Tequila in the USA

"Tequila. Straight. There's a real polite drink. You keep drinking until you finally take one more and it just won't go down. Then you know you've reached your limit. "
Lee Marvin

 

Tequila is the eighth largest spirits category in the U.S. with approximately 9.1 million nine-liter cases, representing less than 6% of the total distilled spirits market, but the fastest growing segment. Tequila's growth has outpaced most other major spirit categories over the last decade and some analysts see no immediate end to its continued growth.

 

It wasn't always this way. Cuervo shipped its first three barrels of tequila to the USA in 1873, but tequila has suffered a bad reputation for the last century, to a good degree deserved by over-indulgence in mixto tequilas. In 1912, an article in the Lincoln, Nebraska Evening News declared, "Ninety percent of the American tramps in Mexico are victims of tequila."

 

Tequila sales saw an upsurge in the USA during Prohibition, but that was quickly dampened by the Great Depression. In the 1930s, when tequila makers started using cane sugar in their fermentation, the result was a milder, gentler product that appealed more to the gringos. It wasn't until the 1960s that 100% agave tequilas started to make a comeback in the US market.

 

But even if the frat-party image of tequila has not entirely been dispelled, tequila has been making great strides in acceptance in the past two decades. In an era when hard liquor sales have been falling and the popularity of many spirits and cocktails had tumbled, tequila sales in the USA have been bucking the trend. Herradura helped change that by being the first 100% bue agave tequila available in the USA, thanks to the efforts of movie stars Bob Hope and Bing Crosby, who tirelessly promoted it.

 

By the 1970s, tequila sales were getting hot. According to a Time Magazine article from 1976:

 

Slow at first to make itself felt, tequila after two or three rounds comes on like a mariachi band. Mexico's national spirit has crept up on the U.S. market in much the same way. Before 1970, liquor stores used to stock tequila —if they carried it at all—on a back shelf alongside ouzo and grappa. In the past five years, however, annual imports have increased more than 400%; where only a handful of brands were available north of the border ten years ago, some 250 labels are now registered, accounting for total yearly sales of more than 5 million gallons. Says an industry newsletter: "Tequila is hot!"

Made from a cactus-like succulent grown in volcanic soil near the town of Tequila in Jalisco, tequila was probably the first distilled liquor in America; it was an Aztec tipple. Today its staunchest U.S. aficionados are in the West, where generations of visitors to Baja California have knocked back the musty-smelling liquor for a few cents a glass. It is no cheap shot north of the border; prized brands like José Cuervo 1800 and Sauza Conmemorativo sell for $10 to $11 a fifth. Nonetheless, at outlets such as Liquor Castle in Beverly Hills, which sells 20 cases a month, tequila sales are doubling every year. Says Owner Simon Levi: "Tequila outsells bourbon 5 to 1. I've been in the business 40 years and I've never seen anything like it. It's like vodka was ten years ago"

 

While overall the market for distilled alcohol saw a drop of 22% over the past few years, in that same time tequila's sales grew by 31% (12.5% growth in 2006 alone, according to AC Neilsen figures). One hundred percent agave tequilas enjoyed a 62.4% growth, compared to only 15.6% for mixtos. The USA accounted for46% of the global tequila market, in 2005.

 

Despite its growth, tequila is still only the eighth most popular spirit in the USA by sales volume: 9.3 million cases (9-litres/case) in 2005 compared to 45.9 million cases of vodka and 21.8 million cases of rum. But even that made for $3.6 billion in retail sales.

 

Tequila usage is likely to continue its strong growth over the long term, due to the influence that the growing Mexican population has on U.S. culture, including food and beverage. However, one report estimates that 70% of all tequila consumed in the USA is used in margaritas.

 

At the same time, spirit sales, once slumping, began to rise again after 2000, increasing 22% - tequila however was still ahead of the pack, increasing 31% in the same time. Of that, 100% agave tequilas saw a growth of 62.4% compared to 15.6% for mixtos.
 

In the 2006 study, "The Surging Global Tequila Market," Pace University professor, Marc Scheinman, wrote about the 'Americanization of the tequila industry' and predicted a growth in US tequila sales of 8% in volume and 10% in value until at least 2010. USA tequila sales, he says, will represent 54.1% of the total global tequila sales by then.

 

However, the CRT's figures for agave planting show a significant reduction in the number of new plants being grown (12.8 million in 2006 compared to 93 million in 2002), and it is expected that another shortage looms for tequila producers by 2010.

