Cuenca distillers challenged by lower-priced European liquor imports

Although the new trade agreement with the European Union is good news for Ecuadorian consumers, it presents a big challenge for Ecuador’s liquor producers. Nowhere is the challenge greater than in Cuenca, the center of the country’s distilling industry.

An ad for Zhumir’s popular bourbon and spiced rum blend.

The city’s largest liquor producers, Embotelladora Azuaya, Licores San Miguel S.A. Licmiguel, Azenda, Tuscany, and La Quinta, produce whiskey, gin, vodka, tequila, bourbon, refined cane liquor, a variety of liquor blends and brandies, as well as ready-made mixed alcoholic beverages.

The full impact of lower prices on imported liquor won’t be felt until the second half of the year, according to Jorge Talbot, manager of Embotelladora Azuaya, the country’s biggest liquor producer and bottler. “The prices for imports are dropping more slowly than predicted, which gives us a little more time to adjust” he says. “Distributors are still selling old stock and until this stock is exhausted, we won’t see the full effect of lower prices. Right now, prices are down between 15% to 35% from last year.” Eventually, he says prices for some European imports could drop by as much as 65% from 2016 levels.

According to Talbot, “Now is the time for Ecuadorian producers to prepare for a new reality. Some bottlers will need to make major changes to survive the new competition.” Although he does not think the competition will affect Embotelladora Azuaya’s major seller, Cristal, a refined sugar cane liquor, it will affect its Black Castle blended whisky and Under gin labels.

Some Cuenca-made liquor labels.

The situation is similar for Azenda, which bottles Zhumir cane liquor, but also Liova vodka and Zhumir 38, a bourbon and spiced-rum blend.

“What we all face is the challenge to diversify and to refocus our marketing,” says Talbot. “Depending on how things develop, there also might be pressure to lower prices.”

According to Gustavo Landívar, president of the Ecuador Association of Industrial Licoreros, there’s an upside to the lower-priced imports. “We are already seeing a large drop in the sale of illegal liquor from Colombia and Peru,” he says. “Last year, sales of illegal imports was more than 60% of all foreign sales in Ecuador. By the end of this year, we predict the percentage will be less than 20%. Eventually, that illegal market will disappear almost entirely, a big boost for legitimate manufacturers and sellers.”

Another benefit of the EU trade agreement for Ecuador’s liquor industry is reduced taxes on liquor shipped into the country in bulk and bottled locally. “This is a big part of the business of several producers,” he said.