Tag Archives: El Jimador

Dazed & Diffused: More on the Diffuser in Tequila Production

We briefly tackled the diffuser controversy earlier in 2014 with The Diffusor in Tequila Production: Are They Cheating? and in Craft Tequila–WTF Does THAT Mean? Part 2  where we featured our Craft Tequila Gauntlet to help you make better buying decisions when seeking quality craft tequilas.

 Here, Tequila Aficionado Media delves deeper…

What’s Not on The Menu

The Pastry War's stance on diffuser produced tequila and mezcal., We briefly tackled the diffuser controversy earlier in 2014 with The Diffusor in Tequila Production: Are They Cheating?, diffuser, diffusor, difuser, difusor

The Pastry War’s stance on diffuser produced tequila and mezcal.

On the wall of The Pastry War, a world renowned mezcalería and restaurant in the heart of Houston, TX, this chalkboard message proudly explains why owners, outspoken agave advocates Bobby Heugel and Alba Huerta, staunchly refuse to serve tequilas and mezcals produced with a diffuser.

In their view, it’s a battle between traditional methods of tequila [and mezcal] production which yields “delicious tequila [or mezcal],” versus more cost-conscious methods adopted by distilleries that produce “a shitty version of tequila [or mezcal].”

Let’s look more closely at this cursed contraption.

[Tweet “The Pastry War @ThePastryWar in Houston refuses to serve tequilas & mezcals produced with diffusers”]

WTH Is It?

Mirriam-Webster’s online dictionary diffuser definition–

“a device for reducing the velocity and increasing the static pressure of a fluid passing through a system.”

Diffuser, by its own definition, denotes watering, stripping, deflecting or softening down the finished product, whether it be light, air, or agua miel, what will eventually be distilled into tequila.

[Tweet “Diffuser denotes watering, stripping, deflecting or softening down. Is it necessary for tequila?”]

Using only hot water and sulfuric acid to extract up to 98%-99% of the sugars from raw, uncooked agave, the resultant tequila, as described by noted agave lover, Fortaleza tequila brand ambassador and blogger, Khyrs Maxwell, in his detailed instructional post, There May Be Too Much Agave in Your Tequila or Mezcal  tastes like…

“…what I would consider to have a chemical/medicinal taste–sometimes slight, sometimes overbearing flavor profile that always seems to overshadow the beauty of the agave.”  

He further states that it “tastes very much like vodka” and has coined the term “AgaVodka.”

[Tweet “AgaVodka: Tequila that has been stripped of all personality”]

Lastly, Maxwell warns…

“So if you come across a tequila or mezcal made with a difusor, the only way that there can be “notes of cooked agave” is by adding that flavor during the finishing process.  They can add “notes of cooked agave?”  Why, yes.  Yes they can…I’ve seen and smelled the additive.  It does exist.”

[Tweet “They can add “notes of cooked agave?” Yes they can…I’ve seen & smelled the additive. It does exist.””]

Maxwell’s statement above excludes the use of authorized additives to blanco (unaged) tequila, of course.

As of December 2012, such practices have been outlawed by the CRT in its normas (rules and regulations governing the production of tequila).  It remains to be seen how well it will be enforced, however, so your pricey, Fruit Loop scented blanco may still be safe for a year or two until inventories are depleted.

Spanish diffuser manufacturer, Tomsa Destil, offers a closer look at the mega-masher and its process, which seem to go hand-in-hand with column distillation.

The site mentions that they have installed 12 diffusers for use in agave processing, but makes no mention of their clients, nor if sulfuric acid to extract sugars from agave is also needed.

Tomsa Destil diffuser., Diffusor in Tequila

Tomsa Destil diffuser.

The Stigma

While controversy swirls around the use of a diffuser, most educated tequila aficionados understand that it is not illegal to do so.  In fact, its application was accepted by the CRT some time ago.

[Tweet “Diffuser use is not prohibited in tequila production. Read about it here.”]

