The Latest on Trump’s Tariffs and Restaurant Food Costs

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on Jun 25, 2019 9:00:00 AM
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For now, restaurateurs are breathing a slight sigh of relief after President Trump announced his plans (via Twitter, of course) to back off on his proposed tariffs on all Mexican goods. We say slight relief because, as this present administration has illustrated, those plans may change tomorrow…or an hour from now.

The threatened tariffs were supposed to go into effect on June 10 if Mexico did not help prevent the flow of illegal immigrants crossing the U.S. border—many whom are making the trek from Central America.

When tariffs on Mexico’s imports were looming, Restaurant Business reported on an analysis issued by the Specialty Food Association (SFA) which stated that restaurants and grocers will feel the effects of the tariffs “almost immediately” due to the rising cost of food.

The Cost of Imports

In 2018, the U.S. imported about $12 billion worth of vegetables, fruits, and nuts from Mexico. This number includes $1.7 billion worth of avocados and $2.3 billion in tomatoes, and represents about half of all imported U.S. vegetables and 40 percent of America’s fruit. For those of you who think California could be our salvation, think again.

Just two short months ago, when Trump was threatening to close the Mexican border, Reuters reported on Steve Barnard, president of Mission Produce, who stated that if the border was closed, the U.S. would run out of their avocado supply in just three weeks.

This is part of the reason why Chipotle announced that Mexican tariffs could cost the quick-service chain approximately $15 million and could force the Mexican grill to pass the rising costs on to their customers.

Such is the problem with a supply chain that is dependent on one particular source. Unfortunately, there are not a lot, if any, alternatives for businesses that purchase large quantities of avocados from our southern neighbor.

For now, those in the food industry are taking a wait-and-see attitude. It’s also prompting many to take a look at their supply chain in search of alternatives as this President turns to tariffs as a weapon.

One war that that has erupted in the wake of President Trump’s international strategy is the U.S.-China trade war which has produced $250 billion in U.S. tariffs applied to Chinese goods and $110 billion in Chinese tariffs applied to U.S. goods. And, a lot of tension.

For those in the restaurant industry, the rising conflict may show itself in increased prices in meats, fish, produce, and grain. So, just where are restaurants and their suppliers turning to in order to decrease escalating costs?

Alternatives in the Supply Chain

Local Suppliers—As the farm-to-table movement continues its successful upward trend, more restaurants are embracing and establishing relationships with local farmers. This not only lessens the costs associated with global suppliers, it also supports the local community, provides the opportunity to offer a seasonal menu, and, if the farmer is environmentally conscious, allows a restaurant to display an environmentally sustainable model.

Group Purchasing Organization—Because larger chains can obtain reduced pricing due to bulk orders, independent restaurants are likely to feel greater effects from the rising costs. In order to offset this, these restaurants may look into Group Purchasing Organizations (GPOs) which give them the power of many. One of the largest in the restaurant industry is Buyers Edge Platform which, when all members are combined, has over 45,000 restaurants in their network.

Sustainable and Local Seafood—Restaurants around the country are serving locally sourced and sustainable seafood. In order to obtain species that have not been overfished, chefs are turning to seafood that is out of the ordinary such as local grouper and Spanish mackerel.

Creating a resilient supply chain is at the core of a successful restaurant, with quality, availability, and cost being the cornerstones. Don’t wait until disruption in your chain creates a frantic scurry for alternative sources.  As Scott Ford, president of Goodcents Franchise Systems, so aptly put, “One of the most important aspects of building and running a successful business is learning the art of agility." The slow and stubborn simply can’t survive in today’s world.

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Topics: Food Cost, Cost Reduction, food costs, Supply Chain

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