🦄 vol. 60

matt chats about tequila 🌵

Oct 24, 2022

who ordered the azul? 🌵

It feels as if the only real constant in this “new normal” is chaos, and it seems there is no clear off-ramp in sight. Fed rate hikes have caused mayhem in financial markets, as the world battles to keep a top on the previously transient, and now runaway, inflation. After almost pushing the bond market over the edge, and then reneging on her tax-cut plan, UK Prime Minister Liz Truss resigned just 45 days after taking office. Anticipatory belt-tightening has seen hiring freezes and job cuts across a once-immune Big Tech, with Google, Meta and Microsoft all affected. Hell, even Netflix finally introduced their lower-priced, ad-supported tier. It’s no wonder Bloomberg is projecting a 100% chance of a recession in the next twelve months (and this manages to gloss over the ever-present threat of nuclear war).

I need a drink 🥵

Vices are often perceived as crisis-proof, and alcohol is no different. As is often remarked: when the times are good, people drink and when the times are bad, they drink more. But the more interesting subplot in this, at least to me, is the rise of tequila (and the new faces that have come to cash-in on its growing popularity).

Humble beginnings 🇲🇽

Named after the small Mexican town from which it was born, tequila is a distilled liquor that is produced from cooking and then fermenting a cactus-like perennial succulent called agave. Deemed sacred by the Aztecs, its cultural significance is rooted in its use for everything from food and shelter, to clothing and religious ceremonies. Agave-based distillates, which include both tequila and mezcal, soon found an export market in the form of the United States, and from there it has trickled its way into bar menus and onto drinks trolleys across the globe.

Nowadays… 👀

…the cultural importance of tequila may have been diluted by the more prominent part it plays in fuelling the uncouth behaviour of spring breakers, but its economic significance is hard to ignore. Today, the tequila industry is worth $10 billion, a number which is projected to double in the next 10 years. A large proportion of their CAGR is derived from tequila managing to grab market share from other spirits like whiskey and vodka; by next year, estimates suggest that tequila will surpass vodka as the most consumed spirit in the US.

Why the thirst for tequila? 🧐

A few tailwinds:

🌍 Shifting consumer demand: The pandemic held consumers captive in their living rooms, which underpinned a shift towards mixing their own cocktails and sipping premium liquors. Aided by an e-commerce boom, global sales of tequila (and vodka and liqueurs) have outperformed the broader alcohol market since the pandemic.

🍏 Heed to health: Although none would be better than some, 100% agave tequila is gluten free, low in calories and has fewer fermentation products (leading to improved hangovers)

👐 A broader market appeal: Data suggests that tequila consumptions spans age, gender, culture and occasion, providing a larger market when compared to most spirits.

And then there’s the celebrity angle… 😎

While it’s difficult to know whether they would be the chicken or the egg in this instance, they are most definitely in the pen. The brand power of celebrities has long been used by the alcohol industry, but it's evident that the stars have realised they can bypass any intermediaries by creating their own brands, and then using their untapped distribution channels for gaining market share.

For tequila, Kendall Jenner serves as the poster girl for celebrity-owned brands, with 818 emerging as the best-selling new tequila of 2021 and a handful of awards to match. Others like The Rock, George Clooney and LeBron James have seized the opportunity to monetise their brand value in the tequila trade.

Yet tequila is but an example of the rise of celebrity entrepreneurship we’ve witnessed unfold over the last decade. As opposed to merely endorsing products, household names have spun out their own brands, using their capital and selling power, to start successful ventures. Kim K’s Skims and Kylie’s eponymous cosmetic brands are both valued over $1 billion, Tom Brady followed in MJ’s steps and launched his own apparel brand, and Ryan Reynolds and Drake push their own liquor brands. From a consumer goods perspective, we could probably explain the utility of star power in three points:

⬇️ Lower customer acquisition cost: Having already amassed followings, and developed trust, the marketing costs are exponentially lower than most.
📈 Increased retention: A sense of aligned beliefs and an adoration for the star, customer retention remains higher when compared to ordinary brands, and in doing so, increased lifetime value of the customer.
🚀 Network flywheel: Passionate members of the community drive engagement and support customer growth.

In saying all this, a new type of celebrity is emerging: the influencer. And the case study of influencers-cum-entreprenuers offers a fascinating take on the value of creating distribution channels, and then offering products. Stay tuned for a deeper dive into that.

matt