Dive Brief:
- Diageo acquired 21Seeds, a rapidly growing flavored tequila infused with the juice from real fruits, for an undisclosed amount. The super-premium alcohol brand is available in three varieties: Valencia Orange, Grapefruit Hibiscus and Cucumber Jalapeño.
- 21Seeds was founded in 2019 by three female entrepreneurs. They will continue to actively work with the brand and collaborate with Diageo North America.
- The purchase deepens Diageo’s exposure to tequila and the small but rapidly growing flavored segment.
Dive Insight:
In 2020, Diageo CEO Ivan Menezes said the spirits maker would pursue an M&A strategy that prioritizes premium brands in its portfolio. The strategy, he said at the time, underscores the alcohol company’s realization that consumers are drinking “better, not more,” and that premium brands deliver growth and high margins.
The company has followed through on that pledge. Since then, it purchased vodka-based ready-to-drink cocktail brand Loyal 9 and the parent of hard seltzer brand Lone River Ranch Water. Now, the purchase of 21Seeds adds to the fold another offering that positions the company known for Smirnoff, Guinness and Johnnie Walker deeper into the category.
“21Seeds is one of the fastest-growing brands in the increasingly popular flavoured tequila segment and we are delighted to welcome it into our tequila portfolio,” Debra Crew, Diageo’s North America president, said in a statement. “This acquisition is in line with our strategy to acquire high growth brands in fast growing categories.”
In the U.S., the tequila category is growing at 16% — more than three times as fast as total spirits, according to IWSR data cited by Diageo. Within the category, the small but emerging flavored tequila segment grew more than 20% from 2019 to 2020, with super-premium flavored tequila growing 65% during the same period, the company data showed.
Increasingly, spirits have been a strong category compared to other forms of alcohol. Spirits volumes posted a compound annual growth rate of 3.2%, wine at 0.5% and beer a decline of 1.9%, from 2016 to 2020, according to IWSR data. During that same period, tequila posted a growth rate of 10.2%.
With this growth, other alcohol companies are getting into spirits, and tequila in particular.
Boston Beer and Sauza tequila maker Beam Suntory recently launched Sauza Agave Cocktails, the first ready-to-drink cocktail to be launched under the collaboration. Beer giant Molson Coors entered into a partnership with Superbird, a blue agave tequila-based cocktail. And Constellation Brands’ venture capital unit acquired a minority stake in Dos Hombres, the artisanal mezcal brand created by “Breaking Bad” stars Bryan Cranston and Aaron Paul.
Considering 21Seeds is only three years old, odds are it’s suffering through the growing pains of a startup as it fights for shelf space. Having the London-based Diageo as its parent, 21Seeds will have a deeper marketing budget, more pronounced retail and distribution connections and extra resources to help it innovate that will expedite its expansion and recognition among consumers at a time when its products are in demand.
For Diageo, the acquisition of 21Seeds not only increases its presence in premium spirits but follows through on its commitment to inclusion and diversity, the company said. Across the food and beverage space as a whole, companies have pledged to increase their diversity in recent years by hiring more employees, increasing their representation on the board or executive ranks, and purchasing brands.
