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Liquid Living Magazine

Reprinted from Avenue Vine
July 11, 2007

Increased Demand for Tequila Spikes Production

With supply concerns a thing of the past and new production controls in place, the tequila industry believes it can deliver a taste to suit everyone.

For a few years at the turn of the millennium things were looking decidedly shaky for tequila, as the only news coming out of Mexico was of disastrous shortages of its raw material, the blue agave. Production had slumped from 190 million litres in 1999 to 140 million litres in 2003.

But now the tables have turned and the three years since have seen a flurry of activity by the tequila authorities to put things on track. Both domestic consumption and exports - powered by the US market - are at record levels (see table opposite) and the generic representative body, the National Industry Council for Tequila (CNIT) ( representing the 80 producers responsible for the production of 98 per cent of all tequila), is coming out fighting with a new approach. A global communication programme aims to expose both consumers and trade to the range of styles available among tequilas and to encourage fans and doubters to find a style that suits them.

To the uninitiated, tequila is often suggestive of lively bars, a pool table or two and young drinkers throwing back the slammers or shots. CNIT executive director Francisco Soltero doesn't deny that this is one element of the culture of tequila but points out that other consumers also enjoy the barrel-aged variants in cocktails and long drinks in the same way as other after-dinner spirits, especially in the older age groups.

"Tequila is a very diverse style of drink," says Soltero. " We can either compare tequila with others used for mixing and cocktails, or we can identify with other drinks consumed neat. The agave plant imparts characters which are different to all other drinks. You can drink a different tequila depending on your mood ."

The Patrón Spirits Company, set up in 1989 by John Paul DeJoria and Martin Crowley with the modest aim of making "the best tequila in the world", sees two age groups drinking its products. Patrón's consumers are, says chief operating officer John McDonnell: " The 21 to 34-year-olds aspiring to better things in life - they can afford a Patrón drink where they can't afford a BMW or Mercedes; and 40 to 55-year-old drinkers who understand what makes a quality drink." The company says it has seen sales across its premium portfolio rise 50 per cent in the year to date on volumes of 1.1 million 9-litre cases in 2006. "We're trying to strike first," says McDonnell. "To all intents and purposes we are not available in 98 per cent of the Mexican market. We've focused on the ultra-premium white spirit market and we do extremely well in cocktails."

Indeed, the global trend for premiumisation is well timed for tequila's assault on the world's style bars. Raffaele Berardi, chief executive of Fraternity Spirits World, producer of Tequila Corralejo, says: "Our general target is the consumer aged 23 and up. Premium tequila as a new category in the spirits market is getting more and more attention as international companies such as Brown-Forman [Casa Herradura] and Bacardi [Cazadores] have made large investments in existing tequila brands in the sector."

Bevin Gove, company spokesperson for market leader Cuervo International, agrees: " Consumers have become more educated about spirits brands and are demanding higher-end products with solid credentials and heritage."

The Cuervo portfolio includes super and ultra-premium tequilas such as 1800 (" the world's best selling super-premium tequila with about 30 per cent segment market share"), Gran Centenario, Jose Cuervo Black Medallion, Jose Cuervo Tradicional and Jose Cuervo Reserva de la Familia. Cuervo's premium sales have been so buoyant that the company launched two new extensions in the US in 2006 - 1800 Colección (pictured over) and Gran Centenario Leyenda, the first Cuervo tequila to be labelled under the new Extra Añejo classification (see box, page 52).

Cuervo is the number one tequila brand worldwide - 6.57 million 9-litre cases in 2006 in the Drinks International Millionaires Club - but the majority of its sales are in the US where it has 50 per cent market share, according to Gove. The ethnic Mexican population alone in the US is greater than 20 million, of which at least 6 million, says Francisco Soltero, are from the Jalisco region, tequila's heartland, so the knowledge level in the whole country is already very high. "The US is pulling tequila in," he says, "so our job is to explain what the differences are to keep conditions in the market fair to all producers. In the US we partake in consumer tasting events. Our other approach is to bring groups of people from the trade to Mexico to visit the distillers and find out more about the passion with which it is produced."

