BY 2016, tequila and mezcal sales are predicted to increase by 8% to 27 million cases (Euromonitor). As customers continue to move to the more premium 100% agave end of the market, that’s a lot of agave plants. Right now, there is a question mark over what this will do to raw material prices in the region.
Tequila expert Tomas Estes sent word from Mexico that agave prices are rising. He says agave prices were “under 1 peso a kg” but that prices are now reaching “4-5 pesos a kg”.
“This is because the supply of available ripe agave is getting more scarce,” he adds.
Estes elaborates: “This is expected to continue creating higher prices which will have the effect of creating more cost to the producers. Some will pass this on to the consumer if they can and some that are already selling within tight margins and highly competitive market prices will likely fail unless they have deep pockets.”
Greg Cohen, director of corporate communications at Patrón Spirits, also notes an increase in the price of tequila’s raw ingredient – though he can’t foresee problems for Patrón.
He adds: “We’ve certainly seen the effects of that on our bottom line, but fortunately we have long-term contracts with top growers in the region, so we’re in a good position to manage these costs.”
But over in the Beam camp, those in the know say agave prices are relatively low. Salvador Alvarez, senior vice president, managing director for Casa Herradura tequilas, says: “We are not aware of any public reports in Mexico about agave prices rising (only that agave growers want higher prices, which is understandable).
“The price of agave is driven by supply and demand and, when compared to historical market trends, agave prices have been low for the past few years. Over the the past 36 months, there were plenty of reports about pricing being very low. Also, according to Nielsen in the US and ISCAM data in Mexico, recent trends within the tequila cateogry show that more brands are lowering price than increasing price.”
Like most spirits categories, though, producers want to drive the premium end through bartenders – that means 100% agave tequila, which means 100% raw materials, rather than the 51% needed for mixto tequilas.
Estes says: “The newer market for tequila continues to be in the premium sector.” He says it is now the job of the bartender to convey tequila’s positive values to the consumer.
He adds: “It does appear that this message is already under way since sales of tequila 100% [agave] are growing in a progressive direction.”
Indeed, Euromonitor International alcoholic drinks analyst Spiros Malandrakis says: “The story of premium varietals outperforming standard brands is adequately personified by Patron’s rise among the pantheon of luxury brands.
“Patron, particularly successful in the US but expanding its reach rapidly, makes for an interesting case study. The brand’s initially skyrocketing sales proved to be surprisingly resilient and remain so, with Patron accounting for 15% of total tequila volume sales in the US in 2011.” That’s no small achievement considering the US is the largest tequila market, accounting for 12 million nine-litre cases of volume in 2011 (including Mezcal).