MercoPress. South Atlantic News Agency

British drinks group buys cachaça distillery in Brazil as it expands to emerging markets

Cachaça accounts for about 80% of the volume of the Brazilian spirits industry

British drinks group Diageo is buying a maker of Brazil's most popular spirit, cachaça for about 470 million dollars, boosting its expansion in fast-growing emerging markets while it fights for a bigger prize in tequila.

The London-based maker of Johnnie Walker whisky and Smirnoff vodka, which is aiming to get half of its sales from emerging markets by 2015, said on Monday it had agreed to buy Brazil's Ypioca from its family owners.

Ypioca is the third-biggest player in the market for cachaça, a spirit made from fermented sugar cane also known as Brazilian rum, and leader in the rapidly-expanding premium segment of the market.

Cachaça accounts for about 80% of the volume of the Brazilian spirits industry and, when mixed with ice, sugar and lime makes the Brazilian cocktail Caipirinha.

Diageo, like other international drinks groups, is looking to build its presence in emerging markets in order to offset sluggish demand in austerity-hit Europe.

The group has long been in discussions with the owner of Jose Cuervo tequila about taking a stake in the 3 billion-plus valued No.1 tequila brand, with some sources saying progress in the talks has slowed due to problems about the ultimate control of the brand.

Diageo made no comment about its talks about Cuervo.

The group has also recently invested in businesses such as Mey Icki in Turkey and ShuiJingfang in China to push up its sales from emerging markets which currently account for nearly 40% of its global total.

“Brazil is an attractive, fast growing market for Diageo with favourable demographics and increasing disposable incomes. The acquisition of Ypioca gives us the leading premium brand in the largest local spirits category,” said Diageo Chief Executive Paul Walsh in a statement.

Diageo is buying the business from the family-owned Ypioca Agroindustrial Limitada with its 160 year heritage in the north-eastern Brazilian state of Ceara. The deal gives it a cachaça distillery, bottling plant and warehouse.