Jose Cuervo Rises from Decline

People are in love with tequila. For Jose Cuervo, the world’s top tequila producer, however, things didn’t look very bright in the past years.

For about five years in a row, the brand had been seeing a decline in the United States, with some companies letting them go. In 2013, for example, Diageo Plc, a global leader carrying alcoholic beverages, abandoned the deal with the company, even if it meant a loss in annual sales of just below $500 million.

According to Sanford C. Bernstein analyst, Trevor Stirling, ‘It probably makes sense that Diageo walked away. They perceive that all the growth in tequila has been in premium brands. Cuervo isn’t premium.’ Larry Schwartz, the president of Diageo North America, said that its replacement would certainly have to be first-class. He did not name any other brand, but they said they were thinking whether to craft their own premium tequila, or find a partner, or acquire a small but expensive manufacturer.

In 2012, Diageo posted sales of $16.8 billion by carrying products that range from beer to vodka. They had talks about buying the tequila company, which would have cost roughly around $3 billion. The acquisition did not push through, and they no longer distributed it afterwards.

In 2013, another company that parted ways with them is McCann Erickson, the multinational advertising agency network. According to Chris Macdonald, McCann’s New York President, ‘Today we notified our client that we have decided to end our relationship… there are a variety of factors, including financial, that led to our decision and this has not been taken lightly. We want to thank them for the opportunities they have given us over the past two and a half years and wish them well in the future.’ A spokesperson from McCann confirmed the decision, but no comment was further made.

Scott Green, the Chief Marketing officer of Proximo Spirits, the current distributor of Jose Cuervo, said that they will be looking for a new advertising partner to ensure that their business with the manufacturer will grow. They also informed McCann that they will not be giving them the Bushmills business anymore. It is uncertain whether the move is related to the aforementioned issue with the manufacturer.

After years of difficulties however, the first tequila producer in the world is on the rise once more. With Proximo Spirits, their progress is becoming more significant. According to NABCA, during the first several months of last year, the sales was up to about 6% on the 750ml drinks. In IRI channels, it increased to more than 9% during the first 52 weeks.

Moderate growth was achieved by the company’s gold line, since it only had a 1% rise in control states from January to September. The Silver range got to a better start by being able to climb by over 25% in control states during those months. This change is significant, because during the same period in 2014, there was less than 20% raise, which pales in comparison to last year’s development. Regardless of the swell in the Silver range, the Gold line still remains the top profit maker of the tequila leader. In this regard, the marketing efforts of Proximo is currently focused on the Silver line, as you may have noticed with their widespread television ad campaign.

This strategy follows how the distributor handled the situation in of 1800 Tequila, when it handled the group in 2008. If it worked before so there’s not a single reason for it to fail this time. During that time, 1800 enjoyed a steady growth under the supervision of Skyy Spirits, its former marketer. Most of its volume came from its Gold variety as well. It seemed that people always favored the top range.

However, Proximo saw that the Silver range of Patron was on a high, so they decided to focus on the same line from 1800, since it is significantly less expensive than Patron’s. This strategy proved to be correct because from 2008 to 2014, the company left its competitor behind. According to reports from Impact Databank, while the group advanced about 525,000cases, Patron only tacked about 365,000 cases, all in the same period. Currently, the majority of the group’s business can be attributed to their former second line.

1800 is currently a million-case product; however, there is no doubt that the flagship label of Proximo is Cuervo, after the latter was released in 2013 by Diageo North America. This switch has benefited the company in a lot of ways, because when they were still a client of the previous distributor, they were just a part of the top-selling lineups.

Right now there is a tough competition in the alcoholic beverage industry, especially among tequila makers, but this leader won’t seem to be backing down anytime soon.

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