Brands are betting on tequila-based beverages as the next trending category

Over the past few years, shoppers have been gravitating toward convenient RTD alternatives outside of beer and wine. An outpour of funding in the alcoholic beverage category has also triggered trends to move quickly in the category. Rachel Dalton, head of retail insights at Kantar, said shoppers’ cravings for lighter and more convenient options are one of the driving forces behind the rise of tequila-based beverages.

“There’s just a lot more innovation happening in the beverage alcohol space overall beyond beer and wine,” Dalton said. “We’re seeing shoppers replacing other alcoholic beverages with these types of ready-to-drink, mixed drink options and definitely the convenience factor of that plays into the reason.”

Compared to other alcoholic beverage trends, Dalton said the growing popularity of tequila-based drinks could also be attributed to health-conscious people. In an interview with Food Dive, Casa Azul’s new CEO Dennis Carr said that he intends to introduce healthier options in the RTD category — options that feature natural ingredients, fewer calories and lower alcohol content. Casa Azul’s new tequila soda Playa Pack comes in four flavors like spicy margarita grapefruit, pineapple coconut and lime margarita. It contains 100 calories, no more than one gram of carbohydrates per can and 5% alcohol.

“There has been a transition away from malt-based drinks towards ready-to-drinks featuring real spirits, offering consumers a more authentic and satisfying experience,” Carr told Food Dive last week. “With three decades of experience in brand-building and market innovation, I understand the importance of starting with a superior taste and a compelling brand story.”

Several tequila RTD startups have gathered significant attention and funding in recent years, which fueled the growth in the category. Tequila seltzer brand Onda secured a $12.5 million growth investment back in 2022. Additionally, RTD producer for tequila soda and vodka soda Canteen Spirits raised $31 million in 2021. As such, It was only a matter of time before larger tequila brands entered the market to take market share.

“It signals that the category is probably going to start being pushed a lot more from a mainstream standpoint,” said Nik Sharma, CEO of strategic initiatives firm Sharma Brands. Sharma Brands has previously worked with infused tequila company 21 Seeds.”Generally, when one of these huge companies gets in, it’s accompanied by a lot of big advertising. I think the category will probably just get a lot more attention over the next four months.”

The flavors of White Claw’s new Tequila Smash are inspired by the popular Mexican drink aguas frescas, such as pineapple passion fruit and strawberry guava. White Claw has been attempting to keep up with trends in the beverage industry. It launched 0% alcohol seltzer earlier this year just in time for Dry January and it also launched White Claw Vodka + Soda last year.

But trends in the beverage industry move quickly, and brands risk seeing a significant sales decline if they don’t adapt at the right moment. Several years ago, hard seltzer sales exploded as consumers were clamoring to try new flavors from brands like then-nascent brands like White Claw and Truly. In the fourth quarter of 2019, Truly Hard Selter sales helped boost Boston Beer’s sales by 33.8% from the previous year.

But since then, interest in hard seltzer has faded as consumers have moved on to other beverages. In turn, softening demand for Truly had been a major contributor to Boston Beer’s 12% revenue decline in the fourth quarter.In a recent earnings call, Boston Beer CEO David Burwick said he hopes the new innovation at Truly would help establish “a new Truly brand to stand for light refreshment versus bolder flavors.”

Unlike malt-based beverages, however, Sharma said that a big hurdle for brands is navigating the distribution restrictions around spirit-based beverages for every state. In the state of Virginia, for example, all spirits are sold through its control system. As a result, larger beverage companies that have a stronger distribution network might have a stronger advantage over younger brands.

Brands that attempt to expand to the tequila-based category also have to be aware of the culture behind the product, said Nikita Walia, founder and CEO of Blank Strategy. For example, Kendall Jenner was accused of appropriating Mexican culture when she promoted her tequila brand 818 Tequila in which she was seen riding a horse in an agave farm, wearing worn-out jeans with a cowboy hat and a distressed shirt. Some social media users described the promotional material as “tone deaf” and that Jenner had been attempting to look like a “chic migrant worker.”

Brands have to be “respectful of the category and culture that they are participating in,” Walia said. “I’ve seen a lot of celebrity-backed tequila brands catch flack for really not respecting agave, Mexican heritage and the culture around tequila.”