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The Patron Spirits Company Patron Tequila By: Allison Gubitz, Lauren Wray, Cole Canning, and Ben Manses 1

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Page 1: Web viewProduced in Jalisco, Mexico and headquartered in Las Vegas, Nevada, ... SWOT Analysis. Strengths. Patron is more palatable than many other types of tequila

The Patron Spirits Company

Patron Tequila

By: Allison Gubitz, Lauren Wray, Cole Canning, and Ben Manses

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Page 2: Web viewProduced in Jalisco, Mexico and headquartered in Las Vegas, Nevada, ... SWOT Analysis. Strengths. Patron is more palatable than many other types of tequila

1. Executive Summary

The US and Mexico hold the two largest shares of the tequila market; 49.5% an 35.3%

respectfully. The main reason for the popularity of tequila in the US and Mexico is the very

strong party image that tequila holds. The margarita is the most popular cocktail in the US, so it

is obvious why tequila has such a large market (Smith & Tovey, 2010). In the tequila industry

there is a growing desire for 100% blue-agave tequila, which is driving up the market for the

ultra-premium tequila brands (Guerrero, 2010). In 2010 the US market share of ultra-premium

tequila grew form 16% to 40.5%. One aspect that has shifted the industry is the economic

downturn. However, the tequila market has found a way to continue to market their product.

From the economic downturn, there has been a growth in the purchase of pre-mix cocktails to be

consumed at home instead of in the bars (Smith & Tovey, 2010).

John Paul DeJorias and Martin Crowley launched the Patron Spirits Company in 1989.

Over the years, Patron has grown to command 15.2% of the US tequila market share. Like all

tequilas, it is made in Mexico but unlike most tequila, it is consumed mainly in the US. It is an

ultra-premium tequila that is targeted to high-end consumers (Just-Drinks, 2008). Patron says

they are dedicated to producing the best tequila in the world. Patron produces three types of

standard ultra-premium tequilas; blanco, reposado, and anejo. They also produce two types of

Gran Patron tequila. As well, they produce two types of rum and one type of vodka (The Patron

Spirits Company, 2012). Patron spirits is the second most popular brand of tequila and the most

popular brand of ultra-premium tequila (Landi, 2008).

Through successful marketing, Patron tequila has become the best-selling tequila in its

price point around the world (Emerson, 2011). Because Patron is a privately held company, they

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have the ability to keep their marketing efforts in full-force, even when the economy may be in a

downturn (“Talk From the Top”, 2009). With Patron’s sleek look and hand-blown bottles, they

continue their premium façade through the smooth taste of their tequila. Patron features four

tequilas with prices ranging from $45 to $500 a bottle (Smith and Tovey, 2010). Patron’s slogan

of “Patron. Simply Perfect” fits their product of Patron tequila to a tee.

Although Patron is such a powerful company they do have many competitors. Their

direct competitors are other ultra-premium tequilas, notably 1800 and Avion. Their indirect

competitors are Jose Cuervo, Sauza, and vodka products in general. But even with the

competition, Patron has many competitive advantages. For one, there is a growing desire for

100% blue agave tequila. Another advantage is simply the Patron name brand. Patron has done a

very good job over the years of branding their company.

Patron tequila targets a fairly specific group of consumers; males between ages 21-40

whom make more than $40,000 annually (Levere, 2006). However, Patron does not just target to

this specific demographic. Brand manager, Leigh Hofmyer, believes that Patron is consumed by

a huge amount of the US population, in and outside of the target demographic. Patron also has

been noted for targeting the upper-echelon psycho-graphically (Kin, 2010). Consumers tend to

consume the ultra-premium Patron in bars and at restaurants but choose a cheaper tequila choice

at home (Mullman, 2009.)

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2. Industry/Company Overview

Industry Background

The United States is the largest tequila market with a 49.5% share of the global market.

