Diageo's Strategic Response to Tariffs: Mitigating a $200 Million Blow

Diageo, the world's leading spirits maker, is facing a potential $200 million hit to its operating profit in the second half of its financial year due to U.S. tariffs on Mexico and Canada. The company, which generates around 45% of its sales in the United States from products made in these countries, has outlined its strategic response to mitigate the impact of these tariffs.

Diageo's finance chief, Nik Jhangiani, estimates that the gross impact on the company's operating profit for the remainder of the financial year, running to June 30, would be around $200 million if the tariffs are implemented in March. However, the company has plans in place to mitigate this impact, with Jhangiani stating that Diageo could cover around 40% of that before any pricing actions.

The impending tariffs would be on the input cost, not the retail price, which means Diageo would have to absorb the additional costs. To offset this impact, the company is exploring various strategies, including inventory management, supply chain optimization, and pricing actions.

Inventory management involves shipping stock into a country before duties come into force, allowing Diageo to avoid the additional costs associated with tariffs. Supply chain optimization could involve re-allocating resources, changes to the supply chain, and finding alternative suppliers to minimize the impact of tariffs. Pricing actions could include passing on some or all of the additional costs to consumers through price increases or absorbing the costs within the company's margins.

Diageo's CEO, Debra Crew, has stated that the estimated hit is based on the current scenario and does not take into account further escalations or retaliatory actions. The company is planning for all scenarios and is engaged with the U.S. administration to find long-term solutions to the challenges posed by tariffs.

The uncertainty around tariffs prevents Diageo from providing clearer guidance on its future earnings. However, the company's proactive approach to mitigating the impact of tariffs demonstrates its commitment to maintaining profitability in the face of external challenges.



In conclusion, Diageo's strategic response to tariffs, such as inventory management and supply chain optimization, can help mitigate the potential $200 million impact on its operating profit. By implementing these strategies, Diageo can maintain its profitability and remain competitive in the market. The company's ongoing engagement with the U.S. administration also indicates its commitment to finding long-term solutions to the challenges posed by tariffs.



This table illustrates Diageo's sales by region in 2024, highlighting the significant impact that U.S. tariffs on Mexico and Canada could have on the company's operating profit. The United States accounts for 45% of Diageo's total sales, making it the company's largest market. The impending tariffs on products made in Mexico and Canada could have a substantial impact on Diageo's profitability if not mitigated effectively.