Multinationals take over Mexico's national drink

By Paola Banchero , ARIZONA DAILY STAR Saturday July 06 04:18 AM EDT

Tequila is as Mexican as mariachi music.
But as the national drink of Mexico -- and its American cousin, the margarita -- dances up the list of popular drinks, a drink with roots in pre-colonial times risks losing its essential Mexican character.

The household names in the industry are betting that allying with multinational liquor companies is the way to globalize their product.

The move gives tequila companies increased buying power, which would push down prices, and larger distribution networks, which could make their products more widely available. But smaller tequileros, or tequila producers, fear they'll be unable to compete with the conglomerates and will be forced out of business, limiting tequila drinkers to fewer choices.

Companies including Sauza, Orendain, Don Julio and Tequila Herradura all have either been sold to multinational firms or formed alliances with them in return for better access to the world's liquor store shelves and restaurants. The only major Mexican-owned brand that remains - Jose Cuervo- lets multinational Diageo distribute its tequila in the United States.

The band of families that has made tequila since the Spanish king granted the first license in 1795 to Señor Cuervo is giving decision-making powers to firms outside Mexico, which could affect traditional production practices and squeeze the essential Mexican character out of tequila. That character is exactly what drinkers appreciate in Tucson restaurants such as El Charro Café, the Flying V Bar and Grill, and Café Terra Cotta, all of which feature long lists of tequilas and margaritas. Tequila consumption, with the exception of the recession-induced drop in 2001, has doubled in a dozen years and now accounts for 4.4 percent of distilled spirits sold in the United States.

"What makes tequila special is not only that it's great for margaritas, but it has a mystery and sex appeal all on its own," said Raymon Flores, co-owner of El Charro Café and co-author of "Toma Margaritas... A Guide to Tequila and Margaritas."

"It conjures up images of beaches and oceans, of women in colorful dresses, and of loud Latin and mariachi music to get you moving."

Important traditions

Tequila's roots in Mexican history and culture increase the importance of maintaining the industry's traditions, producers say.

"We want to retain the seal of our product - using wood-fired ovens, natural fermentation and other traditional techniques as we keep growing," said Carlos Monsalve, export manager for La Cofradía, a small tequila producer. "That is definitely what makes a tequila a real tequila."

But La Cofradía is competing against the giants of the wine and spirits industry. For example, Diageo reported sales of $18.1 billion last year. La Cofradía had $30 million.

When tequila companies become part of large, integrated corporations, they can use their buying power to get ingredients and advertising more cheaply, and they piggyback on a distribution system meant to sell large volumes of wine and spirits, from Puerto Rican rum to Finnish vodka. The double advantage of cost savings and built-in distribution channels leaves smaller tequila producers hurting.

Inevitably, small producers say, competition will force big firms to cut costs and modernize production processes - harming a beverage deeply tied to Mexico's blend of Aztec tradition and Spanish technology.

"Sooner or later, a transnational company is going to want to adapt tequila to newer technology to make it more commercial," said Alberto Gonzalez, president of Impulsora Rombo, which makes tequila under the Zafarrancho and Cabo Wabo brands.

Like artisan bread or fine cheese, tequila is still produced by traditional means. Gonzalez says tampering with the norms of tequila production may alter the nuances of a drink consumers are still learning to appreciate.

Large companies' side

Large companies defend their strategy. Brands continue to have all their traditional quality and national identity, often enhanced by more modern technologies to protect a product's integrity and national character, said William Bullard, director of Latin American affairs for Diageo, which recently began marketing Don Julio, a premium tequila.

"The essential product qualities and imagery as developed for Don Julio have proven hugely popular with tequila cognoscenti, so there would likely be no value in altering these," Bullard said. "Our intent would be to nurture, protect, and build upon the unique Mexican character and tradition of Don Julio."

Blue agave scarcity

Smaller producers such as Gonzalez face other worries. Just as the drink reached the height of popularity, the raw material for tequila - blue agave - became hard to find because of unanticipated high demand. Pile on a heavier business tax burden on all tequila producers and the result is decreased production and increased prices to the consumer.

The plant matures in eight to 10 years, and the shortage made prices jump from a low of about 85 Mexican cents per kilogram to a high of 15 pesos. Tequila prices have gone up between 5 percent and 15 percent for Mexican consumers, and more for U.S. drinkers, said Jack Robertiello, editor of Cheers, a trade magazine about wine and spirits for the restaurant industry.

Since last year, half of all tequila factories have ceased operations, at least temporarily, according to the National Chamber of the Tequila Industry. Five years ago, there were about 70 distillers, said Jack D. Atchison, the managing member of Mexicana Food and Spirits LLC, based in Tucson. Today, about 50 distillers remain.

