Shock of the new: alcoholic beverage companies learn to accomodate a new generation of consumers. (Special Report).

A middle-aged man walks in to a cantina and orders a beer and a shot of tequila...

This Mexican stereotype fits reality less and less often, according to liquor companies.

Try this: A mixed group of young people walks in to a nightclub and orders a round of fruity alcoholic beverages in designer bottles. Much closer.

Failure to understand this change, say the companies, will mean standing behind the rest, clinging to an out-of-date concept of your customer and inevitably, plummeting sales.

Mexico's expanding younger generation is changing the way companies market and sell alcohol to a population that used to be mostly male and middle aged.

Beer bottles and shot glasses are no longer the only ingredients for a Mexican night out. In order to cater to a new, emerging market, companies are introducing a new type of drink to Mexican drinkers.

Dubbed "Alco-pops" in Europe, the vast variety of ready-made, ready-to-drink, ready-to-go heavily stylized mixed drinks on Mexican supermarket shelves and behind the bars is growing and, at similar prices to a bottle of beer, is aimed at those looking for an alternative to a Corona.

"The product 'Spirit', released just a couple of months ago, was the result of two years of investigation into the best concept, best packaging, best product for the new growing market," says Maria de los Angeles Garcia, director of market intelligence for Casa Pedro Domecq. "It's been very popular among both young men and young women."

Alco-pops come in a variety of flavors and styles, generally cost around $10 pesos a bottle and are as accessible and ready-to-go as a soft drink. Their names and packaging set them apart from everything else in the beverage cooler as they have been designed to attract the younger drinker. The new drinks come with names such as Breezers, Coolers and Spirit, and boast a logo and label that would not look out of place next to a pair of the latest Nike trainers.

They are aimed at a fast food generation, which wants stylized, quick and convenient products that are as different from the parents' favored beverage as possible, say the marketing heads.

"Young people are increasingly independent financially, and like all young people from any generation, are rebellious and want to blaze a trail different from that of their parents," says Arturo Ampudia, vice president for new product marketing at Bacardi. "The new drinks are trying to represent and provide the alternalive for that new culture."

Providing an alternative to the once holy beer/liquor/ wine trinity has been unquestionably successful in the United States and Europe and is likely to strike a similar cord in the target audience in Mexico. As Mexico's young population comes of age and far outstrips the older generation in size and purchasing power, the alcohol companies are making their move now so as not to be left looking outdated.

Providing new products comes hand in hand with moves to repackage the old drinks for a new audience.

A quick glance at Bacardi's web page--animated dancers, listings of clubs and bars around the world backed with an electronic dance music track--shows drink companies are struggling to separate themselves from the image of a rum and coke shared by middle-age couples in a cantina or restaurant.

Bacardi is one of the companies most intent on putting a new spin on old drinks to increase their youth appeal. The "Zu Zu" campaign is a good example. "Zu Zu is the youthful spirit of our product," explains Rodolfo Maldonado, Bacardi's marketing vice president for original products. Anyone would be forgiven for believing that Zu Zu was in itself a new product rather than a new way of selling white rum.

NEW IMAGE

Changing demographics and drinking habits can be no better illustrated than the rise of tequila.

Not so long ago Mexico's most famous alcoholic beverage was generally consumed by a limited social group at certain times of the year. Tequila was popular only on Mexican national holidays and almost exclusively among men. Each September 16, May 5 and any other days deemed appropriate to wave the flag, tequila would be consumed in large quantities.

Throughout the rest of the year Mexicans would leave this, for many hard to swallow, national symbol, and return to the more generally accepted drinks -- whisky, rum, vodka, Cognac and beer, along with wines from around the world. Tequila was for the lower classes, and woe betides any social climber who tried to serve such a lowly beverage at a social occasion that was not a national holiday.

In the early 1990s, all this began to change. An almost overly successful marketing campaign elevated tequila to a drink for connoisseurs, consumption all but doubled worldwide and nationally, and no self respecting Mexican would be caught without a bottle to offer his or her guests.

