EconomyFinancialHealth! 50% of Don Julio tequila is no longer...

Health! 50% of Don Julio tequila is no longer consumed in Mexico, but in these countries

Mariano Perotti arrived in August 2021 at the general management of Diageo, the owner of Don Julio tequila. Its mission is to triple the size of the business in the next three years and boost tequila sales, amid the disruptions that the health emergency generated in global logistics chains and the increase in the costs of raw materials and transportation.

Despite these challenges, Perotti -who has directed mass consumption brands in the Mexican market such as Bonafont purified water, in addition to being in charge of the sales and marketing strategies of the multinational Danone-, will seek to improve the profits generated by the agave distillate by premiumizing the brand, and increasing tequila sales in key markets.

“The United States is an incredible consumption engine,” explains Perotti, who details that 40% of tequila production goes to the United States. 50% is consumed in Mexico, and the same goes to Europe.

Tequila was positioned in 2021 as the third largest category of spirits in the United States, behind vodka and whiskey, according to the market analysis firm IWSR. His forecast is that agave-based spirits – tequila and mezcal – will grow at a compound annual growth rate of 4.7% between 2021 and 2025. Diageo is no stranger to this dynamism.

The company entered the tequila category in November 2014, when it acquired Don Julio, and Perotti assures that today agave distillate has become “a global product” with double-digit growth, compared to other categories. of spirits in which the company participates, such as whiskey and vodka, which have remained more stable.

Luís Felipe Díaz Muñoz, an academic at the Escuela Bancaria Comercial (EBC), considers that the company has managed to premiumize tequila by highlighting the production processes and the years that the distillate spends in the barrels, in addition to making the packaging a differentiating factor. “This has helped the drink become exclusive, not only in export markets, but also in Mexico,” he says.

The Don Julio 1942 presentation, for example, is produced in small batches and handcrafted. The agave is cooked in traditional clay ovens, which have a double distillation, and is then aged for two years in white oak barrels that were used for bourbon . The decanter is more stylized and elongated, unlike other presentations. There are special editions, such as the one designed with Wixárika art, which was launched on the market in November 2021.

“We invest in the quality of the product and in the design of the bottles,” says Perotti.

Diageo sees the Mexican market as one with the largest luxury goods segment in the world. “It is a country that has a giant space at the top of the pyramid,” says the manager, who highlights that the category of spirits -as distillates are also known- are located on rung eight of 10 in the purchase of premium products, and sees opportunity for it to be located on rung five.

Diageo announced in October 2021 an investment of 500 million dollars to increase tequila production at its La Barca and Atotonilco plants, both in Jalisco, and supply local and external demand.

Tequila resists the ravages of inflation

Alcoholic beverages have proven to be one of the most shock-resistant consumer goods. Diageo, for example, has recovered its sales volume prior to the pandemic, in part thanks to the reopening of points of sale, such as hotels, bars and restaurants, which represent 35% of the distillery’s turnover in Mexico, in addition to that the inertia of household consumption is maintained, with a drive for higher value beverages.

Tequila represents 8% of the British company’s global sales and grew 79% during fiscal year 2021. In the period, the company invoiced revenues of 12.7 billion pounds, an increase of 8.3% in its annual comparison.

The premiumization of the beverage has been key for the company to keep its revenues afloat amid the onslaught of inflation, which has made transportation, glass bottles and energy costs more expensive.

To deal with these challenges, the company advanced purchases of glass bottles –albeit at higher prices–, anticipated orders for imported beverages, such as whiskeys, and increased tequila production to cover exports.

“We try to prevent the consumer from seeing the price increase. We take great care that when setting prices or transferring these costs it is the bare minimum and according to the value of the product”, he declares. “The most premium products can better absorb this premium,” he adds.

Although the Don Julio brand is Diageo’s best-selling brand in Mexico, the company expects to launch innovations hand in hand with the rest of its brands, such as Buchanans and Johnny Walker in premium segments, without forgetting those for mass consumption such as Smirnoff vodka and rum. Captain Morgan, plus Baileys. IWSR expects spirits to bounce back in line with previous growth levels, recorded between 2014 and 2019.

The firm expects future category growth to be supported by increasing levels of wealth and new markets, especially in Asia and the United States , as well as segment diversification and the emergence of niche categories such as pre-mixed beverages.

Diageo in March acquired the flavored tequila brand, 21Seeds, available in three varieties: orange, hibiscus grapefruit and jalapeno cucumber. According to Diageo data, within the tequila category, “the small but emerging flavored tequila segment” grew more than 20% between 2019 and 2020, while super-premium flavored tequila grew 65% during the same period.

“The United States , and the world, are seeing the quality of tequila. And that story begins here, in Mexico,” he concludes.

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