Focus: European thirst for tequila aggravates agave crunch

Becle SAB de CV

24/02/2023 06:00

By Richa Naidu and Valentine Hilaire
       LONDON/MEXICO CITY, Feb 24 (Reuters) - He can't pour
tequila fast enough. Premium shots. Margaritas. Palomas. The
occasional sunrise. 
    "We definitely run out every weekend," says Shubham
Walavalker, a 24-year-old bartender, who's struggling to keep
pace with customers' thirst for the spirit at a packed
Revolution bar in southwest London.
    Tequila, the king of Mexican liquors, is taking off in
Europe. Export volumes to Spain jumped 90% last year, to France
73%, Britain 68% and Germany 60%, according to Mexico's Tequila
Regulatory Council, outpacing global growth of 23%.
    The challenger - a favourite in North America - is a long
way from making a dent in the historic European dominance of
vodka, whisky, rum and gin. It's gained a foothold, though, and
is the fastest-growing spirit in the region, according to Jose
Cuervo seller Proximo Spirits. 
    There's a spiky snag, though.
    European demand is deepening a shortage of agave, the
prickly plant native to Mexico's Jalisco region that's used to
make tequila. 
    The cost of agave - about 5-7 Mexican pesos ($0.27-$0.37)
per kilogram for much of the past two decades - has been edging
up in recent years and hit 31 pesos at the end of 2022,
according to research firm Bernstein. 
    The current forecast for the end of 2023 is 28 pesos, though
Bernstein analyst Trevor Stirling cautioned that demand had
"kept surprising on the upside".
    "It's a supply-and-demand issue," he said. "There is a
massive shortage of agave in the tequila industry."
    Tequila prices have leapt. 
    People in Europe paid nearly 16% more for the spirit in
stores in December compared with a year before, while prices for
whisky rose 6% and vodka increased 5%, according to data from
NielsenIQ. Gin prices were flat. 
    Compounding matters, the flow to Europe of high-quality 100%
agave tequila - which has to be bottled in Mexico - has also
been constrained by the supply-chain chaos from COVID-19.
    "It's the plant that's expensive, and so is getting it over
here from Mexico," said Robyn Evans, manager of the Hacha
agaveria, a bar specialising in tequila and mezcal in east
London. 
    Customers are paying about 50 pence ($0.57) - or over 10% -
more for some neat shots than they would have a year ago, the
31-year-old said on a busy Friday night as music blared and
punters sipped "mirror margaritas".
    "There's definitely been an increase in tequilas consumers
are familiar with," she added. "I've noticed more marketing ...
it's newer brands that want to hit the ground running as well as
larger brands that have been here for a while as well."
    TEQUILA ON 'THE ROCK'
    Liqour giant Diageo  DGE.L , which doesn't break out
European results, said last month that its global tequila sales
volumes rose by 15% in the second half of 2022, far outpacing
overall spirit sales, which edged up 3%. 
    The Mexican spirit accounted for 11% of its reported net
sales, with Don Julio - which can sell for anything between
about $50 and $250 a bottle - rising 26% and Casamigos 29%. 
    European demand isn't a 2022 flash in the pan, according to
some industry players who say tequila had been slowly gaining
traction for years and was boosted by home drinkers during the
pandemic.
    Export volumes to Britain, Germany, France and Spain rose by
about 60% on average in 2021 even before the bigger leap of
about 73% last year, according to data from Mexico's Tequila
Regulatory Council. 
    Michael Merolli, head of Pernod Ricard's tequila business,
which includes Olmeca, said there were far fewer tequila brands
in Europe than the United States, where the market was more
mature and competitive, with new brands emerging every week. 
    He said "premiumization" - where brands emphasize quality
and exclusivity - was also driving prices higher.
    U.S. A-listers like Dwayne "The Rock" Johnson, Kendall
Jenner and Kevin Hart have all launched tequila brands in recent
years. 
    Some industry players see a respite from the shortage of
agave, which takes roughly seven years to mature before it can
be harvested. 
    Agave that had been planted a few years ago will eventually
be ready to harvest, said Luis Fernando Felix, head of the U.S.
and Canadian operations at Proximo Spirits, the subsidiary of
Mexican distiller Becle that manages Jose Cuervo distribution.  
    "In about two years, the price of agave will go down because
supply is going to be greater than demand," he added.
   ($1 = 0.8085 pounds; $1 = 18.7636 Mexican pesos)
 (Reporting by Richa Naidu and Valentine Hilaire; Editing by
Matt Scuffham and Pravin Char)
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