AMERICA'S A-LIST CELEBRITIES have a new toy. It’s 100% agave tequila. And they’re not happy just drinking it – the past few years have seen a jamboree of star-studded super-premium tequila launches, each brand endorsed to the hilt for the American consumer’s consummate reassurance. But are the tequilas from George Clooney, Justin Timberlake and Sean ‘Diddy’ Combs the category’s Three Amigos?
Sean Combs and Diageo’s entrance certainly had the saloon doors swinging. For the second half of 2013 Diageo had gone into hiding, waiting in Jalisco’s shadow for the right tequila opportunity to present itself.
We weren’t to know, but Diageo’s estrangement from Jose Cuervo last year had triggered a strategy rethink (more on this later). Perhaps the group also had wind of Suntory’s takeover of Beam and therefore Sauza – its long-mooted bride-to-be. But probably Diageo had made up its mind to bring in The Diddy months before their joint venture was announced in January of this year.
If you want street-glitz and cross-gender and ethnic appeal, all wrapped up in ridiculous alcohol-incongruousness, Diddy’s the daddy. To his credit, he doesn’t claim to be interested in anything but marketing luxury products, which of course he’s rather good at too – Cîroc grew from 50,000 cases to 2 million in the space of six years. Diddy and Diageo really are the dons of drinks and luxury marketing – it’s no wonder they work together so well.
DeLeón, which was bought from Brent Hocking as part of a 50/50 joint venture with Combs Wine & Spirits and is contract-produced at Agroindustrias Casa Ramirez, is said to have already curried favour with Hollywood’s style-conscious since its launch in 2009. But like Diageo’s other new tequila, Peligroso (which is apparently enjoyed by surfers, presumably after, not before or during surfing – although Peligroso does mean dangerous in Spanish…), DeLeón is not widely known inside or outside of Jalisco. The brand may have a small footprint but it has a big price tag – it starts at $120 and doesn’t stop until it’s into four figures. In marketing parlance, that puts it in the prestige segment, unfamiliar territory for tequila.
The latest news, though, is that Justin Timberlake’s brand, 901, will be renamed Sauza 901. It was launched in 2009 and up to now has been produced by Corporativo Destileria Santa Lucia, but a deal announced in January this year sees Timberlake move production to Beam’s Sauza, where he will acquire the group’s marketing might and any added production capacity the brand might need. Though Sauza has its own super-premium expression, Sauza Blue, it is known primarily for its volume mixto range which it produced to the tune of 3.3 million cases in 2012.
Timberlake, a “long-time lover of tequila”, has been to Jalisco at least once, according to the 901 website. On visiting he was “struck with the idea of connecting with his fans by uniting the passion he has for his craft with the art and dedication that goes into every bottle of premium tequila”.
Here’s Gary Ross, Beam’s senior director of tequilas, to explain what that means. “901 is a high quality 100% agave tequila. It is popular with a wide range of people and is becoming more and more popular among consumers who have gravitated towards the super-premium segment.”
It is worth pointing out that Timberlake is a hugely popular figure among young American women. Ross joins the dots: “Forty per cent of tequila is consumed in Margaritas, the number one cocktail in the US, and 75% of Margaritas are consumed by females.”
Well, that’s one angle to be explored, but Beam is also looking to expand Sauza 901 globally and is currently introducing the brand to the UK. Target markets for Sauza 901 are areas of tequila-love and also Timber-love. Ross admits that Timberlake’s world tour schedule is an influence on the direction of the brand’s roll out.
But do consumers really buy products on the basis they like the person who endorses or owns them?
In a study by Ace Metrix on the impact of celebrities in TV advertising (Jan 2012-October 2013), US TV ads containing celebrities underperformed those without.
According to Marketingcharts.com, which covered the results, analysts noted that the worst performing ads were those where the celebrity had little connection to the brand (eg Jay-Z and Samsung mobile phones). By contrast, those that out-performed had a strong connection to the endorsed brand.
