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Tariffs could hit thousands of jobs in whisky industry, Diageo boss warns

When you’re running the biggest company of its kind in the world and a leader in its field, selling your products in 180 countries and employing 28,400 people, there is always going to be the odd local difficulty to negotiate.

Unfortunately for Diageo, the world’s biggest spirits company, two of them appear to have come along at once.

The giant behind Johnnie Walker scotch whisky, Captain Morgan rum, Smirnoff vodka, Tanqueray gin and Guinness stout has just seen the Trump administration slap a tariff of 25% on Scotch whisky imports.

The tariff was imposed in retaliation for EU subsidies given to Airbus, the aircraft maker, the main rival to US manufacturing behemoth Boeing.

North America, which comprises 35% of Diageo’s global sales, is the company’s biggest single market.


So this measure has the potential to hurt Diageo in particular.

Not only does the group produce Johnnie Walker, the world’s favourite blended whisky, it also distils some of the world’s most popular single malts, including The Singleton, Talisker, Lagavulin and Cardhu.

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Ivan Menezes, chief executive of Diageo, told Sky News: “We don’t like [the tariffs] and we hope the UK, EU and the US will put the matter behind us.

“The impact for a company like Diageo is more manageable because we have a broad portfolio in the US.

“However, for the Scotch whisky industry in the UK, we are very concerned about the small distillers, the farmers, people in the supply chain – this could impact thousands of jobs here – and likewise, in America, the bar and restaurant owners and the trade, the wholesalers in the business, it’s going to impact them as well.

“So we hope sense prevails and we get back to removing the tariffs and we’re very much hoping the governments on both sides of the Atlantic get to some sense on this.

“This is linked to an aerospace dispute – it’s got nothing to do with Scotch whisky!”

Image: Mr Menezes said Boris Johnson was a ‘huge supporter’ of Scotch whisky

Mr Menezes said he was happy with the support that the industry was receiving from the UK government on the issue and said the prime minister was a “huge supporter” of Scotch whisky.

The other potential issue with which Diageo may have to grapple is the coronavirus outbreak in China.

The Middle Kingdom is not yet one of the company’s biggest markets but, with sales in Greater China rising by 24% during the six months to the end of 2019, it is certainly one of its fastest growing.

Diageo’s sales of “Chinese white spirits” – it owns Shui Jing Fang, one of the best-known and highly regarded brands of the fiery spirit baijiu – rose by 25% during the period, while Scotch whisky sales in China rose by 17%.

Accordingly, with a lot of spirits being bought at airports, anything that hits air travel is therefore a potential threat to sales.

Diageo’s rival, the cognac and liqueur maker Remy Cointreau, warned last week that the coronavirus outbreak could hurt sales.

Mr Menezes insisted, though, that it was still too early to say what the impact would be on Diageo.

He said: “Our focus is on our people right now, so we’re obviously monitoring the situation very closely and working with our teams in China and I am in touch with them directly to ensure we’re taking all the appropriate measures to keep our people safe.

“And that’s what we’re really focused on right now.

“It’s too early to call what the business impact will be, that will play out over time, but our primary focus is ensuring our people in the region are as safe as can be.”

Mr Menezes said that the company had put in place “appropriate travel policies”, including people working from home, to minimise any risks.

He was speaking as Diageo reported a 0.5% rise in half year operating profits, to £2.442bn, on sales that were 4% higher at £7.2bn.

Sales grew most strongly in North America, with Don Julio and Casamigos tequila and Crown Royal Canadian whisky doing particularly well, while the Asia Pacific region also saw strong growth.

Mr Menezes insisted that a 4% drop in sales during the period of Johnnie Walker, Diageo’s biggest selling individual brand, was due to very specific factors – notably that sales had been boosted a year earlier by the launch of a one-off limited editions, including one called “White Walker”, which were tied in with the hit TV series Game of Thrones.

He pointed out that sales of Johnnie Walker were still growing at more than 10% in India, Africa, Turkey and China.

Among other key brands, sales of Tanqueray rose by 13% and Bailey’s cream liqueur by 8%, while Captain Morgan sales rose by 5%.

There was also a 1% rise in sales of Smirnoff, thanks to strong sales in Mexico and Australia, following several difficult years for the brand.

Guinness saw growth of 1.5% despite a flat performance in Ireland.

The stout enjoyed solid growth in Britain, North America and in Japan, where local sales were lifted by the Rugby World Cup.

But the shares fell by 2.6% after Mr Menezes warned that, due to “ongoing uncertainty in the global trade environment”, sales growth for the full year was likely to be towards the lower end of the 4-6% towards which it has been guiding the market.


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