PREMIUM WAVE OF BRANDS PROPEL TEQUILA UPSCALE; TONY PRODUCTS, PRICES COULD GIVE VODKAS COMPETITION

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Tequila is breaking out of the taco joint and into the elegant eatery with a wave of upscale-priced brands that eventually may give exclusive vodkas competition.

Although still a minute segment of the thriving $875 million tequila category, super-premium tequila is posting double-digit gains. Observers liken it to the $1.2 billion super-premium vodka category, which started out equally tiny in the early 1980s but boomed after Absolut's ad influx.

The trend toward $30 to even $1,000 bottles of tequila has been growing for about a decade but now has ramped up to warp speed.

MORE BRANDS EMERGE

In 1998, about 25 super-premium brands hit the market as compared to just a handful in the last few years, said Steve Goldstein, VP-brand marketing for United Distillers & Vintners, North America.

UDV markets Jose Cuervo and 1800 tequilas, which together control almost half of the U.S. market; the company launched its second super-premium tequila, 1800 Coleccion, three years ago.

"Everyone wants to jump on the bandwagon," Mr. Goldstein said.

Super-premium tequila probably sells fewer than 200,000 cases in the U.S. each year, compared with 6.5 million for all tequilas, estimated Frank Walters, research director for the industry newsletter Impact.

But in the past five years, the segment has grown about 21%, according to Bill Cherrie, global brand director for Seagram Co.'s Don Julio.

That's triple the 7% pace of the overall tequila category, and an astronomical rate considering the 1% growth rate posted by the overall liquor industry.

For high-end tequilas to sustain that momentum and threaten king vodka, however, they must provide consumers with a brand leader to trade up to, Mr. Walters said. He maintains the industry needs an Absolut, which jump-started the super-premium vodka business in the 1980s.

For that reason, advertising will be crucial.

"The category is young, and the first ones to establish brand identity through advertising and PR are the ones that will see growth. You get more for your money now than you do later," said Tom Pirko, president of Bevmark, a food and beverage consulting group.

$1 MIL TO $2 MIL FOR ADS

Currently, little is spent on super-premium tequila ads -- perhaps just $1 million to $2 million across all brands by some estimates -- although that's expected to rise. Seagram Co. is looking for an agency for its Tequila Don Julio; so is Brown-Forman Corp. for its Don Eduardo.

Allied-Domecq in March picked Bates USA, New York, for its Sauza line and is working on a campaign, while Jim Beam Brands started running ads for its high-end Don Eduardo tequila in The Wall Street Journal last month.

The largest spirits company, United Distillers & Vintners, has been using Grybauskas Beatrice, New York, to advertise its Jose Cuervo and 1800 brands since 1995.

In addition to the world's largest spirits companies -- most of which offer at least two super-premium tequilas -- the category is crammed with entrepreneurs who buy excess tequila from distillers, bottle it under a fancy boutique label, and sell it for equally fancy prices.

Whether from an entrepreneur or major liquor company, price tags start at $30, but many bottles sell for $40 to $50.

At that rate, tequila isn't just tossed back with a lime, salt and a grunt anymore -- it's being sipped and served over ice or straight up.

HALO EFFECT

The big-ticket tequilas have also benefited from the momentum of Mexican cuisine and a growing acceptance of Hispanics and all aspects of Latino culture, Mr. Pirko said.

"We no longer have the perception that things coming across the border are inferior," he said.

"We lived in a world where Bacardi [rum] was the one shining example of a Hispanic product that's done well. As we broaden and look for new tastes, this

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