As we mentioned in item #5 of our Craft Tequila Gauntlet, diffuser use by a distillery is a closely guarded secret even though it is a fairly large piece of machinery to try to hide.  There is a stigma attached to it, with most distilleries that have one completely denying that any of their star brands are processed with it.

While most of the Tequila Industry’s heavy hitters are known to possess diffusers, many also own regular shredders, autoclaves and even stone ovens.  Ask any major brand owner whose tequila is produced at these maquiladoras (large production facilities that churn out juice for contracted brands) whether they are a by-product of a diffuser, and they vehemently deny it.

[Tweet “Why is there a stigma attached to using a diffusor in #tequila production?”]

#AskRuben

Ruben Aceves, Casa Herradura, Diffusor in Tequila

Ruben Aceves, Casa Herradura.

 

In the Twitter thread attached to The Diffusor in Tequila Production: Are They Cheating? it was revealed that Casa Herradura had used a diffuser from 2001-2010.

The historic tequila maker initially implemented the super shredder during the last great agave crisis of the late 90s.  Years later, it was taken to task by an organized group of key concerned mixologists and tequila supporters who refused to use Herradura in their cocktails or to include it in their bar menus due to a drastic change in its original flavor profile and quality.  Herradura finally succumbed and stopped using it for that label.

Vintage Casa Herradura, logo, Diffusor in Tequila

In the following screen captures of a Twitter chat from May 1, 2014, Ruben Aceves, Casa Herradura’s Director of International Brand Development, admits that the diffuser is now only used for their Antiguo, El Jimador, and Pepe Lopez brands.

 

[Tweet “The diffuser is used in the Antiguo, El Jimador & Pepe Lopez brands of #Tequila”]

Twitter chat #AskRuben.

More Twitter chat. #AskRuben

 

Aceves had previously come clean to spirits writer, Emma Janzen in her article for The Statesman here.

In Khrys Maxwell’s aforementioned blog, he lists tequila producers known to employ diffusers.  Tequila Aficionado also includes this list on every updated NOM List for your convenience.

Nevertheless, one of those distilleries mentioned in Maxwell’s list boldly refuses to hide behind a veil of secrecy–

Destilería Leyros (NOM 1489).

[Tweet “Destilería Leyros (NOM 1489) doesn’t hide its #diffuser use, taking pride in its efficiency.”]

In Defense Of Diffusers

Destilería Leyros, producers of their flagship brand, Tequila Don Fermin and many others, bills itself as a model for modern and efficient tequila making.

It was proudly represented that way even in the wildly popular Spanish language telenovela Destilando Amor, where it stood in for the then fictional Destilería Montalvo.

 

Enrique Legorreta Carranco, one of the owners of Leyros, agreed to answer some of our questions and to try to help dispel the myths and mysteries surrounding the diffuser.

Controversy

“I am aware about the controversy of using difusor [Spanish spelling] in the tequila process.  Here are some key factors and benefits of the process in order to be firm with the press:

“In fact, there is nothing to hide and we are willing to receive tequila bloggers, media or people from Tequila Aficionado in order to know first hand this innovative and ecological process.”

Process

“The difusor extracts the agave juice first of all, followed by the cooking of the agave juice to extract the agave sugars.  This cooked agave juice is called the agua miel.  In traditional process they first cooked the agave followed by the agave juice extraction.  We obviously need to cook the agave juice in order to get its sugars in order to be able to be fermentated (biological process where sugar turns into alcohol).”

Flavor

[We’ll note that Sr. Legorreta took issue with the portrayal of the tastes and essences of tequilas produced with a diffuser as described by some bloggers, believing them to be too subjective.]

“This process gives to the taster a more herbal, clean and citric experience.  Also this process is more efficient and as a result gives a tequila with better standards in methanol, aldehydes and other compounds not desired because at high levels produces hangovers.”

 

Traditional Process vs. Modern Technology

“We respect a lot [the] traditional process.  The only thing we believe is that the consumer has the last word to choose between one tequila flavor from another.
“There are people that prefer the traditional strong flavor from tequila.  Other people are preferring tequilas [that are] more pure, citric with subtle notes of fresh agave like if you are smelling [the] agave and [the] land.”
[Tweet “Diffused or no? Consumers have the last word in choosing between one #tequila flavor & another.”]

