Is It Here Yet? 2013 & Tequila’s Anticipated Down Cycle

Now that 2014 is officially here, it has been a full year since I embarked on tracking the official tequila brand list published by the Consejo Regulador del Tequila (CRT) – the agency that oversees tequila. If you read my post a year ago, you remember that the impetus for this year-long project was the general idea that 2013 might be the year that a number of brands start disappearing due to an expected agave shortage resulting in significantly higher agave prices.

The official brand list, or as it has become known in many tequila circles, the NOM list, is published by the CRT on an irregular basis – usually two or three times a month – and includes all of the brands currently registered and legally able to produce tequila. The list also includes the entity, in this case the distillery, responsible for producing the brand. Every tequila bottle is required to have the NOM number listed on it. In most cases, this means that the bottle was actually produced at the designated facility, but that is not always true. It’s not uncommon for high-production brands to outsource to other distilleries under the “oversight” of the registered producer. There have also been instances where brands have petitioned the CRT to allow bottles to go to market with the wrong NOM listed due to various circumstances.

It’s also good to remember that just because a brand is on the list does not mean that tequila is being made under that label. There are more than a few on the list that have either never been produced or have not been made in years.

At the end of the day, the CRT list is not perfect, but it does act as a quick and easy reference to which brands are currently registered and where. Industry news, rumors and speculation often make the rounds in public before showing up on the spreadsheet, in which case it becomes the place to help validate a story.

The idea behind my tracking of this list was two-fold – to see if it would provide any indications of the overall health of the industry based solely upon the number of brands being added to or disappearing from the list – and second, to get an accurate accounting of the changes made throughout the year.

With all of that as a background, let me provide a number of brand statistics from 2013, as well as this disclaimer – by no means am I claiming that my numbers are perfect or 100% accurate, but I believe they are accurate enough for the purposes of this post. To be clear, brands come and go regardless of the market cycle. They get bought. They go out of business or simply no longer want to be in the business. They disappear, only to return weeks, months or sometimes years later. This is nothing new or out of the ordinary.

Based on the list released on January 7, 2013, the year started with 1,293 brands. Of those, 14 were listed twice (11 of which were listed at multiple distilleries). That equates to 1,279 individually registered brand names.

One year later, almost to the day, the January 6, 2014 list shows a total of 1,380 brands, of which there are 30 duplicates (10 listed at multiple distilleries, 3 at distilleries that had duplicate entries and 17 that were listed twice at the same distillery). This gives us an actual total of 1,350 registered brand names.

Simple math would suggest that the industry added 71 brands over the last year. However, that would be incorrect. A large number of brands also were removed from the list, some to return weeks or months later, and others not to return at all. In all, there were over 500 changes made to the official spreadsheet throughout the past year. While the net increase in brands was the aforementioned 71, the actual number of new brands by my count was 155. Some of the new entries had caveats, which I tried to list and footnote with each entry.

Among the other numbers… 222 brands were removed from the list, sometimes the same one multiple times, and 126 brands were returned to it, as previously noted, sometimes a week later, sometimes over a year later. Some 24 brands changed distilleries over the last year.

So what does this all mean? Does this give us any clues or indications about the industry? Is it really in a state of decline? Based upon these numbers, you’d really never know it. The 155 new brands – roughly 3 a week – would suggest that tequila is still in a growth cycle. On the surface, the opening of new markets in Asia and the continued consumer growth of 100% Blue Weber Agave tequilas would suggest the industry itself is as strong as ever, and to a certain degree that would be accurate. The real question is whether the industry can continue to consistently make and deliver quality tequila to meet the current demand, let alone support additional growth.

The primary concern going into 2013 was about a looming agave shortage that would result in a dramatic price increase. Open market agave pricing at the beginning of 2013 was around $2.8 pesos per kilogram delivered at the distillery. By the end of the year, it had reached around $5.5 pesos per kilogram, with the prices going up to $6.0 pesos if the piñas had more sugar concentration. As one can see, the prices have basically doubled over the last year, which would certainly support the idea that the demand is starting to outpace the agave supply.