Mexico is a close second with a 35.3% share of the global market. Falling way behind, Germany

has a 1.6% share of the global market. As well, Canada, France, the UK, Japan, Brazil and

Greece all hold under 1% of the global market (Smith & Tovey, 2010).

One reason tequila has such a high market share in the U.S. is that fact that is holds a

very strong party image. The margarita is the most popular cocktail in the U.S., which is a main

reason why tequila has such a high market share in the U.S. Another contributing factor in the

high U.S. share and growth is the growing popularity of white/silver tequila. White spirits are

seen as easier to drink and more mixable (Smith & Tovey, 2010).

Similarly with the U.S., Mexico has a high market share because of the fact that tequila

holds a hard party image. Mexico’s market share grew slightly with the creation of ready-to-

drink cocktail (Smith & Tovey, 2010).

There is a growing momentum in the global tequila market shown by the 4.8% growth in

2011. A major reason for the high growth rate is the restoration of the agave supply (Smith &

Tovey, 2010). Along with the overall tequila growth, there has been a growth in the ultra-

premium categories. Premium tequila’s share of the global category rose from 7% to 12.1% from

2001 to 2010. This growth can mostly be contributed to the U.S. ultra-premium’s share of the

U.S. market, which rose from 16% to 40.5%. Patron’s CEO John McDonnell said, "Clearly

everyone's trying to get into the ultra-premium tequila segment. The good thing is it's bringing

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more people into the category. The low end is declining, and premium to super-premium tequilas

are growing” (Smith & Tovey, 2010).

A trend right now in the tequila market is the desire for 100% blue-agave tequila.

Mexican exports of this tequila increased by 24% from the previous year. In contrast, sales of

cheaper Tequila with less than 100% blue-agave, called mixtos, have slowed down. Exports of

mixto tequilas increased only 5% in the same time period (Guerrero, 2010.) This is another sign

that the ultra-premium segment is growing rapidly.

One aspect that shifted the industry was the global economic downturn in recent years.

But instead of the tequila industry simply going down in sales, they shifted their sales to a new

market. Many marketers began to focus on creating pre-mix cocktails that are consumed at home

rather than new tequila products to be sold to the bars (Smith & Tovey, 2010).

Overall, tequila is becoming a more versatile alcohol. “Tequila is an incredibly flexible

category, with offerings both white and aged, both value and super-premium, to be mixed or shot

or sipped.” Another reason why Tequila is so versatile is its’ usage in ready-to-drink and ready-

to-serve cocktails (Smith & Tovey, 2010).

Traditionally tequila was a cheap spirit that didn’t go down easy.  High-end consumers

typically drank other liquors such as Cognac or Scotch.  In this, the creators of Patron Spirits

realized they had a challenge. They understood that they were selling a product at a unique price

point and a different quality of product than the tequilas that most people were used to.  Since the

brand started distribution, not only have they created a product people were not used to, they also

changed the face of the tequila industry.  Experts believe there has been much refinement within

the tequila market within the last ten years, people are demanding higher quality tequilas and

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sales of Patrons are rising as a result.  Each year, the ultra-premium tequilas took more and more

of the market share away from cheaper mixto tequilas.  

Company Snapshot

John Paul DeJoria and Martin Crowley launched Patron Spirits in 1989 as a line of ultra-

premium tequilas.  Upon its inception, it featured only two tequilas, but has grown to feature a

full line of tequilas including tequila-based liqueurs, as well as Pyrat XO, an ultra-premium rum,

and Ultimat Vodka.  Once a small and exclusive operation, Patron grew to command 15.2% of

United States tequila market share in 2010, second only to Cuervo (Shaken News Daily, 2011).

