It’s that time of year where we try to synthesize some meaning from the past year’s events and make a few predictions about the year ahead. There were certainly cataclysmic events in the world of mezcal in 2017: Huge deals were made, all sorts of new products launched, earthquakes ravaged rural Oaxaca and urban Mexico City. All the while the linear growth of mezcal continued driven by cocktails but there are new trends in higher end boutique bottles as well. Look closely and you’ll see a relatively cohesive set of trends with only a few outliers.
Validation
If there is one word that sums up 2017 for mezcal it is “validation.” When big guys like Diageo, Pernod Ricard, and Bacardi get into the category through straight out acquisition or distribution deals you know it is not a passing trend. The repercussions of all these moves have barely hit the market yet so 2018 will be the first time we really get to see how this plays out in terms of the mezcal in bottles, the pricing for bars and on retail shelves. We get the sense that this is as much a dating game for both sides of the equation so we expect lots of smaller changes before anything big happens. The first major trend we expect to see is more of the labels priced for cocktails to expand.
Cocktails rule the roost
The market continued to trifurcate as you saw more mezcal being introduced to hit the three main price points: Low priced mezcals designed for cocktails ($15-25/bottle wholesale, at volume), moderate priced bottles for major retail sales ($35-70/bottle, retail), and higher prices for the boutique sales ($100 and up per bottle, retail). The largest volume of mezcal sold in the United States, and almost absolutely true for the global market as well, happens in cocktails. That has been a trend for years and is only expanding. It feels like bars used to have a well mezcal that would remain constant for years, now that can be months as big battles over price rule this side of the market. This is a downward spiral for everyone concerned so – STOP IT! – a race to the bottom is exactly that.
In contrast we’re just starting to see an exciting trend of mezals from outside of Oaxaca getting a bit of representation behind the bar. There is a vast reservoir of agave production and mezcal from all over Mexico just waiting for a market. We’re just starting to see some of that pop up behind bars now which is a great thing for everyone concerned. It spreads the money around Mexico, brings different flavors to the table, and should actually make for a more sustainable industry.
But retail is definitely a force
Retail is the final frontier and one that many mezcal brands have been tilting at for some time. But beware, if you think fighting for market share with volume discounts is tough at the bar level, it may be ever more fickle and difficult at the retail level.
We’ve seen three distinct trends at the retail level in 2017.
- Mass market placements: It used to be rare to see mezcal at a place like Costco where two liter bottles of major brand spirits were the default. But these sorts of high volume stores are always looking for something new and getting much better at working with brands who can deliver so it’s much more common to see mezcals stocked at Costco, Trader Joes, and, yes, even BevMo. Price is critical on those shelves so this is a great way to sell volume but are these brands really gaining market share or will they just be displaced by the next brand sold at a volume discount?
- The mezcal assumption: This past week I walked into K&L Wines, one of San Francisco’s major wine and spirits retailers. I ran through their mezcal selection, then needed to pick up a bottle of tequila as well so I was surprised to see that mezcals now occupy the same shelf space as tequilas. That’s a pretty dramatic shift from five years ago even if we’re just talking about a market as distinctive as San Francisco.
- Boutique explosion: The time when you couldn’t find a decent bottle at your local boutique liquor store is long passed. These days you’ll frequently find a handful if not a full shelf of carefully curated mezcals because, guess what? The people running these stores frequently are mezcal obsessives and will gladly talk your ear off about everything on their shelves. The more variety they see, the more they stock. Now, can they actually move those bottles?
Media loves its stereotypes
Everyone seems to love mezcal, especially the media. We do interviews all the time to explain the basics to the most complex elements of the mezcal world. Meanwhile publications from large and small continue to pump out trend articles explaining what it is and why you should try it almost daily. Almost every article mentions traditional production methods, the labor put into it, and the quality of the final product which only helps further educate the market and help consumers understand how distinctive it is and why they need to pay premium prices. This whole trend also highlights a larger issue, education remains a key issue for the category and will only be important to emphasize in the coming years. One thing: It would be nice if these publications could let go of the whole smokey cousin lede…
So when we look in our crystal ball, what do we see for 2018?
Certainly more acquisitions and distribution deals which leaves us wondering if we need to create a tab specifically to cover that news. It only makes sense given how the alcohol industry works and the expense involved in distribution and sales teams. As they say, the bigger the pipe, the greater the economy of scale… But that’s definitely only one element that continues to transform the mezcal universe. Here are six more trends that we expect to blossom in 2018.
Mezcal is far greater than Oaxaca
Greater regional representation of products will definitely be the 2018 trend. We already see mezcals from all over the country. Distinctive flavors from Puebla, Michoacan, and Guerrero are carving out unique identities. In fact, for the very first time in Mexico in a Bottle history this year in San Francisco we had mezcal from every state in Mexico within the legal denomination. We are also seeing a variety of labels which eschew the cost or idea of certification so those bottles labeled ‘destilado de agave’ are appearing far more frequently.
But it’s not just at the boutique end of the spectrum. We are already seeing a variety of large volume mezcal production from far flung locations like Durango, Zacatecas, San Luis Potosi, and Guanajuato. Expect more from those states and others to pry the market open very soon now.
Talking about sustainability
When talking to bartenders the single most asked question is about sustainability. How to measure brands, how to define the term in this industry, gossip about who is doing what and how. These are the conversations that we field and attempt to answer with clarity wherever possible. But the fact that we are asked about it so frequently even while it’s one of the topics we write and speak publicly about most frequently tells us that there’s a real communication issue. People want to know where their mezcal comes from and how it was produced. And they want the right answers even if they don’t know what that means. At this point, no one really does because it’s so difficult to say that a product is actually sustainable.