 

In the U.S. tequila is experiencing both "premiumization"- the positioning of the product as a high-end item with status and snob appeal - and diversification which offers the consumer many alternatives beyond the established brands. Over the past three years, at least 44 new tequilas hit the U.S. market, and more are looking for distribution. AC Neilsen reported that there were 40 premium tequilas on the US market in 2006 compared with only 13 in 2004.

 

In a sense, the first premium tequilas were renegade products bucking the trends of their day, and challenging the existing hierarchy of high-end spirits.

 

A pioneer in getting premium tequilas into the US market was Robert Denton.

 

Denton helped create and promote El Tesoro de Don Felipe, the first premium Highlands tequila to be sold in the USA. Denton also distributed both El Tesoro and Chinaco in the USA until he sold his interests to  Jim Beam a few years ago.

 

Wine Patrol says, "Denton and his partner, Marilyn Smith, have almost single-handedly educated North America about fine tequilas, and their El Tesoro and Chinaco brands have become industry standards. They have fought for consistency in labeling and for adherence to Mexican law governing the proper use of agave in tequila production."

 

In 1983, Chinaco (through the efforts of Denton and Smith) became the first company to launch an ultra-premium tequila into the market. As noted on Wine Patrol's site, "Denton marketed the tequila like a fine cognac, and demanded the highest prices of any tequila on the market. The rich, elegant Chinaco Añejo lived up to the promises, and almost single handedly created the North American market for upscale tequila. "

It took US drinkers by storm and demand outpaced production - and many other distillers quickly followed Chinaco's lead with their own premium offerings. Despite its initial success, Chinaco closed for a few years in the early 1990s, allegedly following the hijacking of a truck full of its product.

 

At this time, two diehard Chinaco drinkers - John Paul De Joria and Sammy Hagar - decided that, if they couldn't get their favourite tequila, they'd make their own. And they did - De Joria went on to found Patron, and Hagar Cabo Wabo, both successful.

 

Since they began in the early 1980s, Denton and his partner Marilyn Smith tirelessly promoted the idea of premium tequilas for years on both sides of the border, even fighting - successfully - in Washington against a proposed tax on premium tequilas bottled in Mexico.

 

DISCUS, the US Distilled Spirits Council, proposed to exempt bulk tequila from the existing import tax, but apply it to tequilas bottled in Mexico. DISCUS argued that tequila bottled in Mexico would hurt the U.S. bottle manufacturers. Denton countered by pointing out that the big American glass bottle manufacturers were all owned by Vitro Group, Mexico's largest glass company. He and his partner were able to convince the panel that the proposed change was discrimination of good tequila (since all 100% agave tequila must by law be bottled in Mexico) in favour of the bulk, bottled in the USA. Under NAFTA, the proposed taxes were shelved.

 

Chinaco, by the way, didn't return to the market until 1998, by which time it had to compete against considerably more ultra-premium tequilas beside it on the shelves. But the market for premium tequilas was also much bigger by then.

 

Revenue in the high-end spirits sales jumped almost 62% from 2003 to 2005, according to the Distilled Spirits Council of the USA, starkly outlining the trend to premiumization. That trend, by the way, is credited to Sidney Frank, owner of the New York-based alcohol imported that created Grey Goose vodka in 1997.

 

Premium spirits overall -  especially high-priced imports - increased their market share from 36.4% to 38.9% in 2005. As one report commented, "This is hardly surprising as consumers consistently search for “the best” the marketplace has to offer." Spirits consumption, in a downward spiral in the 1990s, rose 2.8% in 2005, the eighth consecutive year of such an increase, according to Adams Handbook. Total non-whiskies gained 3.8% in 2005, while vodka and tequila jumped 4.4% and 9%, respectively. 

 

A story by Jeremy Grant in the Financial Times, Jan. 18, 2006, wrote, "Demand for "premium" vodkas, whisky, rum and tequila is likely to outpace average growth in the US drinks industry for several more years as drinkers switch from beer and lower-priced spirits, an industry body said yesterday.

The prediction, by the Distilled Spirits Council of the United States, indicates that drinks companies are confident that drinkers will continue to trade up from cheaper spirits to more expensive products categorised as premium and super- premium."

Patron, owned by John Paul De Joria and Martin Crowley, pushed their tequila as the high end choice with a $25 million annual advertising campaign that put them in top spot, with approximately 70% of all premium tequila sales in the USA since startup.

