Tequila is drunk in a shot glass, but also canned as a base for iconic cocktails, such as the classic margarita. It is a presentation that, although it can divide opinions among consumers, enchants brands like Jose Cuervo , who, in the midst of the 2020 sanitary confinement, ‘put’ the traditional mixtures in cans to compensate for the drop in sales after the closure of bars and restaurants.
It also reinforced its portfolio of beverages made with mineral water and a touch of alcohol, hard seltzers, whose demand grew in 2020, driven by consumer interest in taking care of their health.
The portfolio of Becle, owner of Jose Cuervo, includes 30 brands, including its own and others that it only distributes, of tequila, rum and whiskey, ready-to-drink and non-alcoholic brands. This range of products has allowed the company to cover a wide profile of consumers and markets. “All these variables allow the company to make interesting crossovers as demand requires,” says Carlos Hermosillo, an independent analyst.
This strength has made it easier for the company to overcome the ravages generated by the pandemic, including the breakdown of logistics chains that has collapsed several industries and cost overruns in key raw materials, such as glass and aluminum. The price of the latter, for example, reached an all-time high of $3,875.5 per tonne on March 4, according to data from Bloomberg .
Despite the challenges, Cuervo’s sales grew in double digits in 2020 and 2021. It also raised its profits, and although these had a slight decrease at the end of last year, in the first quarter of 2022 they increased 9.4%, to 1,355 million units. dollars, according to data from your financial report.
Toast at the Bag
The market has welcomed Jose Cuervo’s strategy. Since its debut on the Mexican Stock Exchange (BMV), in February 2017, the price per share increased 59% until the beginning of May 2020.
Julián Fernández, head of Analysis at Bursamérica, comments that the company has had several successes in recent years, such as maintaining continuity in the production of its best-selling beverages and increasing logistics efficiency, in order not to harm the stock in points sales, and investment in premium products, which were the most consumed in export markets.
For specialists, Cuervo has become a highly marketable company, that is, with high movement in the stock market and with constant growth. Since the first case of covid-19 was confirmed in Mexico, at the end of February 2020, until the beginning of May, the value of its shares grew 61%.
“The stock offers an interesting opportunity at current prices. Cuervo carried out a good refinancing in 2021 and operationally we must have solid figures in 2022 to grow better in 2023, so the valuation must improve quarter by quarter,” says Hermosillo.
weather the storm
Among the challenges that the company has towards the second half of the year are lessening the impact generated by inflation and supply problems in critical inputs. But Jose Cuervo has an ace up his sleeve and, according to what he announced at the conference with analysts on his first quarterly report of the year, he will direct his investments to strengthening his premium tequila portfolio and will increase prices to offset the rise in the costs of raw materials. “Our brands, especially the super and ultra premium tequilas, had a great performance, which reinforces the success of the ‘premiumization’ strategy that we have implemented,” said the company’s management in its latest financial report.
“The recent launch of a traditional crystalline tequila is an example of an extension of the brand at a price almost 60% higher than that of the Traditional Reposado, trying to enable consumers of this brand to make a trade up to that more current and premium variant. ”, he details.
So far, the results support this trend and the United States is the market with the largest share of the company’s total sales, which rose to 70% during the pandemic. “The advantages of having premium products in your portfolio is that you can penetrate the foreign market, in countries with greater purchasing power, and strongly increase sales in countries that will have a rapid economic recovery,” says Fernández.
Analysts agree that having top brands allows the rest of the portfolio to better position itself against the competition. “The company has managed to focus on premium niches that give it advantages in penetrating new geographies, which, together with the acquisition of Bushmills (at the end of 2014), has borne interesting fruit,” says Hermosillo.
Perhaps that is why the company has “attractive growth prospects” for this year, as consumption in bars and restaurants returns to normal.