Here’s Ross’s take on the star factor: “There is a key difference between an endorsed brand and a brand that has been founded by the celebrity. Justin Timberlake is an ultimate creative personality who plays an important role in the brand.”
So, is ownership enough to convince consumers that the endorsement is relevant or that the brand they are buying is authentic?
Authentic lingo
George Clooney might know. He’s definitely speaking authentic lingo, with his understated, individually numbered Casamigos (house of friends) brand from the highlands of Jalisco, which because of altitude is generally considered to produce better agave than the Tequila Valley.
Casamigos is a joint venture with his friends Rande Gerber and Mike Meldman – and is produced by Productos Finos de Agave, which, according to the excellent database on tequila.net has produced or produces around 35 brands of tequila including Avion, which Pernod Ricard became a partner in back in 2012. Perhaps that’s what Clooney means by house of friends.
Clooney and the other brand representative did not want to give interviews but their marketing literature tells us the trio of owners love tequila and have houses in Mexico and also offers us the assurance that the brand is “brought to you by the people that drink it”, which is the least that consumers would expect, one assumes. Especially if consumers are forking out ultra-premium prices of $49.99 a bottle.
Indeed, the likes of Diddy, Clooney, Timberlake and the fourth amigo, Carlos Santana (who was born in Jalisco so gets a pass) are unlikely to put their names to poor products. They operate in the augmented world of super-premium ($20-$30-plus), ultra-premium ($40-$50-plus) and prestige ($100-plus) – a standard tequila just wouldn’t have the requisite synergy, their advisers might say.
But these are marketing terms. What about real measures of quality? Certainly, all three brands are 100% agave, profess to be hand-crafted and source their agave from the highlands of Jalisco. But, as our Three Amigos didn’t want to give interviews personally, let’s speak to a few bonafide independent experts about their take on contract tequilas.
Steffin Oghene is chairman of the International Spirits Challenge tequila tasting for 2014, a former resident of Jalisco and one of the key contributors to the Olmeca-funded Tahona Society. He also has a bit to say on celebrity tequila: “Celebrities help to promote and put tequila in the spotlight, but this doesn’t actually help with the stigmas overshadowing the tequila category.”
He adds that there are promotions which put tequila in “a high-energy environment, or shooting with your mates. For all the quality brands out there, this is what they are trying to get away from”.
Julio Bermejo is the owner of Tommy’s Bar in San Francisco, and by heritage and any definition is tequila royalty. He says “Getting people talking about the category is great. But I have never heard of anyone actually contracting tequila with the top priority being quality. The top priority is always price. Everyone in every business knows who makes things well and who makes things averagely. Recently my brother-in-law received a call from industry friends asking him to sell tequila at a ridiculously low price. He said: ‘You wish to buy a Ferrari but you only have money to buy a Volkswagen.’”
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More than meets the eye
Oghene agrees that there is more than meets the eye with contract-based, rather than family-rum model: “The producers more often don’t care who is buying it. They sell a spirit not a brand. A lot of the time the same spirit is packaged under different labels. Marketing guys take the juice and package it in a glitzy way and hey presto they start shouting off about their amazing product.
“You have to see the long-term goal for those brands, I can’t see them lasting long. The tequila world is still evolving but only the brands with real integrity will survive in my opinion; those brands that don’t rely on marketing bullshit to leverage their brand.”
The Diageo strategy
Diageo’s split from Jose Cuervo last year sparked a change of tack that few saw coming. In some ways losing Cuervo forced Diageo to address the question of whether volume Tequila is profitable in the long run.
Alex Tomlin, senior VP of marketing for tequila, gin, Scotch, & liqueurs, Diageo North America, explains the sequence of events. “Following termination of the Cuervo arrangement, Diageo developed a new plan to rebuild its Tequila portfolio.
“Diageo’s acquisitions of DeLeón and Peligroso are part of this strategy of creating a collection of superb quality and distinctive tequilas at complementary price points to appeal to a wide range of consumers. This approach positions Diageo strongly to capture the range of emerging consumer trends that will shape and drive the next few years of category value growth.
