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Mexico 2016 | INDUSTRY | VIP INTERVIEW

TBY talks to Erik Seiersen, Managing Director of Diageo Mexico, on the Don Julio brand, growth in Mexico, and the investment environment.

How has Diageo Mexico grown over the past year?

After the acquisition of Don Julio in Diageo Mexico, we now have around 820 colleagues in the company. We have a large brand portfolio that is probably one of the world's most complete. We are proud of the fact that six of the top 20 brands in the Mexican market are Diageo brands. In fact, Buchanan's and Johnnie Walker hold the first two positions. Diageo has a leading market share of around 30.7% in the wholesale channel, which is almost twice that of our nearest competitor. Recently, 43 partners within the Wine and Liquor Distributors National Association (ANDIVYL) elected Diageo as the Provider of the Year, at the 12th annual award ceremony of the association. The transformation to our position today from 10 years ago when we were in fifth place has been stunning. We feel proud because Mexico has transformed itself from a local spirits market to an international beer and spirits market. That has been good for us and we have aggressive investment plans not only in brands but in all of our operations, with Don Julio for export and local consumption.

What is the importance of Mexico to Diageo's global operations?

The importance is that Mexico is a developing market in the more mature stages of development. In general, Mexico has done well. It is a democracy of 120 million consumers, a nice population bonus where the average age is 25-26 and the population is growing along with purchasing power. Even though Mexico is not growing at the rate that we would like to see, it is still doing much better than many of our developing country peers and our location next to the US creates many synergies with the US. We are the 10th largest exporting country in the world; therefore, we see great medium and long-term economic indicators in terms of being an underdeveloped spirits market. There is an interest in exploring international spirits. In this way, we are like Spain in the 1970s or 1980s when it transformed itself with whiskey and gin. Spain is now an international market, so Mexico will get there. We see Mexico as one of the top five or six markets for Diageo. We are ahead of Brazil already, we will soon be ahead of Australia, and Nigeria is a big business for us.

How would you respond to critics of your acquisition of Don Julio, who say that international players will destroy the Mexican tequila industry?

One interesting fact is that the majority of our 820 colleagues are Mexican. I am as Mexican as tequila, and it starts with Diageo making a statement that we had not had a Mexican GM for 20 years. Bringing in a Mexican GM that is well known in Mexico and Latin America is a big statement. However, the most important factor of Don Julio is that we make sure that everything about it is unique, from the name, production method, artisanship, and even the location in Jalisco in the town of Atotonilco, which is a bit different from the town of Tequila. Don Julio will always be engrained in Mexican heritage. We are investing today in recovering the properties that Don Julio lived in; therefore, we are making sure we maintain that heritage and authenticity. That is key for us because we want to make sure that Don Julio is Mexican, even under foreign ownership. Today there is more competition, but this is good for Mexico. We want to foster competition so that end-consumers will decide who is better, what is the best experience, and what is the best product. Don Julio is fortunately already the third-most loved brand. Though we did not know anything about tequila in Mexico, we still globally distributed Don Julio and Don Julio is now growing at twice the rate that of the consolidated tequila market. It proves that consumers care about quality, the experience, whether or not it is foreign owned or local owned. We want to give consumers the best experience and allow them to choose. The way that we produce Don Julio tequila is the same way that Don Julio did when he founded the business in 1942.

What kind of potential do you see to expand the international presence of tequila?

Our CEO Ivan Menezes was in Mexico recently, and actually announced we have expanded the footprint of Don Julio to about 60 countries from 30 in the last year. Based on the significant growth we have seen in Don Julio across the world, particularly in the key markets of the US and Mexico, we are investing in our distillation, packaging and maturation to double our sales by 2021. We also plan to accelerate our $400 million investment looking to deliver our investment faster than planned. We have the best brand with the best spirits company in the world by far, which is exciting and I am proud to be a part of this historical moment. Our Mexican operation manages the plant, although half of it is export.

What is next for Diageo in Mexico?

The big challenges will be to materialize our big dream; we want to double the size of our business in Mexico. We are into the second year of our five-year plan and we are ahead of schedule, but there is a lot of work to be done because the whole industry will grow and we want to grow at a faster and healthy pace. We want to promote the formalization of the industry by fighting illegal spirits—along with the government and industry—which make up around 43% of the market. We want to get that figure down, which will allow the government to generate more tax revenue and create many more formal jobs while attracting FDI. A big part of how Mexico brings in foreign currency is through investments like Diageo and other foreign companies that look to long-term hard assets.

Why is Mexico such a good place to invest and do business?

As a Mexican, I obviously have a bias; however, we have nonetheless shown the world that this is a place where there are great investment opportunities. People are well educated and investments will give a great return, plus they will be doing the world a service by ensuring the country can develop and grow at a faster rate in order to become a developed nation. It is about doing business and securing returns on investments as well as doing good by investing in Mexico, which will benefit the 120 million Mexicans.