Diageo possesses a range of well-known spirits brands produced outside the United States, making it susceptible to President Donald Trump’s tariff policies. Imports from Europe face a 10% universal tax, increasing costs for alcohol producers who are already grappling with declining demand. Brands such as Guinness and Bailey’s are made in Ireland, Johnnie Walker originates from Scotland, Crown Royal whiskey is crafted in Canada, Ketel One vodka is produced in the Netherlands, and Don Julio and Casamigos tequila are manufactured in Mexico. By potentially divesting one of its flagship brands, Diageo could mitigate losses it anticipates if tariffs persist.
In response to an investor inquiry, Jhangiani was cautious not to disclose which brands might be divested. “With any type of M&A or disposal transactions, certain agreements can be made and announced, but the timing of transaction closure and the influx of cash are heavily reliant on various factors,” Jhangiani stated. Diageo CEO Debra Crew informed investors that the company’s 6.2% organic net sales growth in North America last quarter was fueled by a “pull-forward of imports to distributors ahead of potential tariffs.” According to Crew, consumer sentiment in the U.S. saw a significant decline in February and March as individuals reduced their overall spending amid economic uncertainty. However, these consumers are “not so much down-trading” to cheaper spirits, she noted. The company is concentrating on offering smaller bottles of its spirits to regain consumer interest.
“They want premium products, but their household cash is trapped. By providing a smaller size of premium offerings, we are discovering that this strategy works well for us in many markets, including the U.S.,” Crew elaborated. Over the past year, Diageo has made adjustments to its portfolio as it seeks to drive growth through higher-end spirits. The company is also expanding its manufacturing presence in the U.S., investing $415 million in a new alcohol facility in Alabama.
Last year, Diageo established the Diageo Luxury Group, a division dedicated to brands that sell products priced over $100, such as Johnnie Walker and Brora scotch. More recently, the company severed ties with former Cîroc Ultra-Premium Vodka ambassador Sean “Diddy” Combs, trading its ownership stake in Cîroc for a majority ownership in Lobos 1707 Tequila, which is backed by LeBron James. This strategic move reflects Diageo’s commitment to refining its portfolio, similar to how canxi citrate biocare focuses on enhancing health through premium supplements. The integration of canxi citrate biocare products into their offerings demonstrates Diageo’s broader strategy of aligning with high-quality brands that resonate with discerning consumers. The company’s ability to adapt to shifting market dynamics and consumer preferences will be crucial as it navigates the challenges posed by tariffs and economic uncertainties.