Packages of Modelo Especial beer are displayed on the market in a food market on June 14, 2023 in Los Angeles, California.
Mario Tama | Getty Images
People within the U.S. are drinking less alcohol than they used to, but after they do indulge, they’re more likely than ever to go for a beverage originating from Mexico.
The U.S. is the most important marketplace for Mexico’s agave-based spirits and its top beers. Lately, Mexican brands have begun to dominate the U.S. alcoholic beverages industry as drinkers develop a thirst for premium-priced products with authentic backstories.
Last 12 months, Mexico’s native agave-based spirits tequila and mezcal overtook American whiskey to develop into the second-fastest growing spirits category by revenue and volume inside the U.S., in keeping with evaluation by the Distilled Spirits Council of the USA, an industry trade association. In 2022 alone, nearly 30 million 9 liter cases of tequila and mezcal were sold within the U.S.
Experts say the segment is poised to pass vodka in 2023 to develop into the country’s fastest-growing spirits category when it comes to volume.
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“Tequila has been such a national treasure here in Mexico,” said Guilherme Espagnoli Martins, global brand director of Diageo-owned Don Julio Tequila. “Now, it’s breaking through geographies and flying to other countries as well.”
“It’s putting Mexico on the map,” he said.
The rise of Mexican alcoholic beverages into the mainstream U.S., greater than 20 years within the making, is the results of authentic, savvy marketing aimed toward making Mexican brands palatable to consumers outside of the brands’ home country, while still resonating with their traditional market.
Other aspects driving the upper sales include consumers’ increasing willingness to spend more on higher-quality products across wine, spirits and beer.
The expansion of tequila and mezcal specifically has been propelled by sales of premium or high-end brands resembling Casamigos and Don Julio, that are priced higher at retail and are produced with 100% agave, without flavoring or additives.
The George Clooney-founded Casamigos, which got here into the market a decade ago and paved the best way for other celebrity-owned premium tequilas, is to date this 12 months’s top-selling tequila across the alcohol e-commerce site Drizly, a Drizly spokesperson told CNBC. Don Julio was the second.
Since 2003, the tequila and mezcal category within the U.S. overall grew 273% in volumes, or at a median rate of seven.2% per 12 months, while premium agave-based spirits skyrocketed 1,522%, DISCUS found. All of the products driving the tequila boom originate from Mexico. While some brands resembling Casamigos are based outside the country, the spirit legally needs to be produced there.
Don Julio, a greater than 80-year-old Mexican business now owned by British spirits giant Diageo, is rebranding and finding fresh success amid the brand new wave of appreciation for tequila. Martins said Don Julio’s smooth taste, versatility and perception as a purer, cleaner spirit has boosted the product.
This year-end, the brand saw double-digit growth in global sales and is up 20% in 2023 in comparison with last 12 months, a spokesperson told CNBC. Last month, it debuted a latest look and promotional film because it seeks to copy the success it has had within the U.S. overseas.
Don Julio Tequila Blanco.
Courtesy: Don Julio
“As we take this brand global, there is a big responsibility for us to place modern Mexico on the world stage,” Martins said of the campaign.
The Mexican beer boom
It is not just tequila and mezcal — Mexican beer is booming, too.
Mexican beer imports into the U.S. are up 10.6% in 2023, in keeping with alcohol research firm Bump Williams Consulting.
Earlier this 12 months, Mexico’s Modelo Especial became the best-selling beer within the U.S., dethroning Bud Light, which held the highest spot since 2001.
“Once [the beer’s owner] Constellation got their hands on Modelo, the corporate was really in a position to step up marketing investment and drive tremendous growth,” said TD Cowen analyst Vivien Azer.
Constellation Brands acquired Modelo in 2013 following an antitrust deal that blocked rival Anheuser-Busch InBev from buying the brand. Its rise to the highest began before the conservative boycott against AB InBev’s Bud Light that began this spring.
Modelo, together with Constellation’s Corona Extra, has benefited from the U.S.’ steadily growing Hispanic population, Azer said. But the corporate sought growth outside of Hispanic drinkers as well.
“It was a deliberate strategy by Constellation to diversify away from Hispanic consumers and toward a wider market,” said Azer.
A spokesperson for Constellation told CNBC that Mexican beer sales grew as Hispanic culture gained a stronger foothold world wide.
“The recognition of Mexican beers can partially be tied to the Hispanic population growth and influence on culture,” the spokesperson said. “Younger generations are increasingly bicultural and Latin culture has had a big impact on the mainstream.”
Constellation on Thursday reported quarterly results that topped Wall Street estimates, driven by the surge in demand for its Mexican beer brands.
The businesses behind the lagers’ growth also attributed their success to a straightforward factor: taste. Mexican beers are “very easy to drink,” said Jonnie Cahill, chief marketing officer at Heineken USA, which distributes the Mexican beers Dos Equis and Tecate.
Cahill said that not only are Mexican beers riding on the tailwinds of fixing consumer preferences toward lighter-tasting, dearer imported lagers, but additionally the category has been lifted by “authentic” marketing, resembling the pairing of lime and beer, which is played up in advertisements, at bars and for holidays resembling Cinco de Mayo.
“We concentrate on authentic Mexican flavors at any time when we innovate and we avoid randomness, because that is the opportunism that folks often reject,” Cahill said of Heineken’s Dos Equis brand, which peaked within the mid-2000s with its iconic The Most Interesting Man within the World campaign.
It is a competitive space, admitted Cahill. Sales for Dos Equis have declined in recent times. Within the week ending Sept. 9, Dos Equis retail sales off premise were down 1.7%, while Modelo and Corona were up 10.6% and three.3% respectively, in keeping with Bump Williams Consulting.
Cahill said the brand is attempting to ramp up distribution across the U.S. in hopes of competing with rivals.
A family affair
Eduardo “Lalo” González grew up within the agave fields where his grandfather Don Julio began a tequila empire that might reach all parts of the world.
“I at all times had this dream and this concept of constant this legacy of my family,” said González. “Imagine it or not, there’s an absence of Mexican ownership in tequila brands.”
Eduardo “Lalo” González, the founding father of LALO Blanco Tequila and grandson of Don Julio González, in a field of agave.
LALO Blanco Tequila
Diageo acquired Don Julio in 2015. In 2020, González launched LALO Tequila, a blanco tequila freed from flavors or additives and made with 100% agave distilled in González’s home region of Jalisco, just one among five Mexican states where tequila may be legally produced.
“It’s all about embracing family and embracing legacy and embracing traditions,” González said, because the brand begins to seek out its footing within the U.S. “We’re constructing our own story by honoring our ancestors, and likewise by bringing people into our culture.”
What’s next for the category?
Tequila and mezcal prices may increase as American demand continues to surge and the agave plant suffers some shortages, said González. Agave takes about seven years to grow and might only be planted in certain Mexican regions.
González said more farmers have begun harvesting the succulent because the industry plants the seeds for similar growth in overseas markets.