How Patron taught the spirits category to walk the walk - Comment

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What is the best way to evaluate a spirits brand's performance? Is it all about volume? Is it about value? Or, is there more to it than that? Do some brands deserve extra credit for pioneering a new segment, over-achieving in their given sphere, transcending their category? Johnnie Walker is one name that ticks most - if not all - of these boxes; Jameson is, arguably, another. But, what about Patrón Tequila?

With Roca, Patron has finally started to emphasise its Tequila credentials

With Roca, Patron has finally started to emphasise its Tequila credentials

Fifteen years ago, Patrón only sold about 100,000 cases in the US; in 2015, that figure had risen to well over 2m. Over that decade and a half, the brand has pretty much single-handedly built the luxury Tequila segment in a category previously better known for fuelling frat party antics and morning-after regrets.

One sure sign of success is that everyone starts to copy you. If they do it better than you, then your market dominance is eroded, then destroyed. The bigger guys take your product or marketing template, improve on it, throw more money at it and leave you to suffer the consequences.

If that's happened to Patrón at all, the losses have been limited. According to Impact Databank figures for 2015, the luxury (above-$40) Tequila segment expanded by 8% to 2.9m cases. While Patrón lagged that growth figure with a sales increase of only 4%, it still had a market share of more than 70% at 2.1m cases.

As these figures suggest, the big hitters of the spirits world are (belatedly, I'd argue) beginning to invest significantly here. Diageo-owned Don Julio increased its volumes last year by 13% to over 300,000 cases, while Pernod Ricard's Avión surged up 27% to above 130,000 cases, and Brown-Forman's Herradura was up 10% to 140,000 cases.

Add in Casamigos – from George Clooney, entertainment mogul Rande Gerber and real estate tycoon Mike Meldman – which more than doubled volumes to 80,000 cases, and you have an increasingly crowded segment.

How has Patrón maintained its continued momentum amid such fierce competition? The company repeatedly points to its positioning as a luxury spirits brand first and foremost – and a Tequila second. In other words, Don Julio is seen as less of a rival than, say, Grey Goose.

The LVMH guide to entry-level luxury - Click here for a just-drinks focus

That approach made particular sense in the early days, when Patrón wanted to distance itself from Tequila's bad boy reputation for fear of scaring away wary consumers. It also reflected the brand's pursuit of a similar strategy to that of Grey Goose: marketing based on taste and sophistication, being seen at all the best (Hollywood) parties, references in music from country to hip-hop.

All of that said, the high-end Tequila segment has moved on since the early 2000s. The arrival of competition has led to a tinkering with the original Patrón blueprint for success, most notably with the introduction of Roca Patrón in 2014.

Priced at between US$69.99 and $89.99 and made using the traditional tahona process, Roca aims to satisfy a more sophisticated consumer who looks for a real agave character in their Tequila. To that extent, then, it has a stronger 'Tequila' identity than its mother brand.

Progress to date has been stately: 38,000 cases sold in 2015, up 5.6% on its launch year. But, Patrón is predicting better things for Roca this year: a 20% sales lift is apparently on the cards.

Roca makes sense on a number of levels: the greater agave hit, the higher price, but also the skewing towards the on-trade, where Patrón has arguably under-achieved in the past. Look at some of the recent market trends surveys and you'll see why this is important.

When Nielsen and CGA carried out the first consumer sentiment survey of the US on-trade recently, they found that Tequila was the favourite base for cocktails, with the Margarita the clear favourite. What's more, many are happy to pay more for the presence of a premium brand in their cocktail.

Given that an estimated 23% of the US population have consumed a cocktail out-of-home in the past three months, this is significant. Even more so when you add in the evidence from a Morgan Stanley report that found more than 70% of wholesalers expect growth from Tequila in the next year.

There are a couple of other strong reasons for Patrón putting a bit more 'Tequila' into its marketing and communications mix.

The first is what Patrón marketing head Lee Applbaum recently described as an influx of "opportunistic" Tequila brands using inferior agave and cutting corners to "turn out product faster and cheaper".

The obvious response to this is to trumpet your own authenticity and provenance – which Patrón has done, via its Know Your NOM website and app, launched last October.

The second is the internationalisation of Patrón – long talked-about, but frustratingly slow to come about. Export sales continue to take up a single-figure percentage share of the brand's total revenues.

As another recent Nielsen/CGA survey illustrated, Tequila remains in its infancy in key international markets such as the UK. Its share in the US stands at a healthy 11%, but that figure dwindles to just 2% when you cross the Atlantic.

While Patrón's luxury positioning will still be important to building that export presence – it has to talk and behave like a high-end lifestyle brand if it is to enter and maintain a presence in the consciousness of the right consumer – some chat about what it is, where it's from and how it's made wouldn't go amiss either. Consumers are increasingly product-curious, and less likely to be put off by Tequila's bad past.

Such a shift in emphasis might just help Patrón to repeat its huge achievement in the US market elsewhere, from the UK to the Far East, even if this remains, realistically, a long-term process.

It would also cement Patrón's position as a spirits brand of true – and global – excellence into the bargain.

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