This recent rise in prices might seem surprising after numerous reports of fields that have been left to rot because the agave prices were so low it was not worth the cost to harvest the fields. Others believe that both the rotting agave as well as a general change in the actual flavor of many tequilas, is due to the years of the agave plant being genetically duplicated instead of allowing it to reproduce naturally, thereby making it much more susceptible to disease and pests. More than likely it is a combination of all of these things and more, including government subsidies to farmers to help try to control the cost of agave.

Ultimately, the brands and distilleries that own their own fields will not see as much of an impact on their products as those brands that must either buy on the open market, or pay the distillery they are contracted with that also owns and uses its own agave fields to source from. The smart brands appear for the moment to be those that have contracted fields two to three years out and are locking in rates at current pricing.

Distilleries also took advantage of the formerly cheap agave to “fill and hold”, cranking out as much blanco tequila as their storage tanks and barrel rooms could hold, partially as a hedge against the potential agave shortage and partially to be able to sell to buyers looking to create a brand. With all of the tequila that has been made in the last 18 months, there should be no shortage of tequila itself, but the prices we are use to paying for some brands will likely be going up and we will continue to see the occasional new brand that prices itself significantly higher than the juice inside the bottle is worth.

Ultimately, 2013 was not the year that sent the agave reaper through the brands to let them know their time was up. That does not mean it’s not going to happen though, as there are enough signs that 2014 – or even 2015 – may be the year of reduction. Keep in mind that already in 2014, Justin Timberlake’s 901 brand has been sold to Sauza; Beam Global has announced its intentions to sell to Japanese-based Suntory; and Diageo has made a couple of acquisitions to fill in the hole that Cuervo left after a failed buyout, partnering with Diddy for premium brand DeLeon and purchasing Peligroso. The split with Diageo means that Cuervo, the largest tequila producer, remains 100% Mexican-owned, but how long that will be the case is unknown. Beam, Brown-Forman, Pernod-Ricard and Bacardi all have significant investments in the category while the smaller family owned independent brands and distilleries continue to gain market share due to the slow but continuous education about quality tequila to the consuming market, combating the age-old negative reputation that the spirit has carried for so long.

Regardless as to what all of this really means, as consumers we will continue to want a fair price for a quality product. Those of us who have a passion for tequila will always look deeper and want to know more. I hope that the posts and updates over the past year have been helpful to those that also share my passion. I plan to continue posting the comings and goings of the brands throughout 2014, which will allow us to start comparing year-over-year results and maybe start to recognize some additional trends. Until then, pour a glass of your favorite brand, sit back and enjoy that fine spirit!

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9 Responses to Is It Here Yet? 2013 & Tequila’s Anticipated Down Cycle

  1. Lucinda Hutson says:

    Thrilled to see you writing again…you are a wonderful writer…straight forward and good info. Miss you. Feel like it has been a long time! Congrats to YOU

  2. Jim Lannon says:

    EXTREMELY well written Bob! I enjoyed reading it very much. It was very informative and it paints a much clearer picture regarding the state of the tequila industry as a whole. Nice job! Salud amigo!

  3. Well done Bob. I’m going to link this to my FB and Twitter as well. Spread the knowledge my friend!

  4. What a wonderful write up Bob. You explained the the tequila industry so gracefully and explicitly. You have my curiosity as how the industry changes year to year. Thanks for sharing!

  5. Lamar Romero says:

    Well done my friend! I especially like the way you discussed the commodity prices of agave at beginning and end of the year. I think we are going to have to wait for much longer effects on the industry than in the short term. I wouldn’t doubt that by 2020 there will be 10 to 30 percent less brands then there are now…once agave life cycles of 8 – 10 years have time to take effect with the current and last year’s shortages.. Some of those brands will be going out of business and some of that will be consolidation. Keep on writing please Bob. This is some great thought provoking stuff! :)

  6. bajaberger says:

    Hats off to you, Bob, for the interesting and well-structured write-up. I share your passion and try to do my part spreading the word about Tequila. I will link your article to my website (TequilaConnection) and I will look forward to more of your posts down the road. Thanks a bunch for sharing! Cary

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