The agave plant, from which tequila is made. The agave plant, from which tequila is made.

Expansion begins at Diageo’s Jalisco plant

Strong demand for Don Julio tequila means more investments are to come

The multinational beverage company Diageo laid the first stone for the expansion of its Atotonilco, Jalisco, plant this week, part of a US $400-million investment announced in 2015 after it bought the Don Julio tequila brand.

The 24,000-square-meter project will house a new bottling facility, a wastewater treatment plant and an aging cellar.

The renovated Atotonilco plant will also allow the firm to generate biogas from leftover agave husks.

Once construction is completed the firm expects to at least double its vodka and tequila output during the following five years, from the current 2.4 million cases a year to over 5 million, 55% of which will be exported.

Of that 5-million-case output, 80% will be Don Julio tequila and 20% Smirnoff vodka. Diageo plans to bottle Captain Morgan rum in the plant as well.

About 1,000 direct and indirect jobs are expected to be created.

In a press conference, Diageo México CEO Erik Seiersen said that construction of the Atotonilco plant will take between 18 and 24 months.

He said the increased capacity should bump Don Julio into first place in terms of its value in the domestic tequila industry.

There will be more investment to come, Seiersen forecast. ” . . . The demand we’re seeing for Don Julio in Mexico and worldwide is well above our projections. We shall accelerate [our investment], well above our original commitment.”

The domestic demand for Don Julio has ranked it third among Diageo’s brands, behind the whisky brands Johnnie Walker Red Label and Buchanan’s.

Don Julio has a strong presence in over 60 countries but Diageo expects that figure to climb to 100 by adding markets in Southeast Asia, South America and Europe.

Diageo’s $400-million initial investment two years ago included the purchase of the Don Julio brand, bringing the bottling of its Smirnoff vodka to Mexico, expanding the Atotonilco plant and opening a distribution center in the State of México.

This last facility was dedicated last February. Extending over close to 24,000 square meters, it will allow Diageo to double its distribution capacity to 11 million cases a year.

Meanwhile, another agave beverage has not been excluded from Diageo’s plans.

Seiersen said the firm is interested in venturing further into the mezcal market. Since it signed an agreement with the Unión brand last year, the latter’s annual domestic sales have increased by 176%.

Mezcal represents just 1% of the market, said the CEO, but it is growing by 40%. “Mezcal is a 1,000-year-old tradition, even older than tequila,” he remarked.

Seiersen did not dismiss the possibility of expanding further into the mezcal market with another purchase.

Source: Forbes México (sp), El Economista (sp)

Reader forum

The forum is available to logged-in subscribers only.