U.S. bourbon demand is down and tariffs aren’t helping. But distillers keep building

Charlie Downs, the artisanal craft distiller at a new Heaven Hill Distilleries, Louisville, Ky., checks gauges on a still that will produce small batches of whiskey. (AP Photo/Bruce Schreiner, File)

BARDSTOWN, KY — Like many whiskey distillers, Heaven Hill Brands is rolling back bourbon production this year, as demand lags. Yet, as the American spirit faced a tumultuous market in 2025, the Kentucky company built a new, US$200 million distillery in the heart of bourbon country, adding 155,000 barrels of capacity.

Famous for brands like Evan Williams and Elijah Craig, Heaven Hill exemplifies an industry in whiplash, one struggling and growing all at once. Local cooperages drown in backlogs of unused barrels, distillers are slashing output, and some are laying off workers. Yet tourists still pack plant tours, and whiskey makers have planned at least $1.45 billion in expansion projects between now and 2030, according to research led by Michael Clark, a University of Kentucky economist.

Liquor consumption has been falling from steep pandemic-era highs, as the cost of living soars and some younger consumers drink less. Tariffs and inflation have pushed up input costs and punctured bubbling demand overseas. And now, fallout from the Iran war threatens to increase energy costs.

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But the effects of the downturn are not uniform, and the roots of bourbon’s troubles are hotly debated in this Republican stronghold, Reuters found through more than 20 interviews with distillers, suppliers, business owners, voters and politicians last month.

Kentucky Governor Andy Beshear believes tariffs are a key headwind. In an exclusive interview, the Democrat and potential 2028 presidential candidate said tariffs not only make supplies more expensive but complicate bourbon makers’ efforts to reach critical new markets overseas.

Distillers downplay politics, blaming instead cyclical factors like inflation and the difficulty of predicting demand years in advance, as their whiskeys age. “The number of times we’ve gotten (demand) right over 90 years, I jokingly say, is zero,” says Heaven Hill Executive Chairman Max Shapira, adding that current tariffs “really aren’t very impactful.”

A Heaven Hill spokeswoman said bourbon output would be lower this year than last as the company “paces production” after a decade of booming growth, but declined to provide an exact figure.

As midterm elections loom in November, the battle to control the narrative about the bourbon industry’s struggle speaks to how complex America’s economic realities are - and illustrates the lasting strength of U.S. President Donald Trump’s grip on America’s rural South.

A year ago, Trump’s now-defunct “liberation day” tariffs were set. During 2025, Kentucky whiskey exports fell 15 per cent, according to U.S. Census data. That compounded a previous 26 per cent drop dating to the president’s tariffs in 2018, from which overseas demand never fully recovered, according to the Clark-led research, commissioned by the Kentucky Distillers’ Association (KDA).

Greg Hughes, CEO of Jim Beam owner Suntory Global Spirits, says it’s temporary. Inflation and falling demand in developed countries, rather than tariffs, are the main drivers of headwinds that prompted Jim Beam to cut bourbon output this year, Hughes said in an interview. “The industry will get through this,” and “be absolutely fine,” he said, citing expected growth in newer markets like Latin America.

Local businesses shrug off tariffs

LOCAL BUSINESSES SHRUG OFF TARIFFS

Behind the scenes, though, whiskey makers are scared, Beshear insisted. Cultivating the new markets Hughes alluded to will be difficult against a backdrop of tariff uncertainty, the governor said, adding that industry leaders complain to him in private about “how these tariffs have hit them hard, how they shouldn’t have to be going through it a second time.”

Even so, in Kentucky, which Trump visited last month to tout his economic policies, Republicans hold super-majorities in both state legislative houses. That’s unlikely to change in November’s elections, as about half the Republican-held districts in both houses do not have Democratic challengers, according to state election filings.

Trump won the state by at least 25 percentage points in each of the last three presidential elections.

In Bardstown - a timeworn enclave of colonial brick, where public trash cans are fashioned from whiskey barrels - bourbon supports the local economy. “If we don’t have the bourbon industry, we don’t have a business,” says Jeane Noland, owner of the Cozy Cottage gift shop.

But local entrepreneurs largely say business is good, and do not blame Trump for broader struggles.

Susanna Buscemi, part owner of Bardstown’s Volstead Bourbon Lounge, tries hard to keep politics out of her bar. “In here, we’re about having a good time and drinking,” she says.

Though she admits tariffs have increased the costs of certain whiskeys, she says they’re “a good thing for consumers.”

Rum to the rescue?

Though Trump’s Liberation Day tariffs were struck down by the U.S. Supreme Court in February, Trump has vowed to replace them, and has imposed a new worldwide tariff in the meantime. Democratic governors - including Beshear - have sued, calling the new tariffs illegal.

