The world’s leading tequila brand, Jose Cuervo, has launched a low-fat drink called Jose Cuervo Authentic Light Margarita to be marketed and distributed by Diageo Plc. (DEO).
Notably, Diageo had recently been keen on buying Jose Cuervo and had valued the leading tequila brand at $2 billion. The spirit giant may have to compete with companies like Bacardi, Pernod Ricard and Brown-Forman (BF.B) who might be interested in the acquisition of Jose Cuervo. However, Diageo is expected to leave all behind as it already owns the international distribution rights for Jose Cuervo.
Cuervo and Diageo had signed a joint venture in 2003, with the former paying $100 million for Diageo’s Don Julio tequila brand. Diageo launched a national marketing campaign under the name ‘Cue the Cuervo’, for the Jose Cuervo tequila across the US. The campaign focused on Cuervo as a night-time party drink.
José Cuervo is a brand of tequila produced by Tequila Cuervo La Rojeña, S.A. de C.V. The José Cuervo Especial brand has the highest sales of any tequila brand in the world.
We are enthused to see Diageo enjoying the distribution rights to this new drink as itis one of the leading players in the global premium drinks industry with a strong portfolio of globally recognized flagship brands, such as Smirnoff, Johnnie Walker, Captain Morgan, Baileys and Guinness. Moreover, the company is undertaking restructuring initiatives to reduce overhead costs and boost profitability.
However, we are concerned about the effect of recent economic downturn on Diageo’s performance and the stiff competition the company faces from Pernod Ricard and Fortune Brands Inc. (FO) in the spirits business and Anheuser-Busch InBev (BUD) and Molson Coors Brewing Company (TAP) in the beer business.
Currently, we maintain a Neutral rating on the stock. Further, Diageo holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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