 

Environment

Reiterating what was demonstrated in the videos above, Sr. Legorreta explains…
“A difusor process uses less than 50% of energy, and less than 60% of water used in traditional processes to produce same quantities of liters.  Additional to this [at the] Leyros Distillery we recycle the bagasse that we get in the last phase of the difusor.  All this with our completely self-sufficient green boiler is fueled with bagasse from our own mill.”

 

About That Stigma…

“About why many distilleries denied they have a difusor, I can guess without knowing a reason from first hand–that is because traditional process with ovens sounds more romantic than the technology of a difusor.”
“In fact, a lot of distilleries focus their marketing efforts around traditional processes.  I guess this is working.  If not, I [suppose] they would be focusing more in the tasting notes of the final product.”
Indeed, Destilería Leyros’ website and videos play on the romance using a smattering of phrases as, “It tastes like countryside, like fire in your blood,” and “Like a passionate kiss, the Taste of Mexico.”

A New Style

In much the same manner as importers, brand owners, and maestro tequileros defend

Don Fermin barrel room at Destilería Leyros.

Don Fermin barrel room at Destilería Leyros.

(and advertise in their marketing materials!) the use of additives in their aged tequilas (“finished and polished”), Sr. Legorreta asserts that juice made with a diffuser is simply another style of tequila.

“The essence of tequila is the agave, and both processes distill agave, just in different ways.  There are some people that love traditions [and] there are others that like to innovate and improve things.”
Just as Leyros’ website and videos “invites you to taste and compare, and then let your palate decide which tequila you’d rather raise in a toast,” Sr. Legorreta concludes:
“At the end of the day, or the end of the history, [it] is the consumer [who] chooses their tequila without a bias in the information.”
Some Truths to Consider

The Leyros videos above claim to use machinery as a way to “considerably reduce the risk of injury” to the people on their workforce.  Yet, as Maxwell points out…

“Not only is the difusor a way to pump out product, it also uses a very small labor force.  As more distilleries use the difusor, there will be less jobs available to those, who for hundreds of years,  have built towns and created families by working in the agave distillate industry.  So what happens to the unemployed?  …do they leave for the US to become illegal immigrants?  Or do they work for the narcos?”

[Tweet “Consider the economics: As more distilleries use the #difusor, there will be less jobs available.”]

At the risk of being redundant, it bears repeating what noted agave ethno-botanist, Ana Valenzuela said about the diffuser here

Shredder.

Shredder.

 

“…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.”

In conclusion, if current figures are correct, exports of tequila rose 16% to US$568 million in the first six months of 2014, compared to the same period last year.  It is expected that China will import 10 million liters of tequila in the next 5 years.

Where will Mexico find enough agave to serve their thirsty customers?

Mezcaleros de Oaxaca protestan.

Mezcaleros de Oaxaca protestan.

These guys know where.

Turning A Blind Eye

On September 4, 2014, dozens of mezcaleros (mezcal producers) dumped 200 liters of mezcal onto the streets of Oaxaca City in protest for their government’s lack of support against tequileros from Jalisco who are allegedly raiding tons of espadín and other maguey (agave), the prime ingredient in mezcal, to produce tequila.

In the process, say Maestros del Mezcal Tradiciónal del Estado de Oaxaca (a trade association) 15 of the 32 varieties of maguey native to Oaxaca are in danger of becoming extinct.

[Tweet “Are tequileros from #Jalisco raiding tons of #espadín to produce #tequila?”]

Don’t Say We Didn’t Warn You

Without maguey there is no mezcal or tequila.

Without maguey there is no mezcal or tequila.

Thanks to these transnational maguey marauders, the burgeoning mezcal industry’s days are numbered, it seems.

If indeed a diffuser strips away the agave’s regional characteristics leaving behind a more citric, vodka-like, cookie cutter flavor profile that easily lends itself to clandestine adulteration, over distillation and multiple barrel blendings, then what’s to keep these pirate tequileros from pilfering agave from outside the requisite growing states and using a diffuser to crank out “tequila?”

