Dive Brief:
- Bacardi said Monday it is acquiring Patron Spirits in a $5.1 billion deal, the company said in a statement. The rum maker had previously purchased a minority stake in the premium tequila company in 2008.
- If the deal goes through, Bacardi said it would take over as the largest super-premium spirits producer, and become the second largest spirits company in market share in the U.S. Patron’s leadership is slated to stay on when the deal closes, which is expected in the first half of this year.
- “Adding Patron to the Bacardi portfolio creates a tremendous opportunity for the brand outside of the United States as Bacardi’s international distribution network will help grow Patron around the world, increasing scale in the U.S. and globally,” said Mahesh Madhavan, CEO of Bacardi Limited.
Dive Insight:
Tequila has undergone a transformation, and Bacardi has taken notice. No longer just a party shot, the Mexican-made liquor has upgraded the quality of its super-premium varieties to rival that of an aged bourbon or Scotch. It’s a drink meant to be sipped slowly, not camouflaged with salt and a lime wedge.
Bacardi has seen demand for its beverage drop in recent years as consumer tastes have trended away from rum, vodka and beer and toward more refined whiskeys and tequilas. By acquiring Patron, Bacardi not only climbs to the top of the super-premium spirit category, it also takes control of an in-demand beverage.
In addition to its namesake Patron tequila, Bacardi will also be picking up Pyrat rum and distribution rites to Ultimat vodka. These brands will be added to the rum makers stable, which includes Grey Goose vodka and Dewar’s Scotch. If the deal closes as expected, Bacardi would jump from the 5th-largest spirits company in the U.S. by value to second place.
Current consumer demand likely played a key role in motivating Bacardi to expand its 30% stake in Patron to full ownership. Since 2002, tequila volumes have grown 106%, an average rate of 5.7% per year, according to the Distilled Spirits Council of the United States. Patron is the industry leader, with U.S. sales of $1.6 billion in 2016, the Wall Street Journal said.
As impressive as that growth is, especially when compared to falling beer sales, it’s modest compared to its upscale counterpart. Super-premium tequila jumped more than 700% from 2002 to 2016, according to the Distilled Spirits Council.
Along with this robust interest comes increased competition from upstarts such as Casamigos, founded by actor George Clooney and two friends. It was recently acquired by Diageo for up to $1 billion. That sale, along with Bacardi’s deal with Patron, indicates that companies expect growing consumer demand for high-end tequila.
Liquor sales in general have been enjoying a renaissance. In the U.S., spirits sales jumped 2.6% in 2016, while alcohol sales volumes grew by 0.1%. Analysts attribute liquor's growth to new consumer bases, the return of liquor advertisements on TV and the shifting tastes of millennials.
It will be interesting to see if these recent deals, coupled with continued consumer demand for tequila, spur other liquor giants to consider acquisitions of their own. There is no shortage of high-end varieties of the drink, so it's up to the competition to decide if they think this is a trend with staying power.