The Rumors Are True – A Tequila Shortage May Soon Be Upon Us
Between the endless headlines about supply-chain breakdowns and the constant news of inflation, it seems like every industry is facing some sort of shortage these days.
Tequila is no exception. Although the above issues remain true for tequila, rumors of a coming tequila shortage have begun circulating online largely for other reasons.
Back in January, the North American President of spirits giant Diageo, Debra Crew, was interviewed by Yahoo Finance and spoke on issues the company was facing in selling its much sought-after brands like Casamigos and Don Julio.
Crew claimed that “demand is so high” for tequila that it was beginning to create supply constraints, forcing the company to cap volumes. She mentioned the exploding popularity of aged expressions in particular as a driving force of this burgeoning issue.
Now, it should go without saying that discussions of “scarce supply” are an easy way to drive up prices. Crew’s comments shouldn’t necessarily be taken at face value, but that doesn’t mean she isn’t describing a very real issue that is only going to grow with time.
In fact, the dilemma that Diageo and other spirits brands are currently facing reflects a radical shift in the tequila market that has occurred over the last decade.
A shift driven by American consumers and their love for whiskey.
The Problem with Aged Tequila
Tequila is made from blue weber agave, a plant that needs to mature for at least seven years before it can be trimmed and distilled into liquor.
Compared to the likes of sugar cane or grain, this is an unprecedentedly long incubation period for a crop used to make alcohol. Arguably one of the longest in the industry.
Now we can look to the American market. Anyone with their finger on the pulse can tell you that demand for tequila has been exploding as of late. From 2004 to 2021, tequila supplier revenue in the United States grew from $1.068 billion to an astounding $5.162 billion. Forecasts predict that numbers will continue to climb.
But not all tequilas are created equally. America is a nation of whiskey and bourbon drinkers, accustomed to the dark aged flavors of oak, caramel and vanilla. More than anything else, American consumers are being introduced to tequila through aged expressions like reposados and añejos.
When Crew mentioned the exploding popularity of aged expressions, this is what she was talking about.
The issue arises when you pause to consider barrel-agings in tandem with that previously mentioned seven-year maturation period. It’s a potent combo that can literally add up to decades.
Let’s take Casa Noble Extra Añejo Single Barrel as an example. This is a very well-received, highly sought-after expression backed by Rock and Roll Hall of Famer Carlos Santana. What’s not to like?
Forgoing the typical seven-year agave maturation process, Casa Noble’s Extra Añejo uses blue weber agave that has been left to mature for 14 years. After harvesting and distillation, the expression is then barrel-aged for an additional 6 years.
Unless you exist within the truly ultra-luxury segment of the spirits market, you will rarely see a tequila that’s advertised as having been aged for 20 years. Casa Noble’s Extra Añejo certainly isn’t aged for that long, but that doesn’t mean it isn’t 20 years in the making.
That’s a very long time for America’s fastest-growing spirit. And they’re not alone.
The tequila industry’s rapid expansion is being driven head-first by so-called premium tequila brands, many of which hinge on the popularity (and marketability) of exotic aged expressions.
Spirits giants Diageo, Pernod Ricard and Suntory have all declared their desire to buy into the high-end American tequila market. Each has competed in recent years to buy up lucrative brands like Avion Tequila, Don Julio, Casamigos, and most recently, Codigo 1530.
Earlier this month, CEO of Suntory Takeshi Niinami frankly stated of tequila, “A polarization is happening in the U.S. market: one is toward the premium; the other one is less alcohol drinking.”
What we’re seeing is a dual trend towards both premiumization and aged expressions, one which is locking away a huge portion of the industry’s product for years or even decades on end. All of this isn’t to forget that even the most basic of unaged blancos require agave grown for seven years.
Premium tequila is predicted to take up 55% of the category volume share by 2026. Premiumization will coincide with higher prices not only because of brand recognition, but because the shortages caused by barrel aging will drive up prices across the board.
Agave growers are saying that this trajectory is unsustainable.
Now, the industry is already being forced to react. A growing number of voices are starting to advocate for the industry to harvest younger agave plants, a trend that will most likely not take hold within the growing premium market.
More broadly, the increased popularity of canned pre-mixed cocktails are offering brands an opportunity to profit off of a dwindling tequila supply.
This too is a trend that will likely not find popularity in the premium market; a market more preoccupied with ornate glass decanters than 99-cent canned drinks.
As profits soar and supplies dwindle, American consumers may soon need to reconsider their acquired taste for expensive aged tequila. Or else there just might be none left.
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