The changing roles of women in Mexican society and the rising number of young drinkers played its part.

"During the mid-nineties, and especially due to the economic crisis of that period, the traditional role of men in Mexico lost a lot of strength and women and young people began to have more of a say," says Maldonado. "As these groups' acquisition power rose, so drinking habits changed and what was once wholly a realm for men, became shared by women and young people too."

While this affected the industry across the board, the tequila industry felt the change most markedly.

"The introduction of tequila as a mixer drink, with grapefruit soda for example, helped introduce it to groups that would not normally drink straight shots as it had been consumed, almost exclusively, before," says Garcia from Pedro Domecq.

Producers were completely unprepared for the level of increased consumption in tequila. The raw material for the drink, the blue agave cactus, takes years to grow and as demand grew exponentially supply began to run low. The market had changed seemingly over night and the big alcoholic beverage companies were left struggling to accommodate for the new range of consumers and the new levels of demand.

Garcia believes that if the agave supply had been adequate, tequila's popularity would still be growing today. However, as prices have risen, the demand began to level off a couple of years ago and has barely grown since.

"In two or three years when the suppliers catch up I expect the tequila prices to start dropping once again, says Bacardi's Ampudia.

Until prices begin to drop, some companies are producing well-known tequila brands with less than 100% agave as a prime ingredient--usually 51%--and this helps keep the standard tequilas economically accessible.

In order to go one way or another, Pedro Domecq decided to change their tequila strategy and go for small and expensive rather than trying to cater to the mass market.

Domecq's once famous Sauza brand, instead of being reduced to less than 100% agave was simply dropped from the company's brand list.

"We discontinued certain of the lower level price brands in exchange for the higher quality brands, even though this meant sacrificing sales of the cheaper tequilas. We practically cut almost 40% of our tequila volume and instead concentrated on the better labels," says Garcia.

As the tequila market polarized around the 100% and 51% brands, the country's drinkers began to return to previously favored drinks to back up the obligatory bottle of national pride.

A FULL CIRCLE

Ironically, drinks that were once favored to give an element of class and international flavor to any Mexican party, began to creep back to popularity not because of their exclusiveness, but because they were rapidly becoming the cheaper option. Imported whiskies, rums, vodkas, brandies and wines not only feed "malinchista" tendencies but also are easier on the pocket than an original Mexican beverage.

Prices for Mexican drinks, apart from the agave shortage, are higher due to high production tax and lack of government support for the industry, says Garcia.

"Domestic production tax on Mexican products, after this year's fiscal changes, is between 50% and 55%, which is very high and rising," she explains. "Imported alcohol on the other hand receives tax breaks due to the different free trade agreements we have with other economic blocks such as Europe, making taxes on imported alcohol very low and thus imported alcohol very cheap."

Add to this across-the-board subsidies enjoyed by wine and spirit producers in Europe and centuries-old infrastructural systems and it becomes obvious why Mexico is having trouble keeping up.

"In Europe wine producers have equipment that is either traditional or handed down for generations or they are subsidized for new equipment," says Mark Hojel, general director of the Monte Xanic wine company. "In Mexico wine producers have none of these luxuries. They must pay full tariffs on the equipment and in many cases are taxed for importing specialized equipment."

A bottle of Monte Xanic cashes in at over 200 pesos while a bottle of decent Spanish or French wine can cost 100 pesos or less.

Companies and their representatives, through industry associations, are busy lobbying the government for lower taxes or for the government to provide some aid to the struggling producers.

However, many of the larger companies are applying the old adage "if you can't beat them, join them," by simply becoming importers of exactly the same alcoholic beverages with which they complain they cannot compete. Alternatively, like Casa Madero, the oldest winery in Latin America, they avoid Mexican consumer tax completely by exporting over 95% of their wines.

For Mexican drinks made and bought in Mexico, a certain trend is beginning to emerge as companies seek to find a niche for their products. Companies such as Monte Xanic and Pedro Domecq are adopting a strategy that is well known among certain brands and was immortalized in a nineties commercial for a pilsner beer-- "A Beer that is Reassuringly Expensive!" it boasted.

