Please ensure Javascript is enabled for purposes of website accessibility

Will Trump's Trade Policies Hurt Jack Daniel's Sales?

By Rich Duprey - Feb 25, 2017 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

International markets, particularly those south of the border, have been very good to the distiller.

President Donald Trump began carrying through on his tough talk on trade once he took office last month, and though it's argued his policies are being fashioned to give American workers a better deal, many others may be hurt by his actions.

One of Trump's first actions after being inaugurated was to exit from the Trans-Pacific Partnership, a trade agreement with Pacific Rim nations, as well sign an executive order stating his intention to renegotiate the North American Free Trade Agreement with Mexico and Canada. While there are always problems with such multinational contracts -- despite their name, "free trade" is never really quite so laissez-faire as critics and proponents would have you believe -- there are worries that erecting isolationist trade barriers may do more harm to U.S. businesses than good.

For example, a surprising victim of a tougher trade posture could be the spirits industry, which enjoyed a banner year last year.

Bottle of Jack Daniel's whiskey sitting on a barrel

Image source: Brown-Forman. 

Toasting continued growth

According to the Distilled Spirits Council of the U.S., American whiskey has never been more popular with sales of bourbon, Tennessee whiskey, and rye hitting $3.1 billion in 2016, a near 8% jump from the prior year, with volumes rising 6.8% to 21.8 million cases. Those gains were driven in large part by a surge in export volumes as American whiskey jumped more than 10% for the year.

That growth is echoed in the results of distiller Brown-Forman (BF.A 1.65%)(BF.B 1.60%), which reported in December that fiscal 2017 second-quarter underlying net sales grew 5% year to date, with sales to developed countries up 2%, and emerging markets down 1%, though Mexico was up by "robust double-digit" rates of 18%. Notably, its Jack Daniel's Tennessee whiskey saw particularly strong growth south of the border as well as in Japan.

Japan's Beam Suntory also saw near 9% gains through last October, based on market analyst data from IRI, as brands like Knob Creek and Booker's rally. Although that would suggest Brown-Forman would have the most to lose in any clampdown on trade that might result in retaliatory actions, Beam's Jim Beam, Maker's Mark, and George Dickel brands are all made here in the U.S., in Tennessee and Kentucky, and they could suffer from any retaliatory trade actions, because although the distiller is foreign-owned, its whiskies are made in the U.S.A.

A trade spat could help other distillers gain market share at their expense. For example, in its own six-month financial report last month, London-based spirits distributor Diageo (DEO 1.48%) said organic net sales were up 4% on a 2% increase in volume, with sales to Mexico up 21% year over year, but that was largely driven by Scotch whisky and tequila.

Red, white, blue, and brown

Although DISCUS says other spirits are enjoying larger growth spurts than American whiskey, with cognac up 13% and Irish whiskey jumping almost 19%, they're much smaller segments, with sales totaling $1.5 billion and $795 million, respectively. The Council, though, says overall U.S. retail sales of distilled spirits hit $78 billion last year, and more importantly, represent some 1.4 million jobs in the hospitality and manufacturing sectors.   

According to a study conducted by the Urban Studies Institute at the University of Louisville and the Kentucky Distillers' Association, the state's bourbon industry is responsible for $8.5 billion in total economic output -- up $1 billion from the last time the biennial survey was taken -- and between 15,000 and 17,500 jobs. A U.S. Chamber of Commerce study says Tennessee's whiskey exports account for 65% of all whiskey shipped out of the U.S. in 2015, and they have nearly doubled between 2005 and 2015, rising from $361 million to $691 million.

Whiskey barrels aging at Wild Turkey Distillery

Image source: Kentucky Distiller's Association. 

Brown-Forman has been using the popularity of brown spirits to drive further sales of brand extensions of its Jack Daniel's family of whiskey. Its honey-flavored Tennessee Honey brand was largely responsible for the 5% growth in underlying net sales the distiller saw in the U.S. and 2% growth overall.

Open markets can certainly have an impact as industries strive to meet the challenges of the new conditions, but actions have consequences, and while restrictionist trade policies might benefit one industry, they could have repercussions that severely damage another.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brown-Forman Corporation Stock Quote
Brown-Forman Corporation
$62.91 (1.60%) $0.99
Diageo plc Stock Quote
Diageo plc
$182.27 (1.48%) $2.65
Brown-Forman Corporation Stock Quote
Brown-Forman Corporation
$59.70 (1.65%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.