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Upscale Tequilas Gaining Share As Consumer Tastes Evolve

September 3, 2013

As the Tequila category continues to premiumize in the U.S., several fledgling 100%-agave and super-premium players are making major gains in a category once dominated by mainstream mixtos. In 2012, the super-premium Tequila segment grew 9.1% by volume, according to data from DISCUS, and 100%-agave entries now account for around 40% of Tequila’s total market share, compared to just 9% a decade ago.

“Tequila is continuing to gain significant share within the spirits industry, primarily led by consumer tastes becoming increasingly sophisticated,” says Umberto Luchini, head of marketing for Campari America.

Campari is making a play in upscale Tequila with Espolón, a 100%-agave Tequila with Blanco and Reposado expressions retailing around $20-$25. The brand has done particularly well with young LDA consumers and urbanites, and it’s performing strongly across the three largest spirits markets of New York, California and Texas. Last year, Espolón rose 42% by volume to reach 75,000 cases, according to Impact Databank. “Espolón is on track to continue its double-digit growth through the end of this year,” says Luchini, adding that the brand and its upscale Tequila portfoliomate Cabo Wabo will be a “strong priority” for Campari moving forward.

Heaven Hill’s Lunazul also is positioning itself as a high-quality, 100%-agave Tequila in the $20 price range. Over the past few years, Lunazul has largely focused its efforts at retail, but the brand has more recently gained traction on-premise, enticing mixologists with its heritage and estate-grown credentials. (Lunazul is produced at the Tierra de Agaves small-batch distillery in Jalisco, Mexico, sourced from plants that have been controlled by Jose Cuervo’s Beckmann family since 1758.) Last year, Lunazul was up 17% to 82,000 cases.

Diageo’s super-premium Tequila brand Don Julio, meanwhile, continues to show strong growth. Don Julio rose by 8% to 200,000 cases last year in the U.S. market, according to Impact Databank. In Diageo’s most recent fiscal year through June 2013, the brand grew net sales by 13%, and volume was up 9% in North America, the company said. Ultra-premium labels in the portfolio, notably Don Julio 1942, have spearheaded growth.

As Tequila continues to reach pricing levels formerly reserved for spirits like whiskey and Cognac, Brown-Forman’s Herradura is putting renewed emphasis on its tradition as an innovator in aged Tequilas—the company claims to have created the first Reposado Tequila offering back in 1974—with a new small-batch series, Coleccion de la Casa. The first entry, a Port Cask Finished Tequila retailing at $90 and limited to 2,000 cases, was introduced in April. “We’re planning to release one new limited edition Tequila under Coleccion de la Casa per year,” says Casa Herradura’s director of international brand development, Ruben Aceves. Across its brand line, Herradura has averaged 12% annual volume growth in the U.S. since 2009, and has accelerated each year, rising 18% to 109,000 cases in 2012.

Milagro Tequila is likewise moving upmarket, last year launching Unico, a super-premium joven blend limited to 1,200 bottles and priced at $300 a 750-ml. The luxury offering bolstered Milagro’s high-end portfolio, which in addition to its core Silver, Reposado and Añejo entries ($24.99-$43.99), also includes a Select Barrel Reserve series ($52.99-$98.99). After rising 23% in 2011 to surpass the 100,000-case mark, the brand, which is marketed in the U.S. by William Grant & Sons, rose 15% last year to 130,000 cases. “We expect to continue to outperform the Tequila category,” says Milagro CEO Moises Guindi. “The Tequila segment is in the midst of an ongoing premiumization, and we’re at the forefront of that trend.”

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