Diageo targets Europe for Tequila growth

The Paloma cocktail will be key to driving growth in Europe for Diageo’s Tequila portfolio, which represents a quarter of the sector’s sales globally, according to the firm’s president of Latin America and Caribbean.

Diageo held its Capital Markets Day in New York this week (15 November), which saw senior executives delve into the group’s growth strategy.

Scotch, beer, Tequila and vodka are the group’s four largest categories. Scotch made up a quarter of the group’s fiscal 2023 net sales value (NSV), while Tequila overtook vodka in fiscal 2022.

Alvaro Cardenas, the group’s president of Latin America and Caribbean (LAC), discussed Diageo’s Tequila portfolio expansion around the world.

Citing IWSR Drinks Market Analysis data in 2022, Cardenas said the Tequila category is growing three times faster than international spirits (excluding baijiu) in the last five years. Tequila rose at a compound annual growth rate (CAGR) of 18%, while international spirits rose by 5%.

In more than 60 countries, the Tequila category grew sales by 50% (as of August 2023) compared to a year ago, Cardenas said.

Cardenas noted that Diageo’s portfolio represents a quarter of global Tequila sales with Don Julio being the number-one-selling brand in the category globally as of 2022.

Casamigos is the fastest-growing Tequila brand (IWSR 2022 data), among the 30 largest brands based on RSV, growing at approximately 70% in the past five years.

Both brands sold 3.2 million nine-litre cases each last year after growing by double digits, according to The Brand Champions 2023 report.

Cardenas identified several areas that could drive growth for Tequila.

“People in Southern Europe are drinking less but better and super-premium spirits are outgrowing total spirits,” he explained.

He noted that the aperitivo occasion is “very popular in Southern Europe and one where we believe that Tequila can be positioned to compete”.

However, he stressed the challenge of overcoming the category’s shot-slamming reputation.

“Luxury Tequila has doubled in size in Southern Europe over the last year but some consumers still perceived Tequila as a drink for low-quality shots.

“We had to overcome the barrier with a new serve that would position our Tequilas as a premium, trendy option, simplifying their choice and creating demand by really educating them on our brands.”

According to Cardenas, Tequila penetration in Europe is “relatively low” but he identifies it as a “great opportunity” where the group’s portfolio can “disrupt, engage and win”.

Paloma push in Europe

He believes the “easy to make” grapefruit-based Paloma cocktail will be key to capturing this opportunity in Europe as it taps into the preference for long drinks. Cardenas said the Paloma is the 13th biggest-selling cocktail in the world, climbing two spots last year.

Diageo’s biggest Tequila brands, Casamigos and Don Julio, will lead the group’s Paloma strategy.

“We have launched Tequila in more than 15 countries across Europe, including five countries in Southern Europe. We plan to drive the Paloma at scale across all our European markets in fiscal 2024, with both Casamigos and Don Julio,” said Cardenas.

He also highlighted several milestones for the portfolio, including Casamigos being the fastest-growing super-premium-plus Tequila in Italy.

“Our Paloma activations have generated high conversion rates and increased our share of Tequila,” Cardenas explained. “In Spain, we saw a 60% conversion rate from trial to purchase. Tequila was one of the largest drivers of growth in Southern Europe in fiscal 2023, contributing to 20% of net sales growth.”

Diageo has also “leveraged” its agave spirits portfolio in Asia, Cardenas said, which resulted in Tequila being the group’s fastest-growing category in Asia Pacific in 2022.

“We tapped into the demand for luxury products among Asian consumers and positioned Don Julio 1942, our super-premium Tequila, as our flagship,” he explained, by positioning the product as the “icon of stylish celebrations” and through targeting “aspirational on-trade venues” and “high-energy occasions”.

“Across many activations, local influencers and musicians created and shared engaging social content with wide reach,” he added.