By Jordan Valinsky, CNN
New York (CNN) — It’s tough out there to be a tequila maker — not even Kendall Jenner is immune from the industry’s challenges.
818 Tequila, the four-year-old brand owned by Jenner, has slowed down hiring and dialed back spending on some of its marketing efforts, a troubling sign for the industry that has experienced seemingly stratospheric growth and garnered celebrity attention for the past several years.
“We’ve observed a pull-back on discretionary spending and an increase in what we view as more deliberate purchases,” Mike Novy, CEO of 818 Tequila, told CNN, adding that the company is focusing on its core lineup of tequilas to give customers the “best possible price.”
This year is turning into quite a headache not only for 818 Tequila, but for the whole industry. Tequila sits at a “critical juncture,” according to a recent report from OhBev, an alcohol marketing agency, with “signs of market normalization” following a decade of extraordinary gains.
Consumers already aren’t spending as much on tequila compared to the height of Covid-19 when people stocked up their at-home bar setups, which has prompted a wave of layoffs.
Plus years of excessive demand have sparked an oversupply of agave — the main ingredient in tequila — causing prices to sharply decline as inventory goes unsold, damaging profits for farmers.
Now there’s the threat of tariffs of 25%, as the spirit is produced exclusively in Mexico. Tequila currently falls under the free trade agreement President Donald Trump signed with Mexico and Canada, which is set to expire next year. For now, that trade deal has allowed goods from America’s neighbors that comply to come in duty-free, but that could always change.
Consumers are being more discerning of their purchases, with the industry “seeing a reversion to pre-pandemic levels of business and growth,” according to Andrew Chrisomalis, co–founder and chairman of Pantalones, the two-year-old tequila brand created by Camila and Matthew McConaughey.
He said that tequila drinkers are not spending as much on the super premium category (i.e., the $150 bottle of Clase Azule that’s a favorite of celebrities and Real Housewives, alike) with purchases being “less kind of flash, less sort of showy” as drinkers look for high-quality tequila at an affordable price.
That benefits Pantalones, he said, which costs $45 for a 750 ml bottle of Blanco.
“Given the uncertain economic environment, people are being more cautious… you sort of feel that in everything and in every way of life, including ours,” he said. “Discernment would be the key word and if you have that differentiated product, you should feel pretty good about yourself.”
But there’s some relief on the tariff front – at least for now. “We have not seen any changes or differences this year at all from a tariff perspective, which has been a blessing, frankly,” he said, but confessed that it’s operating in an environment that has a “little bit of uncertainty, no question.”
That uncertainty has prompted Pantalones, 818 Tequila and other companies to stockpile their supply in the United States, which is tequila’s biggest consumer, accounting for 80% of imports. Tequila exports from Mexico jumped 30% in January of this year compared to the same month a year ago, data from Mexico’s Tequila Regulatory Council shows.
With sales in the United States possibly nearing its peak amid an uncertain trade environment, Pantalones is eyeing the United Kingdom for further expansion. The brand has recently inked a distribution deal with supermarket chain Tesco, bringing its reach to about 2,500 stores across the country, in addition to being sold in a slew of restaurants and hotels.
Tequila is in its infancy in the country, which means there’s an “education curve” for consumers, Chrisomalis said. The brand is holding tastings to introduce customers to its three varieties plus tapping into McConaughey’s star power for promotion.
The McConaughey’s “lend themselves an opportunity with a large audience to help do that. It’d be very difficult for me to do that without them, but with them, it’s just a much easier task,” he admits.
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