To make 1L of 100% agave tequila @ 55% alcohol, it requires about 7kg of agave - as long as equipment is running properly, extraction of the sugars after cooking and crushing are at high levels...often it can require much more and some distilleries can quickly find themselves needing 8 or more kg for the production.

But for the purposes of my diatribe, let's look at 7kg as our metric. Until quite recently, for the last few years, the price of agave had been above 30 pesos per kilo, going at times as high as 33-34. This was an all-time record and caused many distilleries and brands to either dramatically increase prices when they could no longer come close to breaking even or stop producing.

I've given you a couple data points that don't really show the big picture of what it costs to make a bottle of tequila. At 7kg of agave at 30 pesos/kilo = 210 pesos. If you're diluting the tequila down to 40% and putting it in a 750ml bottle...that's 114 pesos in the cost of just the agave.

Blue Weber Agave

It takes around eight years — and often 12 or more years — before an agave is ready to make Tequila. Some 400 to 500 million Blue Weber Agave plants are currently under cultivation in Mexico, of which roughly 50 million are harvested each year.

Complicating things further is the exchange rate...and what we're experiencing right now - called the SuperPeso - look it up, it's a thing. If we're paying in USD, the exchange rate has always hovered around 20...except for now, where today the exchange rate is 17.23, which is just straight exchange not accounting for fees, what the bank gives the producer for dollars, etc. So while the price of agave may have come down to 25-27 pesos - an average of an 18% drop in price - 14% has been lost in currency translation.

All that said, that means the producer has roughly $6.60 in just the cost of agave. But that's just agave. Just the other raw costs alone - bottle, labels, cap, part of a carton...take that cost up to $9/bottle.

That's just raw material cost. That is not everything downstream before it gets to your retail shelf. The list includes - labor at the distillery for loading ovens, fuel to cook it, handling shredding, crushing, filling fermentation tanks, distilling, bottling and packaging...the cost of bottles, labels, caps, cartons...the cost of transportation, federal taxes, warehouse fees...the distributor needing salespeople, truck drivers, warehouses, paying state excise taxes and earning a bit to stay in business...the retailer who has to pay for a physical store, employees, light bills, insurance for their workers and stay in business as well...without going into the detail, the cost of the product when it leaves the distillery after all the various costs in our three-tier system in between, it equates to roughly 4x the price on the shelf as to when it leaves the distillery. Complain if you wish, but no layer - importer, distributor, retailer - is making more than 30% margin to cover all the costs of doing business. To say each layer is slim after all the costs are considered is an understatement.

So, if you're wondering why you can't get a truly good bottle of tequila for under $40, it's all in the math.

About IWB-USA, Inc.

IWB-USA, Inc. headquartered in Carlsbad, California is a National management services company accelerating the growth of brands in the Adult Beverage categories. IWB’s commitment to National, Key Accounts, Independent Accounts and On-Premise Retailer provides connectivity between the consumer and the right accounts to optimize brand building. Through our industry relationships, we have developed partnerships with over 250 distributors throughout the United States. We leverage our distribution relationships to prioritize execution focused on our brands’ goals. IWB believes in supporting growing brands and carefully selects the brands we represent. We provide a unique network to connect emerging brands with equity partners. IWB aims to be an active stakeholder with all our investments. For any questions, please contact us at info@iwb-usa.com

Visit us at www.iwb-usa.com

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The Complications of Tequila Math