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 in the U.S. are drinking less alcohol than they used to, but once they do indulge, they’re more likely than ever to go for a beverage originating from Mexico.
The U.S. is the largest marketplace for Mexico’s agave-based spirits and its top beers. In recent times, 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 yr, 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 line with evaluation by the Distilled Spirits Council of the United States, an industry trade association. In 2022 alone, nearly 30 million 9 liter cases of tequila and mezcal were sold in the U.S.
Experts say the segment is poised to pass vodka in 2023 to develop into the country’s fastest-growing spirits category in terms of 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 in the making, is the results of authentic, savvy marketing geared toward making Mexican brands palatable to consumers outside of the brands’ home country, while still resonating with their traditional market.
Other aspects driving the higher sales include consumers’ increasing willingness to spend more on higher-quality products across wine, spirits and beer.
The expansion of tequila and mezcal in particular has been propelled by sales of premium or high-end brands reminiscent of 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 way for other celebrity-owned premium tequilas, is to date this yr’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 in the U.S. overall grew 273% in volumes, or at a mean rate of seven.2% per yr, while premium agave-based spirits skyrocketed 1,522%, DISCUS found. All the products driving the tequila boom originate from Mexico. While some brands reminiscent of 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 recent 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 yr, a spokesperson told CNBC. Last month, it debuted a recent look and promotional film because it seeks to duplicate the success it has had in 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 isn’t just tequila and mezcal — Mexican beer is booming, too.
Mexican beer imports into the U.S. are up 10.6% in 2023, in line with alcohol research firm Bump Williams Consulting.
Earlier this yr, Mexico’s Modelo Especial became the best-selling beer in the U.S., dethroning Bud Light, which held the top spot since 2001.
“Once [the beer’s owner] Constellation got their hands on Modelo, the company was really capable of 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 top 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 company 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.
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A spokesperson for Constellation told CNBC that Mexican beer sales grew as Hispanic culture gained a stronger foothold around the world.
“The recognition of Mexican beers can in part 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, reminiscent of the pairing of lime and beer, which is played up in advertisements, at bars and for holidays reminiscent of 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 individuals often reject,” Cahill said of Heineken’s Dos Equis brand, which peaked in the mid-2000s with its iconic The Most Interesting Man in the World campaign.
It is a competitive space, admitted Cahill. Sales for Dos Equis have declined in recent years. In the week ending Sept. 9, Dos Equis retail sales off premise were down 1.7%, while Modelo and Corona were up 10.6% and 3.3% respectively, in line 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 in the agave fields where his grandfather Don Julio began a tequila empire that may reach all parts of the world.
“I at all times had this dream and this concept of continuous 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 could be legally produced.
“It’s all about embracing family and embracing legacy and embracing traditions,” González said, as the brand begins to search out its footing in the U.S. “We’re constructing our own story by honoring our ancestors, and also 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 can only be planted in certain Mexican regions.
González said more farmers have begun harvesting the succulent as the industry plants the seeds for similar growth in overseas markets.