Patrón was the first ultra-premium tequila and remains one of the world’s best-selling spirits. Recently, we sat down with Lee Applebaum, the company’s Chief Marketing Officer to discuss Patron’s future and the state of the tequila market.
Lee Applebaum serves as the Global Chief Marketing Officer at Patrón Spirits International, AG, responsible for leading the company’s portfolio of luxury brands, including the world’s number one ultra-premium tequila. He directs all global integrated marketing efforts across creative, media, PR, product development and innovation, and experiential activation in over 100 countries. Much of Lee’s focus at Patrón has been on building world-class digital, social, and mobile assets to better communicate the brands’ rich artisanal production story that is so key to product differentiation in a highly competitive marketplace.
JM: Today ultra-premium tequilas can range over $1,000 per bottle. Beyond the criteria of being 100 percent blue agave, what makes a tequila an ultra-premium one? What’s driving that pricing: raw material source, production process, maturation, brand equity?
LA: There are a number of variables that go into creating an ultra-premium tequila. What makes Patrón ultra-premium is a combination of our raw materials and our meticulous production process. From agave field to bottle, we use the highest-quality ingredients and handcraft our tequila in small batches to ensure consistency and quality. At least 60 hands touch every single bottle of Patrón before it leaves the distillery.
We have long-term contracts established with the families who grow our agave, which help us build meaningful and lasting relationships. Our agave farmers grow and harvest piñas that fit within our Patrón standards, which are far more stringent than the balance of the industry; we pay a market premium for our agave to ensure that we receive the highest quality and quantity necessary to produce an uncompromising tequila. Additionally, we establish a minimum contractual price, ensuring that even when supply exceeds demand, our farmers are always profitable. It’s a more expensive proposition, but the right thing to do for our farmers and for our brand. Of course, we only use 100% Weber Blue agave from the Highlands, and our agave has a specific, unusually high sugar content, in order to be selected for our tequila. The sugar content is a critical component to what provides our distinctly smooth taste. Additionally, we trim the piñas incredibly close to remove any of the materials that impart a bitter flavor. This results in less absolute material to extract juice from, and therefore is more expensive, but unquestionably results in a far superior flavor profile.
There are a number of other factors that drive the price of tequila outside of raw materials. For our core line, we combine the roller-mill method with the ancient tahona-wheel method to crush agave fibers after they’ve been cooked. This process is unique to Patrón and is time-intensive, but essential to obtain our specific house taste profile.
The aging process also increases the cost of tequila. Depending on the types of barrels used, how long the liquid is aged and how many bottles are produced can all drive pricing.
Finally, the packaging can be elevated to make for a truly special collector’s item. For example, our Patrón en Lalique Serie 1 and 2, which were priced at $7,500 each and sold out quickly, not only features spectacular liquid, but are also housed in beautiful French Lalique crystal.
JM: Sustainability has become a key goal of the spirits industry. What is Patrón doing to encourage sustainability in the tequila sector?
LA: We work towards the goal of having a positive impact on our community and the surrounding environments; this includes incorporating elements such as a state-of-the-art water treatment system to reclaim clean water from our tequila production to then reuse in our cooling towers and for cleaning. We also created a natural gas pipeline as a main energy source, which helps reduce CO2 emissions. Our compost center creates about 5,500 tons of fertilizer compost a year from leftover agave fibers; we also take in used agave fibers from neighboring distilleries and turn their agave fibers into fertilizer for them to use as well. All of this at no cost to the distilleries or farmers who use our compost. The output is just as important to us as the tequila itself.
Like sustainability, we have strengthened our impact on the local community through various social responsibility efforts. The local town of Atotonilco el Alto, in which we are located, is the primary source of our distillery team of nearly 1,500 people, and is the heart and soul of our brand. Our team supports and participates in activities such as visiting local orphanages and homes for the elderly, and delivering food from a local food bank.
JM: Patrón was one of the first producers of ultra-premium tequila to develop a mass market. Was Patrón in the right place at the right time, did the company see a need that wasn’t being satisfied or did their marketing create that demand?
LA: When Patrón was created, tequila had a poor reputation as a shot for parties, often consumed with lime, salt and even a worm in the bottom of the glass from time-to-time. We saw an opportunity to showcase tequila for the artisanal, craft spirit it truly is and has been for centuries in Mexico. Moreover, we never did, nor do we today, look to the tequila category to define us. We think about our role in super premium spirits (vodka, gin, rum, Cognac, whisky, etc.) and more broadly as a luxury brand. Consumers don’t divide their discretionary spending that precisely—a dollar for spirits and another for a luxury handbag or watch. It’s all fungible, and we need to fight for share of wallet across all spirits and luxury categories.
