Diageo swaps Bushmills Irish whiskey for Don Julio tequila
When Irish eyes are smiling, the old saying goes, everyone is happy and the world is a wonderful place. But what happens to Irish eyes, when they see that the world’s number one drinks company Diageo is willing to trade its Irish whiskey Bushmills for full control of Mexico’s Don Julio tequila brand as was announced on 3 November 2014? Do Irish eyes well up with tears?
Diageo has swapped its Irish whiskey Bushmills with Casa Jose Cuervo, a Mexican drinks company owned by the Beckmann family. In exchange, Diageo will gain full control of Don Julio, a high-end tequila brand that sells upwards of USD 45 (EUR 36) per bottle, which Diageo has jointly owned with the Beckmann family. Under the terms of the deal, which were not fully disclosed, Diageo will buy the 50 percent of Don Julio that it does not already own and on top of that will receive a pay cheque for USD 408 million (EUR 327 million).
It will also gain the right to distribute Don Julio and its Smirnoff vodka in Mexico, boosting its position in the country.
Diageo acquired Bushmills in June 2005 for about USD 365 million (EUR 292 million).
In a statement, Diageo said that Casa Jose Cuervo had a “proven commitment to its people and to valuing the history and heritage of its brands”, hinting that no jobs would be lost at Bushmills as a result of the acquisition, and that the Old Bushmills Distillery in County Antrim will continue to operate as normal. Diageo added it was confident that Jose Cuervo will continue to nurture Bushmills in the future.
“This transaction delivers two key objectives for us,” Diageo’s CEO Ivan Menezes said. “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.”
That’s an interesting turn. Hadn’t Diageo previously set its eyes on the much larger Jose Cuervo tequila brand which it distributed outside of Mexico? When the distribution deal was about to expire, Diageo tried to buy the brand outright, but talks with the Beckmann family broke down in 2012 and Diageo stopped distributing Jose Cuervo although it maintained its stake in Don Julio.
Buying Don Julio, Diageo appears to want to create the impression that it never really craved for Jose Cuervo since it does not qualify as a high-end brand. How strange.
In effect, what the current deal does is to rid Diageo of Bushmills, a whiskey brand bringing in a disappointing GBP 57 million (EUR 73 million) in revenues, in return for USD 408 million that will be used to pay off debt, the Financial Times said.
For Irish observers, on the other hand, the sale of Bushmills indicates a further retreat from Ireland for Diageo after last year’s decision to stop brewing Smithwicks in Kilkenny.
Still, it allows Diageo to move further into tequila, a market which is worth about USD 6 billion a year worldwide, and rising, compared with the USD 2.3 billion market in Irish whiskey worldwide. Growth in the consumption of premium tequila is close to 30 percent a year, with the U.S. Margarita cocktail crowd representing about a tenth of the market.
For Diageo, which has been struggling to grow revenues, this would have been hard to resist. Sales of Don Julio are worth just GBP 100 million (EUR 128 million) a year and profits are estimated to be marginally lower than Bushmills’, at about GBP 18 million (EUR 23 million). That is a barely a sip for Diageo whose revenues are over GBP 10 billion a year.
“If this is strategy, it is not grand strategy,” the Financial Times sneered. “Diageo will have to rearrange the rest of its bottle collection to make a dramatic difference to the top line.”
