Diageo, the world’s largest spirits maker, is swapping its Bushmills Irish whiskey brand for full ownership of the luxury tequila label Don Julio as the company looks to bulk up its stable of “reserve” brands and regain a leading position in the tequila category.
The UK-based company signed a deal with the Beckmann family of Mexico to purchase the 50% of Don Julio it doesn’t already own in exchange for Bushmills whiskey, Diageo said Monday.
Diageo (DEO) will get a $408 million payment and permission to distribute Don Julio and its Smirnoff brand of vodka in Mexico. That opens up the company to a growing market of middle-class drinkers given Mexico’s expanding economy.
“‘This transaction delivers two key objectives for us,” said Ivan Menezes, CEO of Diageo. “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.”
Bottles of the “ultra-premium” tequila sold under the Don Julio label sell between $45 and $375 each. Sales over the first half of this year jumped about 27%, an attractive pace for Diageo.
The spirits maker has struggled amid a steep slowdown in some emerging markets and has been able to keep pace due to the strong sales of high-margin “reserve brands” like Johnnie Walker Blue Label and Zacapa Rum.
Bushmills, which has a more modest price tag, faces fierce competition in the whiskey category from brands like Jameson, which is owned by Pernod Ricard.
Diageo has focused its investment in the Scotch whisky category, including Buchanan’s and J&B, as well as the high-end tequila market. Diageo purchased two other luxury tequila brands, DeLeon and Peligroso, earlier this year.