 

Cabo Wabo, which arrived in the USA in 1999, was in many ways a pioneer product, produced for and promoted by rock-and-roll guitarist Sammy. While purists and traditionalists scoffed at this latest incursion into the tequila world, Hagar, 58, was making $12 million in sales before he sold his company, in early 2007 to Gruppo Campari for $80 million. Not bad for a product that has a name, but not its own distillery, or agave fields.

 

However, Hagar's comments about tequila - his own included - didn't always sit well with tequila aficionados. In one interview, for example, he bragged about his ovens heated by wood!

 

In a similar vein, aging 80s' Motley Crue rocker Vince Neil has put his name on a tequila - Tres Rios - which he claimed in one interview in June, 2007, as "It’s just good stuff… I like tequila ... there's no worms in these. It's a fun thing. It's little bit more rock 'n' roll. He also said all three types are aged for different durations and different ways (apparently unaware that blanco is not aged). Neil also claimed his tequila is better than Sammy Hagar’s, "which is no longer in production."

 

Through statements such as these, the association between rock stars and tequila has not always benefitted the latter, although it might promote sales to the fans.

 

In a similar manner, Paul Kerr broke onto the scene with his Tequila National, in 2000. The American entrepreneur went up against all the odds and resistance from Mexican distillers, yet managed to get a tequila produced for him, made to his exacting standards, and continues to oversee even the minute details of its production.

 

There are about 110 companies making almost 1,000 brands of tequila at present. Tequila's success is in part due to the growing number of brands available to the consumer. Consumers can see the increasing number of brands, the extra shelf space dedicated to tequila, and they ask themselves why. Consumers are very trend conscious, and when they see such growth, they follow it. Sometimes it's just curiosity, sometimes it's a need to be part of the pack, and sometimes people just want the status of being in on something at its start.

 

The sheer proliferation of product available today is helping to create a wave of interest in tequila. Given that the average American household spent $450 on alcohol in 2006, there's still plenty of growing room for tequila. In 1997, that amount was just $277 per household.

 

Jose Cuervo, the most successful tequila brand, made a "major guerrilla marketing push" in several cities, including Chicago, New York and San Francisco, to launch three new flavored tequila brands -- orange, lime and tropical fruit.

 

Hailing May 18 as National Flavours Day, Cuervo had hundreds of people covered in bright shades of body paint at visitors to key local landmarks such as Wrigley Field, the Sears Tower, the Water Tower, Union Station and the Hancock Building, handing out business cards promoting National Flavors Day and referring everyone to a new Web address, www.nationalflavorsday.com for more information about the product rollout. That web site now takes you directly to Cuervo's home site.

 

In January, 2006, a potential crisis in the tequila trade was averted when U.S. and Mexican trade officials signed a hard-fought agreement after a two-year battle. Mexico agreed to drop a proposed ban on bulk sales of mixto tequila to American bottlers in exchange for guarantees that the U.S. would better police tequila after it leaves Mexican soil.

The largest concession won by Mexico is the creation of a tequila bottlers registry identifying approved bottlers. U.S. officials also agreed to tougher oversight of American blenders.

Mexican producers had complained that American firms were selling adulterated products that contain less than 51% agave. Since 2003, they pushed the Mexican government to require all tequila to be bottled in Mexico to ensure strict quality control. The agreement ended that fight. More than 250 brands tequila are outside Mexico and producers complained many have nothing to do with the drink's original ingredients. More than 75% of tequila is exported in bulk form and the rest in bottles.

 

As a result of this agreement, the US government published a standard for tequila bottling which limited or eliminated adulteration, mixing different brands, additives and aging.

 

Recognizing the need to educate the bartenders, not merely the consumers, in June, 2006, Diageo, owner of Jose Cuervo, launched an "Inspired Luxury" program to teach bartenders the "latest mixology trends and serving techniques." There were workshops in both new York and Los Angeles. Don Julio Tequila was used in the program.

 

In a related move, in 2006, the International Academy of Tequila, which provides training to bartenders, buyers, producers and consumers, announced it was opening a branch in the USA. Negotiations started in early 2007 about opening a Canadian branch.

 

American corporations have joined the multinationals in purchasing either portions of or all of some tequila manufacturers. The biggest sale was in fall, 2006, when Brown-Forman bought Tequila Herradura, one of the oldest tequila companies and still a family-run hacienda. In 2007, Brown Forman agreed to pay $876 million for Herradura, but ended up paying $776 million in January, 2007. Also in 2007, Brown Forman also bought the remaining interest in Don Eduardo, ending a joint business venture they had with Orendain since 1999. The production of Don Eduardo will move to the Herradura plant, which can process a far larger quantity, and which suggests this premium tequila will be promoted more as the company's flagship brand in the next few years.

