Big Sales, No Agave: A Look At 2020 In The Tequila Industry

“When times are good, people drink. When times are bad, they drink more,” quips Steve Lauth, CEO of Tequila Partida. 

Despite the obstacles 2020 brought, sales of tequila have soared. “The category has seen over +46% growth, says Patron marketing VP Adrian Parker.

“It’s been a banner year for tequila on multiple fronts,” Clare Quinlan, brand manager of Camarena Tequila, corroborates. “Volume growth has outpaced even the robust growth of the spirits category in general, and we anticipate a bigger share of store shelf space and e-commerce business will be dedicated to tequila in the future.”

José Coira, VP of Sales at Casa Maestri (maker of Santera Tequila among other brands) has seen similar demand and notes that “It’s only going up and up. More customers are buying tequila. They are importing products as fast as we can pump the orders out.”

To look at exactly how the industry changed in 2020, I asked a panel of tequila experts to weigh in. 

On-premise to online

With on-premise channels shut, producers had grim predictions for the year. But that wasn’t the case. “The overall industry is seeing an increase in agave sales as the consumer demand for tequila has continued to increase at a quick pace,” says Patron’s Parker. “We’ve seen a +52% increase in volume growth since mid-March, following an already strong year.”

Codigo 1530 found it was not just growing with the category, but the brand was outpacing the industry average, with a growth rate of 94% year-over-year. 

Pernod Ricard (home to Altos and Avion) declared a 60% growth in tequila sales. 

Camarena cited growth “well north” of 30% while Casa Don Ramon noted a 12% in growth compared to last year, with November having the highest sales. Cask and Kettle, maker of pod cocktails for Keurigs, reported a spike in tequila-based cocktail sales. 

E-commerce is largely to blame. “While tequila sat at 6.52% from January-July 2020, when looking at the summer specifically, the share of the tequila category increased to 7.13% on Drizly,” notes Liz Paquette, the head of consumer insights at e-commerce booze giant Drizly. “This shift would indicate that people are continuing to move towards tequilas, particularly in the warmer months, as they are making cocktails at home.”

But success was different for every brand. “Right at the beginning,” says multi-brand producer Casa Maestri’s Coira, “Everything stopped for about a week. Then it skyrocketed from there. The super small brands are stable; they are ordering still and maybe a little more. It’s the medium and larger size brands that shot up like crazy in volume.”

“We thought 2020 was going to hurt us with the closing at bars and restaurants,” describes Sylvester Palacios Jr., managing partner of Dos Cuernos Tequila. “We actually found it fruitful—it allowed us to focus on mom and pop liquor stores. With everything shutting down, we saw other popular brands dial back on events, marketing and branding. All the while, we continued pushing forward with our marketing. The ease in air waves by other brands allowed us to get more notice.”

The pandemic put 21Seeds in an ideal position. When the brand launched in 2019, co-founder Kat Hantas focused efforts on the digital space. When Covid-19 hit, “We were already online. When other brands were scrambling to get online to connect with their consumer, we were already there. That really helped propel our sales—we have seen 10 times growth year-over-year.”

The digital space was crucial this year, with bars and restaurants shut and consumers shopping online. “But direct-to-consumer is a challenge to navigate,” says Revel Avila founder Micah McFarlane. “This is why we forged a relationship with ReserveBar. This strategic shift helped Revel increase sales by 13%, a number which seemed unattainable months prior.”

 “We pivoted to focus on our e-commerce options such as Reserve Bar, Sip Tequila, and Drizly,” says Taylor Steele, founder of Solento Tequila. It was the brand’s first year in the market, but they had to scrap all launch activations and pivot strategies. “We started doing Instagram Live happy hours with guests such as Kelly Slater, Tony Hawk, Taryn Toomey, Rob Machado, and Sheree Commerford.”

