The Agave Panic of 2018: Bloodshed on the Streets of Tequila

Bloodshed

The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mAOn Jan. 22, 2018, a particularly savvy tequila brand owner announced in a private message to this office:

“Agave prices out of control.  $22/kilo.  Industry getting destroyed!”

Coincidentally, earlier that same day, another brand owner/ambassador admitted to us that the current cost had blown up to $24/kilo.

That savvy brand owner then added to his message–

“…but Cuervo started it.  Bought up a ton of [agave] before their IPO.  Increase balance sheet.  That’s, at least, the word on the street.”

But, shit got REAL for Jose Cuervo when…

Cuervo Cries Wolf

In this El Financiero article dated December 21, 2017, Francisco Beckmann Vidal, owner of Tierra de Agaves and Jose Cuervo, warned of a looming agave shortage.  He…

“…urged agave producers to increase plantings because whether in tons or in number of agaves, the industry requires more of your prime material.  Planting must begin now.  Eyes have to be opened and decisions need to be made.  Only the industry can provoke the necessary changes.”

[“…instó a los productores agaveros a que incrementen los plantíos porque tanto en toneladas o en número de agaves la industria cada vez requiere de más de sus materia prima, “hay que empezar a plantar desde ahorita. Hay que abrir los ojos y tomar decisiones. Solamente la industria es la que va a provocar estos cambios que se necesitan hacer.”]

Like Shaggy said–

It wasn’t me!

 Here’s Your Sign

All the signs of an impending shortage were there.  Major spirits distributors, tequila and even mezcal brands jockeyed for position in the Agave Triple Crown race.

In 2015, Diageo, the world’s largest producer of spirits, swapped its Bushmills Irish The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mAwhiskey brand for Don Julio, previously owned by José Cuervo.

After Cuervo’s early February 2017 initial public offering, Davos Brands acquired a controlling interest in Master Sommelier Richard Betts’ Sombra Mezcal and Astral Tequila brands, in March.

Then, in early June 2017, spirits and wine behemoth, Pernod Ricard, purchased a significant stake in founder Ron Cooper’s beloved Del Maguey Single Village Mezcals amid uproar from long time fans claiming “sell out.”

Later that June, in a surprising move, Diageo bought Casamigos tequila, co-founded by celebs George Clooney and Rande Gerber, for up to $1 billion.

All this time, Bacardi, lurking like a shark in the water, in January 2018, bared its jaws and swallowed up Patron for a reported $5.1 billion.

The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mA

Pernod Ricard, in an attempt to get the last word in January 2018, shelled out the big bucks to purchase the remaining 16% of Ken Austin’s Avion tequila that it had invested $100 million in back in 2014.

M & A was the name of the game in the spirits distribution sector, too.

Late November 2017 brought the news that distributor Breakthru Beverage was set to combine with Texas based Republic National Distribution Company to match 2016’s mega-merger of Southern Wine and Spirits with Glazer’s, Inc.

Real, or Fake?

Some skeptics still don’t believe that an agave shortage exists.

Unlike the more seasoned, and–dare I say–older sippers, this may be the first time Millennials and Gen Xers have ever experienced a truly severe Agave Crisis.

Others completely ignore the fact declaring an upcoming tequila boom, instead, instigated by the Big Three named above.

Even in this article in the Spirits Business, Vinexpo, the leading wine and spirits trade show, and IWSR (International Wine & Spirits Research) predict that:

“The fastest-growing spirit category in terms of volume will be Tequila, which is predicted to increase by 118% between 2016 and 2021 to 35m cases.”

Seriously?

 Thank You, Captain Obvious

We told you last year this was coming.The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mA

Weren’t you paying attention?

In the article The Agave Shortage of 2017 Is Worse Than We Thought we outlined the reasons for the then looming crisis.

Still, you bought ALL the tequila and mezcal you could drink, didn’t you?

The Numbers Don’t Lie

According to DISCUS, 17.2 million cases of tequila were sold in 2017.  3.2 million of those cases were in the pricey Super Premium category, alone.

Must have been a good year for some of you.

On the Mexico side of the border, things aren’t so rosy.

Freak Out

According to these articles in Joe  , Telam , and Reuters

“This year [2018], a total of 42 million agave plants were projected to supply 140 registered companies.  However, only 17.7 million of those planted in 2011 are ready to be harvested, the Tequila Regulatory Council and National Tequila Industry Chamber have said.”