It’s an exciting time to be a part of the tequila industry now, as consumers have begun to crave premium liquid and are looking for new and innovative products to try as they learn more about the category, especially in the aged tequila segment where we have a very strong portfolio.
For aged in particular, there is much opportunity to grow and recruit drinkers from other brown spirit categories like whiskey and Cognac. There is also a large potential for growth in the global market as places like the UK and Australia show an increasing interest in the tequila category.
JM: There are now hundreds of premium expressions of tequila in the US market. Half a dozen major brands, however, Patrón, Don Julio, Herradura, Casamigos, among others, control over 85% of that market. Is there room in the ultra-premium marketplace for new entrants or is the easy growth behind us? If you were starting Patrón today what would you do differently?
LA: Over recent years, tequila has become a fast-growing industry, but still only represents one percent of the overall spirits category so there is still much opportunity to grow. The tequila category continues to gain popularity across the globe, but what differentiates standard tequila from ultra-premium tequila are the raw materials and the dedication to a quality production process.
Tequila is one of the fastest-growing spirits categories in the world, and new brands are continuously being introduced. With expanding interest in the category, we thought it would be useful to help consumers search the CRT database to discover the origins of tequila brands, including ours, so we launched an interactive “Know Your NOM” digital tool that allows consumers to trace any bottle of tequila back to the specific tequila producer in Mexico that made it. The platform can be found at www.KnowYourNOM.com.
At Patrón, we only make Patrón, but that’s not the case for other tequila brands. It’s important to note that there are more than 1,700 registered brands of tequila, yet there are only about 140 licensed tequila distilleries in Mexico. Many distilleries share their agave supply and production equipment to make several different tequila brands, and the “Know You Nom” tool serves as an engaging educational tool to allow consumers to cross reference tequila producers and their distilleries by brand, or by NOM number, to search and navigate this information.
Our challenge is to continue to build our brand and raise awareness of the category. What concerns me is that the explosive growth in tequila has led to a great deal of clever marketing and misinformation as opportunistic brands enter the marketplace to harvest short-term gains. There is plenty of room for new and existing brands to grow, but only to the extent we are all committed to doing it the right and responsible way, and with transparency and integrity.
If we were starting Patrón today, I don’t think I’d do a thing differently. That sounds like hubris, but is absolutely true. The brand has always played the long game and never chased fads or compromised on quality. This may mean sacrificing short-term gains for long-term, sustainable brand equity, but it has unquestionably paid off with a 70% market share in the US in super premium tequila. We say “no” far more than “yes” which is key to maintaining the highest, unwavering commitment to our brand’s north star.
JM: Patrón is one of only six tequila producers that still uses a tahona to crush the agave. What does a tahona give you that you can’t get with conventional high-speed roll crushers?
LA: Patrón uniquely uses both a roller mill and tahona wheel to produce our core line of tequila. Our Roca line, however, uses the tahona wheel exclusively. Overall, the flavor profile of our Roca line is more complex with earthy and sweet notes of black pepper, cooked agave and citrus from the 100 percent tahona process, while the core range of Patrón, holds a flavor profile that’s smoother and sweeter. It’s not that one process is better than the other. Rather, it’s that each imparts a very different flavor that suit individual palates and preferences.
While both are crafted from only the highest-quality, 100 percent Weber Blue Agave, each tequila in the Roca Patrón family–Roca Patrón Silver, Roca Patrón Reposado and Roca Patrón Añejo–is traditionally handcrafted at a specific proof, higher than the core line of Patrón tequilas, to create the perfect balance of flavors that are more intense than tequila produced using the roller mill process. Each Roca expression has a unique proof, tested and assigned by our Master Distiller, Francisco Alcaraz. In addition to Roca Patrón, we offer several other products like Gran Patrón Piedra and Smoky, as well as limited edition releases that showcase the tahona method exclusively.
JM: Innovative cask finishing has figured prominently in the development of the ultra-premium tequila market. Tequilas finished in casks that held sweet wines, like sherry and port, are now well-established market niches. What other cask finishes do you see on Patrón’s horizon?
LA: The ability to be innovative is one of the most exciting parts about producing tequila. While we must meet a number of sanctioned regulations to create tequila, there is still much room to create. We are able to experiment with age, casks finishes and more.
Our Gran Patrón line, a portfolio of our most innovative, luxury tequilas, pushes the boundaries of what tequila can be with interesting production techniques and all with incredibly distinct tastes. In the past, Patrón has experimented with unique casks with products like our Gran Patrón Burdeos, which is aged in American and French oak barrels and racked in vintage first-growth Bordeaux barrels. Meticulously aged for more than three years in new American and French oak barrels, Gran Patrón Piedra offers a distinct range of flavors for sophisticated brown spirits drinkers.
