Bushmills on rocks as Cuervo has a shot

Drinks giant’s whiskey fell into third place behind Tullamore Dew

Diageo has finally waved the white flag on its foray into Irish whiskey after agreeing to offload Bushmills to José Cuervo, a Mexican tequila group.

It is quite a retreat for one of the world's great drinks marketers. Since it bought Bushmills in 2005 after years searching for a good Irish whiskey brand, Diageo has been beaten out of sight by Pernod Ricard, the owner of Jameson.

Bushmills was the second-biggest selling Irish whiskey brand in the world, behind Jameson, when Diageo bought it with plans to ramp up sales at an extraordinary rate. Since then, Bushmills has slipped to the third-biggest seller behind Tullamore Dew, nothing short of an embarrassment for the drinks giant.

In 2005, Jameson sold close to two million cases annually, while Bushmills (including its premium Black Bush offshoot) sold about 400,000, well ahead of Tullamore Dew. Jameson is now closing in on five million cases. Bushmills, which had a target of one million cases by 2012, still only sells 800,000. Meanwhile, Tullamore Dew has stolen up the rear to reach about 850,000 cases annually.

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In recent years, Irish whiskey has become distinctly cool. The drink is now sold as the epitome of trendy sophistication and sales in the category are expanding at 20 per cent annually.

Why has Diageo been unable to fully capitalise on this with Bushmills?

True, it has doubled sales of the brand in nine years. But even after spending more than €100 million on capacity expansion in recent years, it has barely kept pace with market growth.

The problem for Bushmills is that it is not one of the favourite children of Diageo, and was always among the last in the queue for investment, behind its Scotch brands, such as Johnnie Walker. It was lost in the portfolio.

Despite its clear failure to do anything of note with Bushmills, Diageo has done quite well out of the Cuervo deal, which values Bushmills at about €560 million. Diageo spent about €400 million buying and developing the brand.

A €160 million profit on its investment in just nine years is actually not a bad chaser.