‘A Tequila break-out will surprise everyone’

As Amber Beverage takes control of Fabrica de Tequilas Finos and its flagship KAH Tequila brand, SB speaks to CEO Seymour Ferreira on the international rise of premium Tequila, his plans for the new portfolio, and why a Tequila ‘break out’ could be on the horizon.

Amber Beverage Group CEO Seymour Ferreira

*This story runs over multiple pages

In September 2016, Amber Beverage Group branched out into a brand new category with the acquisition of a “significant equity stake” in Fabrica de Tequilas Finos, a Tequila maker and owner of more than 20 brands.

For the Latvia-based subsidiary of SPI Group, known for its Latvijas Balzams and Moskoskaya vodka brands, its first foray into the Tequila market would enable it to “establish and even stronger global footprint,” CEO Seymour Ferreira said at the time of the acquisition.

But it wasn’t all plain sailing – a legal dispute over the KAH Tequila brand in particular, probably the best known of the broad Finos stable, delayed the assumption of full ownership to December 2016. But the production facilities, and its portfolio of brands which also includes AC/DC Thunderstruck and Zapopan, is now ready to be integrated into the wider Amber Beverage stable.

In a Tequila-focused interview, Ferreira shares his ambitions for the newly acquired range, and discusses the development of the category in general.

SB: There are more than 20 brands in the deal which saw Amber Beverage take control of Fabrica de Tequilas Finos. Which do you think will lead the portfolio?

SF: There are a number of brands which we’re evaluating at the moment. I think the ones that have immediate appeal, that already have distribution for example in America, and in some other countries, are brands like AC/DC Thunderstruck which obviously brings with it a whole fan base that already exists. Then there are other brands, like Zapopan, which is a super high-quality, 100% agave product which again has only had limited exposure outside America, but quite good distribution mainly in the supermarket chains in the US. We’re looking quite closely at a brand called Agave 99 to see if we can take that outside of its core market which again, not surprisingly, is America. And then there are there are a couple of other brands within the portfolio like Don Camilo, which we think could have potential in the more premium and super-premium categories. But I’m sure as you can imagine we have to be focused about where we out our resources, and our effort, so while there might be 20 brands in the portfolio the only brands that are getting any focus from us at the moment are the ones that I’ve named, and of course KAH.

How will you be strategic given that Tequila is such an underdeveloped category outside of Mexico and the US?

Most of the markets outside of the US really fall into the mainstream or value categories. There is some developing premium and super-premium business, for example in the UK and in some European countries, along with Australia and Russia, but on the whole, Tequila as a category is understood by consumers primarily as a party drink. However once you get into the 100% agave products and into products that have been aged correctly, and for a longer period of time such as extra añejo, it really is an exceptional experience. The category does have a long way to go, but I think that’s part of the reason why you’re seeing the whole Tequila category grow in double digits. It makes it exciting for a company like ours as we look to establish themselves in the international arena, and to create a new footprint for our company and existing brands.

KAH Tequila is presented in ceramic calaveras skull bottles

Have you identified any gaps in the Finos portfolio in terms of style or type of Tequila?

Having bought a Tequila plant and acquired with it some brands, it is a little bit of a learning curve, particularly when it comes to ageing product. That’s something our production teams are looking at, trying to understand the effect of wood on liquid. But we have many hundreds of years’ experience in producing and making alcohol. So while our teams are looking at how we can improve production, our marketing team is looking at the opportunity at the more premium, super-premium end of the US portfolio in particular. Anything you do on Tequila really has to start with the US, and that’s where we’ve been focusing our efforts. We’re looking at whether we can we create, or bring to the market, brands that have a unique character about them, that communicate with the consumer about quality, and do it in a way that’s really approachable and in some ways really fun. So for us it’s about targeting not only the connoisseur, but we’re also keeping in mind that Tequila is still an experience category and that people are looking for the unique.

I seems like cask experimentation is a real opportunity in Tequila. Do you have any particular plans for the brands when it comes to ageing?

I think the question is how do you innovate in Tequila, whether it be introducing Sherry casks, like has been done with Scotch, or perhaps introducing flavours, like what’s been done with Bourbon. We are looking at what is legal and also what really is going to add value to the product, because while Bourbon has its characteristics and its fantastic taste profile, it is a very different challenge with Tequila. We’re not going to rush into anything when it comes to that form of innovation.

Moving on to KAH Tequila, what are the current key markets for the brand outside of the US?

We inherited a difficult situation with KAH, there was a fair amount of legal issues, ownership issues, some discussions and arguments about who owned what, and we’ve spent the last few months clearing all of that up. From what we know, KAH was in distribution in about 40 countries outside the US, so it is exciting that we are able to take KAH back to market. There is clearly an existing distribution and consumer base for KAH and I think we can build on that very quickly. One of the things we can bring beyond our ability to invest in the brand and to structure a clear marketing proposition is the fact that we have a really robust and strong route to market, and that hopefully means we can move very quickly on getting distribution back in place.

What markets are top priorities for you with KAH?

Obviously we have it in our home base, in the Baltics, where KAH is already in distribution and is available in most of the off-premise and some of the on-premise. In the US we will be re-launching in March through our sister company Stoli USA, and have had some very good initial feedback from our distribution partners there. Beyond that, the traditional focus for any Tequila company would be the UK, Germany, Russia, Australia and perhaps Italy and Spain.

China is a fascinating market for Tequila; you’ve got the big Tier 1 cities with the cocktail culture and there’s real interest in Tequila, but beyond that, it’s untapped.

