Living in the heart of Tequila country, I am fortunate to have super premium tequilas I’d never even heard of before moving to Mexico readily available in local restaurants, stores, and bars.
While artisanal brands like Los Abuelos (Fortaleza in the U.S.) and Tequila Ocho are produced in limited quantities and still in strong demand, the wider marketplace is now suffering from a vast oversupply.
For readers who are unfamiliar, agave-based distilled spirits cannot be labeled as tequila unless they are produced in legally designated areas — just like French Champagne. In Mexico, most of this territory is found around the town of Tequila in Jalisco, Mexico.
Before we examine the current situation, let’s take a brief look at how we got here.
Tequila as a Get-Rich-Quick Scheme
A few years ago, the joke among the long-time tequila producers was that every washed-up Hollywood actor seemed to be visiting Jalisco with ambitions to start a new tequila brand as a distraction from their flagging careers.
Why tequila?
Demand (and prices) were surging, with the pandemic turbo-charging sales at a time when many poor souls locked at home decided to make day drinking their new hobby.
To capitalize on the trend, a gold rush mentality took hold where everyone and their brother seemed to be starting a new tequila brand. Actors, comedians, former pro athletes, Food Channel chefs, reality TV stars, influencers, rappers, and pop princes got into the act.
George Clooney’s Casamigos tequila (which he sold to Diageo for a cool $1 billion) rode the wave and charged prices that made no sense relative to its quality.
Well, those charades are over now.
The Gold Rush Gives Way to a Tequila Glut
Whether it’s Gen Z reaching for weed (or mocktails) instead of alcohol, or Gen X’s post-pandemic hangover, more Americans are reducing their alcohol intake.
Influencing those lifestyle shifts, the outgoing U.S. Surgeon General Vivek Murthy warned in January that alcohol causes cancer. More recently, Donald Trump returned to office threatening Mexico with 25% tariffs on all goods imported into the U.S., which has chilled new tequila orders from U.S. importers.
By the numbers, the Wall Street Journal reported U.S. tequila imports have fallen by 6%. Demand for super-premium tequila ($45-100 USD per bottle) is said to have dropped even more sharply in the past year, according to IWSR, an industry tracker.
The net effect of these developments is … way more tequila than tequila drinkers.
According to the Mexican Tequila Regulatory Council (CRT), roughly one in every six bottles of tequila produced in recent years remains unsold. As a result, spot prices for agave have collapsed, hitting agave farmers the hardest.
In the past two years, agave prices have plummeted from $30 MXN per kilo to around $2 MXN today. This is prompting many Mexican farmers to rip out their blue agave plants to focus on more lucrative crops.
Tequila Discounts Galore
Up north, the glut has led to aggressive discounting by the major players. Diageo has been cutting prices of Casamigos, now offering it below the cost of Don Julio (which it also owns) to move product. Other brands such as Patron have followed suit.
Here in Guadalajara, we’ve seen deep discounts outside the usual sales events. (In Mexico, retailers typically limit discounting to a few highly synchronized and well-planned annual events. Deviations from this playbook signify big inventory issues.)
In early February, some of our favorite local shops were offering shockingly deep discounts on premium tequila.
At Vinos America in the Country Club neighborhood, we bought a few bottles of Gran Orendain Añejo for 50% off, and plan to gift them to relatives who live in places where the brand typically costs four times more. I’ve also seen deep discounts (30%-50%) on a range of tequilas at La Europea Guadalajara of late.
Tequila By the Numbers
According to Statista, between 2018 and 2022 total tequila output more than doubled (!) to 651 million liters. As noted above, this gangbusters growth resulted in a worldwide glut of tequila.
Annual Production & Exports of Tequila Worldwide, in liters
Since 2022, production has fallen sharply with volume just shy of 496 million liters last year.
Roughly two-thirds of Mexico’s tequila output is exported, with the U.S. consuming roughly 80% of those shipments. Though still only a drop in the ocean, a few countries like Germany, Spain, and Japan are starting to consume more tequila — a welcome bright spot for the industry.
The tequila industry in Mexico employs about 70,000 workers. This includes agave farmers, distillery workers, exporters, marketers, and related roles. In addition, plenty of hospitality workers in Jalisco benefit from tequila-related tourism.
Also in the game are criminal groups better known for sales of non-alcoholic, mind-altering substances. Of note, the Jalisco Cartel got busted back in 2020 for setting up hundreds of front companies posing as tequila businesses, that were used to launder more than $1billion USD.
The cartels are also reportedly involved in extorting agave farmers for protection money, adding to their woes.
Conclusion
In the short term, we’re likely to see a much-needed shakeout in the tequila industry as some of the low-quality “vanity” brands disappear.
But because blue agave is a slow-growing succulent plant and acreage is being removed, we’re likely to see the pendulum swing back in a few years from glut to shortages. Eventually, this cycle will give way to higher tequila prices.
In the meantime, if you’re an aficionado now is a fine time to stock up.
Sources: Whiskey Advocate, Investopia, The Wall Street Journal, Mexico Daily Post