Outside the US , Soltero expects other markets to grow faster. "According to our analysis and that of other institutions linked to our product, demand for tequila in general may be growing around 6 per cent a year during the next five years," he says. "We want to consolidate and educate in the western European cities where trends are created - London , Paris , Munich - and we want to open south east Asian markets. Japan and Singapore are now in the top 15 importers of tequila and China is growing very fast from a small base. In these markets there is already a tradition of drinking spirits at lunchtime."

One early arrival in the Chinese market is Tequilera el Triangulo. Set up just four years ago by the Corona Orozco family - who have 80 years tequila production experience - it only began exporting in 2005 but quickly set up a joint venture with a Chinese wine producer to import its 100 per cent agave tequilas. Now China is Tequilera el Triangulo's main export market out of a total production of 100,000 9-litre cases a year, with Blanco, Joven and Reposado bottlings under the Alma Azteca label and Blanco, Reposado and Añejo bottlings of the premium Penacho Azteca line, also sold in Switzerland and, only since last April , in the US. "We already have 68 people working on sales in China ," says the company 's operations director, Ignacio Corona.

A prime target for premium spirits in any category, the UK 's tequila market has yo-yoed in recent years, dropping below 1 million litres in 2003, up to 1.7 million litres in 2004, to more than 2 million litres in 2005, then nearly halving to 1.05 million litres last year. In terms of flavourful spirits with a strong identity and heritage, tequila in the UK faces competition from the Caribbean and South America in both rum and the up-and-coming cachaça categor ies, but Beam Global for one remains bullish with its Sauza brand - the second largest tequila globally at 3.12 million cases in the Drinks International Millionaires Club for 2006.

"Tequila is one of the hot categories in the UK at the moment," says marketing manager for UK & Ireland , Gareth Brown. "The growth we've seen in the last 12 to 18 months is no surprise to anyone who has worked in the category."

Brown expects to see a move to broaden tequila's horizons away from classic cocktails such as the margarita and into long mixed drinks. "It needs a gin & tonic, whisky & coke, vodka & cranberry-type association, but we don't have it yet," he says. The best way, adds Brown, is to work in tandem with the bars to develop a solution, which at this stage looks most likely to be based on citrus flavours. "Tequila is probably the most distinctively flavoured of the white spirits and that flavour marries well with citrus."

In general in America , says Francisco Soltero: "Older people prefer to drink tequila neat, but younger people prefer it in cocktails and long drinks in bars and nightclubs."

At the same time as the tequila appellation rules were changed in March 2006 to allow for the extra-aged and ultra-aged classes, the rules were also amended to allow for flavoured tequila production, but this is at a very early stage. Only a few major producers have released any yet, for example, Cuervo in the US and Herradura in Mexico . "Producers are trying to find the best combination of flavours, but it's mostly the citrus flavours to begin with while they explore the more exotic flavours," says Soltero. "The point is, this is an extra [dimension]. Tequila is still as well regulated as ever, if not better since last year."

Once an agave plant is cut you have to plant a new one - no fruits or seeds, hence it's difficult to consistently match supply and demand. But the supply side of the tequila equation has been taken in hand by CNIT. "We now have an excess of agave, that's why conditions are very competitive and driving exports," says Soltero. "The tequila companies are gathering inventories. The level of these inventories is currently three times the regular level, estimated at around 150 million litres of tequila. Some of these are in the ageing process, but the rest is in reserve in order to be in a position to manage the growing demand."

And managing that demand falls squarely with the producers. That's a path many premium brands have already taken, as typified by Tequila Supremo, the company behind Casco Viejo and premiums Don Agustín and Gran Maracame. "We have seen a trend among tequila consumers not only to get more and more educated about tequila, but to drink less and better quality," says international sales executive Ricardo Gonzalez.

"Real premium Mexican producers have the responsibility to highlight what such important points as tradition and authenticity are all about when it comes to tequila."