And the industry is clearly struggling with how to act responsibly. Smaller producers want to do the right thing but there is a clear absence of information on best practices. Different levels of production also mean that you have to alter your expectations; should you expect a tiny producer to know yet alone put into practice a comprehensive sustainability program? Meanwhile there are a variety of other issues in the mix.
- Agave prices remain high which reflects both a shortage ready for market right this second and tussles over what farmers should get paid.
- While cultivation is seeing an incredible revolution it’s still very difficult to track and verify how agaves are grown. And there are still many labels which highlight the “wild” agave in their bottles which continues to be a very difficult issue.
- Raw inputs like wood and water are open for a discussion that precious few appear ready to really enter. Deforestation continues to be a major problem as does air quality and water pollution from the outputs.
- And then there’s the question of fair pricing. We keep talking about it. Some bartenders are taking a stand. Yet it’s still stubbornly difficult to quantify and discuss.
What does it mean to be a mezcal?
NOM 70 was approved last year. That’s the law that defines changes in how mezcal is produced and labeled. One of the critical changes is that the label “mezcal” will now be used by industrial producers while the labels “artisanal” and “ancestral” will be used by the small, traditional, producers. The cognitive dissonance in those basic words is an issue unto itself but it causes an especially difficult to explain rift in a category that has defined the very word of “mezcal” as artisanal.
This is an inflection point for the entire category but we don’t expect it to just suddenly happen. We’ve been discussing NOM 70 all of 2017. In 2018 we expect the discussion to spread slowly throughout the bartending and more informed drinking world. And by discussion, we mean lots of questions driven by assumptions and confusion because the definition on these points has been lacking and paralleled by a complete absence of a public relations campaign.
That doesn’t mean that everyone else at the party is just going to sit quietly. There will be more Mexican states vying for denomination, and from that we expect greater discussion about the effectiveness of the Denominación de Origen (the DO). The flaws in the current system are well known ( the DO doesn’t actually represent traditional production, it doesn’t foster artisanal production, hasn’t been able to cope with growth, etc ) while the advantages are growing ( a simple definition of the word mezcal has been making inroads, especially for established brands ). The inherent friction there is going to grow and be more openly discussed. There will also be an election for seats on the Consejo Regulador del Mezcal (CRM), the organization which defines and regulates mezcal, which could impact not only which states are included in the DO, but also how the category is regulated and what a future NOM could look like.
Speaking of elections! There will be a presidential election in Mexico this year which will bring change across the country. There is no civil service in Mexico so each election cycle generally means completely new people in administrative positions, along with changes in any grants or contracts with monies promised. That can have a direct impact on all sorts of branches of the mezcal world ranging from development policy to export assistance.
Market shifts
This is a tough one because the trends in 2017 that we mentioned above are only going to continue. So what will be markedly different about 2018?
- Surprise brand launches: This is actually the continuation of a trend where we’ve been seeing the quiet release of brands like El Mero Mero which suddenly become well staples or brands like Machetazo which pop up on retail shelves. These quiet launches could be very smart because of low overhead and the obvious sales volume.
- Specialization: On the other end of the scale many smaller brands will launch this year with very different strategies. Cinco Sentidos jumped in with both feet in 2017 by bringing small batch production previously only hauled back to the US in unlabeled garafones. The goal with these brands is to find the customers who prize exclusive, limited production, mezcals. Expect to see more small batch and vintage driven labels like this like Rezpiral, Neta, and Sacapalabras. This is a great sign, let a thousand flowers bloom!, because there really is a universe of Mexican spirits to be explored. Where does it goes from here? Expect experiments with new business models like direct sales through collector clubs or highly specialized retail outlets. People have tried these before but there is clearly a renewed momentum.
- Volume: We will also continue to see the war for the well. Again, we say- STOP! Bar managers, please don’t base your decisions solely on pricing. Focus on the juice that you like, build a program around it, and hold the line on price. Long term relationships will yield extraordinary benefits. If you just chase the dollar, you’re wasting lots of time and are causing long term harm in the market.
- Education: Take all of the above and tie a bow around it, that bow is education and it holds the entire mezcal world together. The more educated bartenders and spirits sales people we have, the better because they’ll choose products on the basis of quality and knowledge, not price and rumor. Education is a major focus for us and will become even more important in 2018. We hear the same thing from every brand, bar professionals, and, most importantly, consumers! Expect more events, more educators, more demand for all of the above.
Mezcal opened the door, others are rushing in
Finally – and call this an unintended consequence of the success of the mezcal category – we will see many more Mexican craft beverages coming into the market. This year we’ve already seen rums or aguardientes as well as Comiteco carve out new categories but there are plenty of plans for new Mexican whiskies and other specialty spirits knocking at the door. And that’s just the high proof side of things. We will be showcasing the wide world of Mexican alcoholic beverages at Mexico in a Bottle San Diego to highlight the impressive diversity of spirits, beers, wines, and fermented beverages from Mexico. There is a whole universe out there, we’re really looking forward to exploring it and there are plenty of businesses raring at the opportunity.
Confronting value
As we already mentioned one of the major issues in the mezcal word is cost and value. I can’t tell you how many times I’ve heard someone at the bar exclaim at the cost of an ounce of an incredibly rare or high quality mezcal. I always talk to them about what that price represents and how it’s actually pretty inexpensive in comparison with similarly priced whiskies. But the assumption that Mexican spirits, especially mezcal, should be inexpensive is stubborn and a fundamental branding issue. So, while Mexican drinks have broken into the American market they are just hitting that glass ceiling of price. The common response that ‘oh it’s a Mexican product so it should be cheap’ will continue to be a problem, especially since so many products are competing just on the basis of price.
2018 is going to be another banner year, so let’s make sure we don’t break it.
