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Licor Zone to purchase Tequila distilleries

Budget alcohol outlet company Licor Zone hopes to become a Tequila “heavyweight” by purchasing struggling distilleries and operating them “under one roof”.

When the Chinese government decided to abolish a law prohibiting the importing and consumption of high quality Tequila, a mad scramble by producers to tap into the new market space was predicted to ensue. The bilateral agreement signed between Chinese President Xi Jinping and Mexican President Enrique Pena Nieto last June – dubbed the “Tequila Pact” – offered lucrative opportunities, particularly with space to fill following the demise of Scotch whisky and Cognac as a result of China’s on-going anti-corruption campaign. However, judging by figures released by Mexico’s Agricultural Secretariat, it’s an area that is perhaps growing faster than anyone could have foreseen. Responsible for overseeing the Tequila Regulatory Council (CRT), the Secretariat reported that exports rose by 16% to US$568 million (£355m) in the first six months of 2014, compared to the same period last year. While Americans may still guzzle more Tequila than the rest of the world combined – importing 13.9m cases in 2013 (IWSR) – it is an uncanny coincidence to see such a spike in numbers now China’s borders are wide open. “It seems to me like there’s a huge rush for all the big brands to get into the Chinese market,” observes Jesse Estes of Tequila Ocho. “If you go to Mexico and talk to a lot of big brands, they are really focused on China – it’s a big focal point because of the potential sales due to the number of consumers developing there.” While Estes stresses China is not yet on the cards for Tequila Ocho – though he mentions it may well be in future – for Tequila titans such as Jose Cuervo, China is an exciting new land of opportunity. “We are confident in China’s large market potential, due to an expanding target market consumer base – they are the ones with the disposable income” says Peter Gutierrez, managing director of Jose Cuervo International, who says the brand’s main focus now is to build Jose Cuervo Gold and Silver. “We have seen a very healthy growth coming out of China last year. There certainly is an opportunity in the long run for super-premium Tequila and we have that portfolio to respond to this.” For Pernod Ricard’s Olmeca Tequila, China is now seen as “central” to the overall development of the Tequila category globally. Coupled with strong sales in Europe, the brand’s recent move into several Asian markets resulted in another year of double digit growth for the brand from 2012-13. “We witnessed a significant desire among trade and consumers to learn more about Western-style spirits, seek information and education on Tequila,” explains Lisa McCann, global marketing director of Tequila at Pernod Ricard. She continues to describe China as “hugely influential”, so with the Chinese latching on, could the country be the key to unlocking the global category revolution everyone has been waiting for? “People are starting to discover that Tequila has many faces,” says Gutierrez, “and it is starting to take on a role as a discovery spirit in a similar way to how vodka did 15 years ago. But people don’t even know there is a place called Tequila. This is a long journey, but a journey that we have started.” If that remains true then cracking the Chinese market is not the only long-term concern for producers. Tequila still accounts for less than 1% of the total market share of spirits and there are still significant hurdles to overcome if the category is to catch up with the likes of Scotch and vodka. Let’s not forget producers are still in the thick of an agave shortage, which recurrently rears its destructive head from decade to decade. “Over the last 10 to15 years there has been a constant cycle of fluctuation in agave prices,” Estes explains. “Last time we had farmers letting the agave rot in the fields rather than harvest them because it was cheaper. They became very disenchanted and planted something very different afterwards. You get a big decrease in supply because of this period; you really have to plan five to eight years ahead.” While established brands can keep the shortage largely at bay by means of careful planning and planting, for smaller producers the crisis poses a very real threat. The cost of agave has shot up from around 1 peso per kilo (approximately £0.05) a year ago, to 6.5 pesos per kilo today. “The agave shortage has had a huge impact on our raw material and cost pricing which has increased 500% in the last two years,” laments Cleo Rocos, founder of Aqua Riva Tequila, which launched in 2012. “We have had to stock pile liquid in order to harmonise our end pricing to the customer. It has been a very difficult 16 months for small brands.” Many producers in Mexico have disappeared as a result and smaller family-run distilleries are suffering from a loss of customers. The impact of the shortage is expected to last at least another 18 months before finally levelling