Why Diageo bought another agave brand

Diageo has added to its growing portfolio of agave spirits with Mezcal Unión, as part of its acquisition of Casa UM.

Mezcal Unión was launched in 2011 by a group of Mexican entrepreneurs with the purpose of developing the category while generating positive social impact and preserving traditional production. Mezcal Unión’s founders will continue to be involved in the business to support the brand’s future success and growth.

The global mezcal market is estimated to be US$387.10million in 2020 and is expected to reach US$1.06billion by 2025, growing at a CAGR of 22.36%.

Diageo has worked in partnership with Mezcal Unión since 2016, providing expertise and supporting growth of the brand’s distribution network in Mexico, the United States, and other countries. Over this period, Mezcal Unión’s growth has accelerated, and they have integrated numerous Mezcal producers and agave farmers into their sustainability and community support programs, focused on contributing to local development in Oaxaca.

To continue promoting local development and ensure the sustainability credentials of its operations, Mezcal Unión will preserve its mission of supporting traditional and artisanal production processes while continuing existing relationships with agave farmers and its network of mezcal master distillers in Oaxaca.

Mónica Michel, Marketing and Innovation Director for Diageo in Mexico commented: “Our story with Mezcal Unión began with a distribution partnership in 2016 and we are now taking it to a new level. We are delighted to continue working with its founders and welcome this brand to our Reserve portfolio, which includes exceptional brands across exciting and fast-growing categories like tequila and mezcal.”

Over the last two years, Mezcal Unión has become one of the leading mezcal brands in bars and restaurants in Mexico.

Alejandro Gutierrez Champion, co-founder at Mezcal Unión added: “We believe in the power of transformation through collaboration. This approach has supported both the growth of the brand and of local communities and agave farmers in Oaxaca. We are proud to have delighted consumers with an excellent artisanal-craft mezcal and are confident that as part of Diageo, one of the largest and most respected spirits companies in the world, Mezcal Unión will continue to support development of the category, open doors to new markets and strengthen our brand mission.”

The agave acquisition will be funded through existing cash and is subject to regulatory clearances.

Tequila sales boom for Diageo

While the Mezcal Unión acquisition will give Diageo a new foothold in the burgeoning mezcal category, the drinks giant is celebrating huge growth with its other agave category: tequila.

Diageo’s reported net sales (£12.7 billion) increased 8.3% in FY21, while organic net sales were up 16%, driven by growth across all regions.

Tequila grew 79% on top of a 25% growth in FY20. It now constitutes 8% of Diageo’s net sales. Growth was mainly driven by the strong performance of Don Julio and Casamigos in North America. Both brands gained significant market share in the US spirits category.

“Tequila is strong and we still see a lot of runway for our tequila business; both Don Julio and Casamigos are doing really well,” said Chief Executive Ivan Menezes. 

“Early data point I will give you, in the state of California, which is the most developed tequila market in the United States, Don Julio is now the number one ultra-premium tequila brand. The health of this brand is really, really strong.

“The marketing innovation that’s happening in spirits continues to be very effective in the category. We did see spirits penetration increase faster than wine and beer penetration in the last 12, 18 months. Those habits of at-home consumption should stick and it’s discovering your ‘inner mixologist’ versus a boring glass of wine or a boring bottle of beer from the fridge.”

“Tequila is about roughly 20% of the US business and it’s obviously very fast growing. I won’t give you a number in terms of what we expect for this year, but it’s obviously going to be very fast growth.

“Casamigos grew 126%. I’m not sure that’s going to sustain, but you’re going to see very, very fast growth. Now one of the things we feel about the tequila category going forward is that we do see a lot of runway. This category is – if you look at the dynamics at work – cutting across demographics, it’s cutting across occasions, the versatility of drinks and the association with the health and wellness of agave, all of those bode really well.

“This trend has a lot to run and what we’re really excited about is it’s happening at the top end. Our growth rate is double the growth rate of the tequila category because the acceleration is happening at the top-end price points, so we feel good about that.”

Why tequila is the spirit of 2021

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Categories: Business