That’s assuming producers are using full grown agave.  As explained in the above articles–including our own–2 to 4 year old immature agaves are being sold, as well.

With the use of diffusers by the large producers like Sauza and Bacardi (Cazadores), the age of agave plants used to make tequila is irrelevant.

The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mA

About Those Stolen Agave

For several years, now, growers in Oaxaca had reported that truckloads of stolen (or purchased) espadin used to make mezcal were headed for tequila distilleries in Jalisco.

Now, a reported 15,000 blue agave plants have been hijacked from blue agave growers supplying the Big Boys.  That’s triple the amount reported in 2016.

It is presumed that these pilfered plants were going to los mieleros (Big Pharma) since they pay bigger bucks for blue weber agave.

So, there is some poetic justice during this Agave Crisis.

 The Blame Game

As much as major metropolitan areas would like to believe that they carry this much clout, cities like New York are NOT to blame.

On the other hand, brands like Houston based Pura Vida blames the Big Guys, too.

Austin based Dulce Vida tequila agrees.

And, one more for good measure from this small brand owner via LinkedIn on February 5, 2018:

[“The sad reality for small producers that depend on purchasing ripe agave that results in extraordinary 100% blue agave tequila is that the Large Makers are the ones who have stockpiled huge quantities of premature agave.  But the 4 year old plants don’t yield good tequila.  Moreover, it requires double the amount of prime material [agave] for the production of tequila.  In short, the very same Large Producers have aggravated the problem and devastated the cultivation of blue agave.”]

While we’re pointing fingers, let’s accuse the real culprit of this economic and agricultural mess, shall we?

Greed

In October 2017, we spoke to Master Distiller of G4, Terralta, and Pasote–and agave grower–Felipe Camarena.

Minutes before the VIP Hour of El Cholo’s yearly Tequila Tour began, he briefly outlined to me in simple mathematical terms, how much per kilo he’d require to make a nice, honest living growing agave.

The amount was not unreasonable.  In fact, it was in the single digit range.

By waiting at the last minute, and selling to the highest bidder, Camarena blamed the greed of amateur agave growers for the skyrocketing maguey prices.

How Long?

How long will this agave crisis last?

In January 29, 2018, Master Distiller of Tapatio and Tequila Villa Lobos, Carlos Camarena, gave this gloomy prediction:

What… Me Worry?

The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mA

Not everyone is worried, however.  Pernod isn’t

And neither are George and Rande.  Having pocketed their nearly $1 billion, they’re venturing into mezcal, now.

The Agave Panic of 2018: Bloodshed on the Streets of Tequila https://wp.me/p3u1xi-5mA

Be afraid–

Be VERY afraid!

The Tequila 3 Ring Circus

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

The End of an Era

Inspired by this poignant and heartfelt Facebook post by Tom Nall, the gregarious co-founder of Republic Tequila, and Empresario LLC:

 The Tequila 3 Ring Circus is in Town

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4NmA new circus has replaced “The Greatest Show on Earth.”

Imagine the spotlighted and off kilter Ringmaster who, in a booming Michael Buffer-eske voice announces–

Ladies and gentlemen, turn your attention to Ring Number One!”

Unless, you’ve been living under a rock since January 2017 (we wouldn’t blame you if you are!), you’ve no doubt heard of POTUS’ proposed 20% import tax on Mexican goods to fund the building of “The Great Border Wall” with Mexico to prevent illegal immigration.

Further, POTUS has promised that Mexico itself would pay for the wall.

Anyone with an iota of understanding of economics knows that this tariff would simply be passed onto consumers by the manufacturers of these goods.

And that includes tequila producers and mezcaleros.

According to this recent article, the collateral damage to other peripheral industries would be devastating.

Moreover, the archaic Three Tier System that was established in the United States after Prohibition, and on which alcohol distribution is based, demands that each level of the tier also pass along this 20% tax.

“Clowns are the pegs on which the circus is hung,” P.T. Barnum

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

Once POTUS bullied Mexican President Enrique Peña Nieto in late January 2017 into cancelling his visit to the US if Mexico refused to pay for the 2,000 mile border wall, his strategy backfired.

Each leader took the war to Twitter.

While POTUS berated the Mexican President and screamed about the lopsidedness of the NAFTA agreement, Peña Nieto vehemently argued that Mexico would never pay for such a wall and managed to rally a divided country to his side.

