The liquor industry is booming, and just about all varieties of spirits have benefited from consumers’ seemingly insatiable appetite for alcohol.
Tequila, in particular, manages to straddle both the low-end and premium liquor markets, providing a wealth of options to customers. All told, the global tequila market is expected to generate more than $9 billion by 2021, according to Technavio.
However, there are as many challenges as there are opportunities in the tequila market right now. A shortage of agave in Mexico has raised production costs considerably, forcing some brands to reconsider their operational strategies until producers harvest a fresh supply of this vital crop.
How can tequila brands navigate such obstacles while continuing to carve out a space in the competitive liquor industry? The following tips provide a viable path forward.
Embrace premium labels
The agave shortage is certainly troublesome for the entire tequila industry, but low-end brands will undoubtedly be hit hardest by rising production costs. It will be much more difficult to turn a profit on products set at lower price points. The answer is to focus efforts on premium tequila labels.
Although premium liquor is often most closely associated with barrel-aged bourbon and single malt scotch, many tequila brands have found success targeting the high-end market. Clase Azul and Casa Dragones, among others, have made names for themselves as sipping tequilas, spirits meant to be enjoyed on their own rather than mixed into cocktails like margaritas or tequila sunrises.
If the agave shortage has a silver lining, it’s that it dovetails with evolving customer tastes. According to Technavio, the premium segment accounted for 42 percent of tequila’s total market share in 2016. Ultra-premium tequila brands are now in vogue, and limited releases like Casa Noble’s Selección del Fundador Volume II can fetch as much as $1,500 per bottle.
Brands may not have the time or resources to release a product quite that luxurious, but focusing on premium tequila labels will help weather the storm created by the agave shortage while reaching a consumer base willing to spend more to get more.
Experiment with different flavor profiles
One of the reasons analysts have been so bullish about the tequila market in spite of the agave shortage is the availability of exciting new flavors that appeal to adventurous drinkers.
“Consumers are demanding innovative and exotic flavors in their drinks,” said Technavio’s Manjunath Reddy. “The introduction of new flavors by major players to cater to the changing taste preference of consumers is boosting the demand for tequila.”
Tequila brands can play to this demographic by introducing new spins on their established labels, bringing in customers who might otherwise avoid traditional tequila flavors.
For both flavored offshoots and high-end offerings, it’s extremely important that tequila brands merchandise these products properly at the store level. For instance, if premium bottles are placed side by side with low-end labels, customers may assume those products are of a similarly lower quality – albeit at a higher price point.
Field teams can use flexible mobile software — designed to capture in-store data — to check that individual stores comply with brand guidelines and optimize displays. Capitalizing on opportunities for market growth requires end-to-end diligence, from product conception to point-of-sale display merchandising. Strategically compiling reports, to fully understand the product journey, will enable tequila brands to win market share and outperform competition. The results are more than worth the effort.
