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.
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.
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.
Let’s face it–
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.
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.
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.
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.
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.”]
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.
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.
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.
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.
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
The 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.
What 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…”
The 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
“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!
Unfortunately, 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.
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