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Tequila producers take a shot at flavored liqueurs

Flavored whiskeys are hot sellers. Now it is Mexico’s turn to experiment.

The key to a really good tequila is a pepper finish – not a burn, but a little hint of the spice.

But increasingly, tequila-based beverages are introducing new flavor profiles to challenge that formula. In recent years, producers like Patrón, Sauza, and Avión have created tequila liqueurs with flavors like mango, cocoa, and cucumber, expanding a subcategory that could propel the category to new heights. It also hints at a tasty revolution that’s already swept across the vodka category and is currently driving demand for American whiskeys.

Since 2012, Patrón has launched four new tequila liqueurs, including dark cocoa and lime variations. Beam Suntory’s Sauza, which two years ago began to experiment with sparkling margaritas, this summer debuted a cucumber chili tequila. And Pernod Ricard-backed Avión has an espresso variation that founder and chairman Ken Austin didn’t even originally want to make, but which was created to be agave-forward (to ensure the tequila taste remains strong).

Austin calls Avión Espresso the gateway to the brand: “If someone pays $25 for a bottle of Avión Espresso and they say, ‘It is amazing,’ they will be more likely to buy the pricier variations.”

The experimentation comes at a time when the tequila industry already generates $2.1 billion in supplier revenue in the U.S. alone. Among spirits brands, tequila’s growth has recently exceeded the performance of the vodka, rum, and gin categories. Much of that growth has come from higher-priced spirits, which generate better margins and are the core focus for many spirits makers. That trend was recently chronicled in a Fortune feature, “Sipping pretty: Tequila’s global ambitions.”

Debuting tequila flavors can be a less lucrative business strategy, however. Price points are often lower as the liqueurs are made with lower alcohol by volume. But it is hard to ignore the power of the flavor revolution: Roughly one out of every 10 spirits sold in the U.S. are flavored, according to the Distilled Spirits Council of the United States, known as Discus.

Flavors are part of why the whiskey category is performing so well, according to Discus. They help introduce the beverage to new drinkers and often attract more women to a category that has traditionally been male-driven, experts say. The industry sold 2.8 million cases of flavored whiskey in 2014, as honey-based whiskeys and newer cinnamon concoctions flew off shelves.

But too much tinkering can leave a bad aftertaste. For years vodka producers relied on flavored spirits to help bolster the category. Many beverage experts say they got a little too experimental, launching variations like cotton candy, birthday cake, and even a bacon vodka. Consumers have been turned off: Flavored vodkas actually shed volume in 2014.

Tequila makers say they are learning from vodka’s missteps, promising not to stray too far from the natural flavor that comes from the blue agave plant that is the base of all tequilas.

“A lot of brands introduce flavors as a way to treat the symptoms rather than the disease,” says Patrón chief marketing officer Lee Applbaum. “You get a short-term bump in volume but not a long term opportunity.”

Applbaum says Patrón has been more purposeful about how it tackles tequila liqueur experimentation. Patrón introduced two flavored tequilas in 1992, but it took another 20 years before the spirits company launched another variation. Some of Patrón’s liqueurs are meant to be consumed in the form of a shot, or as a mixer for a cocktail.

At Beam Suntory, Claire Richards, senior director of tequilas, says her company focuses on those two “occasions” when it thinks of flavors.

“It is important to us that we use flavors that help with the naturally agave-forward liquid,” Richards says. “We won’t go out and innovate on flavors that don’t fit into that profile.”

Source: Fortune