According to industry leaders, Kentucky's bourbon industry faces a 'catastrophic' threat as international trade wars converge. The timing couldn't be worse for Kentucky's signature spirits sector, which is already struggling with declining domestic consumption while confronting new tariff challenges.
Declining Bourbon Sales
The bourbon industry has experienced a significant decline in sales, driven by multiple market forces that have reshaped consumer behavior and industry dynamics.
Demographics: Generation Z's drinking habits represent a significant shift in the market. This demographic consistently shows lower alcohol consumption rates than previous generations, directly impacting Bourbon's customer base.
Substitutes: The beverage market has become increasingly fragmented, with non-alcoholic alternatives, cannabis products, and other substitutes successfully capturing market share that historically belonged to bourbon and traditional spirits.
Premiumization: While overall bourbon sales volume has decreased, consumer preferences have shifted toward premium offerings, indicating a "quality over quantity" purchasing trend in the market.
Tariffs: Economic trade disputes have created additional challenges for the bourbon industry. They affect domestic sales and international trade relationships, further complicating the sector's recovery efforts.
Trade Wars
President Trump's second term has brought promises of new broad-ranging tariffs, while simultaneously, the European Union is implementing a retaliatory 50% tariff on American whiskey starting in March 2025. The tariff war stems from an ongoing steel and aluminum dispute.
Due to 2018 tariffs, the bourbon industry experienced a 25% export decline and a $200 million loss during President Trump’s first term. The current forecast suggests that this tariff dispute will be more severe. The market exposure is significant, and the European Union accounts for half of all overseas bourbon and American whiskey sales.
Bourbon Layoffs
The market's reaction has been swift and decisive. Brown-Forman, owner of Jack Daniel's and Woodford Reserve, has already implemented defensive measures, including laying off 12% of its workforce and closing a historic cooperage. On the other hand, Beam Suntory is attempting to mitigate potential impacts by stockpiling European inventory, though this approach provides only temporary relief. Trade wars are impacting real people.
The bourbon industry's challenges serve as a signal for broader trade policy implications. As threats and uncertainty about tariffs and trade disputes persist, firms will attempt to mitigate risk. Restructuring of business models, layoffs, and decreased profits will threaten Kentucky's pride industry.
The Takeaway
The bourbon industry's current predicament highlights America's conflict: how to encourage domestic production without upsetting countries that import American goods. For Kentucky, bourbon has developed an international reputation and increased the visibility of Kentucky across the world. Bourbon is Kentucky’s ambassador to the world. After horse racing and horse farms, the world knows Kentucky for its bourbon.