too many of us bought in to the Yankelovich and similar studies that declared premium and above 100% Agave Tequila brands as the next big thing.

While the premises of these market premonitions were undoubtedly true, too many of us jumped headfirst into the juice just before the world economic decline. Six hundred brands have turned into 1200 brands in less than five years. The growth of the market has been dramatic compared with other distilled spirits, yet, it’s still relatively small, ranked only 4th in US volume. It has not grown fast enough to accommodate all of the entries into the field.

Resistance is Futile – Change is at Hand for the Tequila Market

train wreckThe Gravy Train Wreck Ahead

I’m sure that for many of you, in just reading the title of this article, your blood pressure has escalated, and you may already be misdirecting your anger at the author.

For others who have experienced the many similar economic paths to consolidation in the global beverage industry, you have already accepted that change has to occur, and you will soon better understand and appreciate the math behind what I am about to lay out, and why everything I’m about to outline here will happen in due course.

For those of you who have your personal fortunes riding on the Tequila Train, both prominence and profit may still seem to be so close that you think you can see the light at the end of the tunnel, or beyond the next bend. But, I’m sorry to say that for most of us in the biz, the light at the end of the tunnel is that of an oncoming locomotive. This will be a catastrophic collision, albeit in slow motion, that will drain your resources and your resolve.

iwsrWhat can be learned from the Russians? (Excerpted from JustDrinks.com)

The global economic crisis has had a significant impact on the Russian spirits market, changing market dynamics and briefly halting the much-lauded premiumisation trend, according to current research.

A recently released report from the International Wine and Spirit Research (IWSR) on Russia’s spirits market claims that the downturn has also led to “…disruptions across the supply chain, with many suppliers and distributors going bankrupt or halting production. For healthier companies, however, it has presented an opening to establish their brands and take market share…”

cloud liningThe Silver Tequila Clouds have a very Dark Lining (Excerpted from Global market review of Tequila – forecasts to 2013 www.researchandmarkets.com )

The history of the Tequila industry has been one of boom and bust. Sales rose during the 1940’s only to collapse again in the mid-50’s. Export sales rose steadily from the 1960’s onward, although domestic sales fell sharply in the 1980’s due again to an economic slump, and the severe Mexican economic crisis of the early 1980’s resulted in plummeting sales.

The market was again disrupted by a critical shortage of Agave beginning in the late ’90’s, which served to hold back the category’s international development as brand owners were forced to divert limited supplies to the core US market, and quality perceptions were damaged as some manufacturers moved from 100% to 51% (Mixto) Agave products.

Today, that dynamic is in reverse, and the market is in oversupply. More and more 100% Agave products are coming into the market. This is helping to raise quality perceptions, and in turn, demand is surging not only in core Mexican and US markets but across a number of other countries.

The outlook for the category has rarely been better, and Casa Noble Tequila president and COO David Ravandi commented, “Tequila is entering a stage of consolidation in the world markets. It is no longer a fad. The fact that 100% Agave Tequila exports have increased tremendously over the last two years is extremely positive for the product’s outlook in the years to come.”

US Tequila Importation is a Sucker Bet

tequila history, santa fe“My cousin will make the best Tequila for you Mr. Gringo”

“So, my friend, you want a great Tequila brand? We will make it for you. Just fifty percent cash up front to start the process.”

Unfortunately, far too many have fallen for this old gag. Relying heavily on the forecasting reports of the early 2000’s that suggested that luxury Tequila would be the next big spirits category after vodka.

With dollar signs in their eyes, the believers drank the Tequila Kool-Aid, most of them spending way too much to buy a brand, custom molded bottles, etc. But the worst part was that this left little if any money for marketing. Many did not even understand brand marketing inflation was happening right under their noses.

It had started soon after Patron hit 100,000 cases in volume in 2001, and the cost to market a Tequila brand in the US went from $1 to $10M per year. Today it takes at least $20M per year just to play in the same ballpark as Patron’s $50M plus, Sauza’s $35M plus, and Cuervo’s $30M plus marketing budgets.

