Some $3 billion worth of tequila and mezcal imports from major makers Diageo and Jose Cuervo owner Becle are at risk from tariffs that U.S. President-elect Donald Trump plans to impose on Mexico, according to Mexican customs data reviewed by Reuters.<\/p>\n
Trump, who takes office on Jan. 20, has said he will impose 25% tariffs on imports from Mexico and Canada, as well as additional duties on Chinese goods, affecting companies in sectors from autos to retail.<\/p>\n
These tariffs would also make it more expensive to import popular spirits that cannot be made in other countries, such as tequila, used in cocktails like the margarita and popular around the world, as well as mezcal. Products bearing names like tequila or mezcal must be made in Mexico, as must French champagne or Italian parmesan cheese.<\/p>\n
This leaves companies like Diageo, the world’s largest spirits maker, and Mexico’s Becle, the largest producer of tequila, exposed. Together,\u00a0they dominate the U.S. market for agave-based beverages\u00a0\u00a0and rely heavily on U.S. tequila sales for growth.<\/p>\n
Diageo subsidiaries shipped more than 25 million liters of tequila from Mexico to the United States last year, including the\u00a0\u00a0Don Julio\u00a0,\u00a0\u00a0Casamigos\u00a0,\u00a0\u00a0DeLeon\u00a0\u00a0and\u00a0\u00a021 Seeds\u00a0brands , according to Mexican export data provided exclusively to Reuters by ImportYeti.<\/p>\n
That amounts to a total of 33.7 million 750-milliliter bottles, Reuters calculated. The data refers to various editions of each brand, from cheaper \u201cblanco\u201d versions to more expensive labels such as\u00a0\u00a0Don Julio 1942\u00a0, which sells for $139.99 per 750-ml bottle at major U.S. liquor retailer\u00a0\u00a0Total Wines & More\u00a0.<\/p>\n
Based on 750ml prices at Total Wines & More, one of Diageo’s largest U.S. customers, U.S. tequila imports recorded in the data would be worth nearly $1.6 billion.<\/p>\n
A similar analysis of Becle’s U.S. shipments of eight brands of tequila or mezcal found they also had a sales value of nearly $1.6 billion.<\/p>\n
Campari Group, the next-largest publicly traded spirits maker with a popular tequila brand in the United States, shipped tequila worth just $122 million in sales, according to a Reuters analysis.<\/p>\n
Diageo said it has decades of experience in trade policy and has always taken trade disputes in stride. \u201cWe will work with the incoming administration on matters that affect our business,\u201d it said.<\/p>\n
Becle did not respond to requests for comment. Campari declined to comment.<\/p>\n
Reuters analysis shows how much is at stake for major producers that dominate the U.S. tequila and mezcal markets if tariffs go into effect. U.S. industry imports are set to reach $4.6 billion in 2023, up 160% from 2019, according to the Distilled Spirits Council of the United States (\u00a0DISCUS\u00a0), which warned tariffs would cost jobs.<\/p>\n
DISCUS said separately it planned to seek an exemption from Trump’s proposed 10% universal tariffs on all foreign goods.<\/p>\n
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Diageo also sold at least $483.4 million worth of Canadian whisky in the year to the end of November, according to Circana data covering sales in U.S. stores, leaving it doubly exposed to tariffs through imports from Canada.<\/p>\n
Along with tequila, Crown Royal’s Canadian whisky\u00a0sales\u00a0\u00a0\u00a0are another major part of its U.S. business, where falling earnings have raised concerns among investors.<\/p>\n
Both Diageo and Becle, meanwhile, have struggled amid slowing demand for expensive spirits as the\u00a0\u00a0boom experienced during the Covid-19 pandemic\u00a0evaporates .<\/p>\n
In the US, cheaper tequila brands such as\u00a0 Kendall Jenner’s\u00a0818 Tequila\u00a0have been gaining market share, while more expensive brands such as Diageo’s Casamigos have lost ground as consumers become more price-conscious.<\/p>\n
The Reuters analysis was based on prices for standard-size bottles at U.S. online liquor stores. When it was not possible to determine the brand or sub-brand contained in shipments, Reuters assumed they contained the cheapest bottles possible.<\/p>\n
In reality, the shipments contain bottles of different sizes that are sold at different prices, even in venues such as bars, where they earn a significantly higher margin.<\/p>\n
While a 25% hit to $1.6 billion in sales would add up to $400 million, tariffs are typically based on the value of imports rather than sales prices. Companies would also take steps to mitigate the\u00a0\u00a0impact of tariffs\u00a0, such as raising prices, said Joseph Gabelli, a portfolio manager at Gabelli Funds, a Diageo investor.<\/p>\n
Jefferies analysts estimated in November that prices would have to rise by 10% to offset the impact of a 25% tariff.<\/p>\n
At least in the case of tequila and mezcal, tariffs would not put certain companies at a competitive disadvantage, Gabelli said. The question is whether American drinkers would swallow any price increases, he continued.<\/p>\n
“Would a reduction in consumption cause tequila to become more expensive? Presumably there would be some negative effect,” he said.<\/p><\/blockquote>\n