Economic policies can be beneficial for some industries while they harm other sectors. Tariffs are an example of a policy that is welcomed by some businesses while others prepare for their negative impact. In this post, we’ll showcase the expected impact of tariffs on restaurants and other businesses in the food and beverage industry. If you want to know what effects other economic conditions might pose on your company, read our posts on the impact of inflation on businesses and the effects of high interest rates on businesses.
Key takeaway: Restaurants are not among the most affected businesses when it comes to tariffs. However, they might still experience higher prices for supplies and packaging. As tariffs often lead to inflation, eateries should prepare for that.
How Will Tariffs Affect Restaurants
Importers, resellers, and companies that have offshored their manufacturing operations to other countries will be the ones primarily affected by tariffs. This additional tax burden will significantly increase the cost of goods sold for such companies. However, broad tariffs impact other sectors as well. Let’s examine some of the effects of tariffs on restaurants and other food service businesses.
- Higher prices for wholesale restaurant supplies. Packaging, single-use supplies, and various other goods are primarily manufactured and imported from China. That’s also true for various pieces of restaurant and kitchen equipment.
- Food inflation. Although produce, meat, and other common ingredients are primarily produced domestically, their prices might still increase in the future as tariffs are likely to cause inflation. Imported ingredients such as exotic fruits, olive oil, European cheeses, or French wine will be the first to increase their prices.
- Profit margin dilemma. The hypercompetitiveness of the food service sector has resulted in fairly low profit margins for most companies. That’s why businesses will need to pass the increased costs onto customers. This will allow them to keep their profit margin, but will affect menu prices and can lead to fewer clients.
- Menu changes. In order to use more local goods and combat supply chain disruptions, restaurants can change their menus. For example, a Wagyu beef steak can be replaced with a beef steak made in America. The easiest way to make such changes is if you benefit from QR codes for restaurant menus.
- Strategic shifts and opportunities. Although tariffs on restaurant ingredients and supplies can have a negative impact in the short term, they will create opportunities in the long run. Some businesses might be stretched too thin and not be able to survive through turbulent times. On the other hand, offering farm-to-table meals and highlighting local sourcing of ingredients can be used in restaurant marketing.
Impact of Tariffs on Restaurants in the Long Run
It’s not perfectly clear how economic policies will impact different niche markets in the long run. A likely potential impact of tariffs on the restaurant sector might be the increased prices of both meals and beverages. Some food service businesses might also decide to reduce portions in order to combat inflation. Read more about how to deal with inflation in a business.
In the long run, tariffs are likely to create more manufacturing jobs. This will increase the purchasing power in regions with strong manufacturing. Restaurants can benefit from that, as the increased purchasing power of customers can lead to increased revenue for eateries.
How Tariffs Affect Other Sectors
Various sectors of the economy can feel the impact of tariffs. The ones affected the most are industries that rely heavily on imports or international trade. Here are a few examples.
- Manufacturers that have offshored their operations might need to invest in local factories and supply chains;
- Costs of raw materials such as steel and lumber will likely increase until domestic capabilities increase their production;
- Retailers import a lot of their merchandise from China, Vietnam, and other countries with low labor costs. Thus, they’ll likely be affected severely by tariffs;
- Apparel and shoe brands are likely to be significantly affected by tariffs, non-tariff trade barriers, and retaliatory tariffs;
- As tariffs cause disruption in various supply chains, they might increase the need for more inventory and storage;
How Restaurants Can Prepare for Tariffs
Many companies had stocked imported products and supplies before the tariff policies were introduced. In addition to that, food service businesses can preemptively change their menus to include more local ingredients and fewer imported goods.
Auditing supply chains can also be beneficial. To minimize the impact of tariffs on restaurants, managers might need to renegotiate wholesale prices and find suppliers that source local products.
Using the restaurant POS and other business analytics tools is crucial when tracking profitability and evaluating prices. In addition to properly analyzing cash flows, businesses can also minimize hidden costs and invest in automation. Keep in mind that economic turmoil often leads to a reduction in interest rates. The effect of low interest rates on businesses is that borrowing costs are lower.
Frequently Asked Questions about the Effect of Tariffs on Restaurants
Throughout the years, BlueCart has created various free resources for entrepreneurs. From tips on how to increase B2B sales to guides on wholesale janitorial supplies, you can find valuable posts on our website. Below we’ve answered some questions related to the impact of tariffs on restaurants.
What Other Challenges Is the Restaurant Industry Facing?
Diners are facing various challenges and constantly need to adapt to demand. One of the biggest challenges is that the food service sector has become hypercompetitive. Opening a restaurant means competing with dozens of businesses nearby. That’s why food service companies need to have a competitive edge over other businesses. For example, a fast food restaurant offers a combination of convenience and affordability. On the other hand, fine dining places are focused on offering extra value. Inflation and ready-to-eat options offered by retailers are also major challenges for the restaurant industry.
What Is Restaurant Inflation?
This term is used to describe an increase in the prices of meals in food service establishments. Restaurant inflation might occur for a number of reasons, such as disruptions in food and agricultural supply chains, overall inflation in the economy, or increased demand. If there’s an increase in the prices of ingredients and labor, restaurants might combat it by introducing new meals or reducing portion sizes. During inflationary periods, the food service sector usually struggles as fewer people eat out or order food.
How Food Service Businesses Can Prepare for Disruptions?
Business owners know that turbulent times come every now and then. Strong businesses manage to survive through them, while the best companies manage to benefit from them. In order to prepare for disruptions, make sure to have a thorough restaurant risk management plan. Learn more about the effects of economic stagnation, how tariffs affect restaurants, and what businesses can do to deal with different economic policies and conditions. Building a recession-proof business requires a lot of preparation, such as stocking up on important items, renegotiating contracts with distributors, and preparing employees for potential disruptions.
BlueCart: The Wholesale Ordering Software for Food Service Businesses
Retailers, coffee shops, and different types of restaurants use BlueCart’s marketplace to compare the prices of suppliers and purchase goods wholesale. Thanks to BlueCart’s functionalities, bulk buyers can automate various tasks and make the ordering process hassle-free. Wholesalers also have multiple reasons to sign up for BlueCart. Whether you’re a large broadline distributor or a specialized supplier, our tool can boost your wholesale sales. Schedule a quick demo today and witness how our SaaS solution helps suppliers.