These days, filling orders to emerging world markets is more important than the blatant disregard for the Denomination of Origin.

[Tweet “Is filling #tequila orders for #China more important than the blatant disregard for the DO?”]

The Diffusor in Tequila Production: Are They Cheating?

The Diffusor in a Recent Twitter Conversation:

A thought provoking question was asked via Twitter about the use of diffusors in tequila production.

For the uninitiated, diffusors are used to efficiently extract the starches from harvested agave piñas that are subsequently cooked and distilled to make mass produced tequila.  To purists, its use is blasphemy because it strips the tequila of character and results in something akin to vodka.

Furthermore, its use is usually kept under wraps by those distilleries who would prefer to let their marketing departments lead you to believe that they still produce tequila the “old fashioned way” without shortcuts.

Case in point is this following Twitter conversation:

 

Click on any of the links within the Twitter stream to follow, favorite, retweet, quote or respond.

More Questions Than Answers

Now, not only are we left to wonder who’s zooming who on whether or not Herradura uses a diffusor, but we feel the need to question the reasons for using a diffusor, who has been known to use it in the past and who may still be using it to eek out the most juice from their agave.

Follow the link below to one of the most thorough crash courses on tequila diffusor technology.

 

muchoagave.com, diffusor, tequila, tequila aficionado

 

 

Link: http://www.muchoagave.com/the-difusor—there-may-be-too-much-agave-in-your-tequila-or-mezcal.html

And this link on revealing tequila trends written in 2012 by freelance spirits writer, Emma Janzen.

 

Additional discussions on Linkedin proved informative:

  • International Business Manager at Jorge Salles Cuervo y Sucesores S.A. de C.V:

    Eventhough I do not like that Diffusers are used, I think that using it is not cheating. It is a new way to produce Tequila, that is approved by law and obviously will do no harm to whom may drik it. Any way the consumer that drink Tequila that has been produced with a Diffuser are aiming at a Low Cost and Low Quality product that cannot be compared to one that has been elaborated in a traditional method, which will give a much better flavour and quality.

  • Owner/CEO at Corazon Azul Spirits, LLC.

    Jorge Antonio Salles is right on his answer, the use of Diffusers in the production of tequila will just yield a lower quality product in very large quantities but it is not cheating, although they are not largely used in the industry, only the big producers due to the cost and operation are able to buy them and put them into production, however they do also produce a product called innulina which is the sugar extracted from the Agave pine and recent studies claim this product as a weight loosing agent and reducer of sugar levels in the human system thus reducing the chances of developing diabetes.

  • Distilled Spirits Head Dragon and Broker / Marketer / Sipper of Artisanal Spirits

    Nice bust on Herradura. LOL! :)

  • Tequilero at http://tequilaconnection.com

    While visiting Herradura in 2012, I asked the question. I believe the reply was yes, they were using the diffuser to produce their Pepe Lopez brand. They export a lot of it.

  • Chief Executive Officer at Tequila Aficionado Media

    They have also been known to use it on El Jimador, and have since stopped using it on Herradura.

    Some purists still believe they do, however, when old Herradura is compared to modern (Brown-Forman) Herradura.

  • Gerente General en Luna Spirits SA de CV

    In my opinion when the distillers used diffusers they are Cheating on self, why? One thing is the letter of the law and other is the spirits of the law.
    When the distillers use a difusser, they accomplish the letter of the law despite to be an approved method to distill, but its only proposal is obtain more quantity of alcohol, the quality is secondary and this kind of producer need to “adjust” the flavor with external agents (advocantes), approved method too, but in my opinion, they are not part of the natural process.
    When the distillers use a pot distill, they do it as flavor quest, to obtain the best profile possible with the natural components of the fermented agave juice, adjusting distill conditions, they follow the spirit of the law. And the quality is their first goal.
    In my opinion the secret to do a real tequila is: Work in the process be careful and responsible, like you are the owner of the distillery and obtain a product with a exceptional quality, assuming you the final consumer role.

