Diageo searching for second tequila

DI understands Diageo has actively tried to expand its tequila operation, with an offer made to Centinela tequila and interest shown in the Orendaine family-owned Don Roberto distillery.

A tequila industry insider told DI that Diageo attempted to do a deal with Centinela – one of the last remaining large-scale producers not owned by an international group – upon severing relations with Jose Cuervo.

Diageo distributed Jose Cuervo outside of Mexico and had been in negotiations to buy the company until December 2012; it continued to distribute the brand until July 2013. Since the split was announced, the world’s largest drinks company has publicly maintained it is content with its low-volume, super-premium Don Julio brand.

According to a source close to the Los Altos-based Centinela, Jose Cuervo’s owners (JB y Compania SA de CV and Lanceros SA de CV) had themselves lined up Centinela as contingency to selling Jose Cuervo to Diageo – bidding three times, for as much as US$400m; while Moët Hennessy also tried to get in on the act, but only sought Cantilena’s more premium lines.

Meanwhile the Don Roberto distillery, based in Tequila town, is one of multiple sites owned by the Orendaine family and is mooted to be high on Diageo’s wish-list as a production site for the creation of a new tequila brand.

The distillery is currently operating well under its production capacity – estimated to be in the region of 5m cases annually – and would be capable of taking a new volume brand to market, in opposition to Jose Cuervo, within 12-18 months.

It is thought that the Orendaine family would favour a licensing deal rather than an outright sale of its distillery, which, while not ideal, is not a deal-breaker for Diageo, which has a similar partnership with DUSA in Venezuela for its Cacique rum brand.   

Another Tequila Town insider, who also wishes to remain unnamed, told DI: “Diageo has two [acquisition] options: Centinela in the [Tequila] Highlands and Don Roberto in the [Tequila] valley. But as you know, negotiations are an issue of price - and other factors. There is also a third option to increase capacity at Don Julio but the parameters of [Don Julio’s] production are constrained. Beam, owner of Sauza, is also a company Diageo could look to buy.”

The source added that while Don Roberto offers the best platform to build a new brand – something of a specialist field for Diageo, having successfully built the likes of Cîroc - Centinela represents the “quality option” with “more aged tequila than anyone  [in the region].”

Diageo said it "does not comment on rumour or speculation".