It almost made us nostalgic to watch reruns of Destilando Amor, again.

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

Meanwhile, under the Big Top, the Center Ring was where everyone clamored to sit near because only the most prestigious routines happened inside.

Ladies and gentlemen, we direct you to the Center Ring!”

In early February, an interesting thing happened in court.  A precedential ruling was handed down in the case Luxco, Inc. v. Consejo Regulador del Tequila, A.C.

The decision allowed the CRT (Tequila’s governing body in Mexico) to register the word TEQUILA as a certification mark and control its use.

Wait!  What?

Isn’t that the CRT’s job, anyway?

What changed?

The CRT aggressively protects Tequila like Disney or Levi’s conserve their trademarks.

When you read this article explaining the timeline and judgment of the case, you’re amazed at the depth of Luxco’s arrogance to file the lawsuit in the first place and to completely ignore Tequila’s geographic indication.

Surprising, too, since Luxco imports and distributes El Mayor tequila, and re-bottles Exotico and Juarez tequilas that are certified by the CRT as authentic, all at Destiladora González González (NOM 1143).

Makes you shake your head and wonder what Luxco was thinking.

 Ladies and gentlemen, feast your eyes on Ring Number Two!”

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4NmRock & Roll Hall of Famer Sammy Hagar has found a way around his alleged Cabo Wabo Tequila non-compete clause, and recruited his friend and fellow rock star, Adam Levine of Maroon 5 to develop–

Santo Mezquila?

According to its marketing copy, it’s a blend of 100 percent blue agave and espadín agave to “create a smooth and rich tequila flavor with the sweet and smoky taste of mezcal.”

But, what is it?

It’s not completely tequila, even though the 100% blue agave tequila portion is being distilled at Sammy’s original maquiladora, El Viejito (NOM 1107).

It is still unknown, however, at which palenque the mezcal portion is being distilled, and whether it comes from an industrial producer or not.

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

One thing for sure, the label will NOT have a NOM number on it.

The Shell Game

As an adult, you realize now that the three ring circus was nothing more than an elaborate con.  An enormous shell game dressed up in glittering sequined costumes and face paint to keep you guessing where the action would take place next.

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

The thrills and chills of trapeze artists, lion tamers, high wire stunts, acrobats, jugglers and clowns performing all at once.

Slight of hand and misdirection at its very best.

A View From the Cheap Seats

Unlike today’s stadiums and auditoriums, there was always a bad seat in the house underneath the Big Top, and chances were, you were sitting in it.

There was always a feeling of missing something–a triple somersault, or dancing stallions, or roaring big cats jumping through flaming hoops.

To keep track of the drama from one ring to another, you craned your neck, unless…

You sat in the cheap seats, high above in the nosebleed section.

 Ladies and gentlemen, back to Ring Number One!”

At first, there was some question as to whether tequila and mezcal would fall under the proposed tariff.

Being the largest consumer of tequila in the world, America’s agave lovers were hoping that their favorite spirits would be spared.

Since 100% de agave tequila, and other agave spirits with an appellation of origin, can only be made in Mexico, it seems that the additional tax is almost a certainty.

Newsflash!

We knew the price of tequila was going up, anyway.

We covered this in The Agave Shortage of 2017 is Worse Than We Thought.

Due to an unexpected snowstorm in Arandas in March 2016 that damaged agave crops; subsequent substantial contracts with medium sized maquiladoras (distilleries that produce tequila for various other brands) by transnational corporations tying up enormous quantities of tequila to be bottled under their labels; and aggressive competition for ripe agave by los mieleros (pharmaceutical companies), tequila prices were scaling up.

Whether Mexican spirits are affected by a tariff or not, or due to the scarcity of blue agave, look for prices to increase across the board.

 Ladies and gentlemen, let’s return to Ring Number Two!”

Speaking of the blue agave shortage…The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

Accusations persist that truckloads of espadin agave, generally used to make mezcal, are still being sent by the truckload from Oaxaca to Jalisco headed for tequila distilleries to fulfill pending orders.

Rather than hide this clandestine fact any longer, Sammy and friends have perhaps decided to take the practice public and spin it into Santo Mezquila.

As a result, long time mezcaleros like Doug French of legacy brand Scorpion, have taken to distilling whiskies from heirloom corn to ride out the storm of the espadin shortage.

