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Long Read: No more spirit of fair play for American whiskeys

Published:  05 August, 2021

The Government is currently considering levying a 25% tariff on US wine imports reaching the UK. But there is another long-suffering category in American whiskey, which was left out of a recent revision and five-year suspension on tariffs for spirits travelling between the US and Britain. Greg Mefford, international sales director at spirits maker Luxco, looks at the implications for a popular category.

In recent weeks, the US, EU and UK managed to end – temporarily – the longest running trade dispute in the history of the World Trade Organisation. Sparked in 2004 by a disagreement between Airbus and Boeing over alleged unfair subsidies, the 17 years since then have seen retaliatory tariffs being imposed at different times by the European Union and America on a range of imported goods, including whiskey and tobacco.

An agreement was reached between all parties in March this year to suspend the tariffs for four months. A cooperative framework then followed in June 2021, confirming that tariffs would be suspended for five years, with intentions to move trans-Atlantic relationships forward and to save billions on imports.

Overall, the truce has been welcomed as a major step forward and, for most, saw those working throughout the spirits world breathe a collective sigh of relief. It means that single malt Scotch and Irish Whisky can now enter the US without being hit by excessive tariffs, for the next five years at least. At the same time, rum, brandy, vodka and vermouth from the US will escape the previous import penalties when they arrive in the UK and EU.

(A note on wine: An exception announced by the British government, following a UK consultation, is that it may introduce a 25% tariff on US wine imports. However, at the time of writing this, it is still reviewing responses to its consultation on tariffs against the US.)

Although this suspension is reason to raise a glass, celebrations have been put on ice amongst American whiskey producers, distributors, and lovers. US bourbons, ryes and whiskeys have been excluded from the five-year suspension and a tariff still stands for imports of these liquids into the EU and UK.

This stems from a policy change in 2018, which saw the US Government apply heavy tariffs to steel and aluminium from the EU. The European Union responded with a 25% tariff on American whiskeys and was due to increase this to 50% on 1 June 2021. 

Fortunately, the doubling of the tariff has been postponed for now, as representatives from the US and EU address this trade conflict, with commitments to resolving the issue by the end of the year. A solution needs to be found by then and must be comparable, at the very least, to the five-year tariff suspension for other distilled spirits. If it isn’t, it risks the American whiskey category in the UK and Europe shrinking to low levels that may take years to recover.

According to previous reports from The Distilled Spirits Council of the United States (DISCUS), American whiskey exports to the EU have decreased by a third since the introduction of the tariff. The Bourbon Council believes the situation is worse for the UK – a booming American whiskey market – with exports dropping by around 53%.

It’s a daunting prospect that such declines could be accelerated by an imbalance in whisky and whiskey retail prices. A 25% tariff is near-impossible for companies to absorb and unfortunately it drives up what the on- and off-trade, and consumers, pay for their American whiskey. If this, as a basic rule of thumb means retail prices are about a quarter higher than other whiskies from around the world, it puts American bourbon, ryes and whiskeys at a serious competitive disadvantage. Consumers could be priced-out of the category.

There’s also the consideration that whilst loyalists may keep buying their favourite American whiskeys, they might do so on a much less frequent basis because of a lack of affordability. This could contribute further to a shrinking market share.

Furthermore, tariff-inflated prices are likely to intensify inter-category competition and risk cannibalisation within this whiskey segment. Whereas American whiskey brands may have been able to capitalise on trialists experimenting with different whiskies from around the globe, they are more likely to find such a price-sensitive audience dwindling, as shoppers favour other lower priced whisky. This, coupled with a lower propensity to purchase amongst consumers because of higher prices, will see US whiskey brands competing amongst themselves and more aggressively with one another for increasingly limited sales opportunities.

Such circumstances point towards a category at real risk of stagnating outside of the US and finding it harder to appeal to new customers internationally.

At Lux Row Distillers, we’ve attempted to address these challenges in the UK and EU through innovation. The Rebel Bourbon range is a good example of this. In 2019, for the first time in our company’s history, we launched a limited-edition international release of the wheated bourbon, which would only be sold in the EU and UK.

By not selling the limited-edition Rebel in the US and creating something special for our European bourbon enthusiasts, we were sending a message that completely contradicted the conflicting and retaliatory nature of the trade dispute between the EU and America. Essentially, we were embracing the spirit of the brand and rebelling.

To drive sales, the limited-edition also characterised another of the traits that we believe sets Lux Row Distillers apart, secondary finishing. The four-year old bourbon was finished in French oak barrels for six months to give it a different level of complexity and a finish you wouldn’t typically expect of a Kentucky straight bourbon. The idea was to create a compelling reason for consumers to look beyond prices being swelled by tariffs. It worked. The 6,000 bottles of French Oak Barrel Finish Rebel sold-out within weeks. We followed up with a 2020 release, finishing the Rebel in Cognac Casks, which was equally as popular, and are getting ready to announce the 2021 release.

In addition to innovation, we’ve also strived to tap into the importance of age statements amongst UK and EU whisky fans. Typically, everyone from amateurs to die-hard enthusiasts and real whisky afficionados in these markets have some sort of positive perception of an aged whisky. There’s a shared appreciation amongst a diverse audience of varying knowledges that ‘age’ is good when it comes to whisky. With this in mind, we prioritised the European launch of Old Ezra, a 7-year-old barrel strength Kentucky straight bourbon.

The age statement is disruptive in the bourbon category. It generates talkability and pricks the curiosity of those consumers that aren’t American whiskey loyalists or who perhaps consider it secondary to more traditional whiskies that proudly wear their ages on their bottles. The seven-year aging created another compelling reason for purchase amongst consumers contending with higher prices because of international trade spats.

This strategy helped us to boost European sales by around 20% in 2020, countering the impact of the American whiskey tariff. It’s a strategy that we’ll continue to pursue. However, despite our best intentions, we realise the uphill struggle facing the category since other whiskey and spirits tariffs have been suspended for five years.

American bourbons, ryes and whiskeys aren’t competing on a level playing field with other distilled spirits in the UK and EU. The challenge of this is made even harder as the on-trade attempts to rebuild after the struggles of the pandemic and consumers become increasingly price sensitive as their disposable income is squeezed by inflation.

If American whiskey is to grow internationally, we must return to pre-2018 zero tariffs in the UK and EU. This will give consumers more bourbon for their buck and avoid the value of the category being eroded by forces beyond the control of those distillers and blenders championing American bourbons, ryes and whiskeys outside of their US heartland.