President-elect Donald Trump has threatened to wield tariffs as a cudgel to force changes at the southern border and bring back manufacturing jobs.
“To me, it’s the most beautiful word in the dictionary,” Trump has said.
To companies like Rochester-based Constellation Brands, tariffs could represent an obstacle to continued growth.
Constellation’s Modelo Especial is the best-selling beer brand in America these days. And Constellation CFO Garth Hankinson said the beer is “under-distributed versus its peers,” leaving plenty of runway for continued growth.
But Modelo and Constellation’s other beers — Corona and Pacifico — are brewed and bottled south of the border. Together those brands account for most of the beer that the U.S. imports from Mexico. And Trump has threatened to slap a 25% tariff on goods from Mexico along with Canada if those countries don’t stop migrants and fentanyl from entering the United States across their borders.
“As we're thinking about the implications of a potential tariff, it's a bit hard for us to assess what we would do next, because there's no specificity yet on what a tariff might look like,” Hankinson said, speaking this week during the Morgan Stanley Global Consumer and Retail Conference. “What's covered? What's the duration? What would the amount be?
“That being said, we're certainly not waiting for a specific policy to be put in place."
Hankinson said the company is making sure it has adequate inventory in place here before Trump takes office.
“This is something that we have a little bit of experience in now that we've had to deal with some border closure disruptions due to surges in immigration,” Hankinson said. “So, you know, we're making sure that we've got the right product in this country, which would certainly help depending on the duration of any tariff.”
Other options are to cut costs elsewhere to absorb the tariffs, Hankinson said — or incrementally raise prices. One industry newsletter estimated beer prices could increase between 4% and 12%.
What Hankinson didn’t mention was any consideration of reducing imports or shifting operations.
“One of the things that we're going to want to balance is what's the right level of pricing so that you don't impact the top line,” Hankinson said. “We have momentum in the top line. We want to maintain that momentum, because that drives so much more of the algorithm, the profitability of the business.”
The goal: "If a tariff comes to fruition, we will have assessed what the opportunities for us are to either partially or fully offset the tariff.”
There are other interests at stake here.
While the beer is imported, 75% of what goes into it — what Hankinson calls the “inputs,” like barley — come from U.S. farmers in Washington, Idaho, Montana and the Dakotas, and suppliers nationwide. And the finished product that comes back as imported beer supports other businesses from distributors to retailers, he said.
Hankinson is not alone in anticipating those economic benefits – and jobs – will factor into any future action.
Among Trump’s other promises is repeal of the federal Inflation Reduction Act, which has channeled billions into renewable energy projects under President Joe Biden – translating to jobs for local electrical workers, among others.
Ray Ryerse, business manager for IBEW Local 86, said he thinks those employment gains will make a difference with the White House.
“Republicans in these red areas where they’ve seen these jobs being created, have now said, ‘Although I was against green energy, green technology, I’ve now seen workforce development and then high employment rates,’” Ryerse said.
“So I think the Trump administration will probably revamp it, and probably rebrand it,” he continued. “But I think they see the advantages to it.”
Ryerse was a guest on WXXI’s “Connections with Evan Dawson.”
Hankinson, too, sees allies not adversaries.
“I think that there's a really good understanding in both countries of the contributions that Constellation Brands make to both the U.S. and Mexico,” Hankinson said.
He points also to consumers.
The company markets broadly but also specifically to the Hispanic consumer with brands it says are rooted in Mexican heritage.
“Now you know, in terms of potential policy implications for our business, if you think about the Hispanic consumer ... about 20, 30% of our growth is going to come from favorable demographics,” he said, adding that the projection is based on census data showing the Hispanic legal drinking age population growing at twice that of the general drinking age population. “It's not predicated on outsized immigration growth, so we don't think that's a significant risk to our algorithm, per se.”
Constellation will report its third-quarter earnings on Jan. 9.
