Over the past five years, volume consumption of tequila in the US, the world’s leading tequila consumption market by some margin, grew by more than 40%. IWSR anlaysts expect tequila to continue to perform strongly.
Tequila’s momentum has held through the pandemic, especially in the US. Although tequila skews towards the on-premise more than other spirits categories, it has been able to mitigate on-premise losses due to several key factors:
1- Tequila has been a staple amongst consumers replicating their favourite cocktails at home. The margarita has long been a top-selling cocktail at bars and restaurants, and is easily replicated at home.
2- The high-end of the category (anejo and other premium sipping tequilas) has seen strong growth and a lot of recent brand launches have positioned themselves in the segment, especially celebrity brand launches. As we continue through the pandemic, there will likely be a certain level of trading down to below-premium brands, especially when used as mixers. However, new upscale tequila brands have continued to enter the market even during the current landscape, so premiumisation will likely continue.
3- Overall, consumers recognise the on-premise price of 4-5 margaritas roughly equates to the price of one ultra-premium bottle (which also has more servings per bottle) and, in many cases, have reallocated the dollars.
Looking ahead, tequila’s future will be shaped by innovation that continues to pique consumer interest. “Over the past five years, 100% blue agave products have exploded as the dominant product attribute consumers seek. Tequila production is regulated, however, so there are limitations. Most brands have focused on developing higher-quality products as well as unique elements in finishing or aging.,” notes Adam Rogers, IWSR Research Director for North America. Innovation examples include a second filtration through the cristalino process, extra age statements, single barrel, bourbon barrel aging, 100% organic offerings, single-estate products and 110-proof offerings. “Keep a look out for premium tequila-based prepared cocktails as the next iteration, as demand for canned cocktails soars,” Rogers advises.
The popularity of tequila has inspired a rise in other agave-based spirits coming from outside Mexico as well. Distillers are increasingly producing agave in markets such as South Africa and the United States. While legally not able to be called tequila, these agave-based spirits hold similar attributes and distillation techniques as tequila, while also offering a locality and craft appeal to consumers. Interest in agave is also driving innovation in other spirits categories, such as agave-based vodka.
Pressure on agave supplies and prices could impact tequila’s growth trajectory. The cyclical “boom and bust” of agave pricing and supply is likely to continue due to the free market conditions with agave farming. However, unlike the beer brewing industry where production in Mexico shuttered during part of the pandemic, tequila production continued farming, reducing the pressure on supplies. It is believed that agave prices reached a high in 2019 to approximately $30 pesos per kilo of blue agave, with prices expected to decrease until the next “boom.”
The momentum of this category will likely catch the eye of multinational brand owners. “Even in instances where suppliers already have a tequila brand, we expect for them to seek to acquire a trade-up alternative to meet consumer demand since premiumisation is occurring so rapidly in the category,” remarks Rogers. The pandemic has seen consumers choose brands they are familiar with – predominantly from large suppliers. This has squeezed smaller independent brands and may make for a more appealing environment for acquisitions.
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