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Brown-Forman ‘proactively preparing’ for tariffs
The CEO of Brown-Forman is “proactively preparing” for any potential tariffs on spirits and is making “tough decisions” on how to address them.
Earlier this month, Brown-Forman revealed flat organic sales for the first half (H1) of fiscal 2025, which covers the six months up to 31 October 2024.
Speaking about the previous retaliatory 25% tariff on American whiskey, which was implemented in the EU from 2018 until 2021, Brown-Forman CEO Lawson Whiting recalled that it was a “very painful and challenging time” for the US firm. Brown-Forman has a dominant position in American whiskey with brands such as Jack Daniel’s and Woodford Reserve.
During a conference call for the results on 5 December, Whiting noted that any time spirits are targeted by tariffs, there is “potential to create an uneven playing field”.
“At Brown-Forman, we’ve had an unlevel playing field before given the retaliatory tariffs on American whiskey and as such have learned from our prior experience,” he told analysts.
“We’ve been proactively preparing for a variety of scenarios and have implemented mitigation strategies for our portfolio of brands around the world. At this point, there are many unknowns and potential scenarios. It is very difficult to predict how this will play out.”
As part of Donald Trump’s steel-aluminium dispute, the EU is due to reimpose its retaliatory tariff on American whiskey on 31 March 2025, but at 50%, double the previous rate.
While he believes “a whole lot can happen” between now and March, Whiting is confident there is a “decent chance” for suspension of the tariff. “They can be removed altogether, or the most drastic scenario would be coming back at 50%,” he continued.
Whiting added that the company was “working with all the government stakeholders” and “advocating for a solution that brings stability to all these trade relationships”.
President-elect Trump said last month that he would issue an executive order to charge Mexico and Canada a 25% tariff on all products coming into the US when he takes office on 20 January.
“Now we’re obviously talking imports – welcome to the party the rest of our industry. We have been suffering alone essentially for all these years on the threat of tariffs and now it’s got much, much broader,” Whiting said, explaining that it would impact all different alcohol categories.
He continued: “We’re hoping that the administration is going to realise that any growth in sales or production on those distinctive products made outside of the US helps us to grow and brings more investment and capital here. And so, we’ll see how this all plays out, whether or not these negotiating tactics are real and how big they’re going to be. Obviously, American whiskey is much bigger than Tequila for us, but neither one is good for us.”
When asked about whether the company plans to pre-ship products because of the threat of tariffs, Whiting gave nothing away.
He said: “It’s pretty competitively sensitive how we are handling that. And so, we’re going to be quiet on that particular topic. We are making some decisions and some tough decisions, but it’s a very difficult situation no matter what we do. It’s still going to be a very painful situation – painful outcome.”
Tequila sales struggle
The tariff situation could hurt the group’s Tequila sales even more. For the six months ended 31 October 2024, Brown-Forman’s Tequila portfolio plummeted by 17%, with a 16% drop for El Jimador and a 13% decrease for Herradura.
Speaking about the challenges for its Tequila portfolio, Whiting said: “In the US, there have been an increasing number of competitors entering the Tequila category, while Mexico’s economy has faced a challenging macro-environment.”
However, he believes the company has the “right brands to capitalise on the growth in the Tequila category globally over the long term”.
Furthermore, Whiting noted that El Jimador has been “repositioned” into the premium price segment. He added: “We have opportunities to grow reach and distribution in the US and we’re also optimistic about El Jimador’s ability to create and grow in the premium Tequila category in the rest of the world.”
Despite the overall decrease, Whiting highlighted “strong double-digit organic net sales growth in Southeast Asia as well as Brazil and Australia, where El Jimador is the number-one 100% agave Tequila”, based on IWSR 2023 data.
“While this growth was not enough to offset the softness in the US and Mexico, we believe El Jimador has a strong future and can be a key introduction to Tequila for global consumers as they begin to understand the mixability and versatility of 100% agave Tequila.”
Rum and Bourbon drive growth
On a more positive note, Diplomático rum was one of the largest drivers of growth for the company with the brand’s H1 sales skyrocketing by 90%, alongside premium Bourbons Woodford Reserve (up by 8%) and Old Forester (up by 11%).
Growth for Diplomático – the “number two super-premium-plus rum globally” – was led by France, Czech Republic, travel retail, Germany and the US. France and Germany are the biggest markets for the brand, which was acquired by Brown-Forman in January 2023.
Whiting said Woodford Reserve “continues to grow faster than the US whiskey category in the US and gained value share within the most recent Nielsen and NABCA takeaway results”.
Meanwhile, Old Forester was boosted by its single-barrel expressions and recent releases such as King Ranch Edition, which is exclusively sold in Texas.
Another bright spot for Brown-Forman was Brazil, where the group’s H1 sales soared by 37%, boosted by the Jack Daniel’s portfolio.
“In Brazil, the economy has remained resilient as our results were driven by the growth of the premium-plus whiskey category, where we are gaining share, our geographic expansion strategy, and the launch of an additional package size for Jack Daniel’s Tennessee Whiskey,” Leanne Cunningham, executive vice-president and chief financial officer, said during the conference call.
“Brazil has consistently grown nine-litre depletions for the full-strength Jack Daniel’s family of brands at a double-digit rate over the past four years and has joined the US, the UK, and Germany as a million-case market where the trailing 12-month depletions exceeded one million nine-litre cases.”
The group anticipates a return to growth for the full year, with both its organic sales and operating income expected to rise between 2% and 4%.
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