Mergers and Acquisitions

Diageo Digs Into Growing Premiumization Trend With 21Seeds Acquisition

Lisa Johnston
a person smiling for the camera
21Seeds21Seeds produces three variety of flavored tequila.

Diageo has made a couple of brand deals — offloading its Windsor whisky business and picking up flavored tequila company 21Seeds — as part of its strategy to invest in the growing premiumization trend.

21Seeds produces three varieties of tequila — Valencia orange, grapefruit hibiscus and cucumber jalapeño — that caters to the also-rising at-home cocktail trend. Founded in 2019, the startup received mainstream attention when it made its way on to the June 2020 “O List” in O, The Oprah Magazine, and Debra Crew, president of North America at Diageo, cited it as one of the fastest-growing brands in the flavored tequila segment.

“This acquisition is in line with our strategy to acquire high-growth brands in fast-growing categories,” she added. “It is particularly special to me given Diageo’s longstanding commitment to champion inclusion and diversity, and we look forward to working with this dynamic trio of female entrepreneurs to continue growing 21Seeds.”

Tequila/mezcal sales grew 30% to $5.2 billion in the U.S. in 2021, according to the Distilled Spirits Council of the United States, making it one of the fastest-growing spirits category by revenue. The overall U.S. distilled spirits sector recorded strong growth thanks to restaurants re-opening and consumers flocking toward super-premium spirits at home.

In announcing the acquisition, Diageo also cited research from IWSR that found the flavored tequila segment grew more than 20% from 2019 to 2020, with super-premium flavored tequila increasing 65%. 

[See also: Diageo Readies Digital Twin Trials for Lighter Bottles]

Co-founder Kat Hantas said the brand was started because they wanted to develop a casual drink that made tequila cocktails as approachable as a glass of wine or beer. Hantas, along with co-founders Nicole Emanuel and Sarika Singh, will continue to actively work on 21Seeds, collaborating with the Diageo North America team.

“It’s been a thrill to watch consumers embrace our brand, and we are excited about the future for 21Seeds with Diageo’s resources and capabilities behind it,” she said in a statement.  

Terms of the cash deal weren’t disclosed.

Diageo, the No. 39 consumer goods company, also offloaded its Windsor whisky business to a South Korean private equity firm this week for about $162.9 million. Under terms of the deal, Diageo will supply Scotch whisky to the Bayside and Metis private equity consortium for 10 years.

[See also: Diageo Opens Its 1st Carbon Neutral Distillery]

Sam Fischer, Diageo president of Asia Pacific and global travel for Diageo, said the deal marks the next chapter for Diageo Korea, noting the company remains committed to the market and further developing its international spirits and beer business.

That business, she noted, is being driven by premiumization and consumer interest in categories like international whisky.

“We take a disciplined approach to capital allocation,” added Fischer, “and this sale is very much in line with our track-record of active portfolio management.”

The deal is expected to close in fiscal 2023.

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