If there is one word we would use to describe 2021 and the world of mezcal, it would be chaotic. Between supply chain issues causing shipment delays, glass and cardboard shortages, staffing shortages, regulatory chaos and the ongoing spread of Covid, 2021 was anything but a return to normal. And trying to establish a “new normal”? Forget about that as every day seemed to bring about changes and disruption. Remember the hot vaxx summer that was supposed to happen?
Despite all of these challenges, mezcal sales continued to grow at a fast clip with a CAGR of 6.1% according to Insight Partners, with sales estimated to reach $1.1 billion dollars by 2027. So what were some of the big trends that emerged in this past year?
There were deals a plenty in 2021, with Diageo leading the way in acquiring Mezcal Union, a brand it already had an existing partnership deal with. Mezcal Union joined a portfolio that also includes Sombra, Pierde Almas and Casamigos.
Meanwhile, Constellation Brands bought an investment stake in Dos Hombres mezcal, adding it to a portfolio that includes El Silencio.
We expect to see more of these deals in 2022 as brands search for capital investment and inroads into a distribution system in the US that favors the larger spirit conglomerates.
One of the interesting byproducts of the pandemic is how remote work changed the landscape of markets. Those part of a workforce given the flexibility to work from home, began asking just what home was. In many cases it was staying put, but in several others, those with second homes decamped to their mountain or beach retreats. Others just completely relocated to new states where their money went a lot further in buying homes, and less money went to taxes. The longer the uncertainty of the pandemic lingers, the less likely it is these changes are temporary.
Those who have relocated have brought with them their food and beverage preferences, and we are seeing the emergence of mezcal markets in these locations. The biggest surprise, Miami, which seemed to be a cocktail market given the nightlife scene, but has seen several mezcal focused bars open this past year. Coincidence that it is also a city that has drawn tech workers from NY and California?
Other growing markets include Nashville, Atlanta, Phoenix and Kansas City. Major mezcal markets like NY and Los Angeles are highly competitive for placement because there is just so much mezcal coming into the market, the real opportunity is in second and third tier markets.
The emergence of DTC
Without doubt, the greatest transformation of the alcohol industry since the end of Prohibition is the online sales of alcohol. The growth of this market was inevitable, but the pandemic catapulted online sales and put everyone on notice – retail and distribution as we knew it will be forever changed.
Setting up an online retail store is a huge endeavor as it requires implementing not only a sales and inventory system, but also staff to upload all the product information into the sales interface and fulfill orders. The sudden increased demand in 2020 meant an awful lot of work for web developers to help retailers scale, and of course put tremendous strain on every shipping company out there. And while retailers were ramping up their online business, brands also took note and began exploring the world of Direct-to-Consumer (DTC) sales platforms to see how they could become part of the online sales boom.
DTC sales in the world of alcohol has long been seen as the holy grail, but navigating the very regulated environment of alcohol distribution and sales made for complications and a great deal of gray area. Because at the end of the day, the three tier system is still very much in place, meaning that the importer, distributor and point of sale must remain three different entities – the sticking point for brands looking to pursue any DTC program.
For a brand to sell products directly to consumers, they have to find a third party to create the shopping platform. Passionspirits, Speakeasy.co and Thirstie were a few of the earliest companies in the DTC space, emerging in 2014/2015 and creating e-commerce platforms that could be integrated with a brand website. By all accounts, those early days were tough, with fulfillment and customer service issues. Plus, this was still very much a regulatory gray area as everyone was still trying to figure out how to be compliant to the three tier system and do order fulfillment. These early platforms relied heavily on retailers to do the bulk of order fulfillment, which required bringing retailers into the platform and then synching up to the various Point of Sales (POS) systems that they used.
As systems refined and as the overall online alcohol market grew, more companies entered the space, which drove technology improvement. But most importantly, there was greater interest on the part of brands to explore the possibilities that DTC offered and to begin dipping their toes in the water.
What’s in it for companies?
In short, data and a stronger end to end connection with the consumer. “We spend so much time building brand awareness through marketing and activations, but then we lose the connection with the consumer once the sale has been made. With an online program, we keep that connection alive. We understand more who the consumer is and we can build loyalty programs and more,” said Kaylan Rexar, Chief Marketing Officer of Ilegal Mezcal.
For Erstwhile Mezcal, it was essential that their online sales partner have a robust customer service program; as a small brand they did not have the capacity to fully manage customer service. They first launched their DTC program in 2019. “We started with one company who had a great system when it came to sharing customer information with us, but there were issues in managing customer service. We ultimately moved to another provider, Bar Cart, because of their strong backend system that works with multiple retailers to fulfill orders. We could also utilize customer data to do targeted ads, as well as get more insight into our customer,” said Yuan Ji, owner of Erstwhile Mezcal.
