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Brown-Forman announces workforce cuts amid declining sales

Jack Daniels whiskey maker Brown-Forman has reacted to poor sales over the past year by restructuring its board and announcing a drastic reduction of its global workforce.

The news that it will fire 12% of its employees (about 650 people worldwide) comes only a month after the distiller issued a mildly upbeat forecast for the coming year in which it noted that inventories were at last increasing at distributors.

It also follows last week’s downgrading of sales and profits growth forecasts by Constellation Brands in the face of US consumers reacting to inflation and price rises.

In December, despite global uncertainties, Brown-Forman looked forward to benefiting from “normalising industry trends” which it believed would generate organic net sales and organic operating income in the next financial year.

Nevertheless, the company’s shares stand at a 10-year low and last year performed their weakest since 1974, slumping by 33%.

“This organisational evolution will simplify and streamline Brown-Forman’s structure, allowing it to become a more agile and efficient organisation and reinvest in the capabilities, technologies, brands and people that will drive future growth,” the company said. 

Cost-cutting measures

In addition to the job losses, which Brown-Forman estimates will cost up to US$70 million in payoffs, it will also sell its Louisville cooperage for which it hopes to get some US$30 million. 

Barrel making and repair will be outsourced in the spring.

Overall, it believes its actions will generate cost savings of up to US$80 million a year to plough back into the business.

Brown-Forman’s net sales fell by 1% to US$4.2 billion in the year to the end of last April, a trend that continued throughout 2024.

But in December the group confirmed its organic net sales growth forecast for the full year, reiterating that it expected them to be in the range of 2% to 4%.

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Evolving consumer trends

Despite expanding into growth areas such as the launch of ready-to-drink Jack and Coke in concert with Coca-Cola, Brown-Forman is facing multiple potential headwinds.

It has reacted to consumer resistance to price rises by introducing them in gradual stages and thus suffering pressure on its margins.

In addition, younger consumers are drinking fewer spirits in favour of beer, while the US Surgeon General has recently recommended health warning labels for beer, wine and spirits.

Producers have also been hit by a move by some consumers in the 24 US states where cannabis use is legal to be “California sober” — they avoid alcohol as cannabis is thought to produce less of a hangover.

Added to that, Donald Trump re-enters the White House next Tuesday.

He has threatened to impose tariffs on all goods imported to the US, including wines and spirits.

On the face of it, that might be a boost to American distillers such as Brown-Forman, but any such move could spur retaliation in Europe.

As part of a pre-Covid wrangle about steel and aluminium with the first Trump White House, Brussels slapped a 50% tariff penalty on US whiskey and motorcycles.

Talks have been ongoing with President Biden’s team in which the EU penalties have been suspended (not lifted) until the end of March.

Without a positive settlement, America’s bourbon distillers will be hit by the automatic reimposition of the charges on April 1.

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