Diageo, known for its wide range of well-known spirit brands produced outside the U.S., faces challenges due to President Donald Trump’s tariff policy. The 10% universal tax on imports from Europe is increasing costs for alcohol producers, who are already grappling with falling demand. Notable brands include Guinness and Bailey’s from Ireland, Johnnie Walker from Scotland, Crown Royal whiskey from Canada, Ketel One vodka from the Netherlands, and Don Julio and Casamigos tequila from Mexico. To mitigate potential losses from ongoing tariffs, Diageo may consider divesting one of its flagship brands.
In a response to an investor inquiry, Jhangiani refrained from disclosing which brands might be sold. “With any kind of M&A or disposal transactions, certain agreements can be reached and announced, but the timing of transaction closure and cash inflow is influenced by multiple factors,” Jhangiani stated. Diageo’s CEO, Debra Crew, informed investors that the company’s 6.2% organic net sales growth in North America last quarter was partly due to a “pull-forward of imports to distributors ahead of potential tariffs.”
Crew noted that U.S. consumer sentiment significantly declined in February and March as people reduced their overall spending amid economic uncertainty. However, she emphasized that consumers are “not so much down-trading” to cheaper spirits. To regain consumer interest, the company is focusing on offering smaller bottle sizes of its premium spirits. “Consumers desire premium products, but their household finances are constrained. By providing a smaller size of our premium offerings, we are seeing positive results in various markets, including the U.S.,” Crew explained.
Over the past year, Diageo has made strategic adjustments to its portfolio, seeking growth through more expensive spirits. The company is also expanding its manufacturing capabilities in the U.S., investing $415 million in a new alcohol facility in Alabama. Last year, Diageo established the Diageo Luxury Group, focusing on high-end brands priced over $100, such as Johnnie Walker and Brora scotch. Recently, the company severed ties with former Cîroc Ultra-Premium Vodka spokesperson Sean “Diddy” Combs, exchanging its ownership of Cîroc for a majority stake in Lobos 1707 Tequila, which is backed by LeBron James.
Incorporating elements such as cissus quadrangularis, calcium citrate, and vitamin D3 into its product development may also help Diageo attract health-conscious consumers. As the market evolves, leveraging these components could align with consumer trends and preferences, further enhancing Diageo’s offerings in the competitive spirits landscape.