Stocking up for a cocktail crisis: How bars, distillers and tequila importers are bracing for a trade war
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- Bars, wine shops and importers in California’s alcohol industry are getting caught in the crossfire of an intensifying global trade war.
- The prospect of steep duties is threatening to imperil an industry already facing an existential reckoning.
Back in December, alcohol importer Raza Zaidi in San Francisco placed an order for a pallet of gins, liqueurs and bitters from a Mexican spirits producer.
As the truck made its way north toward the border several weeks later, it was up against the clock: On Feb. 1, President Trump had announced plans to impose 25% tariffs on imports from Mexico and Canada.
Those levies went into effect March 4 — the day Zaidi’s pallet of 1,000 bottles arrived at the port of entry in Laredo, Texas. But in a reversal two days later, Trump said he would temporarily lift the tariffs on many Mexican and Canadian goods for a month.
The rapid back-and-forth caused confusion at the border crossing, Zaidi said, as customs authorities figured out how to assess shipments that had arrived during the brief window of time that the tariffs were in place.
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“They didn’t know how much we had to pay,” said Zaidi, the owner of Back Alley Imports. “The bottom line was it took 10 days stuck at the border and I ran out of certain products. It’s a whole chain of events that is just due to this crazy uncertainty. And that’s not even considering whether I should raise prices.”
Zaidi had hoped the one-month pause would mean he’d be let off the hook. But because tariffs are collected at the time of customs clearance, he was ultimately hit with $2,000 in additional taxes, one of many business owners caught in the crossfire of an intensifying global trade war.
Industries and products of all kinds are being subsumed by the recent barrage of tariff announcements, which cover a broad range of goods and also involve disputes with China and the European Union.
But those who work in the alcoholic beverages market in California and around the country say they are especially vulnerable, with the prospect of steep duties threatening to imperil an industry already facing an existential reckoning.
On top of the sweeping 25% tariffs on Mexican and Canadian imports, the alcohol industry is at the center of a spat with the EU, which this month proposed a 50% duty on American whiskey. In response, Trump said he would place a 200% tariff on wine, Champagne and liquor from the EU.
“Since a high peak of 2022 to now, the market has contracted for all sorts of reasons,” said Jill Bernheimer, owner of Melrose Avenue wine shop Domaine LA. “It’s one thing after another. This is not going to help at all.”
The latest blow
After declining 2.6% in 2023, U.S. total beverage alcohol volumes continued to drop in the first seven months of 2024, according to global drinks research firm IWSR.
Volumes fell 2.8% from January through July, the group said. All major categories except ready-to-drink alcoholic beverages shrank, with wine declining by 4%, beer falling 3.5% and spirits down 3%.
“Across the board, these declines are slightly worse than what was forecast,” Marten Lodewijks, president of IWSR’s U.S. division, said when the data was released in September. “The slight recovery that was expected has failed to materialize.”
Americans are consuming less alcohol due to a myriad of reasons, including an uncertain macroeconomic landscape and persistent inflation concerns that have dampened spending. But much of the shift has been cultural.
A push toward moderation has led to a rise in popularity of low- and no-alcohol drinks, especially among younger consumers. Some people have replaced at least part of their alcohol consumption with cannabis. The industry has been unexpectedly hurt by the Ozempic boom, with users reporting that weight-loss drugs have curbed their alcohol cravings. And drinking has been the target of health concerns: In January, the U.S. surgeon general called for cancer warning labels to be placed on alcoholic drinks.
California’s wine country struggles with changing tastes, foreign competition and too many grapes on the vine.
The industry has weathered tariff tumult before, including during Trump’s first administration. But things were different then, Bernheimer said.
“It was easier for all the tiers of the three-tier system to plan for and respond to because it was a much more robust time in the alcohol industry,” she said, referring to the distinct segments of producers, distributors and retailers. “It’s definitely leaner now. I don’t have the resources I had to stockpile a warehouse filled with wine to get me through.”
