What’s Next for Tequila in 2018

When you can sell twice as much as you have, you can be sure what you’ve got is hot.

That’s what happened recently at Bay Ridge Wine and Spirits in Annapolis, Maryland, when owner David Marberger offered his customers a chance to buy tickets to “Tequila 101.” The event was a tasting and education session with food and numerous tequila samples provided by representatives from two high end suppliers (Patron and Casa Noble). Tickets for the forty or so seats at the educational session disappeared fast, and not just because each supplier was pouring samples and touting their wares.

“We told them, ‘Listen, we’re not here for you to sell people on your particular brand, but to educate these folks on tequila in general.’ And they were fine with that,” Marberger says. The two-hour paid event sold out fast, which pleased Marberger. “An educated consumer is the best consumer we could have,” he adds.

Knowledgeable reps from high-end brands visiting retailers to discuss the production processes and regional influences that create different-tasting tequilas provide the sort of educational opportunity both suppliers and retailers are eager for. The more customers know about the burgeoning, high-end tequila category, the more likely they are to buy. It’s exactly the sort of support retailers can turn into profit.

Based on the enthusiasm Marberger experienced, it’s no wonder tequila continues its multi-year surge in popularity. In 2017 the category grew about 8.5 percent in volume (more than 1.3 million cases) and nearly 10 percent in value, with the most impressive growth coming at the high-end premium (14.1 percent) and super premium (12.2 percent) segments, according to the Distilled Spirits Council.

“Tequila is growing fastest at the upscale end, as premiumization is extremely active here for all Mexican spirits,” says Jill Palais, senior brand manager of the William Grant and Sons Mexican portfolio of Milagro tequila, Montelobos mezcal and Ancho Reyes cordials. Milagro has been growing double digits, this year aiming to top 250,000 cases.

“I checked our numbers and tequila was our number-one increased liquor category, with almost a 20 percent increase last year. That’s about $180,000 in sales for the category, which is pretty nice for us,” says Tom Agnes, liquor operations manager at the two-unit Brooklyn Center Liquor in Brooklyn Center, Minnesota. With an eight percent increase over the previous year, he’s finding interest at the inexpensive mixto end steady while curiosity about the higher-end expressions is expanding, especially silver. Patron Silver 750-ml. was his tenth-best-selling SKU last year.

“I definitely have seen growth in the category, powered by the premium and super-premium expressions,” says Gonzo Mirich, owner of Jimbo’s Liquors in Basalt, Colorado. “Tequila now is way more than Jose Cuervo and Hornitos, which used to be our biggest-selling tequilas historically. But now brands like Casamigos are definitely getting bigger – it’s in fact by volume and dollars our best seller, which tells you the tequila drinker is more refined now and looking for something new,” he reports.

As the reputation of the agave spirit improves, efforts by suppliers to further burnish the attraction continues, with everything from contemporary and stylish packaging to new products (especially those with longer aging).

“We’ve always been a fairly good tequila account, even 15 years ago,” says Mat Dinsmore, general manager at Wilbur’s Total Beverage in Fort Collins, Colorado. “When we saw Bourbon and craft cocktails become the ‘big thing’ craze, tequila in some ways went onto the back burner. But we started to see resurgence, perhaps due to an overlap with those whiskey drinkers, in that more age statements with broader flavor profiles have been bringing some people to the category.”

Helping to drive growth, retailers say, is the female consumer. “The tequila drinker is definitely becoming more refined and looking for something new, and women are really getting into it – whether it’s true or not, many people think it’s a healthier spirit,” Mirich says.

Dinsmore agrees and says that’s significant in a store like his, where he estimates 60 percent or more shoppers are female. “More and more women are calling for tequila. You saw that with Bourbon right before it sky-rocketed, and it shows it’s not just an old boy’s drink anymore. I see more women (and more young women) come in educated about the category, which I think is really cool.”

Tequila’s Trending

Some retailers are specialists, of course, and they are the ones positioned best to take advantage of the category’s growth.

Zak Romaya owns San Diego’s Old Town Liquor, which boasts well over 1000 brands of tequila. He even imports his own brands and has an extensive online presence. Currently, he sees new consumers to the category discovering sweeter, richer expressions, especially aged variants which are sweeter than traditional tequilas. “Some people will say, ‘This isn’t tequila, it’s too manipulated,’” he says. “But I say to them, ‘you can’t tell people what to like,’ and if it brings into the category the person who is now drinking rum or beer or whiskey, it’s good for everyone from the farmers to the producers to us.”

He also sees the steady growth among pricey aged expressions, but says with so much brand churn, there are plenty of bargains for the savvy retailer to take advantage of.

Much of the interest in the tequila business is in line extensions, Marberger says. “Take Roca Patron – for so long it was blanco, reposado, and añejo from Patron and many other brands. But now they’ve come out with their upper marques, which have made a difference.” He does point out that about 80 percent of the tequila he sells ends up in Margaritas, so the market for less expensive brands is still strong.

