Tequila: A New Force in Luxury Spirits

Tequila: A New Force in Luxury Spirits

Tequila: A New Force in Luxury Spirits

Rob WalkerAnalyst Insight by Rob Walker – Contributing Analyst

Most people associate luxury spirits with prestige brands of whisky or cognac, and they would be right. Last year, those two subcategories accounted for 45% of the global retail sales value of luxury spirits, according to the latest data from Euromonitor International. However, some of the most disruptive market momentum in luxury spirits is coming not from whisky or cognac, but from Mexico’s agave-based spirit, tequila.

In the eyes of many, tequila is an unlikely luxury product. As a category, it has often struggled in Western markets because of a rather boozy, head-banging image. Yet, tequila has been reinventing itself of late, driven by a growing number of super-premium boutique brands that are more about sipping and savouring than slamming. It helps too that a cluster of these brands are owned, or part-owned, by big-name celebrities, including George Clooney, P Diddy (Sean Combs) and Justin Timberlake. In the US especially, high-end tequilas are now among the fastest-growing brands in luxury alcoholic drinks.

Luxury Spirits: Share of Global Retail Value by Subcategory 2014

Spirits-Share

Source: Euromonitor International

Note:  Shares based on global retail sales in US dollars at fixed 2014 exchange rates

Tequila with attitude

According to the British drinks group Diageo, which owns the luxury tequila brand DeLeón as part of a 50/50 joint venture partnership with US rapper Sean Combs (aka P Diddy), some 65% of all positive retail value change in the US tequila market (the world’s biggest) has come from the ultra- and super-premium tiers over the last 52 weeks.

“What we’re trying to do with DeLeón is to create a new take on luxury, not a traditional take. It’s a brand that is all about edge and attitude, and that screams unapologetic luxury,” says Alex Tomlin, Vice President of Marketing for Diageo’s Tequila portfolio in the US.

Unapologetic luxury does not come cheap. A bottle of the Leona format of DeLeón retails for around US$850, while the Diamanté and Extra Añejo cost US$150 and US$350 a bottle, respectively. The brand, which already had a niche following among the elite Hollywood and US music industry set, was acquired by Sean Combs and Diageo in a joint venture last year, and is going from strength to strength, leveraging Diageo’s powerful distribution network and supply chain together with Combs’ access to influencers. According to sources at Diageo, DeLeón is now selling 13 times more than it was as at its peak under its former ownership.

What does celebrity bring to Tequila?

The strategic alliance between Diageo and Combs began in 2007 when Combs became the face behind Diageo’s Ceroc ultra-premium vodka brand. At the start of that alliance, Ceroc was selling around 50,000 9-litre cases a year, but it is now a near 2-million case brand, according to Diageo. It has a huge following among African Americans.

“Sean’s ability to galvanise support for Ceroc was undeniably a catalyst in this transformation, so when Sean approached Larry Schwartz (President of Diageo North America) and said that he wanted to partner with us on De León tequila we were really confident in Sean and in the brand itself,” says Mr Tomlin.

Sean Combs is not the only well-known face from the music industry with a stake in luxury tequila. A few days after Combs and Diageo announced their joint venture, pop idol Justin Timberlake announced he was teaming up with Beam Inc to co-brand (and jointly own) the premium tequila called Sauza 901. It is positioned below the DeLeón price points. But, it is another clear indication of, firstly, the growing allure of premium tequila as a business opportunity, and, secondly, tequila’s upmarket shift.

The George Clooney factor 

Hollywood actor George Clooney and his best friend Rande Gerber (Cindy Crawford’s husband) are also unashamedly big tequila fans, and now jointly own (with a third partner, Mike Meldman) the super-premium tequila brand Casamigos.

“George and I came up with Casamigos when we were building our (holiday) homes in Mexico. We were spending a lot of time there during the construction phase and, as you do in Mexico, we were drinking a lot of tequila. At some point George said, “We’re spending so much time here drinking tequila, why don’t we just make our own, one that’s perfect for us,” says Rande Gerber in a telephone interview.

And that is precisely what they did, knocking back some 700 bottles of samples before they found the “smooth with no burn” profile they wanted. It started out as a hobby for Gerber and Clooney’s personal consumption, but was so popular with friends and friends-of-friends that they eventually turned it into a business. Mr Gerber says Casamigos is now the fastest-growing tequila brand in the US (albeit from a low base), with volumes growing around 500% last year.

And what does Rande Gerber’s wife, Cindy Crawford, make of it? Is she a tequila fan? “Cindy puts it on the rocks. She loves it. She can drink it and not be hung over in the morning,” says Mr Gerber.

Tequila is the new “buzz” in cocktail culture

Supermodels, Hollywood A-listers, rappers – all with a penchant for luxury tequila. Small wonder, then, that the category is starting to shake off its formerly brash image and attract a new generation of consumers. Crucially, luxury tequila is fast tapping into a burgeoning appetite for craft cocktails and innovative luxury drinks in the on-trade. This is most visible in the US, but luxury tequila is gaining traction in Western Europe and Asia Pacific too.

It is especially significant, perhaps, that growing numbers of mixologists in high-end bars and clubs are switching out both white and brown spirits in favour of the highest-quality tequila brands. Classics such as the Manhattan and the Old-Fashioned, but made with luxury tequila instead of whisky, for example. The Bloody “Maria” is also becoming more visible in the on-trade, as are Tequila Mojitos.

Indeed, in a spirits market where recruitment of new consumers is arguably the biggest challenge, tequila is throwing down the gauntlet to prestige whiskies, cognacs, vodkas and rums. It has been happening under the radar for a while, but tequila is now one of the coolest (and aspirational) luxury spirits on the US market, and has big-name celebrities backing it. We are now in the height of tequila season, which typically runs May through September, and sales at the end of this year will give us a clearer reading on how luxury tequila is shaping up. There is a sense in the industry, though, that luxury tequila is only at the start of its upward trajectory.

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