We have also innovated with limited-edition releases like the “Patrón x Guillermo del Toro” release. Like Patrón, Guillermo del Toro was born in Jalisco and has a strong tie to the community. This collaboration was truly multi-dimensional, as the product it incorporated two bottles–one liqueur and one tequila–as well as a ritual when opening and enjoying it. The tequila was a remarkable blend of rare Patrón tequilas aged for an average of more than five years in a combination of different new and used oak barrels. Additionally, we have released Patrón Sherry Cask Añejo in Global Travel Retail, which was a massive hit and sold out almost immediately. More sherry cask is currently aging and will be released again soon, which is tremendously exciting.
While not aged, Gran Patrón Smoky is a silver tequila with a perfectly balanced, smoky flavor and Gran Patrón Platinum is triple distilled and oak rested for a smooth and full-bodied flavor.
The trick with tequila is that it doesn’t like to play nice with all barrel types, so as much as we’d love to showcase new and exciting limited editions from a wide array of cask types more regularly, the truth is we pour a lot of tequila out that isn’t up to our standards. We never let commercial needs dictate what meets our quality standards. Patrón will continue to innovate, while keeping quality at the forefront, and tequila fans should expect some exciting, new offerings this year.
JM: Extended aging of tequilas has also been a prominent aspect of the ultra-premium market. Is there a practical limit to how long a tequila can be aged? What does ultra-aging get you in terms of aroma/flavor?
LA: While there is no restriction to how long a tequila can be aged, just as with any spirit, the longer it is sitting in the barrels the more flavor it extracts from the wood and this can overpower the agave. Aging is a meticulous practice that has to be closely monitored, but when done right, barrels can add rich complexities and characteristics to the final product. Keep in mind that the ambient air temperature in our cellars at Hacienda Patrón are materially higher than, say those found in Scotland, and also at a much higher altitude, so a direct comparison on age statements is very misleading. It’s impossible to say what a fair comparative calculation would look like, but suffice it to say tequila ages exponentially faster, and takes on the flavor of the barrels in which it sits more aggressively, so older is not always better.
At Patrón, we celebrate the aging process with a number of expressions, but at the top of the aged end, we have Extra Añejo, which is made from the highest-quality, 100 percent Weber Blue Agave and aged for a minimum of three years in American, French and Hungarian oak barrels. This provides a nuance of flavors and is the perfect liquid to substitute in for a whisky in cocktails. Additionally, from time-to-time, we have some rare barrels that exhibit exceptional characteristics and become limited edition releases. We have released five year and seven year tequilas, which were spectacular and incredibly rare and unusual, and have something coming later this year in incredibly limited quantities that will really redefine the way in which this industry has thought about the aging potential of tequila. But again, we don’t try to age for the sake of it or for marketing or commercial appeal. If our Master Distiller discovers that he has something really spectacular, we will find a market for it. Not the other way around. Ever.
JM: Other than for distinguishing the different aroma/flavor profile of lowland versus highland agave, terroir has not really been a factor in the marketing of ultra-premium tequilas. Does Patrón have any plans for site specific, “grand cru” tequilas in the future? Is Patrón Estate release the beginning of more terroir driven expressions? How is Estate release different from the regular Patrón bottlings?
LA: Sustainability and superior terroir are important to Patrón and our tequila. Because of this, we have an agronomy team that is dedicated specifically to composting and land management efforts. This team helped make it possible to create Patrón Estate, which is created using only 100 percent Weber Blue Agave exclusively harvested and cultivated on the grounds of Hacienda Patrón. This inaugural release is more than a bottle of tequila, it’s a piece of our Hacienda, and we are looking into creating other expressions using our estate agave.
The harvesting of agave is the start of our tequila process and an important one. The location and terrain where our agave is grown is something we will continue to value as an important part of our finished product. I must say, it even surprised us when we first tasted Estate that it had such a distinctive flavor profile unlike anything we had ever produced—and all of this attributable to terroir. So, I think it’s fair to say we have a lot to learn about the impact of terroir on future releases, but only if it really is truly differentiated in a meaningful way and not just marketing propaganda.
JM: What about bottlings of specific barrel selections? Is Lot 221 a barrel selection? Are there more expressions based on barrel selections in the works? What do you look for in a barrel selection to justify a separate bottling?
LA: Patrón Añejo Lot 221 was created from a blend of tequilas aged for more than a year in French, Hungarian, and American oak barrels and had a really unique and beautiful tasting profile when we first discovered it in the barrel room. Patrón Anejo Lot 221 was released in late 2018 and is a travel retail exclusive.