They are headquartered in Las Vegas, Nevada but all of their tequila is made in the town of

Atotonilco El Alto in Jalisco, Mexico. Bacardi Spirits Co. is a large shareholder in Patron Spirits

as of 2008 (Just-Drinks, 2008)

As a tequila producer, Patron commanded 15.2% of the market share in the U.S. as of

2010.  It is second only to Jose Cuervo, which is owned by Diageo North America. Patron, like

all tequilas, is made in Mexico but unlike many others, it is consumed primarily in the United

States.  It is an ultra-premium spirit, which is targeted to high-end consumers.  Patron’s products

often cost three times or more than market competitors, making it a drink targeted towards the

wealthy, or people who want to drink like they’re wealthy.  They claim in their mission

statement to be the first spirit in this price range to sell over 1 million cases (Just-Drinks, 2008).

In their mission statement, revenue is not mentioned and it seems like they avoid the

financial aspects of their mission by claiming that creating a quality product is all that they care

about. They have a very distinct missions statement. They say they are dedicated to producing

the best tequila in the world. They want to create the finest spirits in every category they

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produce. Patron Spirits also has philanthropic objectives including the rebuilding of New Orleans

as well as supporting a number of charities to help fight world hunger, help children in need of

medical assistance and protecting the environment “At the Patron Spirits Company, we don’t

just produce the world’s highest-quality spirits, we’re also deeply committed to environmental

and philanthropic efforts, and we take great responsibility in ensuring that our products are

enjoyed safely and sensibly” (The Patron Spirits Company, 2012).

All of Patron’s tequilas are made in their distillery in Atotonilco El Alto in the province

of Jalisco, Mexico.  Their distillery is made up of 12 independent distilleries (English, 2011).

Their tequilas are made completely from locally grown agave and fermented in pine barrels. 

Patron Spirits employs between 250 and 1000 employees. The company claims that sixty hands

go into making each individual bottle of their tequila. Patron distributes eleven products in over

100 countries worldwide (Landi, 2008). 

Patron produces three types of standard ultra-premium tequilas; blanco, reposado, and

anejo. Patron also produces two types of Gran Patron tequila and two types of rum. They also

make one type of Ultra-Premium Vodka, Ultimat. Their entire lineup began in 1989 and is

comprised of these 11 distinct products:

1989 - Patron Silver and Patron Anejo

1992 - Reposado & Patron Citronge (an 80 proof orange liqueur used for mixing, marketed as a

choice ingredient in top shelf margaritas)

1992 - Patron XO Cafe (coffee liqueur made with patron tequila) and Patron XO Cafe Dark

Cocoa 

1996 - Pyrat XO Reserve, an Ultra-Premium Carribean rum

1996 - Pyrat Cask 1623, an expensive limited-edition aged dark rum ($300+)

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2004 - Gran Patron Platinum Tequila ($250+)

2007 - Gran Patron Buredos,  Limited-Production Anejo Tequila (4600+)

2007 - Ultimat Vodka, an ultra-premium Polish Vodka (The Patron Spirits Company, 2012).

Patron Spirits is the second most popular brand of tequila, and the most popular brand of

ultra-premium tequila (Landi, 2008). Patron Tequila shows no sign of slowing down, and

demand rises consistently with the increasing demands for quality tequilas.

3. Product Review

Patron Tequila is an ultra-premium-tequila that was developed and introduced in 1989.

Through successful marketing, Patron Tequila became the best-selling tequila in its price point

around the world. Produced in Jalisco, Mexico and headquartered in Las Vegas, Nevada, Patron

Tequila has grown to be one of the most successful in its class and has gone from two employees

to over 1,500 (Emerson, 2011).

Although sold around the world, Patron Tequila has had great success in the United

States. In 2008, the company had a 32.5% increase in sales. Because Patron is a privately-held

company, they have the ability to keep their marketing efforts in full-force, even when the

economy might not be at its best. By not having to answer to shareholders, it allows the company

to make decisions based on their opinions of how and when to market the tequila (“Talk From

the Top”, 2009).

According to John McDonnell, Patron’s Chief Operating Officer, the company is in

constant growth and success. "This calendar year," he says, "we're looking at volumes of around

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1.85m cases globally. That's growth of around 15% to 20% up on last year" (“Talk From the

Top”, 2009).

