China could be ‘meaningful’ market for Tequila
As China finally opens its doors to Tequila, Patrón’s new COO Dave Wilson tells Becky Paskin he’s not fazed by the challenge ahead of him, even if an agave crisis looms.
“I was in a grocery store in the US when Ed Brown called to offer me the job,” explains Wilson. “I knew nothing about the role but it took me a split second to accept. You don’t get opportunities to run a company like this every day.”
A few months into his shiny new position with the ultra-premium Tequila business, and Wilson is still buzzing about the “best decision (he) ever made”. Replacing the outgoing John McDonnell, who left in June this year to become the international managing director for Tito’s Handmade Vodka, Wilson is no stranger to the Patrón portfolio, having represented the product while working at Seagram some 20 years ago.
“I’ve watched the company from a distance for quite some time, so I know it quite well,” he enthuses, but speaking to me in a meeting room the size of a closet at TFWA World Exhibition in Cannes, it becomes clear that Patron’s new chief operating officer still has some to learn.
The Las Vegas, Nevada-based company, headed by president and CEO Brown, counts travel retail and duty free as its second largest market, behind the US of course. With volume soaring by 21% in 2012 compared to the previous year, the sector has been the focus of huge attention for the group that has been driving a major sampling and activation campaign in 130 airports around the world.
While Patrón has been exhibiting at Cannes for seven years now, the sector is a fresh experience for Wilson, who admits: “Duty free is new to me, but this show has been terrific in bringing me up to speed.”
But what Wilson lacks in duty free knowledge, he makes up for in experience of Patrón’s number one market. Straight out of school in 1979, Wilson joined the bottling line at Seagram and has worked in the American beverage alcohol industry ever since, racking up time with National Wine & Spirits and Southern Wine & Spirits.
“I have a manufacturing background that also includes sales and marketing, distribution and supplies, so I bring a different perspective to this job,” he explains. “I started on the bottom rung and worked my way up, and my management style is the same now as it was then; I bring zero ego to this position.”
Wilson may be exceptionally humble, but the University of Kentucky grad exhibits a wealth of pride for the brand that reached two million nine-litre cases last year, up 5% from the 1.9 million cases sold in 2011. In the year to date, Patrón Spirits estimates its international business (outside the States) is up 20%, although well over three-quarters of its total volume is comprised of the US market alone.
Owner John Paul DeJoria made a solid bet when he created the world’s first ultra-premium Tequila back in 1989. Almost 25 years later, the brand is riding a wave of premiumisation in the States, where super-premium Tequila volumes have soared by 430% since 2002 (according to DISCUS), when such products were virtually unheard of.
At the time, Patrón invested heavily in brand awareness and education in the US to improve consumer knowledge of “quality” 100% agave Tequila – a strategy the group is now planning to adopt in its global markets.
“In the early days, the ultra-premium Tequila category wasn’t well understood in the States in terms of the huge quality difference between Patrón and the mixtos,” Wilson says. “International business forms about 12% of our total right now; we’ve been growing extremely robustly and in the next five years we can double that business, I’m sure of it. But we need to make a similar investment in our international business as we did in those early days in the US, in order to experience that total growth. I’m very bullish on it.”
Particularly now Mexico has expanded trade ties with China, a market previously closed off to Tequila producers but which now presents “a whole new opportunity”. Wilson is confident the ultra-premium credentials of Patrón speak to the Chinese consumer “in terms of affordable luxury”, having witnessed an overwhelming welcome from wealthy guests at the Parkview Green building’s anniversary party in Beijing in September. “As people approached the bar they recognised the brand with excitement and rushed over,” Wilson recalls. “They were beelining to the bar to taste it for the first time.”
Part of the positive response, he claims, is down to the western media’s influence on Asian consumers, in particular from the music industry’s idolisation of Patrón. The Tequila has been referenced by rap and pop stars from Ke$ha and Flo Rida to the Paradiso Girls, who even named a song after the brand. But Wilson maintains: “We’ve never paid a celebrity to do an endorsement of Patrón. It’s unusual, but really terrific. I wouldn’t say it’s a cult product at this point, but there is a celebrity status about Patrón because of its high quality, and I think Asian consumers will have seen that.”
Despite such a flattering reaction from the Chinese, Wilson is understandably cautious of the market that has seen recent revenue dips for both Diageo and Remy Cointreau as a result of president Xi Jinping’s crackdown on luxury gifting. Since the Mexico-China trade agreement was expanded in July this year to allow the sale of Tequila in China, analysts have been quick to predict great things for Tequila in the Far East, but will volumes ever compete with those of the US?
“It’s far too early to tell,” Wilson shrugs. “China has the opportunity to become a very meaningful market for Patrón because of its quality; it really does speak to that Chinese consumer. But there’s a lot of pick and shovel work to be done in terms of education. I’ve seen some crazy estimates out there, and even though our Chinese distributor has forecast explosive growth for us, it’s just way too early to make that call.”
Increased demand from China however means greater pressure on Mexico’s agave stock, which is predicted to suffer a serious shortage crisis in the next few years. The price of agave has already risen from one peso per kilo in 2011 to just under five pesos as of July 2013. With Mexican officials expecting to ship 10 million litres of Tequila to China over the next five years, coupled with an influx of new 100% agave Tequila brands to market, is Patrón concerned it may struggle to find enough of the plants to meet demand?
“Not at this point. The agave shortage is certainly real, but we have tremendous contracts in place with our partners, so we are in good shape,” Wilson says, explaining that the company has always sourced its agave from haciendas on a “first refusal” basis rather than own farms itself. “I was just in Mexico, partly to get satisfaction on that point, and walked away feeling very confident that we are well prepared. But I think the rest of the industry is feeling nervous.”
One aspect of production close to owner DeJoria’s heart is to ensure every process is as environmentally sustainable as possible, from the reverse osmosis water treatment that converts waste water into clean water for cooling towers and gardens, to the collective composting of waste agave fibres from several Tequila distilleries to plough back into farming.
“Patrón has taken a lot of care and investment with its environmental efforts, which is something we’re very proud of,” Wilson enthuses. “We’ve got a team in Mexico that’s constantly working on it; even our packaging is recycled glass.” He adds that the environmental stance the company takes is not one Patrón feels should be limited to the company alone. “We are sharing the technology and processes we’ve developed to limit the environmental impact of Tequila production with other producers, because it’s not just a Patrón issue, it’s an industry-wide issue,” he declares.
As the company works on expanding its volume across the world, so it looks to expand its portfolio. With the coffee-flavoured Patrón XO Café and XO Café Dark Cocoa liqueurs having “really resonated with consumers”, becoming two of the fastest growing products in the range, the group plans on releasing another couple of flavours this year, although Wilson claims he will “never rush a flavour to market to try and make this quarter’s sales figures”.
Tequila aside, Patrón Spirits is also working on growing its Ultimat Vodka brand, which it acquired from New York-based Adamba Imports International in 2007, as well as Pyrat Rum, which Wilson describes as “one of the greatest opportunities in our portfolio.”
While Patrón is focusing on select accounts for Ultimat – which retails for US$50 – it has high hopes for Pyrat in global markets. “We will be investing more heavily in Pyrat, and I have high expectations for the brand particularly in travel retail. I will be very aggressive in getting more distribution there.”
Some bullish words from a man new to travel retail, but when you’re working for a company with an unarguably strong track record – across all its brands – it must be a challenge not to be optimistic. “This has got to be one of the best jobs in the industry, without question,” Wilson concedes. “I’m still new at it, and I’m running at a hundred miles an hour, but I love it.”