Interest Builds Up In The Premium Tequila Market

Tequila is no longer an alcohol intended to be hidden in cocktails, and is gaining popularity as a drink to be sipped. This gathering momentum has been evident in the tremendous rise in the sales of tequila, and in particular of the super-premium varieties. The sales of this alcoholic beverage in North America have been growing at a faster rate than the overall drinks market, as the premium brands help to improve the image of tequila. The increasing interest is also reflected in the growing M&A activity in this industry. Recently, Bacardi agreed to purchase Patron Spirits, maker of high-end tequila, valuing the latter at $5.1 billion. This news even sent shares of the Jose Cuervo-maker, Becle SAB, to a near-record high. The deal also follows the Pernod Ricard buying out Avion Tequila, and Diageo (NYSE:DEO)  acquiring Casamigos tequila.

Growth Of The Tequila Market

Among a number of reasons, the chief one in the increasing interest in the business is the tremendous growth being witnessed in the super-premium tequila industry in the US, where Patron, Avion, and Casamigos primarily generate their sales. Americans can’t seem to get enough of Mexico’s native spirit. Since 2012, tequila volumes have grown by 121%, at an average rate of 5.8%. In 2016 alone, 15.9 million 9-liter cases were sold. What is even more impressive is that while the volumes of value and premium tequila grew by 93% and 72% during the aforementioned time frame, those of high-end premium and super-premium shot up by 292% and 706%, respectively, according to the Distilled Spirits Council (DISCUS).

DISCUS defines premium tequila as one which costs between $90 and $160 per case (a case is nine liters), high-end premium ranges from $160 to $240, while super premium is anything above $240. Hence, the per bottle price would be less than $10 for value tequila, between $10 and $17.78 for premium, between $17.78 and $26.67 for high-end premium, and over $26.67 for super premium. The presence of Patron, Avion, and Casamigos in this lucrative super-premium market makes them poised to carry on their enormous growth.

Diageo has also had considerable success following the purchase of another super premium brand Don Julio. In FY 2017 (year ended June 2017), the brand reported a net sales improvement of 43%, with organic volume growth of 25%, and organic sales growth of 25%. Tequila represents just 2% of Diageo’s sales. However, its organic sales growth of 26% in the aforementioned period, driven by double-digit growth in the US and Mexico, far outstripped the numbers witnessed in its other categories.

We have a $158 price estimate for Diageo, which is higher than the current market price. The charts above have been made using our new, interactive platform.

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