As uncertainty swells, other policy challenges are cropping up. Trump’s attacks on Iran have sent energy prices soaring, stirring concern that inputs like fertilizer for corn, bourbon’s primary ingredient, could grow expensive or scarce.

“We worry about getting ready to plant this year’s corn crop, and are the farmers going to have enough fertilizer? … And if so, at what price?” said Heaven Hill’s Shapira.

Rising costs of living have limited disposable income, while aging baby boomers are being replaced with Gen-Z consumers who, either health-conscious or cash-strapped, aren’t drinking as much. The emergence of weight loss drugs and cannabis drinks is also having an impact.

Kentucky makes about 95 per cent of the world’s bourbon. “And the rest is counterfeit,” quipped Beshear. The bourbon industry supports 24,000 jobs in Kentucky – nearly a third of which are direct distillery roles, the rest split between suppliers and service providers, according to Clark’s research.

Distillery jobs had fallen 1.7 per cent year-over-year as of last September, the most recent data available, according to Clark. Nearly a third of distillers surveyed by Clark reported cutting jobs - though many also reported adding headcount.

Barrel inventories are at a record high, Clark found, with 16.1 million aging in Kentucky - a 57 per cent increase from 2020.

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Distillers say that’s not a problem - whiskey gains value as it ages, so they need not rush out old stock. Still, they’ve had to adjust. Brown-Forman owner of brands like Woodford Reserve, cut 12 per cent of its workforce in 2025, and announced talks in March to merge with French spirits giant Pernod Ricard.

Lofted Spirits, among the largest distillers of American whiskey, laid off workers last year, though it declined to say how many. The company makes most of its money as a contractor, distilling for other brands, so dwindling orders forced it to reduce bourbon output by “at least half,” CEO Mark Erwin said.

Finding himself with empty fermenters, Erwin decided to pivot to a quintessentially Caribbean spirit: rum, a liquor that need not age as long and can reach the market more quickly. Erwin expects rum to account for nearly half the company’s output this year. “I don’t mind making it,” he says. “It’s good business.”

Tariff ripples

David Meier, owner of tiny Glenns Creek Distilling in Frankfort, says his bottle costs have risen about 25 cents a bottle due to tariffs - about a 15 per cent bump - but so far, he hasn’t passed the cost on to consumers.

Heaven Hill says just 10 per cent of its revenues come from exports. Hughes, likewise, said most of Suntory’s American whiskey is sold domestically, and that even Canada – which drew headlines when provinces pulled American whiskey from shelves early last year - represents less than one per cent of its bourbon sales.

Such distillers say reports of bourbon’s death are greatly exaggerated. Still, some suppliers struggle.

Canton Wood Products, a Lebanon, KY-based barrel maker, sold about 7,000 barrels last year, down around 50 per cent from 2022, said Vice President of Operations Melody Pruitt. Tariffs compounded the hit by increasing the cost of oak imported from France and Japan, forcing layoffs of eight of the company’s 38 employees - a move Pruitt says gutted her. “Their livelihood depends on coming to work every day, just like mine,” she said.

Independent Stave Company, the industry’s biggest barrel supplier whose customers include top producers like Brown-Forman, has fared better, CEO Brad Boswell said.

His company has cut back production, but is still investing for growth in an industry far bigger than it was a decade ago, he added.

Overall, Kentucky distillers are still planning $1.45 billion in new buildings, machinery and other expansions over the next five years, economist Clark reported - on top of $2.1 billion in already-completed expansion since 2020 - betting demand will return as economic pressures fade and large overseas markets, like India, develop.

But, he warned, tariff uncertainty “could have a cooling effect” on such growth.

“Given the level of uncertainty, distillers might choose to postpone some of their planned investments,” he said.

Tourism endures

Distillers point to tourism as a cause for bullishness. Last year’s 2.7 million visits to Kentucky’s so-called Bourbon Trail were roughly flat with 2024, according to trade association KDA.

Visitors can bottle their own bourbon at Jim Beam’s plant, taste 130-year-old whiskey at $1,800 an ounce at Lofted, and peek into Heaven Hill’s spaceship-like fermenters that hum as they churn out thousands of gallons of mash.

Tourism is a key reason many smaller brands - which make most of their money from on-site sales - remain stable. Glenns Creek’s $1.5 million in 2025 revenue was about even with 2024, and higher than 2023, Meier said.

Bill Peterson, a Chicago-based residential designer who comes to the region twice a year, told Reuters he dropped at least $1,000 on whiskey bottles in one Sunday last month.

“I’m gonna stay a diehard bourbon guy,” Peterson said.

(Reporting by Nicholas P. Brown and Emma Rumney; Editing by Anna Driver)