“Value growth is coming from the super-premium (growing at 14% in value and representing 20% share of value) and ultra-premium (up 8% in value, 22% share) segments as consumers trade up from premium and value tequilas. By contrast premium ($13-$20) has lost 5% and popular ($9-$13) has lost 4%. Nielsen 2013).”
In 2012 about 40 tequilas were launched in the US and the majority of them were in the super-premium area, according to Beam’s Ross. In short, there’s not much value in volume tequila when the price of agave is high due to shortage.
Here’s Bermejo to assess Diageo’s strategy: “I think what Diageo has done is genius. With agave prices heading towards the moon, it is not a good time to be in the commodity business. Huge producers such as Cuervo may have issues – their need to stop haemorrhaging market share will cause them to make much less money in the next few years. Diageo on the other hand now has high-margin products that, even with price increases, leaves room for margin. DeLeón’s roots are a well-made product called Reserva de Mexico that was extremely reasonable in the Mexican and American marketplaces. Bring in a marketer to recreate the package, tweak ageing and you are now at $200/ bottle. It’s the American way.”
Oghene chips in: “For me they are panicking. They saw that other companies around them are growing, so they panic-bought two tequilas to ‘stay in the race’ when in fact they should have just directed all their money into focusing on their brand Don Julio, which is a product with great history and integrity. With purchases such as Peligroso and DeLeón, I wouldn’t be worried in any way, shape, or form if I was a drinks company.”
Raffaele Berardi of Corralejo says Diageo’s recent activity “enhances the category” but its split from Cuervo is good news for other tequila firms. “Cuervo is still around and it will not stay still but its split from Diageo has created a vacuum. It opens up the market for everyone else. Diageo’s new brands are not well known brands at all and have had very little action in the market.”
The competition
Patrón knows a thing or two about premium. The work it did creating a market for high-end tequila is now being enjoyed by the rest of the category. “There is more competition now but we welcome that as it brings more attention to ultra-premium tequila,” says Dave Wilson, Patrón’s new chief operating officer now that John McDonnell has left the company.
Growth for Patrón has slowed recently – an unfamiliar feeling for the tequila company, which has achieved the great holy grail of high volume (2 million cases) and high value combined. According to Wilson, California is the key market – and not just in the US but the world. The other big US states are Texas, Florida, New York and Illinois. The US is relatively solid for Patrón (it is still growing in 20 of 50 states) but there have “been challenges for its XO Café variant”, according to Wilson.
Could we be getting close to saturation? Possibly, but other states are starting to show good growth, such as Michigan, says Wilson.
And in reality this is not a straight battle of tequila vs tequila but a cross-category war. “Our growth is coming from the discovery and mixability of Patrón. For instance when drinkers discover Vodka & Tonic is much better with Patron,” says Wilson.
Since its US launch in 2012 Olmeca Altos’ sales have also been concentrated in the key US tequila states. “This year’s ambition is to triple the Olmeca Altos volume in the US,” says Lisa McCann, the brand’s marketing director. “The main challenge we have faced is the wide variety of super-premium tequilas in the US. The 100% agave category is growing at 17% CAGR, ´03-’13.”
International markets
In truth, super-premium tequila is an American phenomenon. Volumes in the rest of the world are tiny in comparison. Patrón under McDonnell managed to distribute to 165 countries, though much of his work went into opening the market, rather than building volumes.
The plan is now to concentrate efforts to just 12 markets. Patrón’s top international markets are rising at 20%-30% and Wilson says three-year growth of up to 300% is the aim for some of the BRICs and MINTs.
Russia, particularly for higher-end expressions but also Indonesia, which is growing in double digits thanks to interest in Jakarta and Bali. China – well there’s big potential but it’s early days – even for the brands that have been there a while, such as Olmeca.
Patrón sales are 85% US so there is a belief that the volumes must be better spread, to mitigate risk if nothing else. Patrón is in phase two of super-premium tequila – what it does next might well act as a blueprint for the rest of the category.
For now, though, the oasis in the desert is America and while the water is plentiful, all sorts will continue to come and feed.