Coming in second in the tequila market, behind Jose Cuervo, Patron was one of the

innovators in tequila becoming a competitive clear drink; going against the top selling liquor,

vodka (Brandes, p. 22, 2012). Not only has Patron been able to compete with brands such as

Smirnoff and Svedka, they also have been a large competitor for liquors in their price range such

as Cognac and Scotch (Smith & Tovey, 2010).

The United States has been Patron’s greatest market. Out of their 1.77 million cases sold

in 2008, 97% of them were sold in the United States. The goal for Patron is to make these sales

mirrored in countries across the world. McDonnell has seen progress, with sales in the UK up by

60%. The company is also seeing their drink sold in swanky bars and clubs around Ireland and

Scottland (Smith & Tovey, 2010).

With their sleek look and hand-blown bottles, Patron continues their premium façade all

the way through to the smooth taste of their four brands of tequila. There are four tequilas sold

by Patron: Patron Silver, Patron Platinum, Patron Anejo, and Gran Patron Platinum. With prices

ranging from $45 a bottle to $500+, Patron continues to have steady growth even in the

economic crisis (Smith & Tovey, 2010).

Although sales have been profitable and still growing, the economy has had an impact on

the sales of the tequila, however, with only a 3% sale increase in 2008. The company is not

fearful of the economic status based on their belief that people will always spend the extra few

dollars in order to enjoy an ultra-premium drink (Smith, A., Tovey, L, 2010)

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Patron is constantly marketing in order to keep their sales up. Unlike other liquor

companies such as Seagrams, Patron feels that instead of cutting their marketing efforts, they

should increase them. With their slogan, “Patron. Simply Perfect.” the brand continues to

emphasize the quality of their tequila. Even through the tough economic times, Patron has

continued to grow much thanks to their marketing. Patron’s sales increased 5.8% between 2010

and 2011 according to NABCA data (Standness, 2012).

In changing times, the company started a social network club in 2007. The idea was to

create a “gathering place to share ideas, learn about the latest trends and stay in the know about

their favorite spirit” (Brandweek, 2008). By providing questionnaires on their site, it allows for

the marketing team to understand who their member base is and therefore market better and

more specifically to them. The page has proved to be a profitable idea, increasing sales by 45.5%

between 2006 and 2007 (“Patron Feels”, 2008)

4. Competitive Review and Competitive Advantage

Patron Tequila has many direct and indirect competitors. Patron’s obvious direct

competitors are the other ultra-premium tequila brands, such as 1800 and Avion. Their indirect

competitors are broken up into two groups; tequila products and non-tequila products. Their

tequila product competitors are Casa Cuervo and Beam Global (Sauza). Their biggest non-

tequila competitor is vodka products.

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Direct:

1800: They are owned by the Beckman family and distributed in the US by Proximo

Spirits. In 2010 they increased their sales by 17.2%, a good sign that their company is

growing. In 2009, 1800 spent $15 million alone on a TV, print, online and outdoor

advertisement campaign with Michael Imperiloi from “The Sopranos” as it’s centerpiece.

This advertising campaign was aimed directly at Patron (Hein, 2009).

Avion: It was launched in 2010 as a part of the script for HBO’s “Entourage”, and has

grown very quickly from there (Advertising Age, 2012). By the end of 2010 they launched

their product in 12 new states due purely to consumer demand. The company had

originally planned on only launching it in 2 states. From being featured on “Entourage”,

Avion has accumulated a very large following in the two years it has been produced

(Beverage World).

Indirect:

Jose Cuervo: They are the world’s leading tequila house, holding a 29% volume share of

the global market in 2008. Their global volume is growing at a rate of 2-3% a year. In

recent years, the company has launched many new products such as Jose Cuervo Especial

Silver and Cuervo Black in attempt to appeal to a wider audience (Smith & Tovey, 2010).