Creations like Roca Patron, which differs from the original brand by using traditional tahona stone-ground agave, is one way to expand product interest. Organic brands, or certain barrel finishes (as Herradura releases annually) are others. And then there are the one-offs like El Tesoro 80th Anniversary Limited Edition, aged eight years and with only eight casks in existence.

New to the Party

But now there is also an emerging new tequila expression, cristallino, which is a mix of various ages that are then filtered until clear. The result is said to provide some of the rounded and creamy qualities of aged tequila with the freshness of blancos. Maestro Dobel, 1800 and Don Julio have been recently joined by versions from Moet-Hennessy’s Volcan de mi Tierra, and Beam Suntory’s Hornitos.

The hope, according to Beth Krigel, senior brand manager of Hornitos Tequila, is that cristalino will break open the category. Introduced on the heels of the brand’s marketing campaign, “A Shot Worth Taking,” which debuted last Mexican Independence Day, Hornitos Cristalino is a 100 percent agave, aged at least 12 months in used American oak casks to become añejo, and then filtered through charcoal.

Krigel says the new type of spirit creates a combination attractive both to tequila fans looking for new flavor experiences and occasions, as well as novices for whom brown spirits aren’t very appealing (though the flavors might be).

“We are at the very beginning of cristalino in the U.S.,” Krigel says. “We really see the opportunity for this product to appeal to someone looking for a more elevated tequila experience, as well as a more accessible aged tequila experience.”

On Display

When it comes to merchandising or promotional help from producers, most retailers say the classic large-format displays only work with those who have substantial floor space. Even then, with many contemporary store operators preferring a cleaner look, small is beautiful. Co-packs, too, get a mixed response. Some retailers find they confuse customers with no added value for the retailer, while others see them as a holiday attraction that works best when something of real value is included.

“In our market, we can’t mark-up for gift sets, but anything that can give customers an incentive will help. But since people are moving up to quality tequila, as long as they keep they quality high they may not need to be incentivized,” Agnes says.

Creative marketing and merchandising efforts can drive a category. Campari America has two different efforts coming up, according to Christine Moll, category marketing director for tequila.

Espolòn will be promoting its partnership with the movie Deadpool 2, “hiring” Deadpool as creative director. From April through June, marketing includes off-premise display, on-premise promotion, above-the-line advertising and a limited time offer value-added-pack “designed by Deadpool.“ For Cabo Wabo tequila, BBQ theme displays are planned for retail, supported by national digital advertising in social media.

“Off-premise continues to be a critical channel to reach and recruit tequila drinkers, and we see the brand thriving across all our retail partners. On the operational side, retailers continue to seek programming that will add value for consumers, enticing them to add more items in their basket,” she says.

For Beam, the upcoming Tequila Season off-premise display program will roll out to retailers in April to celebrate Cinco de Mayo, with multiple tequila variants from Hornitos and Sauza. Also around Cinco de Mayo, Corralejo has released value added packs which includes sangrita glasses and recipes.

As Dinsmore points out, regular spending pitched to the right level is important. “There are two suppliers that control a huge amount of the market, Proximo and Beam. Whether it’s pricing or programming campaigns, what they do will reflect either positively or negatively. Right now they’re doing a terrific job.”

Marberger says most major tequila brands provide plenty of merchandising support, but what he wants more than anything is educational material. “A steady supply of marketing POS, and things that provide an informational and educational perspective, is what we use,” he adds.

Following Bourbon’s Lead

Some retailers have responded to the way tequilas followed American whiskey producers into the single barrel programs, in which buyers visit distilleries and select a single barrel for their own limited and signature product. Marberger at Bay Ridge has bought numerous Bourbon barrels, and last October sent staff to Mexico to investigate buying a tequila barrel. But hasn’t pulled the trigger yet.

At Wilbur’s, Dinsmore has. “There are now more opportunities out there for some accounts that do really well with a brand to do a single barrel repo or añejo or even extra añejo. We’ve done a couple, and while they didn’t move as fast as we’d like, it is something we never would have done 10 years ago,” he says.

“People are not afraid to experiment, and there is demand from the consumer for something new, exciting, different and boutique-y. They may not go to $100 on something they aren’t familiar with, but they are more willing in the $50-60 range,” he adds.

As for what retailers would like to see more of from producers, Mirich, who skews to the higher end and favors educating customers about things like variations in flavor between highland and lowland varieties, has an interesting take. “I’ve crowded the counter with minis – those baby Patrons are so cute people have to buy them. That’s one way Casamigos did so well – 15 minis sold for around $38, while the 750 ml sold for $49.99. I would like to see that with more product; it’s hard to buy a $70 bottle of something to try it out. Support the smaller sizes so that we can put it in people’s hands.”

Rather than more POS and merchandising, Dinsmore says more attention should be paid to social media promotion, which gives brands a chance to show what makes them different.

Whatever the manner of communicating, it’s clear the way forward for the tequila marketer is as different as was the market 20 years ago. “As I like to say, ‘You don’t need a big moustache to drink tequila nowadays,’” Mirich says.

Jack Robertiello is the former editor of Cheers magazine and writes about beer, wine, spirits and all things liquid for numerous publications. More of his work can be found at jackrobertiello.com.


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