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Craft Bourbon Craze Is Over in Europe Thanks to 25% Import Tax

Small U.S. bourbon producers are finding that European drinkers love their products. But tariffs don’t go down so smoothly.

Craft Bourbon Craze Is Over in Europe Thanks to 25% Import Tax
A waiter pours a bourbon whisky into a glass in a Bar and Block restaurant, operated by Whitbread Plc, in London. (Photographer: Photographer: Chris Ratcliffe/Bloomberg)

(Bloomberg) -- Back before the U.S. and Europe started slapping tariffs on each other, Paul Hletko was benefiting from the Old World’s growing passion for bourbon, pulling in six figures’ worth of orders at his small-batch distillery in the first half of the year.

Those days are over. Bourbon exports for Hletko’s Few Spirits, based in Evanston, Illinois, “dropped to zero” from 15 percent of revenue last year, he said. The European Union’s 25 percent tariff on bourbon, implemented in June, wiped out demand for his product, which retails for $51 a bottle in the U.S.

“Every U.K. buyer backed off,” Hletko said. “They may want to buy it, but if they can’t sell it at the right price, that’s not doing us any favors.”

Craft Bourbon Craze Is Over in Europe Thanks to 25% Import Tax

Small distillers cite the drought as proof their fears of a global trade war are coming to fruition. Europe had been blossoming as a source of new revenue -- but this market has been effectively cut off for producers that lack the clout or brand recognition of titans like Brown-Forman Corp. and Diageo Plc. Now they’ve been sent back to square one.

The tariffs, which target U.S. goods such as Levi Strauss & Co. blue jeans and Harley Davidson Inc. motorcycles, are the EU’s retaliation to President Trump’s duties on foreign steel and aluminum.

Hletko said the low six figures he’s made this year from international orders all were booked before the tariffs’ imposition. Meanwhile, Rob Cassell, the owner of Philadelphia-based New Liberty Distillery, said European buyers have dissolved.

“Everybody shops by price” Cassell said. “If your product before was 25 euros ($28.51) a bottle and all of a sudden it’s 35, but nothing’s changed, that’s not the same great buy for you that it was before.”

Canada, Sweden

Spiros Malandrakis, head of alcoholic drinks research at Euromonitor, said that the tariffs have stunted the growth of bourbon in Western Europe. Consumers will likely go to new whiskies from countries such as Canada or Sweden, or drink something else, while big players like Brown-Forman’s Jack Daniels will find ways to absorb the additional costs -- a luxury that smaller, upstart companies don’t have.

“Taxation and trade issues do play a role in drinking habits,” Malandrakis said. “It will be the smaller craft manufacturers that will start taking the biggest hits.”

Brown-Forman, which got just over a quarter of its revenue from Europe in 2017, opted to absorb the tariff’s impact in the short term before implementing delayed price increases. While the Louisville, Kentucky-based company has this option, it’s still feeling pain from the tariffs, and in August it lowered its profit forecast for the fiscal year.

Related: How Trump’s Trade War Is Roiling Global Commerce

For now, prices will keep rising until consumers stop paying them. U.K. importer and distributor Amathus Drinks Plc will keep stocking bourbon even if prices are higher, brand manager Marlowe Harris said. He predicted some consumers won’t be deterred.

“The people drinking these new, interesting American whiskies will pay an extra 25 percent,” Harris said.

It remains to be seen how many are willing to fork over the extra cash, however. At Milroy’s, a whiskey shop in central London’s Soho district, American whiskey brands make up about a quarter of the bar’s 200 plus spirits. Over the last three to five years, customers bought it more than ever before, according to managing director Martyn “Simo” Simpson.

Prices for a third of U.S. brands have jumped 10 to 15 percent, and he may stop selling some by springtime, he said.

“The whiskey drinkers aren’t going to stop drinking whiskey, they’ll just go on to something else,” Simpson said. “Scotland’s going to be loving it.”

To contact the reporters on this story: Gerald Porter Jr. in New York at gporter30@bloomberg.net;William Mathis in London at wmathis2@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, John Lauerman

©2018 Bloomberg L.P.