“DTC is a marketing holy grail. It creates an opportunity to have a direct relationship with the consumer. The number one question after tasting Mezcal Vago is “Where can I buy it?” said Brian Shaifer, Chief Marketing Officer for Samson and Surrey, the import partner for Mezcal Vago. “This gives the brand an opportunity to give a single destination of where the consumer can buy it and it gives us much greater clarity into the consumer and how to direct their mezcal journey.”
None of the brands we talked to looked at their DTC programs as revenue drivers, though they had to be at the very least revenue neutral and not a money pit. All reiterated that it was key to be clear on the business goals before moving forward.
Based on our experiences with Mexico in a Bottle, we heartily agree with Shaifer, being able to direct someone to a point of sale just after they have tasted the product is a terrific opportunity. Complicated ABC laws make it virtually impossible to have an onsite bottle shop at most events, and while we’ve been able to do workarounds by partnering with Old Town Tequila, Moreno’s, Duke’s and Tahona Mercado, this is a great stop gap measure for brands participating in tasting events.
The concept of exclusive or barrel programs is not new – this has been part of the Tequila industry for years, and some mezcal brands have released limited expressions into specific markets for at least the past five years. But the pandemic pushed the concept even further with some retailers, bars and restaurants securing exclusive batches for their restaurants. Ivan Vasquez of Madre Restaurant in Los Angeles, who already had one of the largest and most curated mezcal selections in the US, began securing exclusive batches in the latter part of 2020 and increased his collection in 2021. The pandemic relaxed ABC laws which began allowing bars and restaurants to sell bottles to consumers in order to help keep the lights on. He has secured batches from Real Minero, Lamata, Tosba, just to name a few, and is the envy of other restaurateurs who have found themselves continually beaten to the punch by Vasquez.
Old Town Tequila, which has a healthy tequila barrel program also began securing exclusive batches, as has Tahona Mercado. Mezcalistas even collaborated with Tahona and secured a very limited production of Tepextate from Neta Spirits. Moreno’s in Chicago also upped its exclusive batch program, and in Texas, the Texas Mezcal and Tequila Society Facebook group has worked together to secure exclusive batches for the market there.
Not only do these programs create differentiation in a competitive market, they also support and create a market for small and micro batch production runs, key for so many family owned mezcal brands. We always say there is room in the market for everyone, and programs like this ensure space on the shelf, from the smallest to largest producers. We certainly expect to see this concept expand and grow in 2022 and beyond.
Whose mezcal is it anyhow?
There has always been an undercurrent of questions around the ownership of mezcal, not only the word but the culture and communities who produce it. Usually the question of ownership has remained stuck in which brands are Mexican owned and which are foreign owned, when the real question should be which brands are family/producer owned brands? This was an ongoing conversation between Bricia Lopez of Guelaguetza Restaurant and I which led to an update to our Mezcals Available in the US page denoting that information as well as brands in which the producer is part of the business ownership structure.
But, the conversation needs to go beyond that. Because of limited internet access in rural communities in Mexico, many of the voices missing from online conversations were those of the people who actually make the mezcal and the people from the communities and culture where mezcal is made. With growing online access to social media, these voices began to grow, and those questions of ownership and representation became more pronounced. And they are pushing back against so much of what the consumer has been taught about agave spirits.
Who gets to say how producers and communities are represented online? Is there a fetishization of poverty porn, as it has come to be called, with a constant barrage of photos of workers in worn huaraches or in what looks like humble surroundings to the typically upper middle class foreign mezcal drinker? Who controls that narrative? Why is it important for people to understand the legacy of colonization and extraction economics and how that controls and influences the mezcal category today? And why do end consumers need to listen to these voices?
2022 will only see more of these conversations and critiques. The explosive rise of the mezcal category has put undue burdens on communities where mezcal is made. For all of the revenue generated by mezcal sales, and from tourism specifically in Oaxaca, there are long standing issues of inequity that have only been reinforced by demand. Add to that environmental impact, from monoculture agriculture rapidly replacing traditional Milpa style agriculture, to by-product waste to deforestation and ongoing water issues, there are serious issues and concerns over the long term viability of the industry if it continues along this trajectory.
The year’s biggest winner
As new mezcal brands come into the market, one thing is pretty consistent, the overall quality of the product, and the growing ease of access. From online retailers to brick and mortar stores, the selection of mezcal has increased and consumers are able to try a lot more mezcal than they have previously, and are the definite winner in this chaotic year.