Once again, American restaurants are facing significant challenges as tariffs on imported goods create economic uncertainty. Changes in tariff structures can create volatility for restaurants, as shifting costs may impact everything from menu pricing to sourcing strategies.
With the potential for rising food and supply costs, supply chain disruptions, and shifts in consumer behavior, savvy restaurants are taking proactive steps to navigate these turbulent waters.
In this blog post, we’ll explore how tariff policies could impact the food service industry and offer actionable strategies for overcoming these challenges.
Key Takeaways:
Tariffs are taxes imposed on imported goods to protect domestic industries and influence trade policies.
Countries use tariffs to support their local economies, protect jobs, or retaliate against perceived unfair trade practices.
The restaurant industry is particularly vulnerable to tariff impacts, as many restaurants rely on imported ingredients, such as produce, spices, and wine, as well as essential equipment.
As these trade relationships evolve, restaurant owners must stay informed to anticipate the shifting costs and supply chain challenges.
What is a Tariff?
A tariff is a tax imposed on goods when they are imported or exported between countries. Typically, the importing company pays the tariff, which can directly affect the prices of goods—especially for industries like food and beverage service that rely on global supply chains.
Purposes of Tariffs:
Protecting local industries: Tariffs help shield domestic businesses from foreign competition.
Generating government revenue: Tariffs are a source of income for governments.
Responding to unfair trade practices: Tariffs can be used as a response to trade practices that are considered unfair by other nations.
Types of Tariffs:
Ad valorem tariffs: A percentage of a product's value.
Specific tariffs: A fixed amount charged per unit of imported goods.
Tariff-rate quotas: Tariffs increase once a certain quantity of goods is imported.
Stats to Consider
According to the National Restaurant Association, tariffs would cause a $12B hit to restaurants
A 25% tariff on food and beverage products from Mexico and Canada would cut profits for the average operator by 30%.
Approximately 15% of the total U.S. food supply comes from imports, a percentage that is expected to grow.
Effects of US Tariff Policies and Strategies for Restaurants
1) Rising Costs of Imported Goods
Tariffs typically lead to higher prices on imported ingredients like produce, dairy, and spices, which are key to many restaurant menus. Not only can this increase in costs trigger a rise in menu prices, but it may alienate customers, particularly in price-sensitive markets.
Strategies:
Negotiate with Suppliers: Work with suppliers to renegotiate pricing structures or explore alternative sourcing to minimize tariff impacts. Some suppliers may be able to access tariff exemptions or reduced rates.
Adjust Portion Sizes or Offer Smaller Plates: If raising menu prices is not an ideal option, consider adjusting portion sizes or offering smaller plate options. This allows customers to still enjoy the same quality food, while restaurants can maintain profitability without heavily burdening their customers with price hikes.
2) Equipment and Supply Cost Hikes
Because restaurants often purchase kitchen equipment, furniture, and tableware from international suppliers, tariffs on these goods can increase the cost of operating or opening a restaurant.
Strategies:
Source Locally: Partner with local suppliers to avoid tariff-related expenses.
Bulk Purchasing: Purchase larger quantities of supplies to lock in current prices.
Lease or Rent Equipment: By reducing upfront costs, renting or leasing offers flexibility if price hikes occur.
Refurbish: Repair or reburbish existing equipment to extend its life, rather than purchasing new items from overseas.
3) Supply Chain Disruptions
A disruption in supply chains may lead to delays in shipments of critical necessities and ingredient shortages, forcing restaurants to make menu changes, alienate clients, or face closures.
Strategies:
Diversify Sourcing: Build relationships with domestic suppliers and local farms and businesses to reduce reliance on international trade.
Enhance Local Networks: Work with local suppliers to ensure a consistent flow of ingredients, reducing reloance on international supply chains.
4) Shifts in Consumer Demand
Higher menu prices driven by tariff-induced cost increases may make consumers more price-sensitive. Alternatively, some diners may seek out restaurants offering locally-sourced or sustainable options.
Strategies:
Menu Adaption: Focus on offering more locally-sourced and seasonal dishes to attract customers seeking fresh, ethical dining options.
Offer Value: Maintain affordable menu options that focus on quality ingredients, helping customers understand the reasons behind price increases.
5) Changing Tariff Policies and Structures
Tariff structures and trade policies can change frequently, making it difficult for restaurants to stay on top of regulatory requirements. Keeping up with these changes is crucial to avoid penalties or unexpected costs.
Strategies:
Stay Informed: Regularly review trade regulations and consult with experts on upcoming shifts in tariff structures.
Remain Flexible: Be prepared to respond quickly to policy changes by adjusting procurement strategies and inventory management.
6) Customer Perceptions
If tariff-driven price hikes are introduced, restaurants must carefully manage customer perceptions. Transparency about the reasons for price increases can help prevent a decline in customer loyalty. Highlighting local sourcing or sustainability efforts can also strengthen the bond with consumers who care about ethical practices, turning tentative loyalty into stronger support.
Strategies:
Transparent Communication: Use marketing channels to inform customers about the impact of tariffs on pricing and how your restaurant is working to mitigate costs.
Customer Loyalty Programs: Offer promotions or discounts for repeat customers to maintain satisfaction and build loyalty despite price increases.
Take Away
Tariffs could pose significant challenges for the restaurant industry, raising food costs, altering consumer behavior, and disrupting supply chains. With the right strategies in place, however, restaurants can navigate these economic changes successfully.
By staying informed, proactive, and resilient, restaurants can not only navigate tariff impacts and mitigate risks, but they can position themselves for long-term success in an ever-evolving economic landscape.
By Eileen Strauss
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