The basics :
Tequila is produced from the fermented and distilled juices obtained from the head of the Agave tequilana Weber's Blue variety. It's not a member of the cactus family, but it is succulent . It bears no fruit, though reproduces itself, taking six to seven years to reach full maturity.

The region in which tequila production is permitted covers 12 million hectares of Mexican territory. "There is only about 3 per cent of that territory where we can grow agave," says CNIT's Francisco Soltero. "Ninety-eight per cent of tequila comes from the main region, Jalisco in the west of the country, and the rest is from small areas in the neighbouring states of Tamaulipas, Nayarit, Michoacán and Guanajuato."

For tequila production, only the heart of the Weber's Blue agave plant is used. Harvested weighing about 50kg after a growing period of between five and seven years, between 4kg and 7kg are required to make one litre of 100 per cent agave tequila.

Tequila never has a worm in the bottle.

Tequila production is regulated under the Appellation of Origin Tequila and can only take place in specific regions of Mexico . An independent Consejo Regulador del Tequila certifies that all producers conform to the official regulations set by the Mexican government.

The Mexican Standard for tequila allows bottling between 35 per cent and 55 per cent abv. In Mexico most is sold between 35 per cent and 42 per cent abv. For the US , all tequila is bottled at 40 per cent abv. In the EU, producers are free to bottle their product at a level desired by importers and distributors in each market.

In 2006, UNESCO added the Agave Landscape and Ancient Industrial Facilities of Tequila to its World Heritage List–(more on that later).

Tequila exports/consumption (million litres)
  2002 2003 2004 2005 2006
88.0 101.6 109.0 117.0 140.0
Domestic consumption
53.0 38.7 67.0 92.7 102.6
141.0 140.3 176.0 209.7 242.6

How is tequila graded?:

There are two categories: Tequila - at least 51 per cent of the sugars required for its production must come from the Weber Blue variety of Agave tequilana and the rest from other natural sugars, except those from other agave varieties; may be bottled in other regions or countries. Total production in 2006: 160.8 million litres.

Tequila 100 per cent agave - produced only from the juices of the Weber Blue variety of Agave tequilana, this must be bottled only in the authori sed region. Total production in 2006 was 81.1 million litres.

Each category consists of five classes :

Silver ( blanco or plata ) - the clear product of the second distillation process.

Gold ( joven or oro ) - obtained by mixing Silver tequila and tequila that has been matured, or by "intensifying some of the characteristics of tequila blanco" (CNIT).

Aged (reposado) - matured for two to 12 months in white oak barrels or vats.

Extra-aged (añejo) - matured for more than a year in white oak barrels with a maximum capacity of 600 litres.

Ultra-aged ( extra añejo ) - matured for more than three years in white oak barrels with a maximum capacity of 600 litres.

Tequila exports in 2006 ('000 litres):

US 106,896
Germany 5,280
France 2,203
Spain 2,024
Greece 1,390
Russia 1,082
Canada 1,072
UK 1,050
Portugal 996
Japan 887
Singapore 869
South Africa 840
Bermudas 777
Switzerland 769
Netherlands 749
Others 13,202
Total 140,086

Why is blue agave best?

The Agave tequilana Weber Blue is now the only variety not to be found in the wild. "It is one of the types of agave plant that grows to the right size - not too small or too big to handle - and it produces the right balance of sugars," says Francisco Soltero of the CNIT. Mezcal doesn't qualify as tequila because it is made from a different type of agave.

There is no distinction between the areas of production (see box page 51) in terms of quality, although there is a highland region in Jalisco which rises to about 2,500 m.

" The experts say that different areas bring different flavour characteristics, so the producers can select according to the style they want to produce," says Francisco Soltero of CNIT.

So, when talking about the premium category of 100 per cent agave tequilas, relative quality of the many brands does not have to be a factor in the generic's marketing.

" Our message at the moment is simple: just try tequila and find one you like," says Soltero. And, at the same time, those consumers who may have had a 'bad experience' with tequila are to be encouraged to try it again and explore the range of styles.

Source : “ Spike in demand for tequila ,” David Longfield, Drinks International, July 11, 2007