 

Many small distillers we spoke to on the tours in 2006 and 2007 have been approached by larger corporations looking to buy a tequila producer to add to their portfolio. Few have risen to the bait, but that hasn't stopped the offers from coming in.

 

An article in Forbes Magazine captured the scrambling in the market to ride tequila's coattails:

 

"Everybody is jumping on the tequila bandwagon because they think they can make millions," says Julio Bermejo, beverage director at two tequila bars in San Francisco. Players include liquor giants like Pernod Ricard and Jose Cuervo, plus small entrepreneurs like Hagar. Private equity investor Gary Shansby, in partnership with a U.S. member of Mexico's tequila-making Partida family, is spending $20 million to launch the Partida brand.

 

Most of these newcomers see a chance to do for tequila what the late Sidney Frank did for Grey Goose vodka--spend a fortune on marketing and try to make it up with a high price (Cabo is $35-to-$60 a bottle). At 9.3 million cases a year in the U.S., tequila is well behind vodka at 45.9 million and rum at 21.8 million, but it's gaining on those two other spirits. Driven in part by the influx of Mexican citizens and in part by the proliferation of $40-and-up bottles, tequila's sales in the U.S. increased 9.6% last year to $3.6 billion in retail sales.

 

It's not all multi-nationals. There have been private investors, too, and renewed Mexican investment and interest. The Partida story is a case in point, as told on SFgate:

 

"... and a wealthy San Francisco private equity investor and a Newport Beach mother of two decided there is room for one more high-end Tequila brand on the shelf."

Their brand. Partida Tequila.

The spirits business is largely focused on packaging and pushing product, with marketers straining to create stories that differentiate their product from the others. But J. Gary Shansby, the San Francisco investor with a passion for Mexico, and Sofia Partida, the Orange County mom who has connected with her Mexican roots, have a real story to tell about Partida Tequila, one they're as happy to repeat to one potential customer as they are to 100.

 

Another example is Phillip Soto Mares, from San Marcos, California, who launched his El Duende tequila in 2006.  Soto learned how to make tequilas from his uncle in Guadalajara, taking five years to learn the trade before starting to produce his own. His efforts drew rave reviews at tasting events.

 

Probably the most contentious issue to arise in the American tequila culture has been the efforts of Californian J. B. Wagoner to create "the first American-made tequila" Wagoner grew blue agave around his California home, then created Skyrocket Distillery to make an agave spirit from it, which he called Temequila. The CRT through the Mexican government complained that the name was perilously close to "tequila" and violated several trade agreements that protected tequila's denomination of origin. Wagoner was forced to rename his product to "100% Blue Agave Spirits."

 

Liquor Snob favourably reviewed Wagoner's product and said,

 

"...JB Wagoner's looks like tequila. It smells like tequila. And we'll be damned if it doesn't taste like some of the best tequila we've ever had!"

 

Despite the positive reviews, in 2005, Wagoner's entry in to a local Los Angeles tequila festival was denied, so he went across the street to offer tastings and product display at a nearby hotel. Wagoner also ran into trouble with the Alcohol and Tobacco Tax and Trade Bureau, which vets the production, labeling and marketing of alcoholic beverages, ordered him to stop running an advertisement with the slogan "Not your mamacita's tequila," which appeared in Penthouse magazine.

 

As Sean Pager, Associate Professor of Law at the University of Seattle, wrote of the issue,

 

When is tequila not tequila? Answer: when it’s produced in the United States. J.B. Wagoner learned this lesson the hard way when he began selling an alcoholic spirit distilled from the fermented juice of the blue agave plants grown on his 25-acre property in Temecula, California. Blue agave is the same cactus-like succulent from which tequila is made in Mexico, and Wagoner followed essentially the same distillation process as the Mexicans. However, tequila is a protected geographical indication (GI).1 Only blue agave spirits produced in Jalisco and a few neighboring counties in Mexico can be legally sold under that name.2 Because Wagoner’s blue agave was grown and distilled outside this designated region, he was legally barred from selling his product as “tequila.” 

