As it manages the financial effects of an impending US trade war, Diageo, the corporation behind Guinness and Johnnie Walker, has issued a warning about possible price hikes. The UK-based beverage company expects a $200 million (£161 million) hit to profits as a result of Washington’s plan to impose a 25% tariff on imports from Canada and Mexico. This decision could have an impact on the spirits sector.
In order to facilitate talks with Canada and Mexico, two of the United States’ closest trading allies, the White House recently issued a temporary reprieve, postponing the tariffs by one month. Diageo is still being cautious, though, with executives looking into ways to reduce costs while admitting that price increases might be unavoidable. The corporation is at the center of the controversy because of its reliance on North American production, especially for whisky and tequila.
Us Tariffs Could Deal a Heavy Blow to Diageo’s Profits
Diageo generates around 45% of its US sales from products made in Canada and Mexico, including its Don Julio tequila and a range of whiskies. Should the proposed 25% tariff take effect, nearly 85% of the company’s projected losses would stem from its tequila business alone.
Ewan Andrew, Diageo‘s President of Global Supply Chain & Procurement, confirmed that the firm is seeking alternative ways to absorb the financial strain, but price increases cannot be ruled out. “We can mitigate a lot of it before pricing, but not all,” he stated.
Efforts to shield consumers from rising costs come amid a challenging period for the company. Sales over the last six months fell 0.6% to $10.9 billion, while operating profits declined 4.9% to $3.2 billion. Investor confidence has also wavered, with Diageo’s share price dropping nearly 24% in the past year.
The tariff uncertainty compounds existing pressures on the alcohol industry, particularly concerns about shifting consumer habits. Last year, British fund manager Terry Smith sold his stake in Diageo, citing the growing influence of weight-loss drugs as a potential long-term threat to alcohol demand.
Guinness Remains a Strong Performer Despite Economic Challenges
While trade tensions and declining sales present hurdles for Diageo, Guinness has emerged as a rare bright spot in the company’s portfolio. CEO Debra Crew highlighted the stout’s expanding popularity beyond its traditional markets, describing its performance as having “surpassed expectations.”
Guinness, which was once thought to be a beverage preferred by rugby enthusiasts and elderly populations, has changed its image to appeal to younger consumers, especially in the UK. Demand has been fueled by the beer’s growing popularity among millennials and women, which has helped it achieve more success abroad.
Beyond the UK, Guinness sales have surged in Australia and Greater China, while in the US, it has become the fastest-growing major imported beer in bars and restaurants. The drink is expanding beyond Irish pubs, finding its way into casual dining spots, sports bars, and neighbourhood venues.
Despite the positive momentum for Guinness, Diageo remains under pressure to stabilise its broader business. The temporary tariff delay offers a brief window for negotiation, but uncertainty persists over whether the US will follow through on its trade threat. As discussions between Washington, Ottawa, and Mexico City continue, the drinks industry braces for potential disruptions in the months ahead.
