Diageo stocks up on tequila

Since they could not get the Cuervo tequila brand, they bought two others instead. In January 2014, Diageo, the world’s major drinks company, added two super-premium brands to its portfolio.

They first bought the luxury tequila brand DeLeon in a joint venture with the

rapper-turned-business mogul Sean "Diddy" Coombs for an undisclosed sum.

Next they bought the Peligroso brand, founded by two avid surfers. Again, financial terms were not disclosed.

Diageo, whose other spirit brands include Johnnie Walker whisky and Smirnoff vodka, let their distribution agreement with Cuervo’s owner, the Beckmann family, expire last year after failing to get an equity stake.

These two acquisitions will boost Diageo’s share of the “super-premium” tequila segment, which includes brands that sell for more than USD 40 a bottle.

Diageo already owns half of an upmarket tequila called Don Julio, alongside the Beckmann family.

Diageo, which generates about 42 percent of its sales from emerging markets, reported on 30 January 2014 that half-year sales (ended December 2013) rose to GBP 5.76 billion (USD 9.5 billion), from GBP 5.66 billion, while operating profit rose 2.9 percent to GBP 2.06 billion, from GBP 2 billion a year earlier.

This was less than analysts had expected.

Diageo blamed the result on problems in emerging markets. Diageo’s sales by volume were down 3 percent in emerging markets, the product, at least in part, of slowing economic growth and a crackdown on "gift-giving" in China, which is essentially an anticorruption effort.

But there are other issues at play in its developing markets. In Nigeria, Diageo’s beer volume declined 17 percent. Management attributed this to the weak economy and high inflation pushing drinkers towards cheaper labels. Diageo wasn’t ready for that – in fact, it hiked prices in October – and it lost share to other companies. Beer was weak elsewhere, too, and overall beer volumes for Diageo decreased by 12 percent.