Also, to conserve wild agave species, as well as to ensure future supplies for his wildly popular mezcal expressions, Doug has planted small plots of agave instead of trying to compete with deeper celebrity pockets.

“To the Center Ring for the Grand Finale!”

While we still scratch our heads about the Luxco court decision, and if, in fact, POTUS does levy a 20% tax on all Mexican imports, including Mexican beer and spirits, here’s a few possible scenarios to consider.

The Human Cannonball

If the above cited article is correct, beer and tequila companies are using NAFTA only 8% of the time, and tequila comes in free for all World Trade Organization (WTO) members, anyway.

The proposed tariff would, in essence, tear up NAFTA, regardless of whether POTUS decides to renegotiate it or not, and fire a message across to Mexico that he’s not kidding around.  But…

Mexican President Peña Nieto has an ace up his sleeve.

More Fun than a Barrel of Monkeys

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4NmRemember this flash from the past from 2003?

POTUS’ blatant disdain for Mexicans could lead to the CRT and Mexico retaliating by requiring that all tequila shipped in bulk to the United States be bottled in Mexico to insure the quality of the juice.

The consequences of this move, as described in the above cited DISCUS (Distilled Spirits Council of the United States) press release could be cataclysmic, particularly for those bottling plants in the Southern US.

Surely, this tactic would be fully endorsed by former Mexican President, Vicente Fox, who has no love loss with POTUS, and under whose term the ban was originally proposed.

Not My Circus, Not My Monkeys

Enraged, POTUS might completely disregard Appellations of Origin, in general, and not just Mexico’s.

He could allow micro and craft distillers across the country to make American tequila, mezcal, sotol, champagne, Bordeaux, and anything else that is protected by geographic indicators, triggering international incidents.

Pernod Ricard, maker of Avión and Olmeca Altos tequila, has already expressed its concern about this possibility.

51-49% cognac, anyone?

Don’t look now.  It’s already happening.

Products like Three Wells from Tucson, Arizona, and the controversial Besado

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

calling itself “tequila” are already capturing the public’s attention, and commanding shelf space.

And, for the second or third time (we’ve lost count), South Africa is throwing its hat in the ring with its version of “tequila.”

Here’s a thought:

Maybe THIS is what Luxco was going for, after all?

This Way to the Egress

The way we see it, the CRT will have its hands full policing impostors on this side of the wall and abroad.  But…

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

As Master Marketer, and P.T. Barnum expert, Joe Vitale says, “people will spend their last dime to be entertained,” and that includes their favorite agave spirits.

The Tequila 3 Ring Circus http://wp.me/p3u1xi-4Nm

By the way, P.T. Barnum never said, “There’s a sucker born every minute.”  Instead, he professed that, “There’s a customer born every minute.”

Be an informed customer.

Demand authenticity and transparency from your favorite agave spirit producer.

Don’t be a sucker.

Women In The Tequila Industry: Marie Sarita Gaytán

Sarita_book Ever wonder how Tequila got to be “The Spirit of Mexico?”

Dr. Marie Sarita Gaytán explains how in her landmark book, Tequila!  Distilling the Spirit of Mexico. 

While we’ve interviewed other Tequila Boss Ladies who have a hand in producing their own brands, this tequila and mezcal researcher, who is also an Associate Professor at the University of Utah, can explain how it came to be known as Mexico’s National Drink.

Besides, when it comes to Women In the Tequila Industry, she’s the one best suited to explain how Tequila actually became an industry.

Here, she gives us her responses to our customary handful of questions.  Afterwards, do yourself a favor and add her book to your tequila library.

***

TA:  How would you describe your experiences as a woman in a primarily male dominated industry?  What are the challenges you face when dealing with the male dominated Tequila/Mezcal Industries?

MSG:  I think that it’s important to note that, although a woman, I am not actually involved in these industries.  Instead, I’m a tequila and mezcal researcher, so my experiences are much different than those women who are navigating the business side of these trades.

What I can say, however, is that during the process of conducting fieldwork in Sarita_crop (2)Mexico for my book, industrialists, regulators, and tourism employees, both men and women, were generous with their time.

I approached the topic with sincere curiosity—I did not have a hypothesis to prove, I wanted to learn as much as I could, and folks were very open to sharing their experiences.

