Best Practices for Dealing with Tariff Anxiety

Nearly half — 45 percent– of restaurant operators fear tariff-related financial trouble, a 12-point increase from last month, according to Alignable’s March Tariff Report, 

And they have reason to be fearful– looming tariffs could cost U.S. restaurants more than $12 billion dollars, according to National Restaurant Association estimates. The tariff threat is also causing anxiety for consumers as well. According to CivicScience data,  consumers say they’re likely to cut back on restaurant spending if tariffs lead to higher prices.

For practical advice for restaurant operators, Modern Restaurant Management (MRM) magazine reached out to Phil Kafarakis, CEO of IFMA, The Food Away From Home Association.

What food products used commonly in restaurant menus do you feel will be most affected by tariffs?

Even before the current tariff wars, restaurants that relied on coffee and chocolate were under stress, as extreme weather events led to poor crops and resultant inflationary problems. Then came the chicken-and-egg problems, which were already underway by 2022 due, again, to extreme weather wiping out infrastructure, but then before Christmas 2024 we had avian flu imperiling egg production. Now, we’re hearing a great deal about avocadoes, though smart restauranteurs have long since put alternative sourcing (to Mexico) in place. Chipotle, for example, was dependent on Mexico for 80 percent of their avocadoes; now, by building partnerships in South America they’ve gotten that down to 40 to 45 percent.

What should restaurant operators being doing to be proactive? 

The restaurant industry is remarkably resilient. Everyone is being very careful not to push a hyper-stressed consumer over the edge with pricing, and on the supply chain and distribution ends, they’ve been through this before and have tried to make sure they’ll be prepared.

Beyond having already put a flexible supply chain in place and managing their inventory the best they can, restauranteurs can try to position the consumer away from items that are going to cost them more money. Taking smaller steps and trying to be smart. And for larger chains, no one is looking at this as a time of growth—they’re being very deliberate and cautious about opening new stores, for example.

What impact could this have for restaurants that rely on products from a tariff-related area, particularly if it goes on for a while?

Food-away-from-home companies know that they’re going to get hit economically. The question is, for how long? Watching all this coming down the pike and from behind the scenes, right now not only is there chaos, but the sense that it's all going to come down to timing. How long are these tariffs going to be in place?

The most immediate problem is the unpredictable nature of how the announcements are made—as I write this today, two tariffs threats have been rescinded or postponed until April 2. Industry players might have 30 days to execute, or not. So everyone in the entire chain, back to the manufacturing community and agribusiness, is a bit frustrated.

What are the implications of National Restaurant Association CEO Michelle Korsmo’s letter to President Trump?

In her letter, Michelle Korsmo laid out that the NRA has calculated a 25-percent tariff increase across the board will cost restaurants about $12 billion. This means that if you're running a restaurant on a 2 to 3 percent margin before taxes, the calculation is that you're going to take a 30 percent hit. And consider this other little-known fact: 90 percent of all restaurants in the country are independent restaurants. With probably a two-week cash flow and a staff of roughly 15 to 20 people, these small, largely family-run businesses can’t possibly plan for this level of disruption.

What impact do you feel tariffs will have on diners? Will they cut back on eating out, be more selective? 

We've been worried about the consumer going into last year—consumer confidence and the inflationary rate pricing has been a problem since before the election. Every conference call starts with concern about the consumer—concern about discretionary income in a shrinking job market, concern about growing credit card debt. The consumer is in the middle of this because of food inflation, and now tariffs are adding one more potential challenge to their discretionary income.

Diners are shopping for deals—trading down, but not all the way down to quick serve restaurants (QSRs). There’s already a case to be made that eating out is actually cheaper than buying groceries and cooking at home. You can get a gourmet burger and a drink at Chili’s for $20—as much as it costs for a Big Mac meal on the run. Customer loyalty will certainly run to those brands that keep these promotions going.

Do you anticipate it will affect fine dining over fast food? And what impact on delivery/takeout?

Looking at prices over the last the two years—and it has mostly to do with commodity costs around the world—food prices have increased about 35%. The cost of labor has risen a similar amount in the last two and a half years. Independent restaurants—which, as mentioned earlier, comprise 90 percent  of the U.S. market—typically run 2 to 3 percent margins. Dealing with a 35 percent  increase in food cost and a 35 or 40 perent rise in labor cost, before even getting to rent and energy costs—this is certainly going to reach the customer, if it doesn’t shutter many establishments first. 

It seems inevitable that fine dining will be harder hit than QSR and fast casual chains that have for years been building resilience into their supply chains and planning/redesigning their menus to fit their customers’ budget. Fast casual players like Shake Shack have so far been outperforming the market. As for delivery and takeout, coming out of Covid these industries were already under attack—now with inflation and likely even higher prices there will be even lower demand for delivery and fewer visits to food away from home establishments across the board.