Tequila vs Mezcal: The Director’s Cut

Skepticism and Terror

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

In early June 2017, I was interviewed via email by VinePair’s conscientious staff writer, Nickolaus Hines, on whether I thought that mezcal could “…Grow its way to the Mainstream Without Losing its Roots.”

Skepticism usually sets in whenever we’re approached for quotes by writers attempting to compose complex articles about the plight of agave spirits.

Skepticism turns into sheer terror whenever the writer represents a website that is not known for its thoughtful content.

More often than not, facts get muddled and the same old tequila cliches are regurgitated.

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

Such was not the case here.

Director’s Cut

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

When interviewing several people at once to create a relevant article, it’s a rarity for a journalist to be able to use all of the interviewee’s replies to produce a coherent final piece.

It’s a common practice in the movie industry to edit a character’s scenes only to later add them back in.  It’s what becomes the Director’s Cut once the movie is available to buy or rent.

What follows are the exact questions Mr. Hines asked, and my answers, including what wound up on the cutting room floor.

***

NH:  Was there a defining moment that you’re aware of when tequila became a mainstream spirit in the U.S.?  Did it have to do with a multinational liquor company’s investment?

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57mMM:  For me personally, it was when the sale of Herradura tequila to Brown-Forman was announced in late 2006 (and subsequently finalized in January of 2007).

Jose Cuervo’s Especial and 1800 “mixto” brands (51% agave, 49% other sugars) had been mainstays in clubs and restaurants for decades prior to that, mostly consumed in shots and margaritas.  At that time, 100% de agave tequilas like Chinaco, El Tesoro de Don Felipe, and Herradura Blanco Suave, were out of most people’s price ranges, and sipping them was a foreign concept.

I had visited Herradura’s historic San Jose del Refugio distillery earlier in 2006, and was shocked to hear news of its sale to B-F, a transnational corporation.

I knew then that things would never be the same.

NH:  How has tequila becoming a mainstream spirit impacted tequila producers?  Is it harder than ever for small and independent producers, or is it easier because consumers are more familiar with tequila in general?

MM:  According to the Distilled Spirits Council of the United States (DISCUS), tequila volumes have jettisoned 121% since 2002.  Much of this consumption is due to multinational corporations and their massive distribution, sales and marketing channels.

As of the current Consejo Regulador del Tequila’s (CRT) NOM list (dated May 31, 2017), there are 1373 brands of tequila being produced by roughly only 130 distilleries.  Most are what are called “maquiladoras,” that distill tequila for various brand owners.

Small and independent craft tequila producers, as well as reputable small-to-mid-sized maquiladoras are few and far between, but they do exist.

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

Most don’t have the funding, marketing budgets and distribution channels that the Big Boys have, so they struggle to compete on a level playing field.

Constant and consistent education of the average consumer by smaller brands of their quality is a key component to their success, and vital for their continued existence in the marketplace.

NH:  Mezcal has less restrictions on where, with which types of agave, and how it can be produced than tequila does.  Is that an advantage that could make mezcal as popular (or more) than tequila?

MM:  Actually, like Tequila, Mezcal has a Denomination of Origin.

It is currently produced in the Mexican states of Oaxaca, Durango, Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57mZacatecas, San Luis Potosi, Guanajuato, Guerrero, and Tamaulipas.  Michoacan has also been recently admitted, and many other states are expected to be added in years to come.

Because several other types of agave can be used to distill mezcal (as well as bacanora and raicilla), unlike the singular blue weber agave from which tequila must be produced by law, that is its main attraction to consumers.

The fact that it is relatively new, unusual, has a story behind every bottle and batch, and is arguably the most artisanal product in the world, makes mezcal particularly attractive to Millennials and connoisseurs alike.

The danger is that these characteristics COULD, indeed, make mezcal even more popular than tequila.

NH:  Does the rise of tequila provide a blueprint for mezcal, or is the intended consumer base too different?

MM:  The rise of tequila does provide a blueprint for mezcal, but not in the way you think.  The Mezcal Industry has shown that it has learned from the mistakes made by the Tequila Industry.

In February 2017, the Mezcal Regulatory Council passed into law an amendment to its normas that would categorize mezcal by its methods of processing (mezcal, mezcal artesanal, and mezcal ancestral).

These new categories will allow for small producers to continue making mezcal their way, and for large, multinational corporations to attempt to mass produce juice that can still be labeled mezcal.

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

Unlike the Tequila Industry, where consumers who are tired of the same cookie-cutter flavor profiles of the more popular brands, and are desperately seeking authenticity and quality, this type of transparency lets all consumers choose for themselves which type of mezcal best suits their tastes.

NH:  Where do you see the mezcal business in 10 years?  Will it be mostly owned by multinational corporations, or will smaller companies retain control?

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57mMM:  The above mentioned new law will presumably allow both large and small producers to thrive, but mezcal finds itself in a conundrum: 

That is, how to simultaneously protect the industry for future survival while meeting the burgeoning global demand.

Aside from the more commercially grown espadin variety, many of the more sought after agave are wild harvested and take years to mature.  As I mentioned in question #3, the different types of agave used for mezcal is the attraction, but could also lead to its demise.