TA:  How have you been able to change things within the Tequila/Mezcal Industries?

MSG:  What I have done is try to resituate the focus on tequila by paying attention to the people behind the product.

I am less interested in which tequila tastes best, or experimenting with the latest agave-based cocktail.

My work underscores how and why tequila emerged as Mexico’s drink—that is, my aim was to dig into the politics that created the conditions for tequila’s rise to fame within the nation.

TA:  What do you see as the future of women working within the Tequila/Mezcal Industries?

SaritaMSG:  Women have always been working in the tequila industry.

What’s changed somewhat, is that now they are creating their own brands, starting their own companies.

As tequila and mezcal become more global, there is more room for the entrance of new actors, new competition.

Women are definitely making their mark as the market continues to widen.

TA:  What facets of the Tequila/Mezcal Industries would you like to see change?

MSG:  I am not especially impressed with the Tequila Regulatory Council’s close connection to the government, their support of the interests of transnational liquor conglomerates, and their myopic focus on profit.

Together with Sarah Bowen (from North Carolina State University), we’ve published several articles critiquing their politics—extralocal actors, in particular, multi-national companies—have more influence over the direction of the industry at the peril of small-scale agave farmers, local craftsmen/women, and the residents of Tequila.

This remains a critical problem, one that is not poised to change anytime soon.

TA:  Do you approve of how Tequila/Mezcal brands are currently marketing themselves?

I’ve never thought about this question as a matter of approval or disapproval, but what I will say, is that I’m very interested in seeing how tequila and mezcal branding unfolds in China.

What do producers think about Chinese consumers?  What will Chinese consumers be looking for when they purchase certain brands?  This is fascinating stuff.

TA:  Is there anything you’d like to say to women who may be contemplating entering and working in the Tequila/Mezcal Industries in one form or another?

MSG:  Continue to network and find a mentor, woman or man, to help you understand the nuances of the industry.

Corner Restaurant Fuels the Fire of Austin’s Craft Tequila Scene

[In mid-February 2016, at the suggestion of Andres Garcia, Regional Sales Manager of award winning Embajador tequila, Tequila Aficionado Media met with Brian Jaymont, General Manager of the Corner Restaurant, inside the JW Marriott in the heart of Austin, Texas.

We were first exposed to the fine hospitality of the JW Marriott on our second visit to the Texas Nightclub & Bar Alliance Convention.  The JW Marriott will again be the host hotel for the 2016 edition of TBNA, with the tasting event taking place at the famed Brazos Hall.]

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Local Flavor at Corner Restaurant

“Their braised short rib street tacos are to die for!” exclaimed Andres Garcia of Embajador tequila.

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Biting into the first of my three tacos, I wholeheartedly agreed.

Boasting a menu devised by celebrated Executive Chef Jennifer Etzkin, Corner’s fare is billed as “modern Texas cuisine served with an urban flair.”

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Featuring regional ingredients, coupled with stunning views and an inviting atmosphere, our lunch couldn’t have been better paired than with two Glencairn glasses of Embajador Platinum blanco.

In The Beginning…

20160211_140943Brian Jaymont, General Manager of Corner Restaurant, is a true tequila aficionado and student of agave spirits.  He is also well-versed in Texas micro-brewed beers, wines, whiskies and bourbons.

Along with the stellar tequila selection of the Corner, Brian’s also been responsible for the enviable tequila array at the JW Marriott’s San Antonio property, the Hill Country Resort & Spa’s Cibolo Moon tequila bar.

Below, Brian discusses how his passion for tequila and agave spirits began and eventually led him to do more in-depth research.  He also reveals how he’s been able to infuse that passion into the properties he’s worked in.

To date, Cibolo Moon is the only bar in Texas that is certified by the Consejo Regulador del Tequila (CRT) with a “Distintivo T.”  The entire staff has undergone thorough training, tasting and testing to achieve this certification.

Brian beams with pride as he describes the enthusiasm with which the entire staff at the JW Marriott’s Hill Country Resort & Spa’s Cibolo Moon embraced their Distintivo T training.

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At Brian’s insistence, plans are in the works for the staff at Corner Restaurant to also be “T” certified.

During his tenure, Jaymont was also involved in the JW Marriott Tucson Starr Pass Resort & Spa’s famed Salúd tequila bar.

 Who Has the Best Toys?

