Diageo (NYSE:DEO) makes most of its money selling the world's No. 1 scotch whiskey, Johnnie Walker. However, it is the distiller's tequila brands that are recording the largest gains, with organic net sales growth outpacing all other spirits in the portfolio by nearly three to one.

That might not be so surprising, as Euromonitor International says tequila and the related mezcal market is the fastest-growing spirits category. The U.S. is the biggest market for both -- bigger even than Mexico, where it's made. Total volumes rose 5.1% last year to 33.6 million cases.

Three shot glasses of tequila with salt and lime

Image source: Getty Images.

The biggest tequila brands

The Spirits Business' 2018 Brand Champions report highlighted the six tequila brands that sold over 1 million 9-liter cases last year.

No one should be surprised that Becle's Jose Cuervo was the biggest, selling 9.5 million cases, a 6.4% increase over 2016. It's had excellent marketing over the years and has been popularized in song and film. Jose Cuervo currently holds a 30% share of the world tequila market. 

Japan's Beam Suntory was a distant second, with 2.8 million cases sold for its Sauza brand, up an anemic 0.3% over the year before. Patron came in third place at 2.6 million cases, rising 5.1% year over year.

Patron's finish was also notable in that rum maker Bacardi made a big splash earlier this year by acquiring Patron Spirits in a deal valued at $5.1 billion. That dwarfed the $1 billion Diageo spent to acquire the super premium tequila Casamigos from George Clooney in 2015. Both deals, however, show that the distillers appreciate the premiumization of spirits that is under way in the marketplace as consumers willingly spend up for liquor.

The Distilled Spirits Council defines premium tequila as one that costs between $90 and $160 per case, while high-end premium goes for $160 to $240 per case. Super premium, on the other hand, is tequila that costs more than $240 a case, or the equivalent of around $27 or more per bottle.

That top end includes Patron, Sauza's Tres Generaciones, Brown-Forman's Herradura, and Diageo's Casamigos, as well as its more established Don Julio brand. It's that latter tequila that is making waves in the market.

The shining star

Acquired from Casa Cuervo in 2015, Don Julio has become a star performer for Diageo. Organic net sales surged 42% in the first six months of the 2018 fiscal year, with volumes rising 35%. The Spirits Business says Don Julio crossed over the million-case threshold for the first time in 2017, moving 1.3 million cases, which makes it the fourth-biggest seller. However, its 44.4% volume growth last year makes Don Julio the fastest-growing major tequila brand in the world.

Diageo CEO Ivan M. Menezes notes that both Don Julio and Casamigos are growing far faster than the tequila category itself, as well as the super premium category. In other words, they are gaining market share. While Bacardi's acquisition of Patron gives the rum maker a bigger presence in the U.S., Diageo's tequila portfolio is growing faster and shouldn't face any problems now that its rival has switched owners.

Scotch whiskey will continue to lead the way for Diageo as the spirit accounts for 27% of total sales. Still, as tequila's popularity continues to grow and as Don Julio maintains its rapid-fire growth trajectory, look for it to climb the ranks of brands in both size and importance.