Trump's reciprocal tariffs are the latest headwind to spill into the wine and spirits industry.

EU imports now face a 20% reciprocal tariff, set to go into effect on Apr. 9, which could have major implications for producers, restaurants, retailers, importers, and distributors.

And it may only be the beginning. In early March, President Trump posted on Truth Social if the EU didn't remove a 50% tariff on whiskey, the US would place a 200% tariff on wine, champagne, and other alcoholic products. EU's whiskey tariff, which is now set set for mid-April, is part of retaliation for the US putting a 25% tariff on steel and aluminum.

The White House has not offered any updates on whether the 200% tariff will go through on EU spirits or wine.

"The combination of uncertainty and threat of further price hikes to offset tariffs on both finished products and raw materials does not paint an overly optimistic picture for the alcohol beverage industry as it tries to return to growth," Dave Williams of Bump Williams Consulting told Yahoo Finance.

The industry already had a "fairly underwhelming, and somewhat concerning, start to the year...after a promising finish to 2024," he said.

If it goes into effect, the tariff could "essentially eliminate" imports of these types of products in the United States, Needham & Company analyst Gerald Pascarelli told Yahoo Finance.

"A company is not going to ship it on a 200% tariff," Pascarelli said. The duty also "increases the likelihood that you're going to get a global trade war with collateral damage, and that's not going to be good for the sector," he added.

In 2018, the EU imposed a 25% tariff on American whiskey as part of retaliatory tariffs during the first Trump administration's steel and aluminum tariffs. Given this sense of déjà vu, Pascarelli said the valuation of Jack Daniels maker Brown-Forman (BF-B) may already be pricing in the risk of tariffs. Its shares are down 14% year-to-date.

In early March, Brown-Forman CEO Lawson Whiting said the company has "been planning for this for much of fiscal year 2025," as it has been through the experience before. The impact of tariffs was baked into its latest guidance.

Brown-Forman projects that organic net sales will grow between 2% to 4% for the year.

In a note to clients, J.P. Morgan predicts that "mitigation through pricing will be very limited" as spirit makers combat the slowdown in demand and pressure on consumer spending.

The firm said to offset the impact of tariffs, the spirits industry would need to raise prices by roughly 10% to 30%, including key players like Diageo (DEO), Campari (CPR.MI) and Remy Cointreau (RCO.PA).

Story Continues

Year-to-date, shares of Diageo, Campari, and Remy Cointreau are down more than 17%, 9% and 24% respectively. In the last five days, shares of Campari and Remy Cointreau are both down more than 3%. Diageo is down 1%, compared to the S&P 500 (^GSPC) 9% decline.

That's largely because of its exposure to Mexico and Canada. Liquor from the two countries are exempt from tariffs as it's compliant with the United States-Mexico-Canada Agreement (USMCA) trade deal.

On its earnings call in February, Diageo CFO Nik Jhangiani said about 45% of its US sales come from products made in Canada or Mexico, like Canadian whiskey Crown Royal and tequila Don Julio. The two brands "have been the key drivers of US performance over the past year," JP Morgan wrote.

CEO Debra Crew said the Don Julio brand still has "a lot of room to grow."

The company also owns Johnnie Walker, Baileys, Ketel One vodka, and other European brands that would be subject to tariffs.

JP Morgan has an Underweight rating on Brown-Forman and Remy Cointreau, and a Neutral rating on Diageo. Analysts there said short-term, "the market already priced some of the impact from tariffs with stocks down 10-30% since Nov. 2024."

This latest threat comes as the industry is already in "serious trouble," Bump Williams of Bump Williams Consulting said, as the category sees volume growth continue to take a hit from fewer drinkers, more competition, and an ongoing shift to a healthier lifestyle.

"Dry January stretching into Dry 1st half of the year as people want to get ready for their Memorial Day swimsuits," Williams said.

Over the last two to three months, Bump said inventory builds will "help manage the supply chain until the dust settles on the 'I’m gonna tariff you because you’re tariffing me' negotiations are resolved."

—

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at [email protected].

Click here for all of the latest retail stock news and events to better inform your investing strategy

View Comments