
As we begin the New Year, a topic that is likely top-of-mind for many business leaders–across industries–is the impact that potential tariffs could have on their business. While the incoming Trump administration has indicated it could enact new tariffs of an additional 10% on imports from China and an additional 25% on imports from Mexico and Canada, specific details of the timeframe for when and how this plan will be enacted are still forthcoming. However, industries and companies that rely heavily on products imported from these regions are already taking steps to prepare.
Although the food and beverage industry isn’t as deeply impacted by forthcoming tariff increases in the ways that the high-tech industry and apparel and footwear companies are, there are still plenty of imported products and ingredients that food and beverage companies use in their finished products that will likely be affected. According to the Observatory of Economic Complexity (OEC), in 2022 China’s key food exports included fish filets ($4.09 billion), soybeans($172 million), seasonings and sauces ($2.05 billion), and spices ($518 million). In 2022, Mexico’s key food exports included beer ($5.95 billion), fruits ($3.9 billion), vegetables ($3.24 billion), and tomatoes ($2.74 billion).
If tariffs of 10-25% on imports are enacted, companies could be paying significantly more for imported produce, seafood, beer and spirits, and any food products that rely heavily on imported ingredients and packaging materials. Food and beverage companies will have to rapidly evaluate and evolve both their commercial and supply chain strategies to maintain market share and meet their financial objectives. This includes evaluating pricing strategies to understand if additional costs can be passed on to customers without negatively impacting consumer demand. Additionally, it includes rethinking sourcing strategies and evaluating the localization of suppliers and production to non-tariff countries to ensure the supply chain is set up to produce and deliver at optimal cost and service.
Here are three factors for food and beverage companies to consider as they plan ahead in 2025:
Price sensitivities continue to influence consumer purchasing decisions and shape product portfolios
Over the past few years, inflation has been a significant factor in consumers being more discerning about the products they purchase, with many more opting for value brands, private labels, and generic products. A recent survey by McKinsey indicates this trend may have some staying power. Even as more consumers feel confident about the economy, a Q4’24 Consumer Wise survey found that 37% of consumers changed retailers for lower prices (compared with 39% in Q4’23), and 23% of consumers changed brands for a lower price (compared with 24% in Q4’23).
If prices on certain food and beverage products increase as a result of tariffs, it’s likely that a segment of consumers will continue to opt for value-focused products. Although, it’s also worth noting that affluent consumers’ purchasing behavior might not be as driven by pricing, and may instead opt for brand loyalty, especially for products like imported beers and spirits. To help hedge against the impact that tariffs could have on pricing and on consumer preferences, food, and beverage companies may want to be very strategic in how they manage their portfolio of products by eliminating the less profitable SKUs, optimizing their price-pack architectures (such as introducing smaller packs at the same price point), or on the contrary, accelerate their use of “local” ingredients to appeal to premium-focused consumers who prioritize the use of locally sourced products.
Strong joint-business planning and supplier relationships will be critical
If tariffs are enacted in Q1 or Q2 of 2025, many decisions will need to be made across the food and beverage value chain, and it will be important to have strong working relationships with suppliers, distributors, and retailers as well. Strong pricing analytics and elasticity models will help companies determine the range within which they can price their products to maintain profit margin targets without sacrificing consumer demand. Another way food and beverage companies can mitigate cost increases is by negotiating and using trade investment strategies with retailers. For example, if a snack foods manufacturer tells their big box vendors that in order to maintain their current pricing, they need to purchase by the pallet instead of by the case. As tariffs are implemented and margins are impacted across the portfolio, proactively reaching out to suppliers and retailers to communicate changes early and working to find solutions that can benefit all parties can be additional strategies that help food and beverage companies effectively find trade investment and supply chain strategies that work for all parties involved.
Technology can improve the speed of evaluating sourcing strategies and cost trade-off decisions
Another option that food and beverage companies should consider to help mitigate the cost implications of additional tariffs is rethinking their sourcing strategies and improving the speed of scenario analysis. Today’s supply chain planning technology platforms have modeling capabilities that enable companies to layer in the real-time cost implications of tariffs into planning and sourcing decisions, which allows them to see the impact of different scenarios like localizing production or ingredient and packaging sourcing. For example, a company may find that it's more advantageous to source some of its produce from Brazil instead of Mexico. It’s also beneficial to incorporate these potential scenarios into the regular monthly sales and operations planning (S&OP) cadences. Companies with digitized, data-driven operations will have a competitive edge during volatile periods and improve resiliency due to potential policy changes.
Overall, 2025 will have its share of headwinds and challenges, but there will also be opportunities that businesses can capitalize on as well. If food and beverage companies take the time to prepare for potential tariffs by better understanding consumer purchasing behavior and price sensitivities, proactively collaborating with suppliers and retailers to develop joint-business plans and improving the speed of scenario planning and trade-off analysis, they will be better positioned to focus on the business opportunities that emerge in 2025 as well.