Trump tariff plan puts $3 bln in Diageo, Becle tequila imports at risk

Becle SAB de CV

11/12/2024 11:02

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      Trump has said he will put 25% tariffs on Mexican imports
    

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      Tequila, mezcal have to be made in Mexico to use the name
    

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      Diageo tequila imports into US worth $1.6 bln in 2023 -
analysis
    

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      Becle tequila, mezcal imports into US worth similar -
analysis  
    

  
    By Emma Rumney
       LONDON, Dec 11 (Reuters) - Some $3 billion in tequila
and mezcal imports from top makers of the popular spirits,
Diageo and Jose Cuervo owner Becle, are at risk from U.S.
President-elect Donald Trump's planned tariffs on Mexico,
according to Mexican customs data reviewed by Reuters.
    Trump, who takes office on Jan. 20, has said he will slap
25% tariffs on imports from Mexico and Canada, as well as
additional duties on Chinese goods, which would hit companies in
sectors from autos to retail. 
    These would also drive up the cost of importing spirits that
cannot be made elsewhere, such as tequila, which is used in
cocktails like margaritas and growing in popularity globally
after taking off in the United States, as well as mezcal. Like
French champagne or Italian parmesan cheese, products using the
names tequila or mezcal must be made in Mexico. 
    That leaves companies like Diageo  DGE.L , the world's top
spirits maker, and Mexican firm Becle  CUERVO.MX , the largest
tequila producer, exposed. Together, they dominate the U.S.
market for the agave-based drinks, and rely heavily on tequila
sales in the U.S. for growth.
    Diageo subsidiaries shipped over 25 million litres of
tequila from Mexico to the U.S. last year, including brands Don
Julio, Casamigos, DeLeon and 21 Seeds, according to Mexican
export data provided exclusively to Reuters by ImportYeti.
    That equates to a total of 33.7 million 750 millilitre
bottles, Reuters calculated. The data references various
editions of each brand, from the cheapest 'blanco' versions to
far more expensive labels like Don Julio 1942, which sells for
$139.99 per 750 ml bottle at large U.S. spirits retailer Total
Wines & More, offering the most detailed insight yet into the
value of imports exposed to the tariffs. 
    Based on the prices per 750 ml at Total Wines & More, one of
Diageo's largest U.S. customers, the U.S. tequila imports
recorded in the data would be worth almost $1.6 billion. 
    A similar analysis of Becle's U.S. shipments of eight
tequila or mezcal brands found they also had a sales value of
almost $1.6 billion.       
    Campari Group  CPRI.MI , the next largest listed spirits
maker with a popular tequila brand in the U.S., sent tequila
with a sales value of just $122 million, Reuters analysis found.
    Diageo said it had decades of experience navigating trade
policy and has always taken trade disputes in its stride. "We
will work with the incoming administration on issues that affect
our business," it said. 
    Becle did not respond to requests for comment. Campari
declined to comment. 
    Reuters analysis shows just how much is at stake for top
producers that dominate the U.S. tequila and mezcal markets if
tariffs come into force. U.S. industry imports totalled $4.6
billion in 2023, up 160% since 2019, according to the Distilled
Spirits Council of the United States (DISCUS), which has warned
the tariffs would cost jobs. 
    DISCUS separately said it planned to seek an exemption to
Trump's proposed universal tariffs of 10% on all foreign goods. 
        
    PRICE HIKES
    Diageo also sold at least $483.4 million in Canadian whisky
in the year to end-November, according to Circana data covering
U.S. store sales, leaving it doubly exposed to tariffs via
imports from Canada. 
    Alongside tequila, its Crown Royal Canadian whisky sales
make up another hefty chunk of its critical U.S. business, where
slipping performance has prompted concern among investors. 
    Both Diageo and Becle, meanwhile, have been struggling amid
slowing demand for expensive spirits as a boom seen during the
COVID pandemic evaporates.
    In the U.S., cheaper tequila brands like Kendall Jenner's
818 Tequila have been gaining market share, while pricier labels
like Diageo's Casamigos have lost out as consumers become more
price conscious. 
    Reuters' analysis based the value on prices for standard
size bottles at U.S. online liquor stores. Where it was not
possible to determine the brand or sub-brand contained in
shipments, Reuters assumed they contained the cheapest possible
bottles. 
    In reality, shipments contain different sized bottles to be
sold at different price points, including in venues like bars
where they fetch a significantly higher margin. 
    While a 25% hit to $1.6 billion in sales would amount to
$400 million, tariffs are usually based on import value rather
than sales prices. Companies would also take actions to mitigate
the tariff impact, such as hiking prices, said Joseph Gabelli, a
portfolio manager at Diageo investor Gabelli Funds. 
    Jefferies analysts estimated in November that prices would
have to rise 10% to offset the impact of a 25% tariff. 
    At least with tequila and mezcal, tariffs would not put
certain firms at a competitive disadvantage, Gabelli said.
    The question is whether U.S. drinkers would swallow any
price rises, he continued. 
    "Does it cause a reduction in consumption if tequila becomes
more expensive? Presumably there would be some negative effect,"
he said. 

 (Reporting by Emma Rumney
Editing by Mark Potter)
 ((Emma.Rumney@thomsonreuters.com; +447391409253;))