A Close Look at Partida Tequila

FILED JUNE 23, 2011

Dear Client:

We recently spoke with Partida Tequila founder Gary Shansby, who has a long history of brand building that includes Famous Amos Cookies, Mauna Loa Macadamias Nuts, Terra Chips, and Vitamin Water. Here's what he had to say as you, dear reader, are a fly on the wall:

WINE & SPIRITS DAILY: What is new with Tequila Partida?

GARY SHANSBY: Partida is a small, ultra premium brand, but our compounded growth rate is probably above most in the industry. Tequila Partida continues to enjoy substantial growth and great reviews, and we continuously receive increased support from respected influencers. Oprah Winfrey discovered Partida through her friend Puff Daddy. She is an aficionado of tequila, and she has singled out Partida as her favorite brand. Although the recent news hasn't been widely circulated yet, the word is out and we are definitely experiencing an uptake of our business.

WSD: How does it affect your brand when celebrities like Oprah and Puff Daddy are spreading the word?

GARY: It depends on the publicity generated. What we've noticed is that their endorsement does have an impact. Puff Daddy has an impact. Ludacris, the rap star, who likes Partida, has an impact. We're seeing some well known athletes supporting Tequila Partida too, for example Aaron Rodgers, the quarterback for the Super Bowl Champion Green Bay Packers. Another is Xavier Nady, first baseman for the Arizona Diamondbacks. Instead of trying to promote endorsements like some brands do, we prefer to let Partida be "discovered." I think it is more permanent in building brand awareness and trial that way.

WSD: I assume that your target consumer is affluent with discerning tastes. So is it difficult competing in a category where there are other high-end brands?

GARY: Actually our target audience has been changing over the last 7 or 8 years. What's really influencing the premium and ultra-premium market in tequila is a younger generation, which is mostly the 25-40 year olds. Tequila consumption was sparked in the early days by the obvious favor of margaritas, but more recently mixologists around the United States and in some foreign countries are becoming far more like chefs and developing their own cocktails. Tequila in particular, premium 100% blue agave, really does make interesting cocktails. So what we're seeing is the younger consumer more than the older consumer is really gravitating more towards sipping, and not shooting tequila. Some of the lower priced brands are still supporting the 'shooter market.' Tequila Partida discourages shots. I often say we don't pack guns any more. We prefer endorsing the sipping of alcohol in moderation and savoring. So we clearly target the upscale consumer. Our price point is much the same as Patron, which is on the upper end. Like fine wine, consumers prefer the agricultural and heritage differences in the various brands of tequila. Tequila Partida is favored by many mixologists for our smoothness and unique brand characteristics.

The other advantage Partida has is we are a well-balanced brand. When I introduced Partida, which we developed from scratch, I decided we would take a different approach and not go after other spirit categories, such as vodka. We developed our formula and process to be different, and we developed the best and smoothest, authentic heritage tequila we could. As a result we today enjoy a well balanced brand - approximately half in Blanco, and about even in Reposado than Anejo. What we've seen is it's not the Mexican or Hispanic consumer in the United States, but the young adult moving more to cocktails and more towards sipping and savoring premium tequila like a fine wine. Our consumers, more than tequila brands, are moving a Reposado. We've seen a steady uptick in our Reposado depletions each year. It's interesting because other premium brands like Patron and Don Julio continue to really feature their Silver/Blanco offering, while we emphasize all four types of tequila. This seems to resonate well with consumers discovering taste and quality on their own. The mixologists around the country support what we are doing as well.

WSD: Are you happy with your line up or have you thought about entering another spirits category?

GARY: I get that question frequently from executives in the industry. The predominant view today is that single brand companies have a very difficult time being successful. With the consolidation in the industry that has taken place with suppliers and distributors - bigness and power has become important. Large strategic wine and spirit companies, like Diageo, Pernod Ricard, Brown-Forman and Bacardi, have multiple brand offerings across numerous categories and can spread their costs across all their brands. A single brand company like Partida has higher SG&A costs and total operating costs as a percent of sales. I didn't really develop Tequila Partida with size and the ultimate sale of the brand as my focus. I'm in my '70s, and my focus was more on developing a really good brand, having fun, and seeing it grow steadily over time. I've felt that this is the sunset of my career, so Tequila Partida was more about a special quality and marketing challenge to me than a commercial enterprise. Attempting to expand into other spirit categories, at least right now, would be a mistake.

What will likely happen over the next few years, as we enjoy continued success, is we'll get a greater frequency of calls from larger spirit companies. At some point the right strategic partner will come and want a relationship with Tequila Partida. It would most likely be a larger strategic spirits company wanting an interest in or ownership of Tequila Partida. At that point it probably makes sense for Tequila Partida to join the fold with a company capable of taking our brand to a market leadership position. But I don't know when that will occur and I'm not in any particular rush.

WSD: You clearly have a lot of experience with building brands. What advice would you give to a young marketer looking to build a spirits brand?

