Consumers of American bourbon may soon have to pay higher for their favorite Jack Daniel's brand as its parent company, Brown-Forman, is planning to raise prices to ride out the increased costs of tariffs. China, the European Union, and Mexico targeted bourbon in their retaliatory tariffs after the Trump administration imposed levies on steel and aluminum imports.
In May, U.S. President Donald Trump imposed higher tariffs on steel and aluminum from Canada, Mexico, and the EU. Specifically, he imposed 25 percent taxes on imported steel and 10 percent on imported aluminum. This is separate from the consecutive tariffs the United States has imposed on China in the recent months.
As a countermeasure, the EU implemented 25 percent taxes on a number of U.S. commodities that include jeans, motorcycles, and whiskey.
In June, Brown-Forman had first considered raising its prices on American whiskeys. Around this time, the company was thinking about a 10 percent price increase for the Jack Daniel's brands that are being sold in the EU.
Brown-Forman, however, delayed its price hike as there were reports of trade talks among the concerned countries. The company instead moved to build up inventories in markets outside the United States while it waits for any positive developments. The company, which also owns Woodford Reserve and Finlandia, sold more products to retailers in France, Spain, Poland, and Germany.
Indeed, higher product inventory pulled sales in the three months ending in July. On Aug. 29, Brown-Forman reported its first-quarter results with a profit of 41 cents per share, exceeding analysts' estimates of 2 cents a share. The company's net sales were $766 million which also surpasses analysts' expectations according to Bloomberg.
As for Jack Daniels family of brands, it led the company's underlying global net sales growth up by 10 percent. Jack Daniel's Tennessee Whiskey delivered underlying global net sales growth up by 8 percent.
Still, the company was compelled to hike prices in selected locations but has been trying its best not to increase prices in Europe where almost a quarter of its sales is being generated, according to CNN Money, citing data from Cowen Research. However, the company may no longer sustain their current prices in its European market as tariffs are already starting to take its toll on its long-term profit target.
Brown-Forman is in a difficult position because its competitors are not faced with tariff issues that it is currently experiencing, said Jane Morreau, chief financial officer.
The looming price hike for Jack Daniel's would only be averted if tariffs, at least those in the EU, could be withdrawn. The company, however, does not see this happening and has in fact lowered in profit outlook through April 2019.
