The tequila industry is currently facing an array of challenges, and even high-profile entities such as 818 Tequila, owned by the model and social media influencer Kendall Jenner, are feeling the strain. Despite its young age—only four years in operation—818 Tequila has reportedly slowed hiring processes and cut back on various marketing expenses. This shift illustrates a troubling trend for the industry, which has enjoyed meteoric growth and a surge of celebrity endorsements over the last few years. The sentiment of apprehension is echoed by Mike Novy, the CEO of 818 Tequila, who noted a marked reduction in discretionary spending among consumers, indicating a noticeable shift in purchasing behavior as they lean towards more deliberate and considered purchases.
As 2023 unfolds, it appears to be a challenging year not only for 818 Tequila but for the tequila market as a whole. Analysts from OhBev, an alcohol marketing agency, indicate that the sector is at a “critical juncture.” After experiencing a decade of unprecedented growth, signs suggesting a normalization of the market have emerged, contrasting sharply with consumer spending patterns observed during the height of the COVID-19 pandemic when many people opted to stockpile liquor for home enjoyment. This behavioural shift has also initiated layoffs throughout the industry, fostering a climate of uncertainty.
Compounding these challenges is the dynamic related to agave, the pivotal ingredient for tequila production. Years of soaring demand have led to an oversupply of agave, which has in turn resulted in plummeting prices as inventories deplete without being sold. This situation poses a significant threat to farmers and producers, jeopardizing their profits. Furthermore, looming tariffs of up to 25% are casting a long shadow over the industry. As tequila is exclusively produced in Mexico, it benefits from a free trade agreement established during President Trump’s administration, which is set to lapse in the coming year. While current import conditions remain favorable, potential changes could further complicate the landscape.
An evolving consumer sentiment is evident, as Andrew Chrisomalis, co-founder and chairman of Pantalones—a relatively new tequila brand brought to life by Camila and Matthew McConaughey—points out. He notes that tequila drinkers are becoming more judicious, transitioning away from spending extravagantly on premium options, as evidenced by decreased sales in the high-end market, which includes exclusive brands like Clase Azul. He gestures towards the increasing consumer preference for quality tequilas at more reasonable prices, a sentiment that aligns favorably with Pantalones’s $45 price point for its Blanco variety.
In light of the prevailing economic uncertainties, brands are navigating the market with caution. Chrisomalis underscores discernment among consumers, recognizing that this mindset permeates various aspects of life, including purchasing decisions. His company has experienced a steady demand, attributing its favorable positioning to having a distinct product in a saturated market.
Fortunately, the current tariff situation appears stable for the time being, a relief for companies like Pantalones and 818 Tequila that are actively working to build inventory in the United States—the largest consumer of tequila, responsible for 80% of imports. Recent statistics from Mexico’s Tequila Regulatory Council indicate a striking 30% increase in tequila exports from Mexico this January compared to the same period last year. With American sales possibly peaking amidst the uncertain trade environment, Pantalones is contemplating expansion into the UK market. They have secured a distribution deal with major supermarket chain Tesco, which will amplify their presence across approximately 2,500 stores, in tandem with participation in various dining and entertainment venues.
The British market represents an untapped frontier for tequila, prompting efforts to educate consumers about this spirit. Through hosting tastings to familiarize customers with their product range, Pantalones is leveraging McConaughey’s celebrity to amplify promotional endeavors. As Chrisomalis acknowledges, the use of McConaughey’s influence simplifies the task of educating audiences—an otherwise daunting challenge in this nascent market segment. If the current trajectory continues, the tequila industry may just harness its potential to adapt and thrive, despite the ongoing economic labyrinth it finds itself navigating.