Here, Jaymont describes the dynamics of Austin’s craft beverage scene and how he, the Corner Restaurant and Marriott are fueling the fire.

Geeking Out With Brian Jaymont

Brian shares his routine before choosing a new tequila and admits to personally using the NOM List as a way to find other tequilas to try.

What Bourbon, Wine and Tequila Have In Common

Brian asserts that there are hidden similarities to tequila that both bourbon and wine share.

A Blanco Guy

Brian Jaymont explains his personal preference for unaged, blanco tequilas.

Move Over, Bourbon!

Jaymont dissects the steady transformation of Austin’s bourbon-centric palates that are now drawn to Texas-based aged tequilas.

Micro-Local Focus

Brian defines Marriott’s “micro-local” focus highlighting Texas craft beers, wines, spirits, including tequilas.

The Corner proudly pours Austin-based tequilas, Embajador, Dulce Vida, Tequila 512, and more to come.

Glencairn–The Preferred Glass

Brian reveals why he chose Glencairn glasses to serve Corner’s tequilas.  No lime or salt needed–ever!

From Education to Enjoyment

How General Manager, Brian Jaymont motivates his staff to make sure the customer has a pleasant experience with the tequila’s available at the Corner Restaurant.

Supporting Local Businesses

Supporting Austin’s local micro-brewers, distillers, and brand owners to give the visiting tourist a memorable experience, and to keep Austinites coming back for more.

It’s refreshing to find a global hotel chain like the Marriott offer its guests a more local approach to their dining and drinking experience.

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Deciding where to spend your next Taco–or Tequila–Tuesday should be a cinch!

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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Women In The Tequila Industry: Ana Maria Romero Mena by M.A. “Mike” Morales

Tequila Appreciation, 2010
Tequila Appreciation, 2010

In the 2010 industry classic special report entitled Tequila Appreciation for USA Today, it listed five tequila trends to watch.  Here, we’re focusing on one of them…

The role of women in the tequila industry.

The report predicted that more women, in particular Latina/Hispanic women with family ties to agave growers and tequila producers, would join the ranks of tequila brand owners and also become influential in other areas of this traditionally male dominated industry.

Current numbers suggest that 70 percent of new businesses are started by women and that 20 percent of new home sales are driven by single women.  It’s no secret that Hispanics and Latinos are also the largest US minority, either.

Up to 85 percent of the buying market is women.  This translates to $5-$7 trillion dollars every year!  It’s no wonder that the Spirits Industry, and particularly the tequila segment, is finally taking notice.

Statue of Mayahuel in Tequila.
Statue of Mayahuel in Tequila.

We asked a short list of five questions to prominent women leading the charge for change in the Tequila Industry and beyond.  As you’ll read, it hasn’t been all margaritas and roses for these tequila boss ladies.

We begin our series of Women In The Tequila Industry with Maestra Tequilera, Ana Maria Romero Mena.  You can read a brief summary of her accomplishments in our earlier article on Tequila Boss Ladies.

[Editor’s note:  For the convenience of our interviewee and our Spanish speaking audience, this article is in both English and Spanish.]

***

Maestra Tequilera, Ana Maria Romero Mena.
Maestra Tequilera, Ana Maria Romero Mena.

TA:  How would you describe your experiences as a high ranking woman in your position in a primarily male dominated industry?

(¿Cómo describiría sus experiencias como una mujer de alto rango en su posición en una industria dominada principalmente masculina?)

ARM:  [My experiences have been]  dynamic, enriching, and in constant evolution despite the tequila industry having a long history and a bright future.  There’s lots to do in the arena of research and innovation.

(Dinámicas, enriquecedoras y en  constante evolución, a pesar de ser una industria con un largo pasado y un gran futuro; hay mucho que hacer en el campo de la investigación y de la innovación.)

The dynamic experience [has been] because it’s an industry in expansion in that the study of new forms of interpreting tequila by the [olfactory] senses are different due to culture, age and sex [of the individual]; enriching because there’s so much to learn from those men who are behind every bottle, from the [brand] owner to the jimador, have been generous in imparting their experiences [to me]; and in constant evolution because the markets have globalized and they permit the generation of new strategies for the positioning of Tequila.  Finally, I’d like to say that [the industry] is male dominated but not male chauvinistic.

Romero Mena and actor, Patrick Dempsey of Grey's Anatomy.
Romero Mena and actor, Patrick Dempsey of Grey’s Anatomy.

