With former US President Donald Trump ahead of incumbent Joe Biden in the polls, Barclays has explored what a second Trump presidency might mean for the drinks industry, specifically with regard to tariffs on spirits imports.
In its report, Sizing the impact of potential US tariffs on the spirits industry, the threat of 'sweeping import tariffs' on spirits entering the US would have 'significant implications' for drinks firms.
As part of a series of pledges made during the campaign trail, Trump has promised to impose 10% tariffs on imports from non-US countries and 60% on Chinese imports, should he be re-elected.
It is currently unclear whether Canada and Mexico would be included in these measures. However, given that Trump oversaw the renegotiation of the North American Free Trade Agreement (NAFTA), which became the U.S.-Mexico-Canada Agreement (USMCA), during his last term in office, these countries may be exempt.
Volume Decline
As Barclays notes, a 10% tariff would likely lead to a 3% to 5% price increase on tariffed products, which in turn would lead to a 3% to 5% volume decline for firms such as Pernod Ricard and Rémy Cointreau.
In addition, there would be 'increased elasticity' in categories that directly compete with a US-equivalent – such as in the case of Irish whiskey and American whiskey. This elasticity would be lessened in categories such as tequila, however, which has no US equivalent of note.
Among the listed spirits companies, Brown-Forman is 'clearly most insulated from this risk', while for the other companies, the question of whether USMCA signatories are in scope will be 'critical', Barclays said.
'If all non-US countries are included, then Campari and Diageo are marginally less exposed than Pernod Ricard, Cuervo and Rémy Cointreau, but in reality the impact would be fairly large for all five companies,' it added. 'If Mexico and Canada are not included, then Cuervo, Diageo and Campari are relatively insulated as they all have significant tequila and Canadian whiskey exposure. Pernod Ricard and Rémy Cointreau would be impacted given their European production.'
US Sales
Currently Brown-Forman, home to Jack Daniel's and Woodford Reserve, generates 47% of its sales from the US, while tequila maker Cuervo generates 51% of its sales Stateside.
Diageo, meanwhile, generates 36% of its sales in the US – led by Crown Royal whiskey and Don Julio tequila – while Campari, home to Wild Turkey and Espolon tequila, generates 28% of its sales in the US. Pernod Ricard generates 19% of its sales in the US, with Jameson Irish Whiskey its most popular brand there, while Rémy Cointreau generates 35% of its sales in the US.
The latter two, Pernod Ricard and Rémy Cointreau, are potentially the most exposed in this scenario, with all of Pernod Ricard's top three brands, Jameson, Absolut and Malibu, made outside the US, and just 0.3% of Rémy Cointreau's products (largely consisting of Westland whiskey) produced there.
'The USA is the largest single market for all companies in this report,' Barclays said. 'Therefore, an impact on sales here would be felt at the group revenue line.'
