Welcome back to the BevNET spirits newsletter! We’re short on headlines this week because I’ve been on vacation in Mexico, but I brought you back a deep dive on the sweet and spicy trend heating up the liquor shelf.

What insiders are reading: Check out 3Tier’s quarterly beverage report and a chat with Tom Holland on NA beer BERO.

Thanks for reading! 

- BevNET spirits editor, Ferron Salniker

A heat wave is hitting the liquor shelf as spirit brands and ready-to-drink cocktails aim to spice up sales with new fruit and/or hot pepper-driven flavors. Just look at the releases that hit in the month leading up to spring break: a tamarind-spicy party shot backed by Spirit of Gallo, a caliente tequila Fireball replacement, and the Captain’s own sweet chili lime rum. 

You’ve likely seen these trends begin to move from your local Mexican fruit cart (a staple in Los Angeles, very sorry if you don’t have one) to CPG: flavors that fall into this group include anything from jalapeño pineapple or cucumber, to mango chili, ghost pepper, or spicy tamarind or watermelon.

The trend makes sense as spirit companies look to recruit new drinkers with flavor and use internationally-inspired combinations to appeal to the most diverse generation in history. But let’s back up my mango musings with data.

Spicy and hot pepper-inspired spirits is still a small segment, accounting for just 0.3% of total dollar sales for spirits in off-premise channels in the 52 weeks ending February 22, according to NIQ data compiled by 3Tier Beverages. Tequila and prepared cocktails make up more than two-thirds of those dollars.

Sales for the segment are up 5% for the latest 13 weeks. So where is the growth coming from? Innovation is fueling expansion, with new products introduced over the past year accounting for approximately 40% of brands that are growing. Naturally, tequila is also driving the segment, accounting for 73% of growth dollars. Meanwhile, spicy vodka, whiskey, rum and cordials are all in double-digit declines. Clearly, brands aiming to spice it up need to think carefully about which flavored spirits have staying power.

David Gordon, CEO and co-founder of Ghost Tequila, which was founded in 2016, said that sweet and spicy cocktail trends have given the O.G. spicy tequila a boost on-premise. But bartenders are also getting creative, finding their own in-house ways to add heat or reaching for new innovations that have “complex spice.” One bar director referred to his fresno pepper-laced drink “Cheeto Fingers,” which may be the first time Cheeto and complex have been used in the same sentence.

Insiders can read the full story.

Speaking of spicy news in tequila! A new lawsuit has accused Diageo North America of falsely advertising its Casamigos and Don Julio brands as containing 100% tequila agave, despite that the distilled spirits are adulterated with significant amounts of cane or other types of alcohol. 

• The allegations have been long-rumored in the agave world, and tension has been brewing between transparency advocates and tequila regulators for years. But this is the first major legal case, and it's brought by a class action powerhouse firm representing a potentially growing roster of plaintiffs.
• Obviously Diageo is going to put up a big fight, but the case could bring more scrutiny to major tequila labels and tequila regulators. Mezcalistas has a good breakdown here.

Bev-alc industry trade groups have been weighing in on how hemp beverages should be regulated, and that pressure may be causing storm clouds for hemp brands that have leaned successfully on ecommerce sales. My colleague Lukas looked into how THC drink brands are crushing it online and if there’s more long-term safety in the three-tier system. Read part one and two of this report.

In this episode of Taste Radio, Ria Soler, the director of education and global advocacy for luxury spirit brand Tequila Komos, talks about how the company has focused on organic growth, thoughtful distribution and authenticity to stand out in an increasingly crowded market. Listen.

I know that every week there’s a new proclamation about Gen Z’s drinking habits, but if you haven’t already, this summary on a Rabobank report is worth a read. Key points? The difference in alcohol spending between Gen Z and other generations is mostly due to Gen Z's lower income and - (math and logic collide!) the fact that a smaller percentage of that generation is of legal drinking age. Gen Z is also spending less on alcohol than similarly aged millennials did a decade ago – but that’s not due to health and wellness concerns, according to this data. Rather, it's due to cell phones.

BevNET Live is coming up June 11-12 in NYC. We’ll have a special panel on adult non-alc featuring powerhouses from De Soi, Little Saints and The Pathfinder. Please email me if you have questions about the event.