As hard as it may be to conceive of another white spirit winning the hearts of Russian drinkers, it appears that Tequila is doing just that. If current growth rates are maintained, Russia is likely to take Germany's place as the fourth-largest Tequila market within the next two to three years, says a new IWSR/just-drinks report.

According to The IWSR/just-drinks Global Market Review of Tequila – Forecasts to 2016, sales of Tequila in Russia rose by 36% in 2010 to 262,000 cases. While it should be borne in mind that sales are yet to recover to their pre-recession 2008 peak of 294,000 cases, the report says the prevailing view in the industry is that Russia offers the greatest prospects for Tequila outside its core markets of the US and Mexico.

IWSR believes sales in Russia grew to around 288,750 cases in 2011, and will rise to 389,000 cases by 2014, when Russia will overtake Germany for the first time. By 2016, sales are expected to reach 468,000 cases.

Prior to the downturn, Tequila sales were "booming" in Russia, the report states, but while the recession put paid to that boom, as consumers reverted to more familiar products, by the same token Russia's strong economic recovery augurs well for the category.

"Confidence in Russia is growing following the economic crisis," the report states. "GDP is forecast to grow at a rate of over 4% year-on-year. Sales volumes are returning for many brands and categories, albeit slowly for some categories. The on-trade is also slowly recovering."

The on-trade recovery is particularly important for Tequila. The segment in Russia has grown as the on-premise sector itself has developed, and Western drinking trends have been introduced and caught on with consumers. Styles of consumption for Tequila are similar to those seen in many mature Western countries, with Mexico's signature spirit being drunk in shots with salt and lemon or in margaritas.

"Tequila is seen as a party drink and is often consumed in bars, particularly by younger consumers," the report states. While the continuing development of a cocktail culture in Russia is unquestionably good news for Tequila, the report points out that cocktails are still relatively expensive for most consumers. However, it adds: "As disposable income increases – especially among the younger generation – consumption of Tequila and cocktails such as the margarita should grow."

Growth conditions for Tequila have been particularly favourable in Moscow, but the report suggests there is plenty of potential for favourable trends to spread to other areas. "The on-trade is still underdeveloped outside of Moscow, although there is a lot of potential for trends to spread as the economy improves."

The super-premium Tequila sector in particular stands to benefit. In fact, in 2010 sales of super-premium Tequilas surpassed the level they had reached prior to the downturn. "These Tequilas will benefit from the slow return of premiumisation and the desire for drinks that convey status," the report states. 

The experience of Pernod Ricard's Olmeca brand is a case in point, says the brand's international marketing director, Michael Kaller.

"In Russia and Turkey, we are able to sell Olmeca at significant premium prices – above a bottle of Absolut in many places, for example,” Kaller says, adding that the brand's sales in Russia have now reached around 100,000 cases, making it the brand’s second largest market after Mexico.

"The Russians are curious about Tequila – for them it is like an exotic vodka,” Kaller tells just-drinks. "It is still drunk as a shot because obviously Russia has a vodka shot culture. We were able to position Olmeca as another shot, but one that is exotic because it comes from Mexico, comes in an iconic bottle and sells at a premium price."

One notable aspect of the Tequila market in Russia is the high ratio of women to men drinking the spirit in comparison with more mature markets. "In Russia, the consumption split between men and women is at least 50:50, which is unique,” Kaller points out.

Interestingly, this could be partly explained by the position which vodka enjoys as Russia's predominant white spirit. "Part of the explanation is that vodka in Russia is a male-dominated drink and very masculine," says Kaller. "So, if the men are out drinking vodka with their friends, the ladies go for Tequila."

Russia is not the only country where Tequila is expected to grow during the next few years. Indeed, the sector as a whole is forecast to rise to 27.21m cases by 2016 from around 24m in 2011.

Tequila sales hit a record high in 2010, with global shipments up by 4.8% to 23.87m, according to the report. Notwithstanding a downturn in 2009 in the US and Mexico, which combined account for around 85% of Tequila sales, the sector has shown steady growth for the past five years, with a five-year compound annual growth rate (CAGR) of 3.8%.

"There is undoubtedly momentum in the global Tequila market," the report states. "The industry has made real strides in terms of building value in recent years. The premium-and-above categories have been displaying particularly dynamic growth."

A key driver for the Tequila sector over many years has been sustained growth in the US, where sales rose to 11.81m cases in 2010 from 11.23m cases in 2009. While clearly a mature market relative to many other Tequila export destinations, the report suggests the growth prospects for Tequila in the US remain "very strong", due to favourable demographics and the potential for regional expansion beyond its current strongholds in the south-west and major Metropolitan areas.