Diageo today announced it had struck a deal with Jose Cuervo owners the Beckmann family to take full ownership of the ultra-premium Don Julio tequila brand in exchange for Bushmills whiskey and an undisclosed cash payment. Don Julio is currently run as a joint venture between Diageo and Jose Cuervo, with the latter responsible for distribution in Mexico.
As Diageo already owns 50% of the tequila brand, it might seem like a bad deal at first glance, but the numbers tell an important story. Bushmills is undoubtedly a strong brand. It’s the third biggest Irish whiskey brand in the world and, according to Diageo’s annual report volume sales grew 8% last year, making it one of the company’s best-performing whiskies.
But consumers are developing a hankering for tequila, which used to be regarded as a foul tasting novelty but is coming to be regarded as a premium spirit. Diageo's volume sales of Don Julio grew by 22% last year, netting £75m compared to £57m for Bushmills.
'This transaction delivers two key objectives for us,’ said Diageo CEO Ivan Menezes. ‘We have secured our position in the growing super and ultra-premium segments of the tequila category and further strengthened our global footprint by expanding our leading position in Mexico where the growth of spirits has great potential.'
Mexico's middle class is growing rapidly, making it a prime target for consumer goods companies - especially at the luxury end. In 2012 Diageo's previous chief exec, Paul Walsh, tried and failed to acquire the entirety of Jose Cuervo after an 18 month charm offensive. Menezes will be hoping that this unorthodox deal will provide him with more reason to toast success.