The Alcoholic Beverages Market in the 2025 Tariff Environment

May 2025

Many segments of the alcoholic beverage industry are currently navigating challenging times. This can be attributed to a variety of factors including decreased consumer consumption, overproduction and rapidly changing tariffs policies. As manufacturers seek and implement solutions, the impacts of those actions are being felt elsewhere. This report focuses on these and other developments, primarily across the wine and bourbon industries.

Alcoholic Beverage Industry – Recent History

In the last few years, sales of many channels of alcoholic beverages have declined including, but not limited to, wine, craft beers, and bourbon. Younger generations, in particular, are now actively exploring alternatives such as seltzers and ready-to-drink cocktails, This development has encouraged some manufacturers to shift a notable portion of their production to these canned or bottled ready-to-drink options.

Additionally, the growing trend toward “clean living” has brought alcohol’s potential health risks into focus. As a result, alcohol sales overall have declined, while nonalcoholic cocktail demand continues to increase at a noteworthy pace. These developments have resulted in lower demand for some segments and increased competition in others.

Wine Market Dynamics

The wine industry is defined in two distinct segments: cased wine and bulk wine. Cased wine includes finished bottles of wine available for sale. Bulk wine is defined as wine that is in the process of aging, either in a barrel or tank, or fully aged wine that is stored in tanks. The bulk wine market varies greatly in condition at any point in time, given that wines in this category can range from recently produced and just starting the aging process to those that are aged and ready for bottling.

Wine sales have decreased over the last few years following a significant increase during the COVID-19 pandemic, a period during which sales surged for many wineries. In many cases, wine sales are now actually below pre-pandemic levels and are expected to decline further, although not at the same aggressive rate as during the last few years.

Due to this decrease in wine sales, the bulk wine market has struggled with oversupply over the last few years as well and this trend is also expected to continue. This development is driving the bulk wine prices down significantly and is also impacting grape farmers, as wineries have continued to reduce their fruit purchases each year. Even at the lowest prices, there is not enough demand right now for the bulk wine available in the market due to the simple fact that wineries are already so overstocked that no price can entice them to buy.

Bourbon Market Dynamics

Bourbon is a type of American whiskey that is characterized by a distinct mash bill (the mixture of grains used), distillation processes, and aging in new, charred oak barrels. While bourbon is one type of whiskey, not all whiskey is bourbon. The most distinct difference in bourbon versus other whiskey products is that, by definition, bourbon must be made of at least 51% corn and cannot contain any artificial colors or flavors.

The bourbon market went through significant growth prior to and during COVID, with many distilleries increasing their production. In 2023, bourbon sales began to decline and that decline continued throughout 2024. With long its production lead time and given the increased production of Kentucky bourbon, specifically (bourbon distilled in Kentucky and aged there for a period of at least one year), the current bourbon supply in the U.S. market exceeds demand.

Tariff Impacts

The recent volatility in U.S. and reciprocal international tariff policies has caused added concerns for the bourbon and wine sectors. There are many examples of areas where these developments are cause for concern. Kentucky bourbon, for example, is sold to Canada in large quantities. Any disruption in that distribution due to escalated tariffs and tensions with our neighbor to the north could make a significant impact. Additionally, imported wines from France and Italy are also subject to tariffs, which may impact those distribution channels as well.

Key Implications for ABLS With Exposure

• While wine generally will improve as it ages, this is not true over an extended period of time for all varietals.
• The liquidation of a significant amount of bulk wine in a relatively short period of time will be difficult, if not impossible, given the current market constraints.
• Generally, an estate winery will accrue all costs to farm and harvest the grapes over a one-year period and then allocate all costs to the bulk wine once the harvest is complete. This means that during low crop yield years, the costs allocated to the wine are higher than during bumper crop years. As such, the bulk wine cost will be higher when there is less bulk wine to absorb the costs, however, this is not an indication of the quality of the wine.
• It is important for a lender to understand that the cost of the bulk wine is not indicative of its value in the marketplace but is rather an indication of the crop yields and the winery’s ability to control costs. For this reason, market prices are generally utilized to value bulk wine rather than cost.
• A lender in the bulk wine space should follow one of the various market publications for bulk wine prices.
• The production time for bourbon is substantially longer than wine, with most bourbon aging a minimum of four years to achieve peak value. Generally, the longer the bourbon ages, the more valuable it becomes, but this caps out at around nine or ten years.
• The cost structure for bourbon in barrels can vary significantly, as some producers will add monthly storage fees to the cost while others do not. As such, this can significantly impact the cost reported for aging bourbon.

Lenders with exposure should be aware of the decline in these markets and understand that liquidations may now take longer than anticipated and may not yield the same returns as were possible even one year ago due to these conditions. Until the supply and demand stabilize there will continue to be uncertainty regarding inventory levels and estimated sales volumes, especially in a liquidation scenario.