BevAlc Insights’ 2H 2020 Tequila Forecast
Gain a competitive edge on inventory decisions with data and insights about the fastest-growing spirits category
Tequila has been the fastest-growing spirits category in terms of share gains on Drizly over the past few years, and the pandemic has only boosted the category further. While it still falls behind long-popular categories like vodka and whiskey in terms of overall market share, tequila is quickly gaining ground and driving strong sales for retailers.
Tracking Tequila’s Rise
Over the past several months, tequila has topped the list of year-over-year share growth on Drizly, but don’t think of it as a new fad. The category has been growing steadily on Drizly over the past five years, more than doubling from 3.09 percent of share in 2016 to 6.52 percent of share in 2020. According to the IWSR, U.S. tequila sales grew by 8.3 percent in volume in 2019 alone. According to Nielsen, U.S. off-premise sales of tequila generated $1.25 billion in sales year-to-date as of July 25, which is a 54.9 percent year-over-year increase.
In the past, many American consumers associated tequila (and tequila-based cocktails) with specific occasions — staples for holidays like Cinco de Mayo or with dishes at Mexican restaurants — rather considering it as a standalone, evergreen category. This mindset, however, is changing. “More consumers consider it their go-to,” says Francisco Terrazas, the national brand manager for Mezcal Vago. “People are also starting to pair tequila with a more diverse array of cuisines.”
Proof of tequila’s ability to transcend occasion is reflected in the category’s consistent year-over-year and month-over-month growth on Drizly. “While vodka and whiskey still retain a higher overall share on the platform, tequila is nipping at their heels,” says Liz Paquette, the head of consumer insights for Drizly, adding that tequila is likely contributing to vodka’s declining share on the platform.
But with more consumers reaching for familiar favorites during the Covid-19 period, are they steering away from this growing category? Not quite. “If anything, the Covid-19 pandemic has strengthened the outlook for retail sales of tequila,” says Paquette. According to Nielsen, tequila now accounts for 12.7 percent of U.S. off-premise spirits sales, which is up from 9.1 percent for the 52 weeks prior to the pandemic.
Tequila has experienced one of the largest year-over-year share jumps on Drizly amidst Covid-19 effects, even as other categories saw share declines. Tequila has increased 1.54 percent in overall order share year-over-year, accounting for 6.65 percent of share post-Covid compared to 5.11 percent from March to July 2019. Over that same period, whiskey has increased just .96 percent in share and vodka has decreased by 2.37 percent.
Several factors have contributed to tequila’s momentum over the years, primarily the rise of cocktail culture, which has driven experimentation among consumers. When bars and restaurants closed due to Covid-19, consumers brought their desire for premium cocktails home with them. “That’s started to really pan out on Drizly in the last few months,” says Paquette, “when tequila experienced a significant share shift, alongside liqueurs/cordials, as consumers started mixing up their own cocktails at home.”
Premiumization has also taken hold and is serving to drive sales through the influx of upper-tier brands entering the tequila category. According to Paquette, there was a 4 percent share shift year-over-year to more premium tequilas, priced $30 to $59.99, from less expensive bottles, priced $1 to $29.99.
“The rise in more premium, aged sipping tequilas has helped transcend tequila’s image to be more sophisticated,” says Adam Rogers, the North American research director for the IWSR, who notes that celebrity endorsements have reinforced this notion.
Increased interest in the various cultures of Mexico also draws consumers to tequila and the stories behind these products. “Brands are starting to create more comprehensive experiences,” says Terrazas, “allowing consumers to be transported by the experience.”
The wellness movement, which has led to more awareness about the ingredients and processes involved in producing beverages, also works in tequila’s favor. “I think people are really starting to be more cognizant of what they put in their body, and there’s so much more to tequila than just the alcohol,” says Adrienne Byard Hastings, a district manager for Republic National Distributing Company. “You can find so many artisanal tequilas that are produced in an ancestral way, and people feel good about consuming that.”
Which Tequilas are Selling?
Buoyed by the overall growth of the tequila category, some top-selling tequila brands have ranked among the fastest-growing products across Drizly. Casamigos, Clase Azul, and Espolon are all experiencing particularly rapid growth.
“By leveraging this data to identify top-selling tequilas on Drizly, retail partners can invest in products that will capture the largest percentage of sales,” says Paquette. The Top 5 best-selling brands include Casamigos, Don Julio, Espolon, Patron, and Jose Cuervo.
And that’s not expected to change anytime soon. “Well-known brands aren’t going anywhere, nor should they,” says RNDC’s Byard Hastings.
Drizly’s Top-Selling Tequilas, 2020 (through July 28)
- Don Julio
- Jose Cuervo
- Clase Azul
- 1800 Tequila
However, it’s also important to balance these top-selling SKUs with unique options. “Drizly partners should invest in curating a collection that is unique to their personality as a store,” says Paquette. “Consumers are continuing to look for new and innovative products, and tequila will be no different.”
