Food-Focused Retailers Need to Prepare for Tariffs' Effects on Foodservice

Announcements of new tariffs and delays in implementation have added to the overall atmosphere of uncertainty. For foodservice outlets, tariffs on Mexican goods are expected to have the greatest negative effect.

[VIEWPOINT: Navigating Uncertainty]

"Mexico is the one where it's going to seriously affect us," Kafarakis said, noting that fruit, vegetables and other core items will see prices go up, harming operators' margins. "You can't tolerate a 30% increase on a product. It's a huge problem."

Some good news is that distributors are prepared with some redundant supply that is not subject to tariffs. "[Distributors] came out of COVID with a semblance of order. Where it gets really frustrating is not knowing when or how long these things are going to last," he remarked.

No one can be sure how long the situation will last, but Kafarakis recommends taking time now to prepare for the next three years. "We're in a red alert," he emphasized.

Planning Strategically for an Uncertain Period

IFMA members are looking first at what is being affected and then trying to move away from it in a methodical manner, Kafarakis explained. Some are passing along cost increases to consumers, but because it's not being received well, they're trying to either move away from those products or move consumer attention to other products to take down demand.

Some foodservice operators have more leeway than others, which should prompt creative ways to alleviate economic pressures. For example, breakfast menus can't fully move away from eggs, but they could charge more for proteins or other add-ons to omelets and breakfast sandwiches.

Convenience stores have an advantage over restaurants in that they offer other products that are not as strongly affected by tariffs. However, Kafarakis suggests operators still plan for the long term and work with their suppliers. As during the COVID-19 pandemic, larger operators that are preferred customers will likely have an advantage over smaller regional players.

"It's going to be harder if you're not paying attention to this stuff," he cautioned. "It's going to be a lot harder to be agile and move to something else or try to do something in your operation where you don't get hammered."

Retailers should be straightforward in their messaging to customers, but they shouldn't count on messaging alone to be sufficient, he also advised.

"It's OK to let them know that you're out of product. It's OK to let them know that you're working on it. But give them something. Don't just tell them, 'Yeah, we've got tariffs, so we're going have to charge you 50 cents more per egg.' That does not seem to be playing out well," said Kafarakis. 

Loyalty should be a focus. C-stores with solid loyalty programs should consider offering coupons or special deals to thank customers for their patience during an uncertain time. "Give them something to make them aware that we understand this is happening, but here's something for free or here's a discount for something — some element to tolerate the pain or offset the increase so that they stay with you," he recommended.

Perhaps the biggest concern is that c-store shoppers do not walk away from a shopping trip with the belief that retailers are taking advantage of the situation to justify raising prices to boost their profit.

"The bigger concern here is making sure consumers aren't getting annoyed and they're out because they feel like you're gouging them," Kafarakis said. "You know, everyone's in it together, is the message."