One of the reasons is that we figured there could be a better day. Our brands were loved here and scotch was aspirational. We had a 40 to 50 market share and we were able to increase that to 80. A lot of it was, we went to our core, expanded that core and the rest was the demographics happened. We were benefactors of that. We could have cut everything and made more money. But we stayed the course. We appropriately spent behind our brands and built our brands.
Q. Was scotch initially as popular in Latin America or has it been an educational process?
It had a good foothold and we’ve increased that foothold. In Mexico, it was 3 or 4 percent of the spirits category but now it’s 12. We’ve invested behind it. Because it had aspirational characteristics, once you spend behind it and people can buy it, they begin to buy it. Latins are very brand conscious and brand loyal. Johnnie Walker as a family is our strongest family, but we sell more of Buchanan’s Deluxe then Johnnie Walker Black. Old Par is a strong brand as well. We have three strong 12-year-old scotches.
Q. Tell us what attracted you to the recent acquisition of Ypioca, the leading premium cachaca brand in Brazil?
We looked at the cachaca category and did research on what the strongest brand was. We liked the fact that it had a tradition that had been around for 150 plus years and it was also a leading premium cachaca. We saw something that we thought had a lot of legs and with some marketing we could improve it even more. We couldn’t have done this 10 years ago without the premium business we have today.
Q. You talked about how you now have a major role as an exporter in certain Latin American countries like Guatemala, where you are the largest exporter, and in Venezuela, where you export more than 90 percent of the country’s rum. What kind of power does that give you?
What it does is allow us to have a conversation with the government, if we want to have any conversations on tax policy or alcohol policy. It gives us a seat at the table. Power is probably too strong a term.
Q. You talk about the opportunity for the future that lies in the growing middle class. Talk to us about where you are at reaching this population and what are your goals for the future?
We’re going to go after the middle class in two ways: through our core portfolio and by innovation. That means either bringing something new to Latin America or taking brands like Ciroc, Ketel One or Rokk Vodka that we have around the world in the Diageo portfolio and bringing them down here. As we extend our route to market and activate more accounts, they’ll be able to use our products more.
Q. What is the status of negotiations on the purchase of Jose Cuervo before your distribution agreement runs out next year?
We haven’t consummated a deal yet. Cuervo is a phenomenal brand and to have it in our portfolio makes sense. I would hate to lose Cuervo. But to do a deal that doesn’t make sense for our shareholders wouldn’t be good either.
Q. What do you define as “premium” brands in Latin America?
Premium in many ways depends on the category. There’s a premium sector in each category. What’s premium in the cachaca category may not be premium in the Scotch category. What we do talk about is our reserve business that would be Johnnie Walker Platinum, Zacapa, Ciroc, Buchanan’s Reserve and Johnnie Walker Blue label. When we think of reserve, which is super-premium, that’s what we think of.
Q. Do you see an opportunity for super-premium business in all countries in Latin America or just certain larger countries like Brazil and Mexico?
I think you see an opportunity in all countries, the question is how big it is. Most countries in Latin America have people with high net-worth. How you bring that to life is different in each market. We have a lot of in-market companies. It’s their job to figure out how to capture that opportunity.