A new dawn for tequila: how the UK is waking up to the opportunity

It’s an early Wednesday evening in August and London is almost empty. But trade at Hacha, a Mexican-inspired ‘agaveria’ in Dalston, is still ticking over nicely. Patrons sip on glasses of the signature crystal-clear ‘Mirror Margarita’ and snack on bowls of chips and guacamole in the late-summer sunshine.

Ten years ago, the prospect of a specialist cocktail bar dedicated to celebrating tequila, a spirit previously associated with shots washed down with lime and salt at the end of the night, would have been almost unthinkable.

But Hacha – which opened in 2019 and now has locations north and south of the river – is thriving. “The culture now is completely different to what it was,” says tequila and mezcal expert and Hacha owner Deano Moncrieffe. “A lot of people that come in have never had tequila before, but they’re so open to trying it.”

Tequila’s rising popularity in the on-trade was highlighted when the spirit’s most renowned serve – the margarita – entered the UK’s top 10 cocktails for the first time in March, according to volumetric sales data from CGA. “The fact that tequila is more common on cocktail menus in bars has made a huge difference,” says Moncrieffe. “You’re seeing it more available in supermarkets and popping up a lot in advertising as well.”

So, just how far evolved is tequila-mania in the UK, and how big can the category get? Will the trend have greater longevity than recent fads in flavoured gin and hard seltzer? And how has growing demand for tequila-based cocktails translated to the off-trade, where bottles of the spirit typically cost more than gin and vodka?

Growth off a small base

Tequila’s UK rise is a more recent phenomenon than in the US, where it has soared in popularity for almost a decade and is the second-biggest spirit after vodka, with sales of $6.5bn [Distilled Spirits Council of the US].

Across the Atlantic, celebrity-backed brands, from George Clooney’s Casamigos to Dwayne ‘The Rock’ Johnson’s Teremana Tequila, as well as high-end producers like Patrón, Don Julio, El Jimador, Mijenta and Espolòn, have helped turn the spirit from a low-grade option to a complex drink worth savouring.

Back home, there’s still work to be done. Off-trade sales of tequila and sister-spirit mezcal grew 15% to £46.1m in the past year, but remain a fraction of the wider £5.6bn spirits category [NIQ 52 w/e 10 August 2024]. By comparison, £870.4m of gin went through the tills over the same period. Vodka, meanwhile, racked up sales of almost £1.5bn. Sales of rum and brandy dwarf those of tequila and mezcal too.

Despite being “one of the few spirits to have achieved growth in the aftermath of lockdown”, tequila’s uptick comes “from a very small base”, says NIQ analyst Andrew Eagle. But if tequila could replicate its US market share in the UK off-trade, the category would be worth over £550m, Eagle explains. As it is, it represented just 0.1% of total spirit sales in the past 12 months. “It’s not hard to see why it is generating excitement within the category,” Eagle says. “But it has to improve considerably to start to meaningfully shift the dial.”

Waitrose setting the pace

Tequila’s relatively modest stature in grocery can partly be attributed to the time taken for retailers to latch on to the trend and put the right products on shelf, says Tom Bishop, co-founder of British-based brand El Rayo.

“To actually action change as quickly as the market’s developing is sometimes quite difficult,” he says. He points to Waitrose’s recent spirits range refresh, which saw the retailer increase its tequila and mezcal stable by over 10%, and grow distribution on SKUs from brands including El Rayo, El Jimador and Olmeca Altos. “That’s a two-year process for them. So it’s about how responsive retailers and buyers are and how quickly they can keep managing the space on their shelves.”

Growing its tequila range was a “key focus” of Waitrose’s recent refresh, admits spirits buyer John Vine. But despite sales of tequila in the retailer growing by 18% year to date, they remain “still relatively low”. Hence, tequila and mezcal still only make up 5.3% of all spirits on shelf in Waitrose.

“Most people will have tried a margarita, and the rising popularity of Mexican cuisine has helped fuel that”

John Vine, Waitrose

Price is also a thorny issue. Tequila and mezcal sold in the past year in grocery carried an average price of £34.04 per litre, compared with £22.76 per litre of gin, and £21.51 for vodka [NIQ].

A 70cl bottle of El Rayo’s Plato tequila retails at £34 in Sainsbury’s, but drops down to £28 on promotion. Bishop says it’s benchmarked against “premium gin” but admits the price tag is still likely to deter some shoppers, “particularly the way the world is at the minute”.

 He points out, however, that the agave plant’s long maturation period, and the strict rules governing where the spirit can be made, mean tequila distillers face higher costs than many other spirit makers.

“Setting up a Supply chain outside of your country is a relatively complex thing to do with the level of regulation around tequila,” he says. “You’re limited to a certain area, and a plant takes eight years to grow before it’s harvested. You can’t react as quickly as you might in another category.”

While pricing relative to unaged white spirits remains at a premium, there are “very good entry-level tequilas” at around the £20 mark, Moncrieffe insists. He acknowledges, however, there is a “big jump” in the price of premium and super-premium SKUs, which can cost double this and come in at more than high-end vodkas, gins and even some aged whiskies.

“It is a gamble,” he says. “If you’ve not tried tequila before, are you going to spend £30 or £40 on a bottle? Probably not.”

Waitrose’s Vine agrees. He says the retailer is still seeing “customers opting for cheaper options such as gin when spend is still a strong determining purchase factor”.

There are good reasons to believe tequila can continue to gain momentum, however.

For one, availability of agave – shortages of matured agave plants had been constraining growth outside of the US – is now much improved, according to Bishop. Meanwhile, a slowdown in the rate of tequila sales growth in North America has meant global spirits powerhouses are turning their attention to other markets.

