Good News for Debra Crew: Tequila is Surging Outside U.S., Mexico -- IWSR

Diageo has benefitted mightily from the growth of high-end tequila, and the company's new CEO, Debra Crew, has made it clear she intends to export the U.S. enthusiasm for agave-based spirits to the rest of the world.

There's a reason for that: demand for premium agave spirits shows signs of moderation in the US, overall sales are declining in the category’s other major market, Mexico, with volumes slipping by -4% in the first half of 2023.

But outside the U.S., In the first half of 2023, agave grew in 15 out of the world’s top 20 beverage alcohol markets (including the U.S.) – and recorded double-digit volume growth in 11 of them.

Category expansion was driven by a number of factors, including the reopening of the on-trade in China and growing appreciation of tequila as a quality spirit in Spain.

In India, volumes more than doubled in H1 2023 vs 2022 (off a small base) partly thanks to growing consumer acceptance of locally grown agave, which has helped to soften the impact of supply constraints.

And in the UK, the 4% volume decline recorded in H1 2023 masks the changing image of agave in the country: as traditional tequila shot consumption in the on-trade declines, the higher end is enjoying growth, particularly in the home premise.

“Strong interest in agave outside the U.S. has been boosted by growing interest in Mexican culture, celebrity influence and the popularity of cocktails,” says Jose Luis Hermoso, Research Director, IWSR. “The category is also continuing to gain traction thanks to the increasing appreciation of tequila as a quality spirit, a revival of the on-trade and tourism in Asia, and the recovery of the Duty-Free channel post-pandemic.

“Strong performance in the U.S. has meant some brands were on strict quotas in secondary markets, with many of these undersupplied for years as allocations could not fulfil existing demand.”

Premium tequila under-indexes in ROW markets

The disparity between markets in the Americas and the rest of the world means that luxury tequila has huge growth potential. Currently, the U.S. and Mexico sell about 25 times as much ultra-premium-plus tequila as a group of nine ROW markets (the UK, Spain, Australia, China, France, Japan, Italy, Germany and Poland).

For other spirits categories, such as Cognac/brandy and whisky, the differential in ultra-premium-plus volumes is less than two to one.

“The ultra-premium space for agave-based spirits under-indexes outside the U.S. and Mexico, compared with other spirits categories,” says Hermoso. “Potentially, this gives high-end tequila enormous headway for future growth, if brand owners can continue to successfully promote its quality credentials with consumers.”

In the short to medium term, the U.S. (and, to a lesser extent, Mexico) will continue to be by far the most important priorities for agave brand owners – simply because they account for more than 85% of category volumes, and an even larger proportion in the higher price tiers.

But, if demand continues to moderate in the U.S., and volumes keep declining in Mexico, companies may have to rethink their global brand strategies – and look to a larger and more diverse group of markets around the world to fuel future category growth, ISWR says.

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