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When the pandemic-era cocktail boom ended, the spirits business suffered a severe hangover. The trade war could make the headache even worse.
This week, U.S. President-elect Donald Trump, who had already discussed imposing 10-20% tariffs on non-Chinese imports, announced on his first day in office that he would impose a 25% tariff on all imports from Mexico and Canada. he threatened. Meanwhile, China imposed tariffs of up to 39% on EU brandy in response to China’s tax on electric cars.
It’s a tricky cocktail for European beverage companies. Companies with tequila brands such as Britain’s Diageo and Italy’s Campari are exposed to U.S. and Mexican tariffs. Diageo also faces increased duties on Crown Royal whiskey shipped from Canada to the United States. These companies, along with Remy Cointreau and Pernod Ricard, both of which are based in France, will be affected by tariffs on imports from the EU and the UK.
For some, the shock will be difficult to swallow. If the US imposes a 25% tariff on imports from Canada and Mexico and a 10% tariff on imports from the EU and UK, Pernod, Campari, Diageo, and Remy will have 3%, 8%, and 8% earnings per share. , and will decrease by 5%. According to Deutsche Bank, each is 19%.
It may not happen. Trump’s tariff threats disrupted markets for months in 2019, but will ultimately only target British single malt Scotch and Irish whisky, according to Jefferies’ Ed Mundy. It is said that it has become somewhat watered down. The industry is lobbying hard about the impact on consumers and the loss of hospitality jobs.
China’s tariffs are already proving devastating. Hennessy, owned by French luxury goods group LVMH, briefly considered bottling its brandy in China to avoid import duties. However, the plan was canceled after hundreds of workers went on strike. Remy Cointreau is particularly exposed. On Thursday, he said the U.S.’s proposed 10% tariffs “certainly won’t kill us,” but acknowledged that China’s tariffs were a concern. The company plans to cut costs and adjust prices to mitigate the impact, but weak demand will make it difficult to pass on additional costs.
Even before Remy feels the hit of Chinese tariffs, sales this year will fall more than analysts expected. However, there are some early signs of stabilization in the US market. The stock’s 3% rise on Thursday is a sign that some investors think the stock price decline (down 70% since 2021) has gone far enough.
If tariffs are watered down, investors could start looking at when the party will start moving again. But for now, the threat of a higher assignment is severely dampening any euphoria.
vanessa.holder@ft.com