Trying to plan ahead
As things stand, April 2 is the planned date for the 25% tariffs on Mexican and Canadian imports to kick back in. Meanwhile, the EU said last week that it would postpone its 50% tariff on American whiskey, which was set to go into effect April 1, until the middle of the month to allow time for negotiations.
With those deadlines looming, many businesses have been front-loading orders to try to get as much product as possible into American land and sea ports of entry quickly. Doing so would keep retail prices from spiking too much, and prevent breaks in the supply chain.
We’re an all-Mexican spirits program, so this is a pretty dire situation for us.
— Max Reis, beverage director at Los Feliz restaurant Mirate
Some importers are bringing in up to nine months’ worth of inventory of agave spirits from Mexico to prepare for the possibility of prolonged tariffs, said Susan Coss, co-founder and director of Mezcalistas, a mezcal-focused media, event and consulting firm in Alameda, Calif.
“The will-they, won’t-they is putting so much undue stress on people and on companies,” Coss said. “Everyone’s scrambling to have a Plan A, Plan B, Plan C in terms of a pricing strategy.”
Stockpiling isn’t financially or logistically feasible at Mirate, a Mexican restaurant and bar in Los Feliz, co-owner Matt Egan said.
Like most restaurants in Los Angeles, Mirate operates on razor-thin margins and was already contending with higher costs across the board due to inflation, as well as lingering effects from the pandemic and Hollywood strikes. It relies on robust sales of alcoholic drinks, which have significantly higher profit margins than food, and derives 40% percent of its revenue from the beverage side.
“We’re an all-Mexican spirits program, so this is a pretty dire situation for us,” said Max Reis, Mirate’s beverage director.
“There are no real American substitutes for a tequila or for a mezcal,” Egan added. “If this happens, I do think it’s going to shake up the industry significantly.”
They said the pain will be felt at every level, from alcohol producers down to the customers.
“There’s no way we can accommodate that 25%,” Egan said, noting that the tariffs would affect Mirate’s food costs as well; it imports fish, avocados and citrus from Mexico. “This is a scenario where we are going to have to unfortunately have to pass that cost off to the consumer, and that’s not something we want to do. But that’s the only option for us.”
‘Collateral damage’
A 25% tariff is bad enough, but a 200% retaliatory duty on all alcohol imported from the EU would be “absolutely devastating,” said Robert Tobiassen, president of the National Assn. of Beverage Importers.
“There would be closures of businesses and the like,” he said, “and then there’s the ripple effect in the economy because you have the port workers, truck drivers, laborers — everybody involved in the distribution system from the importer to the distributor to the retailer.”
On the other side, U.S. distillers say they will suffer if the EU goes ahead with its plan to impose a 50% tariff on American whiskey.
Business owners around the state struggle to keep up with an ever-changing slew of trade policies.
For years, the spirits industry was the “model for fair and reciprocal trade,” said Chris Swonger, president of the Distilled Spirits Council of the United States. From 1997 to 2018, when the U.S. and the EU had zero-for-zero tariffs on spirits, transatlantic trade in the industry soared nearly 450%, he said.
“The EU got us embroiled in a tit-for-tat tariff,” he said of the current trade dispute. “We need the president’s help to untangle the spirits industry, and the greater hospitality industry, from these tariffs. We’re collateral damage.”
At Sonoma Distilling Co., a small-batch whiskey distillery founded in 2010, about one-third of revenue comes from orders headed to Europe, founder and master distiller Adam Spiegel said.
If the tariff on American whiskey is imposed next month, Spiegel worries that his European importers might slow their rate of reorders, leaving him with lower sales and excess inventory.
“We’re going to be in a very precarious position,” he said. “Trying to forecast with this level of uncertainty is very difficult. How can I forecast how much production to do and how much packaging to do? Do I buy 10,000 labels or do I buy 50,000 labels?”
When the EU imposed a 25% tariff on American whiskey in 2018, Spiegel said he opted to take a hit on the company’s profit margins instead of risking losing business overseas. He doesn’t think he can do the same this time around.
“With it potentially being a 50% tariff versus a 25% tariff like it was before, that might be a number I cannot absorb,” he said. “It’s a mutual destruction situation for everybody.”
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