Tequila tries a flavor shot to maintain sales

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Distillers are hoping what's good for vodka will be good for tequila.

Mexican regulators are weighing an approval for the manufacture of flavored tequilas, and a green light could come during the first half of the year. That could mean "another new-business opportunity for us," said a spokeswoman for Diageo-distributed Jose Cuervo International, which dominates the U.S. tequila market with a 43% share in 2003, according to Impact Databank. "We'd have to look at the value of doing it and does it make sense."

Tequila doesn't really need a shot. Sales jumped nearly 6% to an estimated 8.5 million cases in 2004, according to the Distilled Spirits Council of the U.S., while spirits volume growth lagged at just over 3%.

The category has recovered from a shortage several years ago of the agave plant, the font of tequilas; in fact, the Mexican industry is facing an agave glut because farmers planted so many during the late 1990s. Moreover, tequila has evolved from its traditional image as a frat-house drink; sales of high-end premium cases were up more than 15% to 514,000 cases, according to Discus.

cashing in

Distillers are hoping to cash in on a trend that has helped drive the growth of the spirits, particularly with young adults. Vodka makers started adding flavors to the mix in the 1990s with a proliferating taste palate that includes everything from citrus to vanilla to watermelon. Bacardi and other rum marketers have frantically added flavors more recently, though coconut-flavored rums, notably Malibu, have been around longer.

The flavor trend has seeped into so-called brown spirits as well. For instance, Marnier-Lapostolle, marketer of Grand Marnier cognac liqueur, has introduced Navan, a vanilla-infused cognac.

The desire of tequila makers to join the craze is one factor driving Mexico's Consejo Regulador del Tequila-a private nonprofit organization that regulates tequila production for the government-to permit the manufacture of flavored tequilas. Changes under consideration would allow flavors to be added to tequilas that are 51% agave. Excepted are 100%-agave tequilas.

A Las Vegas company called Tukys isn't waiting. It's rolling out a line of watermelon, lime, coffee, strawberry and orange tequilas by the end of February, said President Dave McQueen. Tukys buys bulk tequila from Mexico and mixes it with flavors in the U.S., which is permissible. Tukys, which is targeting 21-to-35-year-old women, started testing the brand in 2001.

But Matt Carroll, VP-marketing at Patron Spirits Co.-which sells the 100%-agave Patron tequilas and a tequila-based coffee liqueur called Patron XO Cafe-is skeptical, saying that tastes are shifting more to high-end products. But if a marketer like Cuervo is successful, he said, "I think we'll see a barrage."

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