At Patrón we have the Barrel Select Program, where bars, liquor stores and restaurants can purchase their own unique barrel of Patrón tequila. In these cases, buyers visit distilleries and select a single barrel for their own limited and signature product. None are the same, so it’s a one-of-a-kind Patrón for those who choose to purchase.
JM: Tequila has only one percent of the spirits market worldwide. What will it take to grow that market share? A new demographic of drinkers, higher consumption among existing drinkers, new national markets? What do you think is the lowest lying fruit?
LA: To grow market share we need all of the above–a new demographic of drinkers, higher consumption among existing drinkers and new national markets. Tequila is in a different life stage in each market around the world and we are just beginning to see the potential in some of the emerging markets.
Overall, the consumer interest in tequila has grown impressively over the last few years. Since 2002, tequila volumes have grown 140%, an average rate of 6% per year, but to continue to grow, we must first educate our consumers.
In addition to creating delicious and distinct liquid, we aim to be the top choice in education and perfecter of experiences for our consumers. We are constantly looking for new and interactive ways to educate about our history, heritage and unique production process.
Through our Patrón AR + VR experiences we provided consumers with the opportunity to visit the Patrón Hacienda right from their smartphone or Oculus Rift headset. Utilizing these new technologies, we were able to give our drinkers an inside look into how we make our tequila that they otherwise could never experience.
Another example of how we aim to educate through interaction is the “Ask Patrón” feature on smart home devices like Alexa and Google Home, which provides cocktail suggestions, tips, gift recommendations and tequila facts to help perfect drinking experience in-home.
The reality is that most markets outside the US are more like we were 30 years ago—either rife with mis-perceptions of the category (i.e. “Bad tequila story from college days”) or no knowledge at all about the spirit. The great news is that we are uniquely positioned to build both a brand and a category, as we wrote that playbook, and that’s what makes the future so incredibly exciting for our brand and business. Our $5.1 billion sale to Bacardi last year really hinged on the future growth coming from international markets and that’s where their distribution muscle will help us rapidly accelerate our efforts.
JM: What percentage of Patrón’s overall sales are represented by tequila-based cocktails? How has this segment been performing? Is this the inspiration for your “Margarita of the Year” campaign?
LA: It’s hard to say what percentage of consumption comes from cocktails versus traditional shots or neat/rocks serves. The explosive growth of cocktail culture and rise of the career bartender has unquestionably been a key to our success. These men and women rightly now stand alongside some of the most innovative chefs in the world, developing cocktails, often paired with specific cuisine, to enhance the overall dining experience. Just a few years ago, no one would have imagined an Old Fashioned made with Patrón Añejo, for example.
Margaritas continue to be one of the top selling cocktails in the world, and to showcase the talent and versatility that goes into margaritas globally, we created the Margarita of the Year competition to provide a platform for bartenders to showcase their talent, passion and inspiration for this beloved cocktail. Our Margarita of the Year competition, which is happening right now with the winner being announced later this month, kicked off five years ago and continues to be a part of how we celebrate this timeless but versatile recipe year over year. The competition brings together seven to eight bartenders from across the world to create a margarita recipe with Patrón that is inspired by the different flavors and fresh ingredients from where they live.
Outside of the competition, we offer consumers a variety of ways to master the margarita. For example, you can use an Amazon Echo, Echo Show or Google Home, to “ask Patrón” and receive instant tips that will help you shake up the perfect recipe every single time.
JM: Mescal is showing the fastest growth of all the agave based spirits. Is that affecting the taste and aroma profile you look for in tequila? Is Gran Patrón Smoky an attempt to craft a more mescal-like tequila?
LA: While Patrón Tequila looks forward to the future of our industry, we also look back by taking techniques that were used generations ago to reclaim a part tequila’s history. This is exemplified with Gran Patrón Smoky, which uses an ancient cooking process to cook agave, not typically seen in tequila production anymore.
Gran Patrón Smoky is unique from all Patrón tequilas because the Weber Blue Agave is roasted in an earthen pit using mesquite charcoal. Gran Patrón Smoky is a tequila, not a mezcal, and that’s very important to us. The similarity to mezcal is the pit roasting process that results in a smoky flavor, but in every other way, this is very much a tequila.
JM: Cristalino (an aged tequila that has been charcoal filtered to make it clear and shows strong vanilla notes) has been the fastest growing category of tequila in Mexico. Several companies have now released Cristalino tequilas in the US. Is a Patrón Cristalino coming?
LA: We understand that Cristalino is a big trend in markets like Mexico and are keeping an eye on its evolution, but to date we have focused our efforts on educating the consumer on Silver, as well as our aged expressions, as there is still a lot of work to be done in this area. Chasing trends is something we don’t do and runs contrary to our long game philosophy that got us where we are.
JM: Thank you.