  • Chief Executive Officer at Tequila Aficionado Media

    Beautifully said, Don Modesto!

 

 

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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.

[Tweet “Tequila Brands and Producers Have Already Sailed Into the Sucker Hole”]

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.

[Tweet “Too many of us bought in to the Yankelovich study declaring 100% Agave Tequila brands as the next big thing.”]

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.

[Tweet “The US “3-Tier” Distribution System is at best an oligopoly, and 19 states run a monopoly.”]

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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What If There Were No Duty Free Tequila?

In the December 17, 2009 issue of Drinks International online magazine, the headline reads:

WHO plans global duty free liquor ban

The story goes on to say…

“The World Health Organization (WHO) has shocked the duty-free industry by proposing a global ban on duty-free liquor sales, a business which was worth $6.3bn last year.”

The proposal to slow down alcohol consumption was actually published in December of last year, but will finally get onto the WHO’s Executive Board agenda between January 18-23, 2010. The Board is made up of health ministers from 34 leading countries, and if it approves the proposal, it will be presented to the WHO’s full annual General Assembly in May 2010.

Keith Spinks, secretary general of the European Travel Retail Council (ETRC) believes that the proposal will pass the Executive Board and into the General Assembly that is made up of 193 governments, and warns, “If this goes though, it will be a disaster for the industry.”

Should the World Health Organization ratify this proposal, there is an upside.  According to Spinks, this proposal on liquor would not be “binding.”

“It is going to be up to each member country to decide whether to implement the proposal or not.” But, he adds, “My fear is that some countries will and some won’t, leaving us in a big mess.”

In 2005, the WHO tried to ban duty-free tobacco sales through its Framework Convention on Tobacco Control (FCTC). The FCTC was ratified by 165 countries worldwide, but has yet to be implemented by any country.

A quick review of the members of the World Health Organization may give a clue as to why.

Alcohol, Tobacco, and Tourism

All countries which are Members of the United Nations may become members of World Health Organization by accepting its Constitution.  So, which countries are members?

Australia, the Bahamas, Costa Rica, Dominican Republic, Egypt, Finland, Germany, Hungary, Italy, Mexico, Switzerland, UK, and the USA, to name just a few.  Most all of these countries have one or more international airports with duty free stores selling among other things, spirits, cigars, and cigarettes.

Not only do most of these member countries tout tourism as a major industry, but many also have their signature spirits (and cigars, in some cases) that define them.  Examples are rum from Barbados, limoncello from Italy, and of course, tequila from Mexico.

Where duty free merchants pay inventory/business or other taxes, customers usually pay none.  For these countries, tourism, and the profit made at duty free shops from alcohol and tobacco sales, is directly related to each other.

How much damage could the enforcement of this proposal do?

WHO vs. Patrón

As stated above, duty-free liquor sales from last year amounted to $6.3 billion in 2008.  That accounted for 17.2% of the total global liquor business according to the Drinks International article.

In the April 2008 issue of Impact Magazine, it states that Patrón tequila was also penetrating the travel retail sector overseas, long a key channel for high-end spirits but one in which tequila was underappreciated.  Patrón was aggressively growing its brand by sampling at very visible public relations events in key cities such as London, Athens, Hong Kong, Singapore and Sydney, all whose countries are members of the World Health Organization.

The Patrón Spirits Company, producers of Patrón tequila, claim on their website to be in over 100 countries and islands worldwide.  Given that there are only 193 members of the WHO, the chances are good that Patrón is available in the duty free stores of most of these member countries.

Assuming that the same 163 countries that ratified the duty free tobacco ban in 2005 also decided to ratify—and enforce–the duty free alcohol ban, the results could be devastating not just for Patrón, but also for Sauza, Brown-Forman (El Jimador brand), and Jose Cuervo, as well as all spirits suppliers, duty free retailers, and airports.

While it seems likely that the World Health Organization’s Executive Board will ratify the alcohol ban proposal, it seems unlikely that any countries will actually enforce it.

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