UK-based Diageo has announced plans to expand its manufacturing footprint in Mexico through an investment of more than $500m in a new production site in the western state of Jalisco, to serve the US and Mexican markets.

Galvanised by strong sales, the company announced its investment into the tequila-producing region in September and expects to create 1000 jobs. The plant also intends to use sustainable technology, with the aim of being carbon neutral, but Diageo was unable to say which technology it plans on using to achieve this.

Tequila growth

“In the fiscal year 2021, Diageo’s tequila organic net sales grew 79%, with the category now representing 8% of the company’s organic net sales. Growth was primarily driven by North America, where tequila is benefitting from its broad appeal across consumer occasions,” Álvaro Cárdenas, Diageo’s Latin America and Caribbean president, said in a statement.

The reasons behind the drink’s growth are its appeal to a multigenerational and multicultural audience, growth of the US hispanic population and a consumer interest in ‘wellness’ and agave, the company said. 

“This exciting investment in Mexico will support our future category growth to meet Mexican and international demand. It will also allow us to continue surprising and delighting consumers with our amazing tequila portfolio,” Mr Cárdenas continued.

Following the company’s 2022 interim results for the first half of the fiscal year 2022, released at the end of January, the company said that its US spirits growth was “primarily driven by tequila”, up by 61% on the previous year, with the Mexican liquor now occupying 9% of the company’s reported net sales.

This follows its 2015 acquisition of the brand Don Julio, in a deal worth roughly $1bn. Diageo has invested continuously into the state of Jalisco since.

Mexico attraction

Fiona Mackie, regional director for Latin America and the Caribbean at the Economist Intelligence Unit, tells fDi that Mexico and Diageo are a “great fit” as the drinks company “is investing in a region that is a key centre for manufacturing in Mexico, with attractive labour costs, proven manufacturing capacity and good transport infrastructure”. 

Set against the attractiveness of nearshoring to Mexico in the wake of the US–China trade war, Mexico has emerged as a popular foreign direct investment (FDI) destination in recent years, despite concerns over president Andrés Manuel López Obrador’s adversity to the private sector, notably in the energy sector.

According to fDi Markets, which tracks greenfield project announcements, the number of projects into Mexico jumped to 331 in 2021, up from 276 in 2020. Food and beverages manufacturing projects stood at eight in 2021, up from five the previous year.

As Mexico enters a technical recession as of the end of 2021, FDI will become ever more important, as domestic investment struggles, according to Ms Mackie.

“The government’s lack of Covid-related fiscal stimulus has left both consumers and businesses stretched and produced permanent income losses that are still affecting the economy,” she says. 

But its proximity to the US will see projects such as Diageo’s continue. “We do still think that, because of its deep integration into US supply chains, which has produced benefits in terms of technology transfer and infrastructure development, Mexico will still get a reasonable amount of FDI, despite concerns about rule of law,” Ms Mackie says.

This article first appeared in the February/March 2022 print edition of fDi Intelligence.