Unless sustainability and preservation of all types of agave–and the cultural and economic well being of the communities in which mezcal has been historically distilled for decades–is part of any business plan (especially by transnational corporations), then the Mezcal Industry is doomed and the collateral damage could be devastating.

NH:  Is there anything that happened to small tequila producers and small villages where tequila is made that you believe could happen to small mezcal producers small villages where mezcal is made?

[Tweet “Sustainability/preservation of #agave by trans corps a MUST or #mezcal is doomed.”]

MM:  Tequila and mezcal don’t share parallel histories.

When Jose Cuervo was granted permission by the Spanish Crown to commercially produce tequila in the mid-18th century, distillation of mezcal (or pulque) was legitimized (taxed) and refined for the aristocracy.

Throughout tequila’s over 250 year history, several other clans emerged as wealthy landowners settling in various regions, growing their own agave and establishing family brands.

Tequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m

The tequila industry charged forward when the Sauza family first exported tequila, then known as vino mezcal, into the United States in the late 19th century.

When the Sauza’s sold the brand in the late 1980s to Spanish brandy maker Pedro Domecq, it signaled that the industry was open to foreign interests, mergers and acquisitions.

Over several decades, some small commercial agaveros (blue agave farmers) made their fortunes during times of severe agave shortages.  With their newfound wealth, many started their own brands and constructed distilleries.

Mezcal, on the other hand, had continued to be clandestinely produced all this time by indigenous people in rural areas of Mexico.  It had remained largely unchanged.

While tequila struggled to elevate its image throughout the 20th century from a poor man’s drink, to a party shooter, to an elegant sipper, mezcal’s has always been akin to white lightening.

Its booming popularity in the 21st century has only proven how everyTequila vs Mezcal: The Director's Cut http://wp.me/p3u1xi-57m facet of mezcal production—from commercial farming of espadin and other agave, to mass production and even regulation—is still in its infancy.

Mezcal can no longer be ignored, though.

The recent positioning by multinational companies capturing significant stakes in popular and pioneering brands has now made mezcal a valuable asset to any spirits portfolio.

It remains to be seen, however, whether anybody outside of these transnational corporations gets rich from distilling mezcal.

NH:  Is mezcal as scaleable as tequila?

MM:  Not at the present time.

Can it be?  Sure.

But concessions by the Mezcal Regulatory Council would have to be made, for instance, by allowing for the distillation of “mixto” mezcal.

Tequila’s Denomination of Origin is currently the only one in existence that is allowed to be adulterated by the production of mixto.

[Tweet “Tequila’s Denomination of Origin is the only one allowed to be adulterated.”]

I doubt seriously that the Mezcal Industry would agree for its DO to be bastardized in this way.

~~~~~~~~~~

Learn all about tequila from field to glass and then get paid to share your love of agave spirits with others! Buy Them Both Now!

CRT Drops Ball, Campari Keeps Cabo Wabo

Cabo Wabo Moved to Brown-Forman?

When we downloaded the 28 April NOM List from the CRT to update the Tequila Aficionado NOM List, we were shocked to find that Cabo Wabo Tequila had moved from Campari to Brown-Forman.  Naturally, we needed to discuss the state of affairs with other aficionados.  Luckily, Campari was on the ball.

 

 

crtJust a Mixup at the CRT

Great news!  We have it on excellent authority that Cabo Wabo has not moved.  Hopefully, the CRT will make the appropriate corrections soon.

[Tweet “Cabo Wabo @CaboWaboRocks has not moved to Brown-Forman. Score for ! “]

 

Direct from Campari

Following is the letter I received today from Caitlin Crisan, the Public Relations Manager for Campari:

 

cabo wabo, tequila, campari

 

From: Caitlin Crisan
Sent: Friday, May 02, 2014 12:14 PM
To: Lisa Pietsch
Subject: Cabo Wabo NOM Issue

Hi Lisa,

I saw your post yesterday on the NOM issue with Cabo Wabo Tequila. I assure you this was a mistake and the brand is still very much with Campari America.

cabo wabo, tequila, campari, brown-forman, If you have any further questions or clarification, please don’t hesitate to reach out to me.

Best,

Caitlin Crisan

Public Relations & Events Manager

CAMPARI AMERICA

A GRUPPO CAMPARI COMPANY

1255 Battery St. Suite 500

San Francisco, CA, 94111

tel 415.315.8093 | fax 415.315.8062

www.campariamerica.com

Follow us on Twitter: @CampariAmerica

Fan us on Facebook.

[Tweet “Public Relations Manager @CatinCal for  has cleared the confusion while  itself to sleep.”]

 

Cabo Wabo

Cabo Wabo Tequila is The Original Rock&Roll ultra-premium tequila. Cabo Wabo was created by Rock&Roll Hall-of-Famer Sammy Hagar to have a superior tequila to serve his friends in his Cabo Wabo Cantina in Cabo San Lucas, Mexico. Handcrafted from 100% Blue Weber Agave, Cabo Wabo offers a Blanco, Reposado, and Anejo tequila. Cabo Wabo is acknowledged as one of the finest ultra-premium tequilas in the world and continues to win top competitive tasting awards, including a Double Gold Medal at the San Francisco World Spirits Competition and the Chairman’s Trophy at the Ultimate Spirits Challenge.

Cabo Wabo is STILL owned by Gruppo Campari.

[vasaioqrcode]
 

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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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