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Diageo’s $700 Million Bet On Casamigos Tequila

June 22, 2017

In 2013, Casamigos Tequila was launched to great fanfare—thanks largely to a glamorous ownership team led by actor George Clooney and nightlife entrepreneur Rande Gerber. Back then, no one could have imagined that the brand would be sold for as much as $1 billion just four years later.

Yesterday Diageo unveiled its billion-dollar bet on Casamigos—an acquisition that includes an initial payment of $700 million, and a further $300 million in performance-based payouts over the next decade.

Lee Einsidler, CEO of Casamigos sales and marketing arm Casamigos Spirits, will stay on, and the brand will continue to be run as a separate unit. Casamigos was initially handled by Serralles USA, but in 2014 it moved to Sidney Frank Importing, where Einsidler was CEO. Sidney Frank was acquired by Mast-Jägermeister the following year, and Einsidler departed to help launch Casamigos Spirits.

Einsidler’s brand-building and deal-making skills are now the stuff of renown. He was directly involved in Sidney Frank’s sale of Grey Goose vodka to Bacardi Ltd. in 2004—a transaction that reaped $3 billion, including the earn-out. He also helped engineer the Sidney Frank sale to Mast-Jägermeister. With the Casamigos deal, he’s done it again.

Casamigos’ founding partners will have “active participation” in the future direction of the brand, Diageo said. With Clooney and Gerber successfully serving as the face of Casamigos thus far, their continued involvement will be crucial to its future.

The Casamigos partners possess impressive pedigrees. Clooney’s cinematic resumé is well known, while Rande Gerber is the founder of nightlife company Gerber Group, which owns a highly successful array of bars and restaurants including Whiskey Blue, Irvington, Kingside, The Roof and numerous other venues. Third partner Mike Meldman founded Discovery Land Company, a leading real estate concern that develops private golf club communities and resorts throughout North America.

Casamigos offers a Blanco, Reposado and Añejo, and retails in the range of $45-$55. The brand has posted average annual compound growth of 54% over the past two years, and last year it reached 120,000 cases, primarily in the U.S. market. For 2017, it’s on track to hit 175,000-200,000 cases. Diageo has set a five-year goal of reaching 1 million cases and establishing a major presence in the luxury Tequila segment, which is currently dominated by Patron.

The luxury segment (above $40) indeed looks ripe for expansion. Last year, it grew by 11% to 3.26 million cases, according to Impact Databank, and now comprises 21% of the total category—up from 13% a decade ago. Moreover, the Tequila category currently accounts for just 7% of the overall U.S. spirits market, compared to 34% for vodka.

Diageo doesn’t plan to change the Casamigos distribution template, and has expressed confidence in its ability to balance priorities between Casamigos and its current core Tequila brand, Don Julio. Last year Don Julio was an Impact “Hot Brand,” rising 23% to 375,000 cases. Diageo also sees opportunity for Casamigos in global markets. “This brand is already in a number of countries,” said Diageo North America president and CEO Deirdre Mahlan. “Our Reserve business in Europe represents the biggest opportunity outside of North America.” —David Fleming 

U.S. – Top Five Luxury-Priced Tequila Brands1
(thousands of nine-liter case depletions)
Brand Importer 2016 2017P Percent
Change3
Patron2 The Patron Spirits Co 2,321 2,400 3.4%
Don Julio Diageo North America 375 435 16.0%
Herradura Brown-Forman Beverages Worldwide 158 180 13.9%
Casamigos Diageo North America 100 175 75.0%
Avion Pernod Ricard USA 116 105 -9.0%
Total Top Five 3,070 3,295 7.3%
Total Luxury Tequila 3,240 3,465 6.9%
1 over $40 per 750ml
2 includes Roca
3 based on unrounded data

Source: IMPACT DATABANK  2017

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