PHILIPPINES – London -based multinational alcoholic beverage company Diageo is leaning Into Super-Premium drinks alongside whisky and tequila following reaching an agreement to buy the high-end Philippine rum brand Don Papa in a deal that could be worth more than €400mn (US$433m).
Diageo said it will purchase Don Papa Rum for €260 million (US$281m), with a further potential €177.5 million (US$192m) investment to be made between the time of purchase and the year 2028, subject to the spirit’s performance. The deal, funded through existing cash reserves, is expected to close in the first half of this year.
The drinks giant’s confidence in the Don Papa brand, which was founded in 2012 by former Rémy Cointreau executive Stephen Carroll, reflects its strong growth potential as it bets that demand for expensive spirits can withstand a slowing global economy. Rum accounts for about 5 percent of Diageo’s sales, said Ed Mundy, the analyst at Jefferies.
According to Don Papa Rum, its distinctive flavour, with notes of vanilla, honey, and candied fruits, can be attributed to the combination of local sugar cane, American oak barrels, and the island’s hot tropical climate.
The rum is distilled by the Philippines-based drinks group Ginebra San Miguel, which is majority-owned by the San Miguel Corporation, on the Philippines island of Negros Occidental, also known as “Sugarlandia.”
Don Papa Rum consistently outperformed competitors during the period of 2016-2021, delivering a 29% CAGR at a time when the CAGR of super-premium plus rums was projected to be 18% in Europe and 27% in the US, the drinks business details.
Financial Times notes that Don Papa has a particular cult following in Germany, where avid drinkers have been known to get tattoos of the rum’s logo.
John Kennedy, president of Diageo Europe and India said: “the opportunity to bring Don Papa into the Diageo portfolio to complement our existing rums excites us.”
“This acquisition is in line with our strategy to acquire high-growth brands with attractive margins that support premiumization and enable us to participate in the fast-growing super-premium plus segment.”
Stephen Carroll, who will remain involved with the brand, working alongside Diageo, believes the acquisition is a great opportunity to take Don Papa into the next exciting chapter of its development.
Simon Hales, an analyst at Citi, told Financial Times that the super-premium rum category has been highlighted by many industry observers as the next exciting growth category in spirits.
Given similar craft credentials to other brown spirits, ‘sippability’ and opportunities to expand in [upmarket bars and restaurants], he added that it clearly has potential.”
However, he noted that there was a “risk that the payback may take longer than envisaged. Moreover, given the ongoing uncertain backdrop for spirits — and premiumization trends — into 2023, and the associated further cash from the Don Papa deal, this may limit the potential for further cash returns at Diageo in the near-term”
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