 

More successful has been Voodoo Tiki Tequila's venture into the market, started by American cartoonist, John Taddeo in 2004. Voodoo Tiki veered sharply from the well-rutted traditional Mexican themes and put tequila into another cultural paradigm, with handmade Hawaiian-style glass tiki idols in every bottle. What looked like a gimmick has become a successful marketing adventure, backed by a premium product in the bottle. Voodoo Tiki has also released a wide range of flavoured and infused tequilas, as well as their premium 100% brands. Their advertising has pushed the fun-lifestyle theme.

 

Meanwhile, other entrepreneurs are trying to get in on the 'blue gold rush.' A new startup tequila called Proximus was created in 2007 by a partnership of an American and a Mexican businessman. There is little detail about the product, but there is a short video on the startup at Current TV.

 

Tequila has appeared an additive in foods and other mixed drinks (although too often the 'tequila' turns out to be nothing more than agave syrup). One of the more interesting products in which tequila has played a role of late is hot sauces. "Blair's Jalapeno Death Hot Sauce with tequila" is described as "a delicious handmade sauce made with blue agave tequila. This sauce is mild enough to be used on fish tacos, fajitas, eggs, baked salmon, chicken or anything you desire." Ingredients include: Fresh Jalapeño chilies, vinegar, tomatillos, fresh garlic, key lime juice, shallots, olive oil, sea salt, cilantro, cane sugar, onions, and tequila. The author has not been able to find out what sort of tequila it is, or its manufacturer. But one company proudly announces the brand it uses: Cafe Tequila Hot Sauce: "The coolest hot sauce in the world! Cafe Tequila combines potent cayenne peppers with El Tesoro Tequila (arguably the best 100% blue agave tequila ever to come out of Mexico), to create a silky smooth flavor that's as unique as the bottle it's packaged in. A 1998 triple award winner." This company also makes a similar habanero hot sauce with El Tesoro tequila. For those of us who appreciate both good tequila and hot sauces, these seem the perfect match!

 

And if you're looking for a different tequila-related  gift for that spouse or female friend - why not try tequila-scented cologne?

 

Tequila is growing as a tourist destination for Americans, especially for those who want more adventure or authenticity that isn't found in popular vacation spots like Cancun, but tourism creates its own pressures that change the destination to suit the needs of the visitors. In the Christian Science Monitor, June 21, 2007, one of the reporters visiting the region pined about how nice it would be if it were more American:

 

Staff writer Sara Miller Llana was impressed by the passion in Mexico for a tourism project dubbed the "Tequila Trail." She was met by officials on a Sunday afternoon (see story) and was whisked away on a road trip that lasted more than eight hours. "Of course all of the distilleries are there, and the agave fields are beautiful. But there are obstacles – trash, for example. There is a lot of trash along the road," she notes.

Sara was told the Jalisco state government had just made littering a punishable crime, and someone was in a jail for a few hours to make a lesson of it. "But as they were telling me this, someone in the bus in front of us threw a Coke bottle out the bus window. " Among the other obstacles: few quality hotels or restaurants.

"I'd like to go back in a couple years and see if the nice hotels, gourmet restaurants, and a trash-free route materialize. This region, as they say, could be so much more than just tequila!"

 
...just as Cancun could be so much more than Mexico that it no longer provides a Mexican experience for visitors. See it now, before it becomes sanitized, a 24-hour, seven-day-a-week Tequila Express full of mariachi bands, pretty señoritas serving mixto margaritas to borracho gringos and streets lined with tourist stands all selling the same selling cheap ceramics and mass-produced 'native' goods. Right now Tequila is the heart of Mexico. Who knows what it will be if it becomes that popular? As Henry David Thoreau lamented in Wild Fruits, "Sic transit gloria ruris."

 

Sources

• Brown-Forman website
• Forbes Magazine
• Global Export News
• USA and Mexico reach agreement on bulk tequila

• Tequila, culture and environment

• Brown Forman buys Herradura
• Brown Forman buys Don Eduardo
• US Treasure Dept. standard for bulk tequila
• Distilled Spirits Council of the United States
• Polished Palate on Sofia Partida
• Academia Mexicana del Tequila
• J.B. Wagoner's Skyrocket Distillers also at www.tequimila.com
• California liquor maker in another squabble with tequila industry
• Do Copyists Have a Privilege to Make ‘Fair Use’ of ‘Semi-Generic’ Trademarks on Competing Goods?
• U.S. tequila-maker takes shot at Mexican monopoly
• Tequila National
• Phillip Soto Mares launches El Duende
• Certified taster plans to open tequila academy
• Spirits of Mexico Festival, Sept. 15, 2007
• ’80s hair band singer talks rock ’n’ roll & tequila

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