Could tequila become the US’ number one distilled spirit?
In the Interview, the specialist said it is a “phenomenal time” to be involved in the US distilled spirits industry. Distilled spirits have overtaken beer sales for the first time ever, while the total volume growth of tequila has increased from 7 million cases in 2003 to 26 million cases last year, according to the specialist. We were told the COVID-19 pandemic has acted as “gas on the fire” for the industry, causing the largest ever increase in agave spirit sales, with off-premise purchases and the rise in at-home cocktail making driving these increases.
The specialist told us that the price of agave, the plant used to make tequila, currently averages at MXN 30 a kilo. The number of agave plants have increased from 800,000 in 2013 to 260 million in 2020, and through the specialists’ own anecdotal evidence, they said there are “more than enough” to satisfy the current growth rate. As more plants mature, the specialist said agave prices per kilo could decline over the next 2-3 years, although previous predictions of a price drop have not materialised.
A potential pressure on agave supply could come from greater sales of agave-based ready-to-drink (RTDs) beverages, we were told. The specialist said agave-based RTDs would fit with tequila’s younger demographic, and could become more attractive to consumers if its price were to reduce – something that is currently under discussion by the Distilled Spirits Council of the United States and the National Beer Wholesalers Association.
The specialist told us Diageo is “extremely well positioned” to expand into tequila-based RTDs, as are large beer manufacturers. They also said the British alcohol company is best placed to win back market share organically within the US tequila market and expects it to acquire more tequila brands in the future.
Consumers of tequila are also increasingly younger and less brand loyal, according to the specialist, with celebrity brands like Michael Jordan’s Cincoro tequila driving choices. The specialist said tequila distillers need to increase efforts to attract African American consumers, who are increasingly purchasing a “larger share of ultra-premium brands”. On price, the specialist said it has not yet reached Scotch levels. However, they were confident tequila could reach USD 300-500 per bottle imminently.
How effectively tequila producers can attract more consumers will dictate whether it overtakes vodka as the US’ number one selling distilled spirit. The latest sales figures put tequila USD 2bn behind vodka, but the specialist is confident that this could happen within the next 2-3 years.
To access all the human insights in Third Bridge Forum’s US Tequila Market – Category Drivers, Growth Momentum Sustainability & Competitive Dynamics Interview, click here to view the full transcript.
* CNBC
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