GARY: My first thought is entrepreneurs like me have the experience and drive to launch, nurture, invest in, and incubate new brands more easily and quickly than larger strategic spirit companies. Once these brands have reached some scale and have been accepted for their superior brand attributes, a larger strategic spirits company can grow the brands to substantial reach, size, and profitability given their strengths. With broader and larger sales organizations, marketing strength, and financial, logistical, and administrative ability, the larger companies can accomplish more sooner than an entrepreneur generally will. So it is important for those who want to be in the spirits industry to understand and accept the realities of the space.

I think the spirits industry is a lot more fun than many others. There are several significant challenges in spirits I advise people to understand and consider. One, the distribution system is very, very different in this industry. The distributor companies have consolidated to the point where most major geographic markets have no more than two powerful distributors. Both of them have literally hundreds of brands, so getting attention in every market is more difficult than the food or cosmetics industry. What I have learned, and we work with Southern Wine & Spirits and Republic National for the most part, is they are really good at what they do. But they also represent some very big suppliers that are very demanding. So getting distributor attention as a small, single brand company attention takes more effort. It requires that the entrepreneur develop their own sales organization as well. This is costly and takes more time to develop than in many other industries.

The second challenge is spirits and wines today takes more time and patience than entrepreneurs are sometimes prepared to endure. If you launch a brand like Vitamin Water or Famous Amos Cookies and you have a good marketing plan and people like it, you can market directly to the consumer much quicker. So when someone comes and tells me 'I'm going to have the next hottest and biggest tequila, and will be a market leader in the next 5 years, my comment is 'you better take a look in this industry because not many people have achieved that.' Grey Goose may have achieved short term success, but Patron, for example, has been in the market approximately 20 years. They have been a remarkable success, but in their first 10 years growth wasn't as fast as it was a few years later. So you need large quantities of tenacity and patience.

The third reason I would add to that is that the consumer, particularly the younger consumer today, is much more demanding of characteristics in products they personally feel are better for them. For example, going back 10 years, you'd hear someone in a bar order a Grey Goose,' and everyone would turn to see who was ordering Grey Goose. That doesn't happen much anymore. Consumers have their own needs, their own likes and dislikes, and a high quality, consistent product meeting those needs is more important today than in the days when people tended to copy each other. So I discourage people in this industry from getting their hopes too high too quickly. If you push brands for quick commercial success, then what is the brands staying power over time? I believe it's better to be discovered with reasonable growth plans, but that can be painful and expensive. Frequently brands that rise too quickly, descend quickly as well. There are very, very few overnight successes!

It is important to take a good, hard look at the category of interest. Dozens jumped into tequila, but how many of those brands in the last 5 years have continued to do well? Very few of them. In the case of the vodka category, Grey Goose caught everyone's attention because of their success, but now vodka is such a big and competitive category that it is very difficult for a new vodka brand to make it.

I believe premium and ultra premium level is the better level to be in. And I think the company that has done the best with this is Pernod Ricard. Pernod Ricard has consistently stated their intentions, and then delivered on their promises. They didn't make mistakes with quick promotions and price discounts during the recession, and they continuously supported their top premium brands with solid marketing.

WSD: In your opinion, how is the spirit environment overall? How is pricing? Are consumers trading up? Are sales good?

GARY: Spirits will have a very resilient growth cycle for a long time. Premium wine enjoyed enormous success over a long period, and now following the 2009 recession, consumers discovered they could enjoy a few glasses rather than full bottles, and they found excellent alternative wines from markets like Australia, New Zealand, Argentina, Chile, even South Africa. In spirits, some categories - tequila is obviously one -will prosper with long sustained growth rates. The growth in the ultra premium category will out pace the other tequila categories. True tested brands, like Tequila Partida, will rise to become market leaders. because our brand is truly unique, and has flavor as an agricultural product - where the characteristics come through. I also believe the importance of the professional mixologist will accelerate. Mixologists are important consumer influencers. I personally think there is a positive, genuine good feeling about spirits.

Discounting and deals appear to be relaxing a bit, and when they do, the focus will be back on quality, consistency, and specific brand characteristics, not pricing and deals. Consumers will drink brands where they can taste the difference they personally prefer. The spirits business will continue healthy growth, and premium brands will clearly out distance the mid-priced and low-priced brands.

Tequila Partida, because of our focus on quality and consistency, will rise to the top 2 or 3 premium brands in the next 5 years. Our growth rate compounded from the date of introduction in 2004, has been over 50% through last year per year, obviously from a small base. This year our depletions are up substantially and reorders from distributors are higher than they've been in the past. This is an indication of two things: one is the market is getting stronger, and secondly more people are discovering Tequila Partida. We are appreciative of our support from our distributors, influencers, and consumers. Our future, and the future for the entire spirits industry, should be bright indeed.

WSD: Thank you for your time.


KAHLUA IS INTRODUCING A NEW Cinnamon Spice line extension, available October 2011. Kahlua flavors grew sales by 6% in the October through December period according to Nielsen scan data.

THE PADDINGTON CORP has completed its merger with Pelican Brands. The new company will be known as Paddington Brands. The company says it has "injected nearly $1 million into the business to expand Napa Smith Beer and Tequila 3 Amigos in multiple markets throughout the US."

Until tomorrow, Megan

"Anxiety is the dizziness of freedom."
Soren Kierkegaard

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