One way Jose Cuervo has begun to brand themselves is by sponsoring various

events. One particular event was called The 2008 Jose Cuervo Black US Air Guitar

Championships, which they were the title sponsor for. The event is a silly and fun

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competition in which participates show off their instrument-free entertainment piece. This

is a fun competition that is grow very large and helps Jose Cuervo spread their brand name

(Newman, 2008).

One downfall in their advertising recently was their “So smooth, it shatters

expectations” spot. There has been much negative talk about the advertisement; saying the

two words shatter and smooth do not fit together. Ultimately the advertisement was not

successful and did the opposite of what Jose Cuervo planned for it to do (Dolliver, 2010).

Beam Global (Sauza): They are the world’s second largest tequila company, holding

global share of 13.8% in 2008. In recent years, the company has invested in new

campaigns in hopes of increasing their market share (Smith & Tovey, 2010).

One of Sauza’s advertising advantages is the advertisement they launched

featuring a fireman showing you how to mix the perfect Sauza margarita. The

advertisement perfectly features the super-manly spokesmen without over doing the

character. Nudd says, “Nicely written, nicely acted—and without the too-clever visual

tricks that Old Spice knockoffs tend to feature” (2012). This advertisement was a big hit

for Sauza.

Vodka Products: They have become a big competitor against Patron’s white spirits.

One of Patron Tequila’s biggest competitive advantages is the high demand for 100%

blue agave. Mexico’s exports of 100% blue-agave have increased 24% in 2009 (Guerrero, 2010).

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All of Patron’s tequila products are made with 100% blue-agave putting them at the front of the

consumer’s mind right now.

Another competitive advantage for Patron is simply their name. Even if you rarely drink,

it is almost guaranteed that everyone has heard the brand name Patron mentioned on various

occasions. There are various rap songs that mention “Patron Tequila”, some of which are

“Whatever You Like” by T.I. and “In Da Club” by 50 Cent. There is even a popular rap song

called “Patron Tequila” by Paradiso Girls. Patron has done a very good job of branding their

name and spreading it across America.

Patron is almost working on increasing their connections in the social world, in turn

increasing their competitive advantage. Patron launched the “Patron Social Club”, which is

website on which users can post information about food, drinks, nightlife, cars, technology, and

other lifestyle areas. By creating a community-based web destination, they can begin to create

more buzz about their brand and increase the amount of loyal Patron followers (Morrissey,

2007).

5. Consumer Review

Patron owns a very large portion of ultra-premium tequila sales. Among tequila

producers, Patron’s percentage of the market share is 49.7% for bottles of tequila costing more

than $20, and 82.7% of the market for bottles of tequila costing more than $40 (Meyer, 2008).

While Patron is the king of ultra-premium tequilas, it does not own nearly as much of the

ultra-premium white liquor market. Vodka reigns supreme in the world of ultra-premium white

liquors. Patron registers just over 19% of that market. Grey Goose and Ketel One combined own

over 60% of the ultra-premium white liquor market (Meyer, 2008).

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Patron targets a fairly specific group of consumers with much of their sales and

advertising strategies. Males between the ages of 21-40 who make more than $40,000 annually

are the largest targets for the company’s advertisements (Levere, 2006). However, Patron does

not only cater to that demographic, says Brand Manager Leigh Hofmyer. “Demographically, the

brand is consumed by huge cross-section of the country’s population, through race and sex. We

target a higher LSM group, and the rest all tend to follow” (Kin, 2010).

Patron also aims for the upper-echelon psycho-graphically. “Patron consumers tend to be

well-travelled, educated, and trend-setters. They drink Patron because of the image they would

like to be associated with, as well as the quality. The cost also makes it very aspirational, and

Patron sees its brand as an affordable luxury” (Kin, 2010).

