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The spirits industry faced a significant challenge when the pandemic-triggered cocktail trend came to an end. The threat of trade wars only exacerbates the situation.
This week, US president-elect Donald Trump, considering tariffs of 10 to 20 percent on non-Chinese imports, announced a potential 25 percent tariff on all imports from Mexico and Canada on his first day in office. Meanwhile, China imposed duties of up to 39 percent on EU brandy in response to levies on Chinese electric vehicles.
Europe’s beverage companies are in a tough spot due to these developments. Companies with tequila brands like Diageo from the UK and Campari from Italy are at risk from US-Mexico tariffs. Diageo also faces higher tariffs on Crown Royal whisky imported from Canada to the US. Additionally, companies like Rémy Cointreau and Pernod Ricard, both based in France, would be affected by tariffs on imports from the EU and UK.
The potential impact on these companies could be severe. Implementing a 25 percent tariff on US imports from Canada and Mexico and a 10 percent tariff on those from the EU and UK could reduce earnings per share for Pernod, Campari, Diageo, and Rémy by 3 percent, 8 percent, 8 percent, and 19 percent respectively, according to Deutsche Bank.
While these threats loom, there is a possibility that they may not materialize. In 2019, Trump’s tariff warnings caused market turmoil for months but were eventually limited to single malt scotch and Irish whiskey from the UK, as noted by Ed Mundy of Jefferies. The industry is actively lobbying against these tariffs due to their potential impact on consumers and job losses in the hospitality sector.
Chinese tariffs have already started causing disruptions. Hennessy, a brand owned by French luxury group LVMH, briefly considered bottling its brandy in China to avoid import tariffs but halted the plan after facing a worker strike. Rémy Cointreau is particularly vulnerable to these changes. Despite acknowledging that the proposed US 10 percent tariff “is not going to kill us for sure,” the company is concerned about the Chinese tariffs. It plans to reduce costs and adjust prices to mitigate the impact, although weak demand may hinder its ability to pass on additional costs.
Even before feeling the impact of Chinese tariffs, Rémy’s sales are expected to decline more than analysts predicted this year. Despite this, there are early signs of stabilization in the US market. The 3 percent increase in share prices on Thursday indicates that some investors believe the share price decline, which has reached 70 percent since 2021, has reached a significant low.
If tariffs are lessened, investors can begin to look forward to a resurgence in the industry. However, for now, the looming threat of increased duties casts a shadow over the future of the spirits industry.
vanessa.houlder@ft.com