(La experiencia dinámica es porque es una industria en expansión en la que el estudio de nuevas formas de interpretar al tequila desde los sentidos son diferentes debido a la cultura, la edad y el sexo; enriquecedoras porque hay mucho que aprehender de esos hombres que están detrás de cada botella, desde el dueño hasta el jimador, han sido generosos en compartir sus experiencias y en constante evolución porque los mercados se globalizan y nos permiten generar nuevas estrategias para el posicionamiento del Tequila, para finalizar me gustaría decir que es masculina pero no machista.)

TA:  How have you been able to change things within your industry?

(¿Cómo han sido capaces de cambiar las cosas dentro de su industria?)

ARM:  By studying the behavior of the industry in all its arenas, detecting areas of opportunity, completing the research of that opportunity and presenting it for the betterment of the industry as in the case [of the investigation] of the aromas of tequila, where its source was placed in accordance with its behavior in the development of the sensorial profiles of tequila and then delivered to the mind of the consumer by means of the cata (tasting).

Romero Mena in the agave fields.
Romero Mena in the agave fields.

(Estudiando el comportamiento de la industria en todas sus aéreas, detectando aéreas de oportunidad, realizando la investigación de esa oportunidad y presentándola para el mejoramiento de la industria, como lo fue la investigación de los aromas del tequila, su procedencia  para  ubicarlos de acuerdo a su comportamiento en el desarrollo de perfiles sensoriales del tequila y llevarlos a la mente de los consumidores por medio de la cata.)

TA:  What do you see as the future of women working within the Tequila Industry?

(¿Qué ves como el futuro de las mujeres que trabajan en la industria del Tequila?)

ARM:  It is a full future that allows us to not only grow personally and professionally, but to also leave a legacy for the new generations of women in which innovation will be the key [word].

(Es un futuro pleno, que nos permitirá  no solo desarrollarnos personalmente y  profesionalmente, si no dejar un legado para las nuevas generaciones de mujeres en las que la innovación será la palabra clave.)

TA:  What things would you like to see changed?

(¿Qué cosas gustaría cambiado? )

ARM:  To give women more opportunities in positions of higher responsibility and decision making [since] we still share only a minimal portion of those positions.

(Darles mayores oportunidades en puestos de gran responsabilidad y toma de decisiones a las mujeres, todavía compartimos  en un porcentaje mínimo en esos puestos.)

Maestra Tequilera, Ana Maria Romero Mena
Maestra Tequilera, Ana Maria Romero Mena

TA:  Is there anything you’d like to say to women who may be contemplating entering and working in the Tequila Industry in one form or another?

(¿Existe algo que le gustaría decir a las mujeres que pueden estar contemplando entrar y trabajar en la industria del Tequila en una forma u otra?)

ARM:  It’s a fascinating industry [and] one must get to know it in all its facets, visit and study the different distilleries, the Consejo Regulador del Tequila (CRT) and the National Chamber of the Tequila Industry (CNIT); get to know its regulations (normas), certify yourself in the desired area of opportunity, e.g.:  Maestra Tequilera, Maestra Destiladora; to be at the forefront [vanguard] of the advances and news that generates its dynamism and above all, to be passionate about your work.  Knowledge is the key that opens all the doors to opportunities.

(Es una industria fascinante, hay que conocerla en todas sus variables, visitar  y estudiar las diferentes destilerías,  el Consejo Regulador del Tequila y La Cámara Nacional de la Industria Tequilera, conocer su normatividad, certificarse en el área de oportunidad deseada, por ejemplo Maestra Tequilera, Maestra Destiladora, estar a la vanguardia de los avances y noticias que genera su dinamismo y sobre todo apasionarse por su trabajo.  Ya que el conocimiento es la llave que abre todas las oportunidades.)

Follow Ana Maria Romero Mena on Facebook and Twitter @Amrcreativa.

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Tequila 88: A Tequila Hero’s Journey

Hari Dhiman, dressed in a black tuxedo, stood humbly but firmly at the podium and looked out over the darkened auditorium packed with guests and well-wishers from all over the Inland Empire of Southern California.

