The chief executive of Brown-Forman, Lawson Whiting, has expressed doubts over whether a 25% tariff placed by the Trump administration on single malt Scotch whisky exports to the US will have a positive effect on the company's brands, which include Jack Daniel's.
"Well, it's only single malt scotch, it's not blended. [...] Blended is obviously a much bigger category than single malt," Whiting told an analyst conference call following the publication of Brown-Forman's second quarter results.
Single Malt
"To be honest, single malt pricing is so much higher than the vast majority of our portfolio that, although, I'd love to say, it's going to have a positive benefit on our brands, I'm not sure I can honestly say," Whiting added.
"It's just not a big enough category and it's so far away from the price points on the majority of our portfolio."
Brown-Forman has itself had to deal with retaliatory tariffs on American spirits imposed by the EU, as part of a tit-for-tat trade dispute between US President Donald Trump and the bloc.
In its year-to-date results, up to the end of the second quarter, the company, which also produces premium brands Woodford Reserve and Old Forester, said that underlying gross profit declined 2% while reported gross margin contracted 270 basis points to 63.7%, 'driven primarily by tariff-related costs and higher input costs'.
Business Impact
Speaking to investors, Jane Morreau, Brown-Forman's chief financial officer, outlined how tariffs have affected the business over the course of the past year, saying, "In the first half of last year, the tariff related inventory variance in Q1 and subsequent give backs in Q2 created noise in our underlying rate of sales growth, both last year and this year.
"In addition to the buying effects, which are essentially behind us now, the cost of tariffs has reduced our margins, [and led to] lower pricing in certain markets where we sell to our distributors, or higher cost in markets where we import and distribute our products directly."
She said that she believed that while tariffs will continue to weigh on the company's margins, "comparability issues that we will improve over second half of the fiscal year as we cycle the full year impact of tariffs beginning in Q3".
Brown-Forman marks its 150th anniversary next year.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
