In the world of tequila production, even high-profile brands like 818 Tequila, owned by Kendall Jenner, are not exempt from the industry's growing challenges. This four-year-old brand has recently implemented a slowdown in hiring and reduced its marketing expenditures, signaling potential trouble not only for itself but also for the broader tequila industry. Once characterized by explosive growth and a surge in celebrity endorsements, the sector is now facing a significant shift.
According to Mike Novy, CEO of 818 Tequila, there has been a noticeable pullback in discretionary spending among consumers. “We’ve observed a pull-back on discretionary spending and an increase in what we view as more deliberate purchases,” Novy stated in an interview with CNN. The company is now concentrating on its core lineup of tequilas to ensure it offers customers the “best possible price.” This strategic pivot reflects a broader trend where consumers are becoming increasingly selective about their purchases.
The tequila market currently finds itself at a “critical juncture,” as detailed in a recent report by OhBev, an alcohol marketing agency. The report highlights “signs of market normalization” following a decade of remarkable growth. Consumers are spending less on tequila compared to the peak of the COVID-19 pandemic, when many stocked their home bars. This downturn has resulted in a wave of layoffs across the industry.
Additionally, years of excessive demand have led to an oversupply of agave, the primary ingredient in tequila, causing prices to plummet as unsold inventory accumulates. For farmers, this has severely impacted profit margins. Compounding these issues is the looming threat of a 25% tariff on tequila, as the spirit is exclusively produced in Mexico. Currently, tequila benefits from a free trade agreement established during President Donald Trump's administration with Mexico and Canada, but this agreement is set to expire next year.
As consumers become more discerning in their purchasing habits, the tequila industry is witnessing a shift back to pre-pandemic business levels, according to Andrew Chrisomalis, co-founder and chairman of Pantalones, another tequila brand created by Camila and Matthew McConaughey. Chrisomalis noted that consumers are now less inclined to spend on ultra-premium tequila brands, such as the $150 bottle of Clase Azul, favored by celebrities. Instead, they are seeking high-quality tequila at a more affordable price, which is beneficial for brands like Pantalones, priced at $45 for a 750 ml bottle of Blanco.
“Given the uncertain economic environment, people are being more cautious,” Chrisomalis remarked. “Discernment would be the key word, and if you have that differentiated product, you should feel pretty good about yourself.”
Despite the challenges, there is some relief regarding tariffs—at least for the time being. Chrisomalis expressed that, “We have not seen any changes or differences this year at all from a tariff perspective, which has been a blessing.” However, he acknowledged the existence of uncertainty in the market, prompting companies like Pantalones and 818 Tequila to stockpile supplies in the United States, the largest consumer of tequila, accounting for 80% of imports.
In fact, tequila exports from Mexico saw a 30% increase in January compared to the same month last year, according to data from Mexico’s Tequila Regulatory Council. As the U.S. market approaches its peak amid a fluctuating trade landscape, Pantalones is expanding its reach to the United Kingdom. The brand has secured a distribution deal with Tesco, allowing it to be sold in around 2,500 stores across the country, in addition to various restaurants and hotels.
Tequila is still in its infancy in the UK market, which presents an “education curve” for consumers. To facilitate this, Pantalones is hosting tastings to introduce customers to its three varieties, leveraging McConaughey’s star power for promotional efforts. Chrisomalis emphasized the importance of celebrity influence, stating, “It’d be very difficult for me to do that without them, but with them, it’s just a much easier task.”
As the tequila industry navigates through these evolving challenges, it is clear that adaptability and consumer insights will be crucial for brands like 818 Tequila and Pantalones to thrive in this competitive landscape.