"Some may have disappeared because of domestic taxation, but many of them couldn't get the agave they needed, and they couldn't get the volume and they closed their doors," Atchison said.

Not only do small distillers feel the squeeze from high production costs at home, they also battle to get into the U.S. market - by far the largest outside of Mexico. In Arizona, three companies control liquor distribution. Persuading them to distribute a smaller brand takes a lot of work, Atchison said, when 30 percent of their volume may come from a single liquor purveyor, such as Bacardi, owner of Cazadores, or Allied Domecq, owner of Sauza. The same can be true in the nearly 20 states that directly control alcohol distribution, such as Michigan and Ohio. In these states, a panel decides which wines and spirits stores will carry, and it often chooses based on how a product performed in another market.

Americans get it

Just as small producers are threatened, U.S. consumers are developing a taste for their products - and an understanding that not all tequila needs to be slung back with lime juice and salt or mixed into a margarita.

Each El Charro location sells about 30 cases per month of tequila - 50 percent to 60 percent of the restaurants' total liquor sales.

In the last decade more 100 percent agave tequilas, the best and most costly, have found their way into bars and stores north of the border. Restaurateurs have created varied tequila lists for their customers, both for sipping like a brandy or for mixed drinks.

The Flying V at Loews Ventana Canyon Resort, for example, serves about 40 types of tequila, some of which cost $10 to $18 a shot glass, said Andrew Gonzalez, a Flying V bartender who lived in the heart of tequila-producing Jalisco state as a child.

But both the Flying V and El Charro have lost boutique brands from their tequila lists in the past couple of years as smaller firms have gone out of business. El Charro used to feature 120 tequilas, but has settled on 50 to 60, depending on availability and price.

To ensure that Mexico keeps producing such distinctive tequilas, El Charro's Flores said, the country must enforce the laws that protect it. Just as champagne is made only from grapes grown in a certain portion of France, tequila is produced in a few regions of Mexico, particularly in the rich volcanic soil of Jalisco, where the town of Tequila is located.

"As long as Mexico remains strict on how they distribute that classification there shouldn't be too much of a problem with tequila itself," Flores said.

Small producers also recognize that they must adapt to a marketplace where big brands dominate.

The best hope for helping the tequila industry retain its Mexican identity is tequila aficionados, said Gonzalez, of the Flying V.

"Consumers have been educated," he said. "They realize there is more than Cuervo Gold out there. And much like a nice scotch or cognac, they'll pay the price. They've decided tequila is their drink."

* Reporter Paola Banchero recently returned from an assignment in Mexico. Contact her at 573-4237 or at banchero@azstarnet.com.

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What is this drink called tequila?

• Tradition - backed up by the law - means Mexico's quintessential drink should be tomorrow what it has been throughout many yesterdays.
• To be designated tequila, a beverage must contain at least 51 percent alcohol derived from Agave Tequilana Weber Azul, or blue agave. Tequilas made of 100 percent blue agave will say so on the label.
• When tequila has a mix of agave and other sugars, it is known as mixto.
• Agave for tequila must be grown in a designated region, encompassing Jalisco and parts of the states of Nayarit, Guanajuato, Tamaulipas and Michoacan.
• Mexico has a Denomination of Origin law to protect the integrity of tequila, just as France has a law to protect champagne and cognac and Spain does to protect sherry. The law establishes the specifications required to produce, bottle, distribute and sell tequila.

Know your tequila

• On the tequila label, words for color and age have distinct, detailed meanings.
• Gold (oro, joven, abocado, suave): Unaged mixto tequila, often called abocado. Often, coloring agents or flavorings are added.
• Aged (añejo): Tequila aged for at least one year. Añejos may be aged between three and seven years, but generally no more than five.
• White (blanco) : Tequila bottled fresh from the still. May be allowed to rest in stainless steel tanks for up to sixty days before bottling, but never has exposure to wooden barrels. Also known as plata, plato and silver tequila.
• Rested (reposado): Tequila that has aged from two to 12 months in oak barrels. The resting mellows and refines the tequila.
Source: The Tequila Regulatory Council (Consejo Regulador del Tequila) and the Mexican Academy of Tequila

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Link/URL... http://dailynews.yahoo.com/h/azstar/20020706/lo/british_tequila_1.html

Very interesting. I was once in the liquor business and could see the consoladation going on at all levels. Most of the major vineyards here in California are now owned by large corporations that usually have a variety of labels at different price ranges.

Diageo, the company that you mention various times, is also the owner of the Johnny Walker brand along with a list of well known names that virtually dominate the middle and high end market. They are European based.

The one area that has seen a real growth in botique names has remained the beer market. While they only make up a fraction of the total output and sales they do offer a viable alternative to the bland and boring major labels such as Bud, Miller, and Coors.