Who could have predicted that a “realistic” business plan for the next successful ultra-premium Tequila brand calling for only 10,000 cases in the first year would end in it’s investors taking a bath?

The problem with this equation is three-fold:

1) Pricing: Unlike vodka and white rum, 100% Agave Tequila is just too expensive to produce and bottle in Mexico. Unless, like rum, vodka and mixto Tequila, it is able to be shipped in bulk and bottled near the final consumer, the cost involved with 100% Agave Tequila is always going to be too high to attain critical volume and profit levels.

2) Volume: US mass volumes are best when a spirits category is between $9.99-29.99/750ml. One hundred percent Agave Tequila is currently profitable only at the upper ranges when higher volumes are attained.

3) Distribution: The US “3-Tier” Distribution System is at best an oligopoly, and 19 states run a monopoly. Of the 1200 plus Tequila brands, want to guess how many they want to carry? Well, after the top 20, you are very lucky to be “special order only”. If you are fortunate enough to live in the states of California or Arizona, where one can be both the importer and distributor, you will find yourself driving your precious Tequila brand around to each account in your car.

Without product volumes or market clout, you will be hard pressed to get even an appointment, let alone a vender number with the chain restaurants and grocery stores. These major chain stores like Chili’s, Chevy’s, Costco, Kroger, etc., drive at least 85% of the combined volume in all but the control states. Without access to the chains, your market becomes the handful of privately owned, “Mom & Pop” accounts that usually know that small independent distributors are easy prey for bending the law on consignment, stringing out payments, or not paying at all.

While driving your own brand around certainly makes time for the personal touch and focus, these hand-selling efforts prove to be the most inefficient ways to distribute one Tequila brand. Your glass ceiling to fame and fortune becomes that next level of chain distribution that can only be had by a state-wide delivery system of the large wholesale distributor.

With Tequila segment Pricing, Volume and Distribution all against you, one will need to have a lot more money than the brands of the past in order to simply survive in the US.

Tanks-a-lot for Nothing

Call the tank maker and raise your stocks of liquid now!

no masUnfortunately, most of the mid-sized Tequila distilleries have bought into the notion that Agave prices will go up in the very near future. They base this notion on the boom and bust cycle of the past, and like Lehman Brothers, believe that they have successfully timed the market.

Greedily, many producers are now mortgaged to the hilt in order to produce all the Tequila that they possibly can afford to store in stainless tanks or wooden barrels. Fear of the impending Agave price increase that has yet to happen (and may not for many, many years) has seemingly forced them all into a squirrel-like stockpiling frenzy.

Are they storing Blanco, like acorns, for the hard winter ahead? These stored nuts of liquid demise are in reality winds conspiring to produce the perfect storm for all but the most financially secure and/or nimble producers.

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.

Links

SPIRITS TRENDS

U.S. Spirits Market 2008, Gross Revenues by Price Category

http://www.discus.org/pdf/2009IndustryBriefing.pdf (This is the most recent report by DISCUS for 2009. Tequila volume is still listed as 4th.)

http://www.thefreelibrary.com/Spirits+fast+track+brands.-a0144204154 (shows Patrón reaching 119K cases in volume in 2001.)

http://archive.cyark.org/2012-understanding-the-maya-calendars-blog

http://www.forgottenagesresearch.com/index.htm

http://www.nostradamus.org

http://www.oceanfreightusa.com/topic_impg.php?ch=19 (Bonded warehouses.)

http://dsc.discovery.com/news/2009/02/09/tequila-agriculture.html (agave farmers)

http://www.yankelovich.com/ (state of the consumer)

tequilarack

Originally posted October 1, 2010 by Chris Zarus of TequilaRack.  This is considered a standard in the industry and is even more relevant today.

Please visit TequilaRack, a member of the Tequila Aficionado Flight of Sites.

 

 

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