Tequilas time is... now?

Tequila's time is... now?

Despite the market split, the Tequila category is on the cusp of its own boomtime. But, the positioning of the mixto sector compared to 100% agave carries echoes of Scotch whisky past-tendency to hype single malts to the expense of blends. And now, Scotch volumes are suffering. Will Tequila make the same mistake? Richard Woodard investigates.

As we near the mid-point of 2015, this should be Tequila’s time. Not because every market on the planet is booming for Mexico’s national spirit – that’s far from the truth – but because current consumer trends are playing neatly into the hands of the agave jimadors and their paymasters.

Tequila has its challenges – a glance at the just-drinks/IWSR Global Tequila Insights report will tell you that – including a disastrous Russian market and, most obviously of all, a huge geographic imbalance in sales terms. The US now accounts for more than half of global volumes, and is continuing to build share. Mexico adds another 30%-plus, meaning that, barring these two markets, planet Earth drinks well under 5m cases of Tequila a year.

So, why the optimism? The craft factor has a lot to do with it. However much the rise of craft distillers may have been talked up by the industry (and I still wonder just how many consumers have a clue that it’s even happening), few would disagree with the suggestion that it taps into a latent consumer desire for something of substance, with a clearly-defined origin and identity. Something ‘crafted’, if you will.

Tequila does this as well as any spirit in the world. Agave is the big reason why: Where is it grown – in the valley or the highlands? How long is it grown for – six years? Eight years? Longer? Do you use the tahona process? How slowly is it cooked? We haven’t even got as far as fermentation yet – let alone distillation.

It’s a compelling back-story for the kind of spirits nerd who currently gets off on single malt fermentation times, lye pipe angles and the dearth of worm tubs. It transforms Tequila from nausea-inducing headache juice into an (and sit up, marketing department) artisanal spirit with genuine provenance.

Okay, so those geeks are the embodiment of a niche market. But, there’s a broader impact being felt in the US right now, and it’s the ongoing rise of 100% agave Tequilas at the expense of mixtos. Patrón, Sauza Hornitos, 1800, Don Julio – this is rapidly becoming the engine room of the category.

Move outside the US and the obvious problem is that consumers simply don’t have the same depth of knowledge. And, why should they? After all, it’s taken the US decades of quaffing frozen Margaritas to get to this point.

That leaves producers with fewer options: They could be patient, work hard and wait for markets in Western Europe, Asia and Latin America to gradually get to grips with Tequila, building a value-led category around 100% agave. That’s fine if you’re Diageo (post-Cuervo) or Patrón, but somewhat less enticing if you’re Jose Cuervo or mainstream Sauza, with a much greater emphasis on selling mixto.

There’s another factor at play here, however. Agave’s greatest strength – its status as a farmed product moulded by terroir in a similar way to wine grapes – is also its biggest weakness. It is notoriously vulnerable to the variations of supply and demand, disease, glut and shortage.

Not so long ago, it was glut time. Jimadors were leaving agave to rot in the fields – when you’re only getting a handful of centavos per kilo, why bother picking it? They turned away from agave and planted more lucrative crops instead.

The consequences were predictable: Today, agave is trading at several pesos per kilo and some growers have had to employ armed guards to watch over their precious crop. There are even nefarious stories of illegal agave moving north from non-Tequila areas to plug the supply gap.

Some producers wisely stockpiled spirit when agave was cheap, while others now rue the fact that they didn’t. What to do? Put prices up and lose market share? Switch from 100% agave to mixto and suffer a potential backlash from your customers? Or, just suck up the cut in margin?

To me, the main issue here is that mixto Tequila is viewed as the problem, rather than the solution. There are great mixto Tequilas, just as there are shockingly bad 100% agave Tequilas. Make an extra añejo and oak the heck out of the spirit, and it won’t matter how much agave is in there, because nobody can taste it.

But, this isn’t the message that consumers are being sent. Instead, they are being encouraged to believe that 100% agave Tequila’s purity makes it inherently superior. It’s a mistake that’s been made before – by Scotch.

The rapid growth of single malt has led a large slice of Scotch’s consumer base to believe that blends are essentially inferior, because they’re neither 100% barley, nor produced at an individual site. As supplies run shorter and blends stagnate in many Western markets, this has become a painfully two-edged sword.

I sincerely hope that Tequila isn’t repeating Scotch’s mistakes. Good mixto Tequila can perform multiple roles for the industry: recruiting consumers, ironing out raw materials peaks and troughs, providing a counterpoint for the 100% agave segment.

If the category is to grow beyond its North American heartland, it needs both segments to thrive and prosper, not one to fight against the other. Even as 100% agave Tequila surfs a wave of popularity, distillers should be pushing the merits of well-made mixto as well. To do otherwise would risk squandering a huge opportunity for Tequila to exploit some very beneficial consumer trends.

Today should be Tequila’s time – but will it seize the moment?

Expert analysis

Global Tequila insights - market forecasts, product innovation and consumer trends research

Global Tequila insights - market forecasts, product innovation and consumer trends research

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