Diageo is bracing for a steep tariff bill even as it expands cost-cutting efforts to offset a sharp drop in earnings. The drinks giant says U.S. trade barriers will weigh on profits for the foreseeable future, with half of the blow expected to be absorbed through operational adjustments.
Profit Down, Leadership in Transition
The maker of Guinness, Johnnie Walker, Gordon’s, and Smirnoff reported a 28% drop in operating profit for the year ended June 30, as sales slowed in key markets and currency headwinds compounded costs. The results come during a leadership handover, following CEO Debra Crew’s resignation earlier this year. Interim chief Nik Jhangiani has raised the company’s cost-savings target from £500 million ($664 million) to £625 million, stressing that efficiencies are not solely tied to headcount reductions. “While some roles will go, our workforce could still grow,” he said in an official statement.
The anticipated $200 million annual tariff cost stems from the continuation of U.S. levies imposed under former President Donald Trump, 10% on U.K. imports and 15% on EU-origin products, with Mexican and Canadian spirits exempt. The figure assumes no further escalation in trade measures, though industry analysts warn that ongoing U.S.-EU disputes over steel, aluminum, and agriculture could trigger additional retaliatory tariffs.
Supply Chain Adjustments to Soften the Blow
Diageo says it is using inventory management, supply chain optimization, and capital reallocation to cushion roughly half the profit impact. This includes shifting production for certain U.S.-bound products, increasing local bottling, and adjusting procurement strategies for packaging materials. Such measures mirror moves by other beverage exporters, Pernod Ricard, for instance, recently expanded U.S.-based blending and bottling to avoid similar tariff costs.
Industry data shows the alcoholic beverage sector has been among the hardest hit by post-2018 U.S. tariff regimes, with trade groups estimating that cumulative losses across spirits producers exceed $1.5 billion since implementation. For Diageo, the tariff burden comes at a time when inflationary pressures on glass, grain, and energy are already compressing margins.
A Strategic Window Before the Next Tariff Cycle
While Diageo’s mitigation strategy buys time, it also highlights a reality facing many global exporters: cost management alone cannot fully neutralize the structural disadvantages of trade barriers. With U.S. presidential elections and EU trade talks on the horizon, policy shifts could move quickly in either direction. The next 12 months offer a narrow window for Diageo and its peers to embed deeper localization strategies or diversify export markets before a new round of tariffs, whether higher, lower, or differently targeted, reshapes the playing field again.