Tequila Takes a Shot at the Premium Market

A heady caramel smell, syrupy and fragrant, pervades the air. What look like giant white pine cones, some twice the size of a human head, are deftly split, quartered and packed into ovens. What’s cooking? One of the world’s most popular drinks.

Despite rising global demand for spirits last year, vodka and brandy sales fell and the growth in whisky and gin was outstripped by tequila, Mexico’s national drink. Overall sales rose by 4.2 per cent compared with 2014, according to the IWSR, the London-based authority on the drinks trade. In the US, the world’s biggest tequila market, sales surged 65 per cent between 2005 and 2015 – more than bourbon or vodka – and it “shows no sign of slowing down”, says the IWSR.

But just as the sweets you find at a supermarket checkout and a handcrafted Belgian confection can both be sold as chocolate, tequila is a broad segment. At the bottom end, it is an industrialised, mass-market spirit powerfully associated with shots and hangovers; in the ultra-premium space, it has carved out a niche among connoisseurs, giving single malt whiskies and cognac a run for their money.

The connoisseurs are driving growth. While the standard spirit is knocked back or mixed into the 185,000 margaritas an hour sold in the US (according to one drinks company), the top end – tequilas for sipping or chic mixology – has become the highlight of Mexico’s $1.3bn tequila export sector. From January to August 2016, production of standard tequila fell 1.5 per cent, outstripped by more sophisticated ones, up 39 per cent, according to the Tequila Regulatory Council.

What is the difference? Tequila is protected by a denomination of origin: by law it can only call itself tequila if it is made in the western state of Jalisco or a handful of other parts of Mexico from a single variety of the long-leaved, spiky plant that carpets the hillsides – the Blue Weber agave. But while standard tequila needs only 51 per cent agave, with the rest made up of other sugars, usually cane, its higher-end sibling sports “100 per cent agave” on its labels.

“Twenty years ago, 98 per cent of tequila was standard or ‘mixto’,” says Pierre-Aymeric du Cray, head of tequila at Pernod Ricard, the world’s second-biggest wine and spirits group, which makes the upscale Olmeca Altos and Avión brands. “Now it’s 50-50?.?Good tequilas aren’t competition – they help us create the category.”

Fashionably vegan and gluten-free, traditional but also contemporary, tequila has taken off. “The [success of the] 100 per cent has taken the industry a bit by surprise,” admits Luis Velasco, president of the National Tequila Industry Chamber.

Last year, 100 per cent agave tequilas made up 43 per cent of all tequila exports. From January to August this year, 100 per cent agave exports grew by more than 17 per cent while standard tequila exports fell nearly 4 per cent. Even within the luxury bracket, the ultra-premium category is growing the fastest, at nearly 50 per cent, according to the IWSR.

The industry cannot neglect either end, however. As Greg Cohen, vice-president for corporate communications at bestselling ultra-premium brand Patrón, puts it: “Tequila has to appeal to both the ‘bros’ and the ‘knows’.”

Mexico’s lush tequila country – the valley around the Unesco-protected town of Tequila, and the red clay highlands of Jalisco – has spawned more than 150 distilleries and hundreds of brands. Many are now made by foreign conglomerates including the world’s biggest spirits group, Diageo, which owns Smirnoff vodka and Johnnie Walker whisky as well the most popular luxury tequila in Mexico, Don Julio. Jim Bean’s parent Beam-Suntory owns Sauza; Brown-Forman, the owner of Jack Daniel’s, produces Herradura; and Bacardi has a minority stake in Patrón. The odd one out – family-run Jose Cuervo, Mexico’s biggest and oldest tequila maker – is about to go public.

Luxury 100 per cent tequilas distinguish themselves through tradition and craftsmanship: at least 60 hands are behind every Patrón bottle, notes strategic planning director Francisco Soltero. “It could be automated,” he says, “but we want to ensure quality.”

High-end producers cook the agave in small brick ovens, which takes three days, rather than 10 to 12 hours in stainless steel autoclaves that act like giant pressure cookers. Copper-pot stills are de rigueur. Only half a dozen producers, including Patrón and Pernod Ricard, still adhere to the 500-year-old tradition of crushing cooked agave (a succulent but not a cactus) in a pit with a 2-tonne hand-cut volcanic stone wheel, or tahona. Just about the only tradition now eschewed by everyone is that of relying on bats to pollinate the plants.

It takes five to eight years to grow the agave to maturity and about a week to chop, cook, mash, ferment and distil it into a blanco – white, or silver, tequila. The spirit can then be aged in bourbon or other oak barrels for up to a year to be called reposado, or rested; one to three years is añejo, or aged; and more than three years is extra-aged.

But there is innovation, like “crystalline” varieties that are aged then filtered to strip out the amber colour. “Some in the industry think we should differentiate tequilas that are made more traditionally. That could make for more interesting marketing,” Mr Velasco says. Others want to honour terroir by dividing the appellation into zones.

Some top tequila producers are now turning their gaze to the drink’s less refined but hipper relation, mezcal, whose sales volume in the US has grown 279 per cent in the last decade, according to the IWSR.

Ironically, while preserving authenticity has defined luxury tequila, the fledgling mezcal industry is now at risk of following tequila’s industrialised footsteps. Exports offer small producers a way to escape onerous domestic taxes and deliver sales in dollars. But certification requirements based on tequila, not mezcal specifically, mean that “what’s getting out is no longer so good,” laments Silvia Philion, co-founder of the Mezcaloteca in Oaxaca which champions small-batch producers.

Now that tequila has raised its reputation, its challenge is to open markets outside the US and Mexico. “I see more opportunities than risks,” says Mr du Cray. “The risk could be missing some opportunities.”

Original Source Version on Financial Times (FT.com)

By Judy Webber

Copyright Financial Times