Monte Xanic follows this path with low production and an expensive product. Special brands of tequila are also usually the priciest product on any drinks table. Reassuringly so, the companies tell us.

This particular marketing strategy, however, leaves out a great section of the population, which simply cannot afford to pay upwards of 100 pesos for a bottle of tequila, let alone the 100% agave bottles, which rarely cost less than 200 pesos. The wide line between the wealthy and "not so" wealthy in Mexico has, as with so many other markets, produced a thriving and, arguably unstoppable, black market.

"BLACK" LABEL

Like all informal markets in Mexico, the low price alcohol market is widespread, has a damaging effect on the formal sector, and is often illegal.

The Alcohol and Wine Commission is cautious about pinning down the true extent of the black market in Mexico but guesses that around half of all Mexican drinkers are probably drinking liquor produced through the informal market.

It is a tricky path defining which alcohol is in this category. The big companies would insist if the liquor you are drinking is of an unknown brand, then it is from the black market.

When one thinks of informal market liquor, one immediately thinks of "bootleg" liquor--made in a hidden basement distillery, of who knows what grade, to be sold to drunkards who would down a bottle of medical alcohol if it were the only option available. While this type of bootleg alcohol does exist, it is only a small part of the market. In fact, you can find very cheap, generic booze in not only open informal markets such as Mexico City's infamous Tepito neighborhood but also on supermarket shelves, in nightclubs, restaurants and in all kinds of bars.

Aguardiente, as it is often known, comes in many forms and is made from any number of ingredients with one of the most common being sugar cane, but ingredients can be any type of fruits, vegetables, or cactus pulp. Prices for a liter are as varied as the ingredients but rarely climb above 25 pesos.

A closer look at any of the bottles of this type of liquor shows that, most of the time, the exact ingredients are clearly advertised. Indeed, many of these bottles display all the required norms. Often, they are produced by a fully registered company with names and addresses on the label, taxes have been paid, original labels are clearly displayed and alcohol content is present and correct.

SO WHAT IS THE COMPLAINT?

"Free bars in Mexico, or indeed many establishments which serve mixed drinks, do so using these products," explains Garcia. "If people knew that the rum in their Cubas was sugar cane alcohol, maybe they wouldn't

drink in these places."

Maybe this is true, but failing to advertise the type of alcohol in a "free" drink is still not a crime.

The problem arises when the thousands of alcoholic products on the market are individually scrutinized. Does the bottle look familiar? It may be a refilled bottle that once held Jose Cuervo. Has the tax been paid? Not always. Is the drink 38% alcohol or 35%? To know that, the government would have to send uncorrupt inspectors to every distillery in the country.

Such wide-ranging inspecting and drastically increased regulation is simply never going to happen in Mexico and the companies know it.

Instead, the big companies have introduced their own methods of weeding out whatever illegal competition there is.

"We have the slow-pour tops, which help to stop refilling, we have increasingly difficult-to-forge holograms stuck across the label, which makes it difficult to remove the label, and we try and encourage people to break the bottles when they finish but this is difficult. Broken glass is never a good thing," says Bacardi's Ampudia. "There will always be unfair competition and we are doing what we can to slow it, but at the end of the day, all we can do is produce a superior product and hope people show their preference."

In fact, a certain level of resignation comes from the big companies when they discuss the informal sector. While they wish to make it harder to blatantly rip-off their products, they know that a large portion of Mexico will be unable to pay their prices in the foreseeable future.

RELATED ARTICLE: Characteristics of the Mexican Wine and Liquor Industry

* Contribution to National Economy

US$l.5 billion a year

* Net Generation of Foreign Capital

US$482 million in 2000

* Industry employs

9,000 directly and 180,000 indirectly

76% of indirectly employed found within the agricultural sector

* Fiscal Contribution

8 billion pesos a year, 1.4% of total tax revenue

Paul Day is a Mexico City-based freelance writer.