You don’t need to be an agave expert or even an aficionado to know that tequila has been on a roll of late. While there are some concerns regarding the 4.2% drop in tequila production in 2023 – more on this later – the category has been on fire since at least 2017, more than doubling in size over the last six years, according to data from industry body Cámara Nacional de la Industria Tequilera (CNIT).
Coupled with this impressive growth has been a seemingly sustainable premiumisation trend that has seen strong increases in the volumes of the premium, super-premium and super-premium-plus segments since 2019, according to IWSR Drinks Market Analysis. Almost all this remarkable activity has been taking place in North America, particularly in the US and Mexico, which together account for 85% of tequila’s sales worldwide.
“Tequila in the US is a thriving segment of the distilled spirits industry, propelled by consumer demand for high-quality, traditionally crafted 100% agave tequila,” says Espanita Tequila Co president Marina Wilson. “We believe that the growth of premium and high-end premium segments will remain strong in the foreseeable future, but we anticipate luxury segment growth to slow down this year.”
Tequila’s blue agave ‘time bomb’ — all tick and no bang?
Through much of this boom period, there has been considerable discussion about the so-called ‘tequila time bomb,’ referring to the dwindling supply of blue weber agave caused by skyrocketing demand. (By law, tequila may only be made from agave of the blue weber variety.)
Yet the start of the year saw the price of blue weber agave plummet from a record high in August 2022 of MXP32 (US$1.87) per kilogram to MXP5/kg in February this year, leading some to wonder if the anticipated crisis had been badly misforecast.
“Agave supply and its volatility is a consequence of the nature of tequila where, on one hand, consumer demand has boomed in the last five-plus years, yet on the other hand, the time it takes agaves to grow and mature is not immediate,” explains Volcan de mi Tierra global CCO Carlos Pechieu. “Today, there are more than enough agaves planted to supply the demand, [but] questions remain about future demand and the willingness of agave growers to plant agaves at the current price.”
Of course, based on last year’s declines, there is also much speculation that demand will not be so big of an issue, particularly at the high-end.
‘Age of rapid premiumisation in the US appears to be over’
“As economic pressures mount and the novelty of the category wanes, the age of rapid premiumisation for agave in the US appears to be over,” says IWSR Americas president Marten Lodewijks. “Expansion at the top end is slowing, while the decline at the bottom end has turned around into growth.”
However, there is also reason to believe that the 2023 production decrease was more of a blip than a proper trend, argues Agave Road Trip podcast host Lou Bank. Noting that reposado, añejo and extra añejo tequilas require time in the barrel prior to sale — six months for the first, but at least three years for extra añejo — and that these are the sectors that populate premium and super-premium, Bank sees the tailing off of production in 2023 as having been due to brand owners super-charging the barrelling of higher-end tequilas over the previous two years.
“If you look at Consejo Regulador del Tequila (CRT) data, production jumped from 374m litres in 2020 to 527m litres in 2021, a 41% increase,” Bank wrote on news and lifestyle platform InsideHook. “(But) export data for that same period shows growth of 18.2%, [which] suggests the primary driver of production growth from 2020–21 was to fill barrels to make the reposados, añejos and exta añejos for future sales.”
After more moderate production growth in 2022, supply caught up with demand last year, Bank suggests, so rather than indicating a softening of the market, the 2023 dip merely marked a scaling back of production in line with still-developing demand.
‘Still a good bit of upside in global markets’; Canada shows growth
Similarly unconcerned about the recent production decline is Santo Spirits marketing VP Ana Kornegay.
“While demand in North America is slowing, there’s still a good bit of upside in global markets, so we expect a very healthy tequila market globally,” she says. “We believe tequila will continue on the premiumisation trajectory, as consumers have gravitated to premium and super-premium tequilas because they want a guarantee of quality in this category, more so than in others, because everyone still has that memory of drinking poor tequila back in college.”
Although much smaller than the US market, Canada continues to show healthy growth in tequila consumption, according to IWSR market analyst Ryan Lee, with the country posting a six-year (2017-2022) volume CAGR of 17%.
“Consumer interest in agave-based spirits has grown in recent years, driven by younger LDA consumers,” says Lee. “Celebrity endorsements have helped pull in more consumers [and] consumption has premiumised from shot-based occasions into sophisticated cocktails and sipping.”
Lower-end mixto – the next big agave trend?
So what will be tequila’s next trend? IWSR’s Lodewijks points to the lower end of the market, which reversed years of decline with modest growth in 2021–22 and an even more impressive rise in 2022–23.
“Expansion at the top end is slowing and decline at the bottom end has turned into growth,” he says. “As the tequila category becomes more mature and the number of brands grows, overall product quality improves, and this improvement is seen across all price tiers, justifying a trade down.”
However, Luxco Distillers’ MD for international business, Greg Mefford (below), disagrees. “I don’t think that ‘mixto’ tequilas [brands with non-agave sugars of up to 49%] will be the next big thing,” he says. “They’ve been around for decades and are the baseline for initial consumption for most consumers.
“The growth of premium tequila has informed consumers about taste profiles of 100% agave tequila, [which is] where I feel the growth opportunities will continue.”
Opportunities for mezcal, sotol, raicilla and flavours
Another area where Mefford envisions opportunity is in mezcal and other agave-based spirits, such as sotol and raicilla.
“There is interest and curiosity about mezcal all around the globe and I certainly don’t see an end to that anytime soon,” he says. “There’s a lot of global growth opportunity for both products [tequila and mezcal] and I’m not sure that any significant cannibalisation will happen in the near term. If anything, it helps grow the overall knowledge and consumer curiosity about the fine agave spirit offerings from Mexico.”
Looking at the success of other flavoured spirits categories, from vodka to rum to whiskey/whisky, Espanita’s Wilson is optimistic about the growth of flavour extensions. “We expect the flavoured tequila segment to grow and recently launched our own 100% Agave Signature Infusions collection,” she says. “Innovation is the bloodline of the industry and modern consumers enjoy trying new flavours.”
“The overall success of this segment will depend not only on suppliers’ ability to offer exciting flavours, but also on the production techniques and use of natural ingredients.”
Increasing buzz around the use of abocantes, or allowable additives
‘Natural’ may be the key word here – many producers are conscious of rising consumer concern over the allowable tequila additives known as abocantes, such as glycerin and sugar syrup.
“The use of abocantes is common in the industry and there is increasing buzz around their use,” says Volcan’s Pechieu. “We understand that the CRT is working on an additive-free certification, although we don’t yet know the specifics. For us, what seems to be important to consumers is transparency around the use of abocantes, so they know what they are drinking.”
Santo’s Kornegay agrees. “As the category becomes saturated and consumers have a dizzying number of choices, they will become more educated about how tequila is made, and more selective about the products they choose,” she says. “The additive-free movement is causing a stir, and controversy breeds more attention.
“We fully expect there will be additive-free shelves in the tequila aisle in the very near future and Santo will be sitting right there.”
This article is available to Global Drinks Intel members only.
Click below for details on how to join the Global Drinks Intel community.
Already a member?
Log in here to read the article in full.
If you work for any of the following corporate subscribers to Global Drinks Intel, head here to activate your access.
- AB InBev
- Bacardi
- Campari Group
- Diageo
- Moët Hennessy
- Pernod Ricard
- Proximo Spirits
- Suntory Global Spirits
- William Grant & Sons
