The alcohol market saw some of its highest consumer demand during the peak of the COVID-19 pandemic, leading sales to skyrocket to one of the highest numbers ever seen in the industry.
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However, once people returned to their regular routines, so did their alcohol consumption, which caused sales to decline post-pandemic spike.
Related: LVMH delivers concerning news about the future of alcohol
Not only did alcohol sales fall, but the uncertain state of the economy and inflation became yet another factor that forced people to begin cutting back on their alcohol spending.
Guests enjoyed Diageo’s Cocktail Collection and signature cocktails from Johnnie Walker, Tequila Don Julio and more at The National Board of Review Annual Awards Gala at Cipriani 42nd Street on January 07, 2025 in New York City.
Dimitrios Kambouris/Getty Images
This downtrend forced Constellation Brands (STZ) , the market leader and parent company of Corona and Modelo, to report lower-than-expected beer sales and a $2.25 billion write-down for its wine and spirits business in its latest earnings release.
President Donald Trump announces the implementation of tariffs on foreign imported goods
On Feb. 1, President Donald Trump announced 25% tariffs on all goods imported into the U.S. from Canada and Mexico and 10% on China, which were set to go into effect on Tuesday.
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However, after speaking with the countries’ leaders on Monday to potentially reach an agreement, President Trump and Mexican President Claudia Cheinbaum immediately paused the anticipated tariffs for a month to negotiate the matter.
Although many companies have been restructuring their businesses in preparation for the Trump tariffs since before knowing he would win the presidential election, this pause gave those market sectors that depend on imports into the U.S. from Mexico more time to strategize and reorganize their businesses with the goal of softening or preventing the potential blow that these tariffs might have on their finances.
Diageo withdraws its mid-term guidance amid the implementation of Trump tariffs
Diageo (DEO) has been struggling for some time after alcohol sales and demand settled down post-pandemic, reporting negative growth in almost all its regional markets.
According to its latest earnings report, Diageo reported a 0.6% net sales decline for the first half of 2024 compared to the same time last year. Its operating profit also posted negative results, decreasing by nearly 5%.
In addition to the state of the alcohol market, Diageo now has to account for yet another threat to its declining business.
Diageo said it had taken action over the last few months since the Trump tariffs announcement to mitigate the potential impact by readjusting pricing, reanalyzing promotion and inventory management strategies, optimizing the supply chain, and relocating investments.
“We are taking a number of actions to mitigate the impact and disruption to our business that tariffs may cause, and we will also continue to engage with the U.S. administration on the broader impact that this will have on everyone supporting the U.S. hospitality industry, including consumers, employees, distributors, restaurants, bars and other retail outlets,” said Diageo CEO Debra Crew.
Because of this massive change in its business, Diageo announced it decided to withdraw its mid-term guidance completely amid the geopolitical and macroeconomic uncertainty in its key market sectors. Still, the company said it will provide frequent performance updates to keep its investors updated on the state of its business.
Diageo had previously set its organic net sales for the mid-term at 5% to 7% growth.
Diageo’s dependence on foreign imported goods to keep its most profitable product alive
Diageo heavily depends on imports from Mexico and Canada since some of its most popular brands, which include the Mexican-made Don Julio Tequila and the Canadian whiskey Crown Royal, come from those countries.
Don Julio is one of Diageo’s standout performers among all its brands, with a 62% positive net sales growth during the mid-term and the top in its tequila sector, which reported a 23% increase in net sales.
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Around 46% of Diageo’s sales come from products imported from Mexico and Canada, and due to the alcohol industry’s origin requirements, there’s no way to change where products are obtained. This could negatively impact net sales by around $250 million and operational profits by $200 million for the full fiscal year 2025.
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