“Some of the easier volume the big guys were getting in the US has slowed down slightly and made them turn their attention elsewhere,” says Bishop. The UK, Europe and Australia appear to be “the next port of call” for tequila’s larger players, he adds.

The Rock’s Teremana Tequila, for example, only arrived in the UK in June but was immediately backed by part-owner and distributor Mast-Jägermeister. The spirits group launched a “comprehensive, multi-channel marketing programme” for Teremana including OOH adverts across London and other key cities. It sealed a listing in Tesco soon after.

Meanwhile, Olmeca Altos this summer appeared on TV for the first time. The advert sees an “average bartender” called Alan rustling up a margarita in a bid to “challenge some of the historic preconceptions that exist about tequila” according to Ian Peart, commercial director at brand owner Pernod Ricard UK. “We’ve seen these perceptions begin to change and, for us, it’s about continuing to educate consumers,” he adds.

The decision of companies like Pernod Ricard to dedicate “huge financial resources” to promoting tequila in the UK will grow consumer awareness of the category, says Moncrieffe.

The fact tequila remains in value and volume growth also suggests demand is more resilient – and downgrading is less prevalent – than in other spirits categories.

In fact, once shoppers enter the category, they’re more likely to move up than down, says Moncrieffe. He puts this down to the “completely different perception” the new generation of tequila drinkers has towards the spirit – “they haven’t grown up with this idea of it being something to be shotted”.

That’s given retailers the confidence to keep adding more premium SKUs, says Bishop. On making its grocery debut in April 2023, El Rayo was the first £30-and-above tequila stocked in Sainsbury’s. “Since that they’ve added to the category above us. That’s a price ladder and a category journey right there,” he adds.

Will celebrities supercharge growth?

But before tequila can be considered truly mainstream, it needs further scale. A growing presence in the on-trade and investment in the category can only do so much. Additional star power may be required.

Fortunately, tequila is awash with celebrity-backed brands, from LeBron James’ Lobos to The Rock’s Teremana and Kendall Jenner’s 818. The presence of these household names is helping to “increase the visibility of tequila” and attracting new drinkers to the category, Moncrieffe says. “You’ll hear about a Celebrity that has a tequila and then if you’re in a venue and see the name on the menu you’re more likely to try it out.”

The fact many of these celebrities aren’t just endorsing but are in many cases investors or co-founders of the brands themselves also “signals authenticity and commitment” to the consumer, according to Jonathan AJ Wilson, professor of brand strategy & culture at Regent’s University London.

“We’re moving beyond simply using celebrities to advertise brands,” he says. “The product is becoming at one and synonymous with the celebrity.” He cautions, however, that celebrity-backed brands will need to work harder on emphasising their quality credentials, lest they are viewed “simply as a novelty or type of merchandise”.

Although Bishop concedes that celebrity may not “necessarily perform as well here as in the US”, he thinks the net impact is still likely to be a positive one. “Whether somebody comes into the category through Kendall Jenner or through trying one of our tequilas with tonic, a rising tide will lift all ships.”

Given tequila-mania is a US-led phenomenon, sceptics could be forgiven for comparing its recent growth spurt with hard seltzer, which arrived on UK shores to much fanfare but failed to win over shoppers.

Others may be tempted to view tequila as simply the next gin, which saw exponential growth after legal changes in 2009 made it easier for UK distillers to get commercial licences – but the gin boom has since tailed off, with sales dipping 8.3% in grocery in the last year [NIQ].

The tequila trend certainly has the potential for greater longevity than hard seltzer, says Waitrose’s Vine. Tequila is “easy to understand”.

“Most people will have tried a margarita, and the rising popularity of Mexican cuisine has helped fuel that,” he says, adding that timing may also be in tequila’s favour: “Hard seltzers launched in the UK just as the pandemic hit, so we saw festivals and events put on hold, and there wasn’t really a market to enjoy them.”

A cautionary tale

The success of gin over the past 10 to 15 years, on the other hand, can serve both as a source of inspiration and, with sales growth stalling, a cautionary tale to the UK’s fledging tequila scene.

Gin’s success came from its ability to “strike a good balance between being fun, approachable and high quality,” says Anthony Gladman, drinks journalist and author of Gin: A Tasting Course. Brands that won out in the category were ones that managed to “tell engaging stories about their provenance”, he notes, adding that if tequila can “find the right drinking occasion to capture people’s imagination” there’s “every chance” it can enjoy similar success.

In more recent years, gin has suffered as “some brands tried to make it be all things to all people”, says Gladman. “The proliferation of flavoured gins in particular watered down what’s great about the spirit and blurred the lines between gin and vodka,” he says. Therefore, “tequila brands should take care not to downplay what makes it unique”.

Fortunately, tequila has so far – for the most part – steered clear of the flavour craze. And Moncrieffe believes – due to the greater nuances in the flavour profile of the spirit – consumers won’t get fatigued as quickly as they have in gin. “If you have a gin & tonic, it tastes like a gin & tonic no matter what,” he says. “It’s hard for the average consumer to distinguish between products. In tequila you’ve got liquids from the highlands, the lowlands, you’ve got blanco, reposado and añejo. Because there’s so much variety in the product already, there is more places for the consumer to go and less likelihood they’re going to get bored.”

So, while tequila in the off-trade may not have experienced lift-off just yet, there’s plenty to feel optimistic about, according to Moncrieffe: “It’s snowballing, and it’s not going to slow down. It’s just going to get bigger and bigger.”