Tequila volume overtakes bourbon and rum in the US – why?

Agave-based spirits are now the third largest spirits category in the US


In 2020 in the US, agave-based spirits surpassed both the rum category by volume, as well US whiskey’s largest subcategory, bourbon. Agave-based spirits grew close to +20% in 2020, and while bourbon’s growth (approximately +10%) was significant, it wasn’t enough to outpace the consumer demand for the agave spirits.

As of 2021, agave-based spirits are the third largest spirits category in the US, behind vodka and whisky. Agave spirits are set to continue on their growth path, fuelled by a mix of drivers, including authenticity, product diversity and consumer engagement.

A host of headline-grabbing celebrity launches have only served to boost awareness of Tequila and mezcal still further. Famous names from actor and ex-wrestler Dwayne ‘The Rock’ Johnson (Teremana Tequila) to actress/social media star Kendall Jenner (818 Tequila) are aiming to emulate the success of Casamigos, the high-end Tequila brand co-founded by George Clooney and sold to Diageo for up to US$1bn in 2017.

The versatility and diversity of the category are equally important to its ongoing success, with products from RTDs and flavoured Tequilas to high-end cristalino and single barrel bottlings meeting a wide range of consumer needs and occasions.

US consumption of Tequila alone has risen by more than 30% between 2015 and 2020, with premium-and-above products up by over 60%. Tequila’s ultra-premium segment has the highest rates of forecast growth, with the IWSR predicting a 2019-24 CAGR of over +14% in both volume and value.

“Multiple factors are driving growth for agave spirits, but the main trends impacting the category include increasing household penetration through celebrities, extending consumption occasions through ready-to-drink (RTD) products, as well as new and exciting flavoured products entering the market,” says IWSR research director Adam Rogers.

“Celebrity-owned and endorsed Tequila brands have benefited the category by simply making it more familiar to consumers. Their vast social media networks allow them to be real-time influencers for the brand, while allowing them to interact with their consumers and followers.”

Diversified product ranges

As well as the established core range of Tequila expressions – blanco, reposado, añejo and extra-añejo – brand owners have diversified and created a vast range of spin-off products, from entry-level RTDs to luxury single barrel bottlings and innovative cask finishes. Cristalino Tequilas – aged products made clear by filtration – provide an additional point of interest at the luxury end of the market and are growing fast from a small base.

Meanwhile, flavoured Tequilas have become increasingly varied as producers move beyond the established influences of coconut and cinnamon into cocktail-enhancing flavours such as pineapple, lime, chilli pepper and mango. “Flavours in general is a trending topic among all beverage alcohol, and it is especially apparent in the Tequila category,” says Rogers.

And Tequila-based RTDs – which the IWSR predicts will grow at a volume CAGR of over +30% in the US between 2019 and 2024 – have expanded to include newer combinations such as the Paloma and Ranch Water, alongside the ever popular Margarita. “As the demand for these cocktails has persisted, consumption of the spirit neat and/or on the rocks has increased significantly, creating an additional consumption occasion for the category,” points out Rogers.

Flavoured and RTD products – like flavoured Bourbons in the early years of the American whiskey revival – are powerful recruitment tools to draw consumers into the Tequila and mezcal categories, leaving them free to explore other allied products and to trade up to higher-priced expressions.

Wide consumer appeal across demographics

There is growing demand for Tequila brands that showcase an age statement on their packaging, enticing consumers to migrate across from the rival whisky categories, notes Rogers. “The agave-based spirits category has multiple segments within it, at high and low price-points, allowing consumers to remain in the category while trying a plethora of products.

“Consumer options range from spicy Tequilas, to single estate blanco expressions, sessionable RTDs and 10-year age statements aged in Bourbon barrels – to name only a few.”

This breadth is reflected in the demographics of agave spirits consumers: an almost equal split between men and women, and with a balanced age range: 46% of agave spirits consumers are aged 25-44, and 34% are aged 45-64.

The consumer appeal of agave spirits is also partly based on the fact that they are overtly plant-based, and are seen as being a “clean” and “light” spirit, creating a “better for me” perception among consumers.

Strong heritage and brand stories

Agave spirits’ Mexican origin also has a clear cultural appeal, encompassing its often artisanal production methods and back-story – all of which tap into the consumer desire for authenticity, and encourage the premiumisation of the category.

“These days, consumers and bartenders in the US genuinely understand and appreciate Tequila, especially 100% agave Tequilas,” says Chris Moran, founder and CEO of Ghost Tequila, a fast-growing spicy Tequila.

“Now that people increasingly recognise and enjoy the different nuances of this spirit, that has opened the door to interest in craft Tequila – just like we’re seeing with craft gin, craft vodka and craft whiskey.”

Premiumisation and knock-on effects

Tequila’s success has a positive knock-on effect on mezcal, which is pursuing an even sharper growth trajectory, but off a much smaller base. Mezcal’s 2016-20 CAGR of close to +30% is 2.5 times that of Tequila, but its volumes remain tiny by comparison, and will likely continue to be so.

“Mezcal has definitely benefited from the popularity and success of Tequila, in very similar ways to rye whiskey on the back of Bourbon,” says John Rexer, founder of Ilegal Mezcal, in which Bacardi owns a minority stake.

“There’s plenty of opportunity for the continued growth of both categories. We see consumer interest in mezcal and in premium agave spirits continuing to expand in the coming years.”

The only potentially significant negative factor for producers is the fluctuation in agave prices, exacerbated by the fact that the plants can take a decade or more to mature.

Rogers reports that agave prices for Tequila recently hit a high of MXN32 per kilogram, up from MXN4/kg in 2016. “This creates a potential risk for the category, since growers are faced with the dilemma of waiting another year to produce an añejo of high demand, or get a quicker return on their investment by focusing on a blanco and/or slightly aged reposado,” notes Rogers.

“This impacts the highest end of the Tequila category – extra-aged and añejo – which will become either higher in price or harder to obtain.”

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