Tequila With A Rock 'n' Roll Chaser

How Sammy Hagar took Cabo Wabo from a vanity hangout to a $60 million business

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Back when Cabo San Lucas was an overlooked Mexican seaside village, rocker Sammy Hagar would visit and joke that the drunks wobbling down the dirt roads were doing "the Cabo Wabo." Hagar, the former lead singer for Van Halen, admits his early days of tequila drinking weren't pretty either. But in 1982 he tasted the good stuff—premium blanco tequila. "It changed my life. I became a blanco freak," says Hagar.

That enthusiasm led him to open a cantina where he could eat, drink, and play music. "It was just an ego trip," he says. "The town wasn't even big enough to accommodate the idea." But in the late nineties, Cabo became a stop on the cruise-ship circuit. The roads were paved, and Iggy Pop, U2, and Guns N' Roses flew down to the cantina for gigs. Today the Red Rocker is front man for Cabo Wabo Enterprises, a $60 million company in Novato, Calif., with a line of premium tequilas and a chain of tequila bars.

As an entrepreneur, Hagar says he plays by the same rules that brought him fame in the music business. No. 1: follow his gut. "Before I made it as a rocker, I had a lot of executives tell me what to do to make it, and I never listened to them," he says. "I did it my way."

Hagar and his three fellow band members—Eddie and Alex Van Halen, and Michael Anthony—invested about $400,000 in the first bar. MTV (VIA ) hosted the opening night party in 1992, but after that splash, business slowed to a trickle. "The guys in Van Halen got sick of it," says Hagar. "We lost about $40,000 a year—pocket change to those guys. But they said the place was too hot, there were no telephones, and no TV." Hagar took sole ownership in 1994 and hired a new manager to run the bar. Then he decided he wanted to produce his own tequila for the cantina's customers.

After sampling offerings at distilleries, Hagar partnered with the Rivera family, which has owned a distillery in Jalisco since 1937. They sent Hagar handmade tequila in jugs, vats, and five-gallon gas cans, and he served it in porcelain bottles with cork stoppers. In 1999, Wilson Daniels, a wine importer in St. Helena, Calif., asked about distributing Cabo Wabo Tequila in the U.S. It sold 37,000 cases the first year. Cabo Wabo President Stephen Kauffman says Cabo sold 140,000 cases last year, making it the country's second-best-selling brand of premium tequila.

U.S. sales of tequila rose 12.5% in 2006, according to ACNielsen Scantrack and LiquorTrack, and companies such as Diageo (DEO ), Seagram, and Allied Domecq (AED ) are introducing high-end labels. In 2006 there were 40 new premium tequilas, compared with 13 in 2004, says Eric Schmidt, manager for information services at Norwalk (Conn.) researchers Adams Beverage Group. "Cabo Wabo has created a great niche," he says. "As far as the affiliation with Hagar and the party atmosphere, they've done very well."

In 2004, Hagar opened a second cantina at Harrah's in Lake Tahoe. A third, in Las Vegas, is scheduled to open in 2008. Hagar is considering opening others in Orlando, Atlantic City, and Fresno, Calif., but fears turning them into a cookie-cutter chain. The 200-employee company has expanded tequila sales into Canada, Australia, and Mexico, and plans a global push. In April, Hagar launched Cabo Uno Añejo Reserva, a $250 limited-edition reserve label.

Hagar works with only a handful of employees, including Kauffman, a liquor industry vet, at Cabo's main office. Marketing is a grassroots effort. In 1999 Hagar wrote the party anthem Más Tequila and mentions the brand in interviews. On tour with his band the Waboritos (he left Van Halen in 1996), he shares the stage with bikini-clad waitresses serving tequila. For now, Hagar is content both to play the party and to host the bar. "I like owning and operating a business," he says. "It's as creative as stepping on stage or making a record."

By Stacy Perman

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