out again. “It’s always a worry,” Rocos adds. Nevertheless, it hasn’t stopped total sales volumes of Tequila increasing by 3% from £25.9m in 2012 to £26.7m in 2013 (IWSR). In the US, the rapid premiumisation of Tequila resulted in significant growth for the category, which experienced a volume increase of 6.2% to 13.9m cases (IWSR) last year. It’s a growth that has been accredited to increased consumer understanding of 100% agave Tequila and a thirst for knowledge, according to Gary Ross, senior director of Tequilas at Beam Suntory. “The strong growth has been driven by increased consumer awareness when it comes to quality distinctions, as well as new products that focus on these distinctions,” he says. “The US Tequila market continues to shift toward premium and super-premium and we anticipate the super- and ultra-premium sector will boom as people learn more about Tequila, and more premium options become available.” To capitalise on this sudden surge, focus will be on 100% agave products such as Hornitos and Sauza Blue, as well as super-premium Sauza 901. Across the board, there remains great optimism that Tequila will eventually reach a point of recognition to match that of whisky and other spirits. How long this will take though is still tough to tell. “We see parallels on how people are appreciating craft,” explains Ann Stickler, SVP, managing director of Tequila at Brown-Forman, who likens the current interest in Tequila to the craft movement currently experienced by whisky and vodka producers the world over. Authenticity and heritage are now greatly valued traits by consumers across all categories, qualities also being sought by Tequila drinkers. “There is a sense of exploration of character, similar to what fine Bourbons or whiskies have done. Once consumers learn more about Tequila’s craftsmanship and its versatility, it will reach a point of recognition and sophistication.” Following in the footsteps of other spirits categories have been several flavoured Tequila expressions trickling into the market. But opinion is divided over whether this will act as a help or hindrance, particularly within a category looking to gain a more prestigious reputation. In the US, El Jimador made its foray into the flavoured segment in July this year, launching El Jimador Mango Mango and Mexican Lime, while Beam Suntory launched the Sauza Sparkling Margarita back in 2013. “These new offerings leverage the trend of flavoured spirits and the popularity of mango and lime Margarita flavours,” enthuses Stickler. “Flavours could be a viable trend to open acceptable Tequilas to millennials.” It is hardly surprising to see Tequila brands venture into flavoured expressions; one need only look to the recent phenomenon of flavoured vodkas to realise why. But some remain cautious about becoming infatuated with flavours. “To me, flavoured Tequila seems like a fad,” ponders Estes. “What I see the problem being is these flavoured Tequilas coming on the market do not seem to be of really good quality.” Whether flavours will have quite the same ripple effect enjoyed by vodka remains to be seen. Generally speaking though, there is widespread agreement among producers that the only way to genuinely grow Tequila’s reputation is through consumer education, which for many will comprise a combination of strong marketing tactics teamed with bartender training. What remains in dispute, though, is where Tequila will next take off. For Raffaele Berardi, CEO of Fraternity Spirits, parent company of Corralejo, “European markets are growing very slowly”, and he sees future opportunities lying in Japan, India, Spain and the UK. For others, Tequila’s untapped potential lies within the emerging markets of Brazil and Canada. But if China proves to be the key player it has so far been touted as, it could prove to be the most prosperous market place of all. sb
The company believes a large number of distilleries will be forced ton sell their facilities due to “rising costs”

Following the announcement of Licor Zone’s goal to open 5,000 stores by 2020, the company has now revealed plans to purchase a string of small and medium-sized Tequila distilleries and regroup them to operate “under one roof”.

The raw material used to manufacture Tequila is expected to face a severe shortage in the near future, and the company believes that a large number of distilleries will be forced to close down or sell their facilities due to the “rising production costs”.

A statement read: “Large distilleries could capitalise on the situation and expand their manufacturing capabilities by leasing, renting or buying these facilities. This is what Licor Zone will accomplish by grouping several small and medium distilleries under one roof.”

Alfredo Zapata, general manager, added: “I am proud to be part of Licor Zone expansion. The idea of regrouping several small and medium distilleries under one roof is brilliant, this will allow Licor Zone to become a heavyweight in the Tequila business by reducing cost and increasing profitability.”

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