Partida’s Lauth noted that Instagram has been king. Without bartenders to guide drinkers, drinkers are following looking to digital influencers. “Last year, we asked our friendly neighborhood bartender, “What tequila do you recommend for my margarita?” Now, we see mixologists stepping up on social media to engage with consumers and recommend brands and provide recipes they can order online and make at home.”

New consumer behavior

Why has tequila found such success? Experts are noting a shift in consumer desires. “The tequila category is going through what the whiskey category went through a decade ago,” says Mike Dolan, the co-founder and CEO of Mijenta Tequila. “Consumers looking for more refined versions with a smoother taste, rooted in authentic stories.”

Much of this is due to new purchasing channels. Says Lauth, “Consumers have shown a different buying pattern when purchasing online. As an example, blanco is traditionally the most popular tequila in the category—a result of the margarita being the number one cocktail sold in the USA. Most drinkers use blanco in a margarita because it is the lowest cost-per-pour. However, we have seen consumers purchasing more reposado, anejo and extra anejo via e-commerce and off-premise transactions.”

“This trade-up is due to how the spirit is enjoyed—neat or over ice—rather than in a margarita. We have seen some of the largest brands run very low on aged tequila inventory this past year because of this trend.”

Agave shortages

This shift has led to agave shortages across the country, as brands race to get more liquid resting. 

“We are dealing with agave shortages,” says Federico “Fede” Vaughan, the co-founder of Codigo 1530. “It’s just temporary and should be solved in the next few years. But there is a huge shortage: agave prices are at an all time high because there’s no inventory and the agave planting was not well planned.”

He continues, “We have three-to-four year contracts with agave farmers, and we set a price that is fair for them. I had my guy secured for four years but you can imagine what a 5%, 10% price fluctuation means to them.”

“Luckily we own agave fields, about 50% of our consumption and the rest we buy from the open market,” says Coira. “But we have contracts and scenarios put in place for this sort of increase. Anejos were difficult because we have to lay them in our barrels for one year. Many people started to buy more aged spirits (premium/ultra premium) category, and we had to purchase a lot more barrels to have enough for late 2021. But thankfully we always kept a good enough stock so we are riding the wave.”

Tanteo is cooperatively-owned, though CEO and master blender Neil Grosscup notes, “Even as a cooperative of agave farmers, we are not immune to the effects of the agave shortage. High agave prices tempt our members to sell their crops on the open market, and even though our members want to sell their agave to the distillery, we need to make sure the price the distillery pays is somewhat competitive with what others pay. Looking at total plantings from the CRT, their growth over the past few years has outpaced even the rapid growth of tequila. We have started to see a slight price reduction on market rate agave this summer but with Covid-19 there remains a cloud of uncertainty for the future.”

Patron’s Parker has noted that the mega-brand is getting swept off shelves “at record speed.” 

But Patron’s laborious process makes it tough to keep up with demand. “There is an ample supply of tequila at our Hacienda currently, but as it takes more than 60 hands to craft a single bottle, we are experiencing a slower cadence for bottling. When Covid-19 hit, our productivity dropped by more than 50%, since the 2,000 people who make Patron had to social distance. When combined with significant volume growth—up 52% across our tequilas—this meant Patron’s commitment to handcraft was a barrier to getting bottles to shelves vs. automated brands. It is causing an inventory shortage across the U.S. that is beginning to be noticeable on shelves.”

Vaughan also notices social distancing is slowing down production. “We’re severe on health measures: nobody is less than six feet apart.”

Overall, these are small problems for a category finding huge success in 2020. “It’s encouraging to see, especially for the growth of the agave spirits category, is a budding connoisseurship among consumers looking to expand their palates,” says Revel’s McFarlane. “As we’ve seen with other categories, consumers are paying closer attention to not just labels, and design, but more importantly the quality of the ingredients in the spirit, where it’s made and the processes involved. This is what’s bringing tequila, avila, mezcal, sotol, racilla and bacanora into the spotlight.”