Key Takeaways
- Diageo passed all of the cost along to consumers when it was affected by tariffs in President Trump’s first term, according to the alcohol giant’s CEO.
- The company, which sells Don Julio tequila and Captain Morgan rum, will be less reliant on that strategy if Trump’s new tariffs on Mexican and Canadian goods go into effect as proposed early next month.
- Executives say price increases aren’t the “first thing” they would try because demand has been relatively soft and they’ve put in place other mitigation measures.
Diageo (DEO), the maker of Don Julio tequila and Crown Royal Canadian whiskey, relied almost entirely on price increases to weather tariffs during President Donald Trump’s first term. This time, the alcohol giant wants to take a more multifaceted approach, Chief Executive Officer Debra Ann Crew said, citing “cautious” consumer spending.Â
“Last time when we navigated tariffs, … we actually pushed it through 100% on pricing,” Crew said, according to a transcript of Diageo’s earnings call provided by AlphaSense. “It’s good to see we’ve got mitigation this time.”
Trump’s proposed tariffs on imports from Mexico and Canada could undercut profit by about $200 million, Diageo executives told investors on Tuesday. About 45% of Diageo’s domestic sales—including nearly all its Tequila products—are produced in those two countries, the company said.
Some of the potential hit—about $80 million—can be mitigated by bringing in bottles ahead of the tariffs and supply chain optimization, Chief Financial Officer Manik Jhangiani said. That allows Diageo, which also makes Johnnie Walker, Guinness, and Smirnoff, to be more deliberate about raising prices while Americans are buying less alcohol.
“[Pricing is] just not the first thing that we would go for,” Jhangiani said, according to the call transcript. “We’ll look at the consumer environment, what competition is doing.”
Caution, Changing Norms Hurting Alcohol Sales
Diageo’s volume of alcohol sold declined in the second half of last year. Crew attributed the sluggishness to consumers growing weary of prices at the grocery store and high borrowing costs.Â
But changing cultural norms and health concerns are also inspiring Americans to cut back, analysts have said. Major retailers and convenience stores’ alcohol sales were down about 1.1% year-over-year in December, according to NielsenIQ, a market research firm. Meanwhile, sales of non-alcoholic alternatives, while still a fraction of alcohol sales, were up more than 27%.
Last month, the U.S. surgeon general called for updating the warning labels on alcohol to note that drinking can cause cancer. The move would require approval from Congress.Â