Visit the Liquor Control Board of Ontario (LCBO) website at the moment and you’re greeted with quite the patriotic gesture on the homepage. The Eh List (which owes its name to that great Canadian conversational staple, ‘eh’), offers over 3,000 Ontario- and Canada-made products, alongside the following message: “Raise a glass to Canada and support our talented makers.”
Click on the link and you can survey a range of VQA wines, craft beer/cider, RTDs and craft spirits, all proudly sporting a shiny new maple leaf logo. That same logo is present on the LCBO app and on in-store shelf labels. It’s a neat piece of opportunistic marketing at a time of turmoil for the international beverage alcohol market.
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The Eh List, of course, isn’t the most headline-grabbing move that the LCBO has made recently. On 4 March, in response to the new Trump Administration’s on-off-on-off imposition of 25% tariffs on Canadian imports, and acting under a direction from Ontario Premier Doug Ford, the LCBO stopped buying and stocking all US-made beverage alcohol.
That equates to more than 3,600 products, imported from 35 states, with annual revenues of up to C$965m ($673.4m). LCBO’s historical quasi-monopoly status makes it still the chief booze supplier across the province, and to bars and restaurants in particular. And don’t forget that Ontario is Canada’s most populous province, accounting for about 40% of the nation’s inhabitants. Elbows up indeed.
Amid the maelstrom of the early weeks of the Trump presidency, assessing the real-world effects of the trade moves made against Canada, Mexico, the EU and China is an elusive business, such is the fast-changing nature of these times, subject to the ‘transactional’ whims of one individual’s Truth Social posts.
Asked about the impact of the LCBO move, Brown-Forman CEO Lawson Whiting labelled it as “disproportionate”, adding: “I mean, that’s worse than a tariff, because it’s literally taking your sales away, completely removing our products from the shelves.” Having said that, he then acknowledged that Canada was only responsible for about 1% of Brown-Forman sales. So, not the end of the world then.
Diageo’s response to the tariffs came in a letter to the US Trade Representative from Alden Schacher, VP of government relations at Diageo North America. Don’t impose tariffs, Schacher urged – instead tighten rules of origin to benefit US-sourced ingredients.
Also, he added, trade in distilled spirits is largely reciprocal, meaning that actions to address imbalances are unnecessary. Oh, and don’t forget just how much Diageo contributes to the US economy.
So seismic are the effects of large-scale tariff increases that there is almost as much peril in the reactions to the moves as there is in the measures themselves
It all sounds very reasonable but the problem is that it’s a rational response to an irrational problem. Does anybody seriously believe that The White House will take any notice?
However, I suspect the most insidious and longest-lasting impacts of the current scenario may not be the obvious effects of rising consumer prices and declining sales. So seismic are the effects of large-scale tariff increases that there is almost as much peril in the reactions to the moves as there is in the measures themselves.
With regard to the Ontario scenario, the most obvious area to explore is enduring consumer sentiment. Fans of Jack Daniel’s and Gallo might happily switch to Crown Royal and Mission Hill in a short-term snub to their southern neighbours but will they stick with the habit when the US brands are back on the shelves?
Today’s consumers are notoriously brand-fickle but some of them almost certainly will. And, if that switch of sentiment expands to other tariff-affected markets – most notably in the EU – internationally focused US drinks firms could be facing a difficult period ahead. That’s the trouble with protectionism – it doesn’t exactly endear you to your previous trade partners.
But, at the moment, if you want to see real-world effects, look no further than Tequila. As a product of designated origin that is hugely reliant on the US for its exports – rather like Canadian whisky – it is perhaps the most obvious immediate casualty of the current situation.
As soon as the threat of tariffs on Mexican goods was raised last year, brand owners turned to the most obvious strategic reaction: frontload shipments to pre-empt the price hikes.
Mike Novy, CEO of Calabasas Beverage Company, sales and marketing vehicle for Kendall Jenner-founded 818 Tequila, told Reuters the distillery had worked flat out in December, with employees on overtime throughout the holidays, so that about six months’ worth of Tequila could be shipped north before the tariffs took effect.
It’s an eminently sensible move but one with some glaring downsides: overheads higher – Novy reckoned by about US$2m – plus the need to finance storage of all that liquid while it waits to move through the supply chain.
If the US Tequila market was still in boom mode, that might not present too much of a problem. But it isn’t. If sales continue to soften at their current rate – WSWA’s latest SipSource forecast reckons they’ll be flatlining by the end of this year – then those storage costs are going to mount further. Factor in persistently high interest rates on borrowed cash and that’s going to hurt.
Diageo and Jose Cuervo owner Becle have not been keen to comment in detail on their own moves in this area but it’s pretty clear they’ve pursued a broadly similar strategy of frontloading shipments. If their sales numbers for Q1 2025 look pretty robust, they may just fall off a cliff in Q2.
And this is just the beginning. Never mind the Newtonian imperative that every move made by the Trump Administration is bound to provoke a similar reaction from those affected, the immense uncertainty inherent in the current environment is costing companies money and changing consumer attitudes from Toronto to Berlin. Even if tariffs were abandoned tomorrow – which they won’t be – a great deal of long-lasting damage has probably already been done.
Are there any upsides? Well… It’s not much to cling onto but – to revive an argument made in an earlier column – Tequila’s current difficulties are a painful illustration of just how reliant an entire industry has become on one market. Sometimes the category feels like an extension of the US spirits scene, so indelibly are the two connected.
If this somewhat nightmareish situation inspires Tequila brand owners to explore other export markets – which, to be fair, the larger and more far-sighted are already doing – then maybe some good might yet come out of this utter mess. Whether many of them have the wherewithal to undertake this at a time when they’re ploughing everything into protecting their market position in the US, however, is open to question.
