The Current and Future Growth of Agave Spirits

By Kyle Swartz, Editor of BeverageDynamics

Agave spirits are surging in the U.S., with consumers enjoying Mexican exports in droves. Retailers have even started adjusting for more space on the shelf for the continued sales growth of tequila and mezcal.

MaryAnn Pisani, MHW Ltd. Chief Revenue Officer, recently spoke at the third annual Cámara Nacional de la Industria Tequilera Forum (CNIT) in late October. The CNIT, founded in 1959, is a leading institution responsible for representing, promoting and defending the interests of the tequila industry. In a category with so much competition, the CNIT is focused on growth, agreements, and conditions that allow competitiveness and collaboration in the industry at both the national and international levels. At the forum, MaryAnn had the opportunity to speak about the state of the U.S. tequila and mezcal market and how MHW helps as a leading beverage service provider. MaryAnn provided a deep dive into the current and future growth of tequila.

“Consumption of tequila in the U.S. has grown by more than 40% in the past five years,” Pisani said. “By 2028, the tequila market is expected to surpass $14.7 billion.”

“The statistic that is really striking to me is that 72% of all tequila produced in 2020 was consumed in the U.S.  We all know the whole world is drinking tequila and yet 72% —three-quarters of all tequila produced — is consumed in the U.S,” she added.

MHW has served as the U.S. importation partner for more than 75 tequila clients. These run the gamut of pricing, style, history, and size. “We are very proud of our association with every single client,” Pisani said.

The diversity of options is an accelerant behind tequila’s meteoric rise. “One thing that attracts people to the tequila market is that there’s product for every budget, every occasion,” Pisani said. “It’s accessible to everyone.”

The pandemic has seen tequila sales spike off-premise, particularly for 100% blue agave expressions and ready-to-drink tequila cocktails.

“RTDs, in general, are a category on the rise,” Pisani said. “Last year, when folks were sitting at home, and tired of drinking the things they’ve always drank, they wanted convenience, variety, something that was cost-efficient, and to be able to drink it outside. They turned to ready-to-drink cocktails.”

The result? “RTD cocktails grew 35.1% in 2020” Pisani observed. “For a category you can almost say didn’t really exist pre-2019, it’s fascinating to see that IWSR Market Analysis predicted that RTDs will reach 22% market share of total alcohol in the U.S. by 2025. When a brand decides to make a tequila-based RTD, they’re essentially combining two of the fastest growing categories. If marketed well, a tequila RTD can be liquid gold.”

Besides RTDs, other product innovations that have lifted tequila include: second filtration, extra-age statements, single-barrel, bourbon-barrel aged, 100% organic offerings, single-estate products, higher-proof and more have all added depth to the category. This attracts consumers who enjoy experimentation, authenticity, and quality.

“Many mezcal and tequila brands do a great job of providing a reason to believe in the quality of their product,” says Michael Bowen, co-founder and COO of the alcohol e-commerce company Speakeasy, which works with a long roster of MHW clients and has seen the tequila category scale in their own data. “Their stories go far beyond being a family and having been around for years. They are tied to villages, different styles and education. All of these lend themselves to higher price points.”

To his point, premiumization within the broader spirits market has helped tequila. As super premium spirits grew 40% in 2020, more consumers reached for top-shelf tequilas.

The category also benefited from an overall boom in U.S. spirits. In 2020, spirits sales increased 7.7% in U.S. sales, capturing 39.1% of the total beverage alcohol market. It’s the 11th consecutive year of growth for the category, which during the pandemic was driven by a boom at retail.

Bowen saw additional opportunity in e-commerce in 2020 as more consumers learned they could buy alcohol online. Last year, 50% of people who purchased alcohol online in the U.S. did so for the first time.

“I think one of the next steps, and something that could be key and a huge category differentiator, will be the use of ecommerce to support a subscription model,” Bowen said. “When you have so many different agaves and makers available to test, it provides a fantastic opportunity to produce limited tequila and mezcal releases. Not to mention the potential to test blend options,” similarly to how categories like wine and beer test new products at tasting rooms, before launching these products at retail.

“What’s interesting about this is that it can lead to a major testbed with a brand’s largest advocates,” he added. “Imagine having a tasting group that is paying to participate. These supporters can provide feedback to help a brand decide their product direction. It’s an interesting thought.”

Tequila’s gain in market share comes at the cost of other categories. “The growing preference for Millennial and Gen Z consumers seems to be for at-home cocktails and spirits over wine,” Pisani said. Beer is also reportedly losing market share to spirits, especially spirit-based RTDs.

Younger consumers “value diversity and social responsibility. They care about the environment,” Pisani added. “All of these things point to products that have long and storied histories.”

While the category continues to thrive, there is still plenty of runway for future growth.