We have a very good distribution partner in China, they’ve done really good work with some of our other brands, so we’re certainly hoping there will be an opportunity for a brand like KAH. KAH of course is a little bit different with its calaveras skull bottle. It’s not only a very good Tequila, and an award-winning Tequila, but its design also makes it a product that is attractive for gifting. In some cases it will be interesting for consumers, and not necessarily because it’s Tequila.  I think there’s an opportunity for us to really get consumers to focus on the fact that it is a wonderful Tequila and it happens to be presented in a really unique bottle. And from our marketing teams there’s a lot of communication that we want to do, but also lots of opportunity to build on the Day of the Dead principles, the idea of celebrating your ancestors, really bringing a unique Mexican flavour, which for many other products would be really difficult to do.

It’s an interesting concept, the bottle versus the Tequila. Some consumers might see the bottle and think it’s a gimmick. Is it a challenge to get consumers past what the bottle looks like?

Our experience is still a little bit limited, and I think one of the questions is do we have a challenge in getting people to taste the product? At the moment, the reaction we’re getting from the trade and from consumers we’re talking to is very positive; we’re not getting questions like whether it’s strange, it looks like a gimmick, why would I buy it, it’s not a real Tequila? There is the fact that it is 100% agave, the fact that is one of the best Tequilas you can buy, and the question then is how do we make sure the consumers understand that. So you’re right, it’s not necessarily as easy as it might be with other products where you can see the liquid. But maybe that’s the fun thing about our brand; it’s not conventional, it is different, and yet it is still a really great liquid. We don’t want it to be just a gifting product, we want it to be a product that people buy because they really like the liquid, the heritage, the design and everything around that.

You are planning integrate KAH with the Stoli salesforce in the US. Do you think it will be a smooth transition?

I don’t see why not, and certainly the process of the transition is under way and the Stoli USA team have exceptional experience in dealing with premium products and developing super-premium products, which will I think be a great benefit to KAH. The customers we’re dealing with in the US have a wide range of products in their portfolio so it’s about the quality of execution we can bring through promotions and activities, and the quality of the marketing programmes that we can support our distributors with. I think it’s an excellent fit for the overall portfolio that we have in Stoli USA and the team there is excited about a new category and new opportunity.  We’re very much looking forward to getting it officially through our company in the US and into the market.

The Fabrica de Tequilas Finos production site

AC/DC Thunderstruck was another brand in the Finos deal. Do you expect to develop more band or brand licensing partnerships in the Tequila portfolio?

There’s always an interest in working with exciting, well-known brands particularly when they come from a music background. I think the challenge is always linking the brand name with the quality product and having a really strong commercial proposition. We have experience of doing similar things with our Baltic companies, and we’re very pleased that we have inherited AC/DC Thunderstruck because I think it’s a really good fit. The brand itself, its image, the quality of the product and the packaging is great, and we think there’s a real opportunity to take that brand considerably further than it has been already. The challenge of finding other bands or brands from the music industry is really about the synergy between the kind of music, the imagery of the band, its identity with its fan base and the Tequila brand, and it isn’t as easy as many people might think. There’s isn’t always a clear connection, but we would be very happy to have conversations with anyone who has some great ideas and bands that might be a good match for Tequila. Music is very different. It appeals to very different consumers. The product you offer that is associated with that band or type of music really has to be a very good fit – and that’s the challenge!

In 2016 there were numerous reports of agave supply issues in Mexico. Is that something you are concerned about?

There are not many products in the world that are defined by geographic location. The same challenges on supply or the price of raw material has been seen in the past Champagne for example, or Cognac. So a concern we have, that everyone in the industry would have, is that is there enough supply to feed the demand? And in Mexico it is complicated further perhaps by the exchange rate between the US dollar and the peso, the political environment in the country, and as a foreign investor we’re watching this closely. Like everyone else, we are looking at the options in order to secure long-term contracts where we need to, and a big part of what the team is doing is making sure that we are able to deliver product at the right quality and at the right price to our consumers.

Something you touched on there is the exchange rate. How closely are you watching political developments in the US, and how concerning are events?

Commercially, what is interesting for us is to look at what’s going to happen in terms of the exchange rate, the effect it has on pricing in the US and our key markets, what it means for the price of fuel, on whether there will be border restrictions, maybe tariffs.  We’re watching those things like any business would do and making sure that we have discussions and plans in place, should these things start to become a challenge for us from a commercial point of view. And we operate, as I think almost everyone does, on the basis that we’re going to continue to deliver our products to our customers and do it as efficiently and effectively as we possibly can.

A more positive note to finish on – what key Tequila trends are you keeping an eye on for 2017?

One trend that has been established in America for some time but hasn’t made its way across the water quite as effectively is the super-premium part of the market. You can see it in London, Milan, Berlin; Tequila as a serious drink that can be drunk on the rocks or straight, and it can be enjoyed in the same way as you’d enjoy a great rum or even a great Scotch. The interest in boutique Tequilas has been growing over a number of years and I think we’ll see that continuing to grow. I certainly expect to see a little bit more activity around ageing and flavour, partly because it’s happening in other categories, particularly rum and Bourbon, where the flavouring is being added to brown spirits in the way it used to be added to vodka. From my point of view, I think that’s really quite consistent with what’s been happening in other categories: premiumisation, a move towards higher quality consumption and perhaps some experimental flavours, or flavours that make the product a little bit more accessible for people who are used to sweeter flavours, hence the Sherry cask or Cognac barrels. The interesting thing about what’s been happening in all alcohol categories is that there’s a lot of experimentation at the moment.  A lot of people are looking at new product development and it’s very likely that something is going to happen with Tequila that will be a break-out – a new way of presenting the whole category that will surprise everyone, and hopefully we’ll come up with something in that sense. But at the moment, we’re taking it step by step – so no radical moves.