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Diageo’s strategy to reclaim leadership position in Tequila includes buying a couple of Tequilas

August 1, 2013

Diageo Plc  may be close to a deal that would help it reclaim its dominant position in the global tequila market, according to a senior executive. The world’s biggest spirits group lost its right to distribute Jose Cuervo tequila outside Mexico last month after failing to reach a deal with the brand’s owners regarding an equity stake. It is now left only with the smaller, more upscale Don Julio brand.

“We have some things that I can’t discuss that we’re close to in getting back our leading position as it comes to profit in the tequila category,” Larry Schwartz, president of Diageo North America, told Reuters in an interview on Wednesday. “Hopefully I’ll be able to talk about it in a couple months.”

Schwartz said Diageo’s position in tequila might be bolstered through in-house innovation, more likely on a “new to world” tequila, rather than, for example, adapting its Johnnie Walker strategy of introducing different “labels” at different price points for Don Julio.

For that brand, he said Diageo will push hard to expand distribution and increase marketing and advertising.

But he added: “We’ll buy a couple of tequilas, I’m sure.”

“It’s pretty normal. If you lose something you want to get something,” Schwartz said.

Targets would most likely be premium tequilas made 100 percent from agave plants rather than a “mixto” tequila, Schwartz said, repeating what he said in December after Diageo pulled out of talks with Cuervo’s Beckmann family.

“And for me — this is a personal goal — I’d like to replace the profit (from Cuervo) within two years,” Schwartz said, noting that it takes time to close an acquisition and take over a new business.

Diageo, whose other brands include Smirnoff vodka and Guinness stout, reported financial results on Wednesday, saying that demand for expensive drinks from U.S. drinkers helped offset slowing growth in some emerging markets.

Despite a U.S. economy he described as “unsteady since the beginning of the year” Schwartz said consumers were still trading up to more expensive drinks.

Source: Reuters