Trade war rocks the global drink sector as Diageo predicts $200m hit to profits

Trade war rocks the global drink sector as Diageo predicts $200m hit to profits 

President Donald Trump’s imposition of tariffs—25% on imports from Canada and Mexico, and 10% on Chinese goods—was intended to boost domestic industries and correct trade imbalances. However, the unintended consequences of these measures are straining industries with global supply chains, and one of the most vulnerable is the global drink manufacturing sector. Plimsoll’s latest analysis reveals that many companies in this sector are already financially fragile and may be pushed into crisis by the disruptions caused by these tariffs. 

Plimsoll’s Stark Warning: A Sector at Risk 

Plimsoll’s analysis of the global drink manufacturing sector highlights that over 30% of companies are classified as being in financial danger. These companies are already struggling with thin profit margins, high debt, and rising production costs. The introduction of tariffs further intensifies these challenges, creating a “cost shock” that many businesses can ill afford. 

Small and mid-sized companies are particularly vulnerable. Plimsoll points out that these firms often lack the financial reserves or operational flexibility to adjust quickly to rising input costs. Unlike large multinationals with diversified supply chains, smaller producers—many of which are key drivers of innovation and niche product development—are at risk of being priced out of the market or forced into mergers and acquisitions. 

Why Tariffs Hit Drink Manufacturers So Hard 

The drink manufacturing sector is uniquely exposed to tariffs due to its reliance on both imports and exports. Many producers depend on imported raw materials such as glass, aluminium, sugar, and flavouring agents, which are now subject to higher duties. As production costs rise, companies must either absorb the costs or pass them on to consumers, potentially reducing demand. 

Simultaneously, export markets are under threat. Retaliatory tariffs, such as those imposed by the European Union on U.S. bourbon, have diminished market access for American producers. For European and Asian beverage manufacturers exporting to the U.S., the tariffs could make their products less competitive, further eroding revenue streams. 

Plimsoll’s analysis underscores that companies with weak financial structures, high debt-to-equity ratios, or dependence on a narrow range of export markets face the highest risk. Without significant intervention, some of these businesses could face liquidity crises or bankruptcy. 

Mergers, Acquisitions, and Market Shake-ups 

Plimsoll predicts that the financial strain could trigger a wave of consolidations in the drink manufacturing industry. Larger players with healthier balance sheets may acquire struggling companies at discounted prices. This would reshape the competitive landscape, potentially leading to reduced innovation as artisanal and niche players disappear. 

Plimsoll’s findings also suggest that if smaller companies fail to adapt, the industry could become more concentrated around large multinationals like Diageo and Pernod Ricard, which can more easily shift production and absorb cost increases. However, even these giants may face short-term profitability challenges as consumer demand softens due to rising prices. 

Conclusion: Adaptation Is Key 

As tariffs continue to disrupt global trade, drink manufacturers will need to develop strategic responses to protect their financial health. Diversifying supply chains, renegotiating contracts, and optimizing production processes will be critical. Plimsoll’s warning is clear: without decisive action, many companies in this already fragile sector could be pushed beyond recovery.