Byard Hastings agrees. “People have become much more educated in tequila and mezcal, and the demand for more options is on the rise,” she says. “I see lots of potential for some more boutique and higher-end brands to start being permanently stocked on the shelves.”
From a style perspective, carrying silver/blanco tequila is crucial for retailers looking to maximize tequila sales. “Silver/blanco has retained the biggest share of the tequila category for the past five years,” says Paquette. In 2020, silver/blanco tequila has accounted for 4.04 percent of sales share, jumping from the ninth-place share position to a fifth-place ranking.
However, Mark Lewis, the CMO of Tres Agaves Tequila, also encourages retailers to consider offering a few different styles. “It is important to provide customers a choice of not just blanco tequila, but also aged tequilas,” he says. “[People will] see that tequila has a much wider range than they may have previously been aware of.”
Drizly’s Top-Selling Tequila Styles, 2020 (through July 28)
Rogers also notes that over the past five years, consumers have overwhelmingly sought out higher-quality, 100 percent Weber Blue Agave tequilas, making these products ones worth stocking up on. “We are seeing premiumization within the tequila category specifically, so retailers should look closely at that $30-plus offering,” adds Paquette.
Who’s Buying Tequila?
Part of tequila’s success may be it broad appeal, spanning across many demographics. “Tequila has so many factors that make it palatable to many different types of people,” says Byard Hastings. “It’s a wider-ranging category that appeals to people at all points in their lives.” On Drizly, 50.91 percent of tequila purchasers are men and 49.09 percent are women. The average tequila consumer skews slightly younger as well — 37.8 years of age, on average, compared to an average age of 38.7 for overall liquor sales.
However, tequila isn’t growing equally across all U.S. markets. “There are definitely regional and demographic considerations to factor when retailers consider investing in this category,” says Paquette. Sales share for tequila is higher than the national average in many Texas, Florida, and Southern California markets, which have larger Hispanic populations. “Texans of all creeds love tequila,” says Byard Hastings. “It’s a part of our DNA.”
Markets where tequila has an above-average share percentage include:
- Los Angeles: 11.41 percent
- North Florida: 9.82 percent
- West Palm (Florida): 9.76 percent
- Austin: 9.36 percent
- Dallas: 8.71 percent
- San Diego: 8.29 percent
“These areas are driving a lionshare of the growth from a share perspective,” says Paquette. However, while tequila’s sales growth may be slower in other U.S. regions, the overall category continues to climb, even if it is at a slower rate, making it a worthwhile investment for retailers in many markets.
Predicting Tequila’s Future Growth
Given tequila’s continued growth, should retailers be concerned that a dropoff is looming? Paquette doesn’t think so. She sees no end to tequila’s strong sales growth, given the category’s stable, measured progress. “Excluding Cinco de Mayo, in recent months tequila has experienced a steady month-over-month increase,” says Paquette.
The IWSR predicts that tequila will grow by 4.7 percent compound annual growth rate from 2019 to 2024. It’s difficult to predict how the tequila category will grow as a whole through the end of 2020, particularly because tequila has traditionally been an on-premise favorite, but IWSR’s Rogers is optimistic that tequila will continue to grow at retail through the end of the year. “Consumers have recognized that the dollar goes much further with what’s purchased in the off-premise for at-home consumption, compared to what’s spent on-premise,” he says.
While the tequila category is growing across the U.S., Paquette recommends that retailers analyze customer demographics and regional market trends in order to make informed decisions about tequila purchasing. “Retailers can make a generalized assumption about growth in this category,” she says, “but should consider the specifics within their areas when deciding what to stock and how much shelf space to dedicate.” Retailers in markets that over-index on the category, for instance, should consider stocking up on more tequila SKUs, while retailers in more moderate category growth areas might want to add new tequilas more slowly.
To maximize tequila sales through purchasing decisions, Paquette recommends using Drizly’s “Top Selling Items I Don’t Carry” report. “For tequila specifically, they can keep a close eye on which brands are selling in their neighborhoods,” she adds.
Offering a diverse selection of tequila products can also offer opportunities for retailers to engage with consumers and develop a loyal fan base. “I think it would be prudent for all stores to broaden their selections of agave over the next few years,” says Byard Hastings. “If you can put a mixture of different tequilas on your shelf at different price points and different levels of familiarity, you’re opening the door to meaningful conversation with your customer.”
For retailers who are looking to increase overall sales, tequila can be an excellent way to do so. “Agave spirits, in general, are among the fastest-growing categories,” says Terrazas. “They will continue to be a vital part of retail growth over the coming years.”