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Two Tequila Billionaires Who Won’t Be Intimidated by Drug Lords

Two Tequila Billionaires Who Won’t Be Intimidated by Drug Lords


Source: Bloomberg

Blake Schmidt

February 5, 2016


The heirs to the family that has run the Jose Cuervo tequila empire for 250 years are mapping plans to transform their dusty Mexican hometown into a ritzy tourist spot, complete with five-star hotels and a cultural center.


In some ways, the marketing appeal of the spot is obvious. The town’s name is, after all, Tequila, and it is here that the liquor was first created in the 16th century out of the blue agave plants that dot Mexico’s central highlands. But there’s just one hitch: A powerful drug cartel operates nearby. Massacres and executions, including the 2013 killing of the state’s top tourism official, aren’t uncommon. Company officials are undaunted; they say the drug lords tend to leave tourists alone and Mexico is a safe destination for travel.


“It is a very long term plan to make a museum, more restaurants, this place where people can build a weekend house — like a Napa Valley,” said Juan Domingo Beckmann, 48, chief executive officer of Casa Cuervo SA, who agreed to a rare interview after his 75-year-old reclusive father, Juan Beckmann Vidal, declined to comment.


Turning a dilapidated area of Mexico into northern California is part of the family’s strategy to extend the Jose Cuervo brand — often seen as a favorite of frat houses everywhere — into a more upscale category. Formidable challenges await, and not only from the drugs lords whose activities prompted the U.S. to warn its citizens last year about traveling around in parts of Jalisco, the state where Tequila is located.


Liquor giants including Diageo plc and celebrity-owners such as P Diddy and George Clooney are already jousting in the booming ultra-premium tequila segment, where bottles can sell for as much as $1,000.


“Ultimately the growth will be in higher-end tequilas,” said Ian Shackleton, an analyst at Nomura International Plc, “and everybody out there is trying to have some sort of premium tequila, so it’s a crowded space.”


Jose Cuervo, the world’s biggest tequila producer, has made the Beckmanns billionaires and among the richest tycoons in Latin America, no small thanks to Americans who have long sipped margaritas and downed shots. They control the business through Becle SA de CV, the holding company that owns Jose Cuervo, according to a report on Cuervo’s website.


Mezcal Wine


Beckmann Vidal, who owns 70 percent of the family business through Becle — a merged company created in a recent corporate restructuring — has a fortune valued at $2.4 billion, according to the Bloomberg Billionaires Index. Domingo Beckmann owns the rest and has a $1 billion fortune.


The family has managed to thrive during centuries of war and revolution. Jose Maria Guadalupe Cuervo won the first license from the King of Spain to produce mezcal wine in 1795. The drink’s main ingredient is the sap of the prehistoric-looking agave plants. One variety of mezcal became known as tequila, named for the small town in a valley about 40 miles west of Guadalajara, Mexico’s second-largest metropolis.


The drink became a staple for soldiers in the independence and Mexican-American wars. Cuervo started exporting to the U.S. after the introduction of above-ground ovens and railroads, setting up the tequila boom at the turn of the 20th century.


Violence Backdrop


While visitors to Tequila reached 230,000 last year, the Beckmann patriarch has long had ambitions to attract 1.5 million tourists a year to Tequila by 2020.


“The more people who visit the distillery, the better for the brand,” the younger Beckmann said. “They see the distillery and everything that Cuervo is about. This helps the brand communicate more with the consumer, to communicate what Cuervo’s about.”


But violence remains a persistent backdrop. A local cartel, Jalisco Nueva Generacion, has grown to become one of Mexico’s most powerful after drug lord Ignacio Coronel Villareal, alias Nacho, left a power vacuum when he was slain.


While drug war coverage has focused on the Sinaloa cartel’s kingpin El Chapo, his prison escapes and rendezvous with Sean Penn, the Jalisco cartel has steadily gained power with the use of extreme violence. The group claimed the 2011 massacre of 35 people in Veracruz, about 500 miles from Tequila, and the killing of at least 15 police officers in an ambush in April of last year.


Grenade Launcher


In May, they shot down a military helicopter with a grenade launcher and set off a wave of violence that included highway blockades with burning trucks. While not singling out Tequila, a U.S. travel alert warns against driving on some Jalisco roadways and bans U.S. officials from using the highways at night.


Visitors to Cuervo’s facilities in Tequila have grown from 18,000 in 2003 to 130,000 in 2014, a sign that cartel violence has not scared off tourists, said Cristobal Mariscal, Jose Cuervo’s legal director. Violence in Jalisco has been concentrated on the fringes of the state, like at the border with neighboring Michoacan state, he said.


“We’re not absolutely exempt, something may happen, but at this stage I don’t see organized crime affecting the area where we operate in Tequila,” he said. “There is no evidence of any decrease in visitors to Tequila.”


The opening in October of the family’s 93-room, five-star Solar de las Animas hotel, designed like a Creole colonial house from 17th-Century Mexico, marked its most visible effort yet to attract high-income tourists.


Tequila Tastings


The company is also planning two more high-end hotels by 2018, a cultural center and more frequent routes of an express train that offers tequila tastings as the Sierra Madre mountains pass by.


The initiative complements the company’s plan to become a bigger presence in the upscale tequila market, known as ultra-premium. Cuervo has long dominated in the so-called premium tequila category — from $20 to $35. Fitch says the Cuervo Especial brand has a two-thirds U.S. market share.


But analysts expect that growth in that segment and lower-end categories will lag the high-priced tequila, which jumped almost 16 percent last year, according to market-research firm Nielsen Holdings Plc.


Cuervo has little presence today in that upscale category after selling its 50 percent stake in its strongest offering, Don Julio, to Diageo in 2014. Cuervo acquired Diageo’s Bushmills Irish whiskey in the deal. The swap followed the collapse of merger negotiations between Jose Cuervo and Diageo.


Mexican Pesos


Domingo Beckmann said the company now is plotting to expand growth of its remaining ultra-premium brands — including Reserva de la Familia and Maestro Dobel.


“The brands are small and it’s where we are weakest, but we believe we have the skills to grow them,” Beckmann said. “We are seeing how we can increase production and grow it more.”


In Tequila, Cuervo’s La Rojena distillery, the oldest in the Americas, is a lab for the family’s high-end branding renewal. Tequila connoisseurs guide visitors through tasting rooms, past brick-built ovens for cooking agave pineapples, and into a cellar once used only by the Cuervo family.


In the dark of the Cuervo bodega in Tequila, guests are offered the good stuff. Reserva de la Familia extra anejo, first released in 1995 for the distillery’s 200-year anniversary, is taken straight from a cognac glass. It goes down oaky, with a hint of vanilla, and is made with 100 percent agave sugars. It’s a long way from popular Jose Cuervo brands like Especial that only contain 51 percent agave sugar. That’s just enough to be legally called tequila.