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No Siesta for Luxury Tequila Boom This Cinco de Mayo

Friday, 4 May 2012 | 2:23 PM ET

Cinco de Mayo festivities may begin tomorrow, but super-premium tequila producers have plenty of reasons to celebrate year-round.

Patron Tequila
Source: Patron Spirits
Patron Tequila

Last year, revenue rose 11 percent for suppliers of the luxury spirit, outpacing the 5-percent growth for the total tequila category, according to the Distilled Spirits Council.

Drawn by the popularity of the margarita and new higher quality tequilas, consumers are flocking in droves to more expensive products. Since 2003, revenue for the super-premium segment has shot up 357 percent while overall tequila sales have jumped 87 percent.

“To some extent, this tracks what’s happening throughout the various categories of distilled spirits,” said Frank Coleman, the council’s senior vice president of public affairs and communications. “There’s been a steady migration by U.S. consumers. Consumers are trading up — they’re drinking better.”

The Council defines super premium as products that are $34 or more per 750 milliliter bottle. Value offerings are $13 and under. In between are high-end premium tequilas and premium ones.

As tequila makers have shifted toward featuring higher-quality tequilas made with pure agave instead of 51-percent agave offerings, there has been a trend among bars and restaurants toward featuring the spirit more not only in margaritas but also in tasting menus, Coleman said.

The markets leaders, in order of declining sales, are Jose Cuervo, Patron, Sauza, Juarezand 1800, he added.

The most popular Patron product, Patron Silver, retails for around $42.99 per bottle depending on the market, but prices at the company can climb to more than $400 for Gran Patron Burdeos, said Greg Cohen, the company’s director of corporate communications.

“There was a time when people thought, ‘Tequila — that’s only good for shots. That’s only good for margaritas,’” he said. “But bartenders and mixologists and of course consumers have increasingly discovered that tequila is so versatile and you can drink it in so many different cocktails.”

A recent entrant into the super-premium tequila space,Tequila Avion, which gained popularity after being featured on the HBO show “Entourage,” does not have any plans to enter the value category. The brand’s Silver product fetches a roughly $40 price tag.

“For me, I wanted to create the greatest tequila in the world, and you can’t be a low-priced tequila and go to the lengths we go to,” said Ken Austin, the company’s founder.

The company said its distillation process takes about 10-times longer than traditional filtration to increase the product’s smoothness.

On Friday and Saturday, the company will join in the Cinco de Mayo festivities by partnering with Delta Air Lines. The airline is offering complementary Tequila Avion margaritas and chips and salsa to customers flying between the John F. Kennedy, Los Angeles and San Francisco airports.

Avion Tequila
Source: Tequila Avion
Avion Tequila

Austin said his goals when he launched Avion in 2010 were to create an accessible, affordable luxury tequila that was more pleasurable for consumers.

“For me, my goal is to make a tequila my wife could drink and not make the tequila face,” he said.

While Patron and Tequila Avion only offer ultra-premium brands with 100-percent agave, Sauza’s parent company Beamdoes play in the value market. Sauza’s products begin around $10 a bottle.

“When Beam thinks about tequila, we want to offer a tequila at every single price point to suit different consumers,” said Jared Fix, Beam’s vice president and general manager for mixables. “The standard and value price will always be important — consumers really appreciate the high quality and value that you get from our standard tequila. But we do see our focus and our growth coming from our premium offerings.”

Even in the company’s standard tequila category, Fix said he is seeing customers beginning to trade up to higher-end products, such as Beam's Hornitos and El Tesoro brands.

Beam, which reported stronger-than-expected quarterly profiton Thursday, said its growth has been driven in part by Skinnygirl, a lower-calorie brand targeted toward women, that it recently acquired. First launched with the Skinnygirl margarita, the line has since expanded into additional ready-to-serve cocktails, vodkas and wines.

Women cocktail drinkers, inspired partly by shows like “Sex and the City,” helped fuel the rise of what Coleman describes as a “revolution in cocktail culture.”

“For professional women, cocktails became a lifestyle choice,” he said. “That’s now continuing to expand with shows like ‘Mad Men.’ The year of the cocktail has turned into the decade of the cocktail.”

Coleman added that May ranks second behind July in highest tequila consumption. This may just be good enough news for suppliers to break out the margs this weekend.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Katie Little on Twitter @katie_little_.

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