A few years can make a lot of difference in tequila. And we're not talking about the aging process.
For hundreds of years, tequila was produced in the area around its eponymous Mexican city. It was an old-fashioned drink for old men. The overwhelming majority of it was consumed in Mexico itself, while some was exported.
As late as the Carter administration, it was still possible for an adventurous drinker here in the States to "discover" the rare and exotic drink. And that's exactly what an obscure singer/songwriter named Jimmy Buffett did at a bar in Austin in 1977. Buffett drank a margarita that night, wrote a song about it, and neither he nor tequila were ever the same again. Buffett became a very wealthy entrepreneur, with dozens of restaurants and casinos all tied to the song. And margaritas became the most popular cocktail in America.
Tequila's growth since Buffett wrote his homage to the margarita has been extraordinary. And there's no sign that the liquor is about to lose popularity. Here are the four factors that seem to be driving its growth in the post-Buffett period.
Acquisitions
In 2005, the booze business saw a three-way, multi-continent deal involving Pernod Ricard, Allied Domecq, and Fortune Brands. When the dust settled on the $14 billion deal, it was Fortune Brands, maker of Jim Beam, that wound up owning the Sauza tequila brand.
By 2006, tequila was already the fastest-growing spirit in the United States. That's when Brown-Forman made its move. The owner of Jack Daniels bought Mexico's Grupo Industrial Herradura SA for $876 million, giving it control of both the Herradura and El Jimador brands of tequila.
Those purchases gave tequila access to distribution networks that brought the liquor to the masses in a way the industry had not seen previously.
Those acquisitions also proved to be only the initial purchases in a seemingly never-ending series of deals involving tequila brands.
The most recent such examples were last month when Pernod jumped back into the game by spending $100 million to acquire Tequila Avion, and just days ago, when Constellation Brands purchased Mexico's Casa Noble.
The high end and the low end
A few years ago tequila was tequila. Then the liquor seemed to split into two distinct branches.
First, the Tequila Regulatory Council of Mexico, which oversees standards, decided in 2004 that it would allow the production of flavored tequila. Vodka had seen tremendous success with flavored varieties, and the Council saw no reason why tequila could not do the same.
But as the new, lower-end products spread, not everyone was pleased.
That may be why a sort of counter-trend emerged in which distillers began to produce extraordinarily high-end, and extraordinarily expensive brands of tequila.
These luxury brands have become so successful that each week seems to bring news of someone else entering the market. Most recently, one of the best-known luxury brand makers, Patron, announced it was taking things a step further and producing limited edition "artisanal" brands.
Celebrities
There's something about the high-end tequila business that attracts celebrities. And there's no way of knowing for sure what it is. But a particular type of celebrity seems to think of themselves as tequila entrepreneurs in a way, for example, they wouldn't think of themselves as cognac sellers.
Justin Timberlake teamed with Sauza to create a new premium brand. Sean "Diddy" Combs teamed with rival Diageo to buy the DeLeon brand. George Clooney owns a brand that's as well-known for the Obamacare-fueled battle around it as it is for its taste. Carlos Sanata owns a piece of Casa Noble. Sammy Hagar owns a brand too.
China
It would be easy to assume that given tequila's remarkable growth, it would be time for a pullback of some sort.
But that would be the wrong assumption.
Because China has opened its market to tequila. And by some estimates, growth there is expected to reach 2,400% within five years.
Besides, when and if the market for tequila does become saturated, there's still mezcal.
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