Image via Wikimedia Commons (Alan Betensley)

Diageo spends £300m on Brazilian rum

Premium spirits giant Diageo has splashed out £300m to buy Ypioca, one of Brazil's top producers of cachaca, also known as Brazilian rum.

by Andrew Saunders
Last Updated: 06 Nov 2012

With sales of £60m a year, Ypioca is the country’s second largest producer of cachaça, the spirit which forms the basis of the Brazilian national cocktail, the caipirinha. Given that both the World Cup and the Olympics are heading Brazil's way in the next few years, now is probably a good time to be moving in on the booze business there and Diageo CEO Paul Walsh was in ebullient mood on the announcement.  

‘Brazil is an attractive, fast-growing market for Diageo, with favourable demographics and increasing disposable incomes,’ he said, no doubt looking forward to directing some of that increasing disposable income into Diageo’s corporate coffers.  

Diaego is the world’s biggest spirits group and produces Johnnie Walker and J&B scotch as well as the likes of Tanqueray gin and Ciroc and Ketel One vodkas. It is also known for its increasing fondness for exotic local spirit brands with heritage. In February last year it snapped up Turkey’s biggest raki distiller, Mey Icki, for a whopping £1.3bn, the perfect entry into another growing market, rather like this deal in Brazil.  

Cachaça is produced from squeezed sugar cane juice and the Ypioça brand fits in Diageo’s overall ‘premiumisation’ strategy, selling for around one and a half times the average price. And while it is popular, with 62% of the domestic market, Diageo clearly reckons there is potential to boost its sales not only at home but, surely more importantly, internationally.  

It looks like a smart purchase, then. But, as observers of the drinks world will know, Diageo’s main target in South America remains Mexican tequila giant Jose Cuervo. It’s been in talks with the family-owned business for over a year, so a deal must surely emerge soon.

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