A masterful networker and community leader, the Founder and CEO of upstart tequila brand Tequila 88 had formally invited this who’s-who of politics and business to join him and his family on an early February evening in 2013 to celebrate the brand’s first year accomplishments. A true success in both his life and business, it hasn’t always been easy for East Indian born Hari, as he explains here…

 Tequila 88:  A Love Story

Coasters and brochures.
Coasters and brochures.

In an age where trendy tequila monikers abound and many are marketed to appear so exclusive that they are christened after the area code of certain cities where the brand owners reside or hail from, or the steps taken to represent the tequila’s production (901, 512,  1-2-3, Tres, Cuatro, Cinco), Tequila 88 has a sweet and tender reason for its name that began in exotic Singapore:

Why Tequila?

The man and his tequila.
The man and his tequila.

Dhiman acknowledged that getting into the tequila business during the recession of 2009-2010 wasn’t an easy decision.

Having made his fortune in the hotel and hospitality business, an industry which suffered significant economic blows during that era, as well, Hari confessed that it seemed a safer bet than developing his own tequila brand.

Perseverance, Commitment, Passion

By Hari’s own admission, Tequila 88’s journey was long and arduous.  As a “hands-on” kind of guy, he was involved in every aspect and detail of the brand.  Countless hours were spent on the flavor profile alone, which at one point, even led to his chemical engineer/master distiller to give up on the project in frustration.

Hari, however, doggedly insisted that they both press on.

Determined to bring a solid product into the market, and his long term plans for Tequila 88 hanging in the balance, Dhiman refused to cut corners and met every requirement set down by the Consejo Regulador del Tequila (CRT) as outlined in its rules and regulations (normas).

Superseding Expectations

Not only did Hari Dhiman acquire his desired flavor profiles for Tequila 88 by exceeding the CRT’s standards, he has since successfully exported his first shipment of Tequila 88 to his homeland in India in the spring of 2013.

A Unique Bottle

Tequila 88 blanco and boxes.
Tequila 88 blanco and boxes.

When I first met Hari Dhiman at his offices and warehouse in Ontario, CA in January 2013, he recounted the events that lead to designing his unique tequila bottle, several of which were artistically displayed as centerpieces.  He then pulled out some shaped pieces of paper from his desk drawer.  These were his initial attempts at making a 3-D model of his dream tequila vessel.

He enlisted a mechanical engineer to complete the plans that now hang on his office wall.  Tequila 88’s bottle and packaging have become a sought after trophy by collectors.

Rags To Riches

A self-made millionaire and serial entrepreneur with several thriving businesses to his credit, Hari shares his formula for success…

During the course of the evening, the milestone celebration swayed between a fiesta and a stockholders’ meeting, but with a lighthearted and humorous atmosphere, nevertheless.   And while it may sound like a cliché, Hari Dhiman’s voyage through life is the epitome of the rags to riches story.  The American Dream personified mixed with an intense entrepreneurial spirit.

Exporting Tequila 88 to India.
Exporting Tequila 88 to India.

From mopping floors for minimum wage, to lifting a snifter of tequila to salute his first overseas shipment into a burgeoning new economy and tequila market, one gets the sense that the next phase of Hari Dhiman’s odyssey will take him even further onto his Tequila Hero’s Journey.

Follow Tequila 88 on Facebook.

On Twitter.

 

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Tequila: The Year in Review

year in reviewAccording to figures released by Herradura, the number of cases of tequila exported annually are…

  1. US 11.5 million

  2. México 7.5 million

  3. Germany 450,000 

  4. Russia 300,000

  5. Canada 250,000

  6. France 200,000

  7. Greece 190,000

  8. Japan 150,000.   

Of worldwide tequila production, Mexico bottles 33% while the United States bottles 51% as bulk mixto. 

 

However, figures released by the CRT (Consejo Regulador del Tequila) state that from January to October of 2009, there was a 19% drop in tequila production from 2008.  

A reporter for Excelsior Online recently commented in his column that despite Mexico’s economic drop of 7% during the recession, as of October 2009, sales of tequila have increased 10% over last year. While this columnist attributes the rise in tequila consumption to consumers trying to make the recession more bearable, others in the tequila industry are more optimistic about the future.

Juan Beckmann Vidal, president of Casa Cuervo, sees enormous worldwide potential in the exportation of the Spirit of Mexico, particularly into Asia.  He foresees the annual sales of 137 million liters of tequila to double in the next five years.

With the current instability of each country’s economy, it will be interesting to see what the final production figures are at the end of 2009.

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