Sales of spirits as a whole have experienced a change in consumer behavior with the

decline of the economy. Only the more affluent consumers are able to consistently purchase ultra-

premium liquors. In that regard, Patron has not been able to stand out from the crowd (Mann,

2010).

Consumers tend to buy ultra-premium liquors like Patron when they visit restaurants and

bars. However, for drinking at home, they tend to settle for cheaper brands. “When people are

going out, they'll still buy these aspirational luxury brands,” said John McDonnell, chief

operating officer of Patron Spirits Co. “But in a store, it's a bit different, and you do see the

lower end growing” (Mullman, 2009).

6. SWOT Analysis

Strengths

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Patron is more palatable than many other types of tequila. Cheaper tequilas can be quite

hard to drink.  This is one reason why tequilas were not viewed in good terms for much of

history.  Patron set out to change that. It is also readily available; it can be found in all liquor

stores and full bars.

It is made of 100% Agave, as opposed to more common tequilas. like Jose Cuervp,

which are available as mixtos or 51% agave tequila.

Patron tequila is a favorite in many top-shelf margarita recipes, and for a few extra

dollars, a bartender will make your margarita with Patron in it.

It is a favorite among celebrities and musicians and is mentioned in many songs as well

as seen on TV and in music videos.  It is a drink of choice among the rich and famous, especially rap

artists. A sample from Addiction Research Report in 2011 showed out of 793 songs (across all

different genres), there were 59 mentions of brand named alcohol within 41 songs mentioned brand

names of alcohol, Patron topped the list making up 29% of all mentions of brand named alcohol

(Primack, Nuzzo, Rice, & Sargent, 2011). Because of the massive exposure the brand gets, it is

popular among inexperienced tequila drinkers, and is regarded as a “step up” from cheaper Jose

Cuervo mixtos. It is often the second tequila that young drinkers experiment with.

Weaknesses 

More experienced tequila drinkers do not consider Patron the best tequila for the value. It

is not considered up to bar with traditional ultra-premium tequilas. Many liquor experts dismiss

Patron as an average tequila with good marketing.

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Patron is made mainly for export, meaning the large tequila market of Mexico is almost

completely ignored. Patron is not considered an authentic tequila and is not popular with the people

of Mexico or the people of Mexican heritage living in the United States.

Opportunities

One opportunity for Patron is to expand its distribution centers. While Patron is available

to a large portion of the globe, major markets such as China and Australia have very few

distribution centers. Russia doesn't have any distribution centers at all. These would offer a great

chance to increase international sales.

 Patron remains a popular name in the hip-hop music community; however, it's not part

of many sports or sporting events. Because of this, potential groups of consumers don't think of

Patron very often. The company could increase awareness by sponsoring something such as a

NASCAR driver and car. NASCAR is a sport that is progressively becoming more popular in the

U.S. This offers a fantastic opportunity to get the company name to a large, relatively untapped

audience.

Also, Mixed Martial Arts offers a large and fast-growing market. Patron could sponsor an

Ultimate Fighting Championship event. With Patron corporate headquarters and UFC

Headquarters located in Las Vegas, the two companies seem like a natural fit.

Threats

Patron Tequila’s biggest threat is the current economic state. With the unemployment rate

so high, people are not able to afford the luxuries they once were. Less premium tequilas could

begin to climb in sales over the expensive brands such as Patron. Even though Patron has still

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seen a growth in sales, it is much smaller than they once were seeing. If the economy stays the

same, Patron’s sales increase may continue to drop the next couple of years. Although the

company is still growing, the sales have continued to decrease since around the beginning of the

economic crisis. If this continues, people may begin to choose lower quality tequilas rather than

Patron.

Recommended next steps

After our secondary research, we plan to investigate the reasons behind why consumers

purchase Patron Tequila over other tequila products. We will examine if their reason for drinking

is about the value, their budget, the taste, or the social aspects. We will use primary research

based on interviews, focus groups, and surveys to gain knowledge on why people choose Patron.

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