Tariffs & Turmoil: How Restaurant Operators Can Navigate Supply Chain Chaos and Rising Costs

More than half (54 percent) of independent restaurant owners report making half as much or less than this same time last year, according to a report from Alignable with 51 percent saying  customer spending is “much lower” than 2024. Tariffs, attracting new customers, and inflation top the list of concerns.

“There’s a lack of clarity with regards to the timing implications of tariffs and the exact cost impact, thus creating chaos in not only planning but in pricing for daily operations,” Phil Kafarakis, President & CEO of IFMA, The Food Away from Home Association, told Modern Restaurant Management (MRM) magazine, calling the current situation “a mess of epic proportions.”

“The volatile policy environment and the supply-chain effect is causing the entire food-away-from-home ecosystem to determine the impact on their financials. Segments like the College and University sector are attempting to plan budget for FY 2026 and are not able to get reliable pricing from their partners across the supply-chain. Imagine sending your child to college and not knowing what the meal plan will cost or even more illustrative, when going into a restaurant and noticing that everything on the menus is 'market price.' No wonder consumers are becoming more resistant to eating out.”    

Higher tariffs will certainly cause prices to rise for U.S. consumers not only spurring inflation but lowering overall consumption and slowing the economy, cautioned Ben Johnston, Chief Operating Officer of Kapitus, a small business lender and marketplace.

"U.S. restaurants that import critical goods from abroad should determine if it is possible to source these goods domestically or to vertically integrate their supply chains to produce these goods domestically themselves.  If domestic production would prove uneconomic, restaurant owners will need to pay close attention to the tariffs being levied and which countries they are impacting most.  Working quickly to move production from one country to another could prove valuable should certain countries receive stiffer tariffs than other neighboring countries with similar production capabilities."

Kafarakis added that the impact is across the board, starting with critical ingredients in simple entrées and appetizers to proteins in center of plate. Tropical fruits and vegetables have been some of the early impact categories, coffee, chocolate, beef, olive oils, select grains and nuts.

"The menu implications are here and are impacting consumer demand," he said. "The leverage on loyalty programming and providing “value incentives’ is what’s helping maintaining consumer demand. From the success of Chili’s to the Texas Roadhouse and morning daypart players like MarketWatch – the formula exists for what restaurants can do."

Labor is also a concern for restaurants as small businesses in the hospitality sector are struggling to find quality candidates at prices their business can afford, noted Johnston.

"This is especially true for part-time and seasonal employees.  This labor shortage would be exacerbated by any crackdown on the hiring of undocumented labor or the large-scale deportation of undocumented individuals.  Pew Research estimates that 10 percent of all restaurant employees are undocumented as are at least 25 percent of all agriculture employees (providers of food). A significant loss of undocumented labor could force both the cost of labor and food for restaurants considerably higher.  Costs that would need to be passed on to consumers."

 What can restaurant operators do to take proactive steps  to mitigate potential future shocks to their supply chains and costs?

 The most critically important element in getting through this long-term challenge is to stay informed on what I actually is happening with policy and the impact on supply-chains, according to Kafarakis.

"And the second most important item is to communicate regularly with your supplier base as well as your primary and secondary distribution partners. Information-as-power has never been more important to accurately plan menus, feature appropriate items and what to stay away from that will negatively impact your margins. Be flexible and start developing agility across your organization. Moving quickly across all elements of the operation is going to be the only path to margin preservation and survival."

Johnston suggests restaurant owners consider investing in new technologies and business processes that would allow them to operate with fewer employees and optimize benefits to retain their valuable staff.

"Installing software that can better manage inventory or can help customers self-serve can save time and may allow restaurants to operate longer with fewer staff.  For a business’s most critical employees, consider offering additional perks such as flexible work hours, continuing education, or opportunities for career advancement.  Strong relationships and the ability to satisfy employees’ career goals can help retain critical personnel in tight labor markets."

Restaurant owners should be judicious in their expansion plans, he advised.

"In uncertain economic times it is important to focus on goods and services that provide a demonstrated value to customers.  Before launching new offerings or opening a new location, it is important to thoroughly test the market to determine demand and pricing power.  Make sure that anticipated sales will more than cover anticipated expenses and be sure to have access to sufficient capital to cover several months of operating expense in case anticipated sales take longer than expected to materialize."

There are opportunities for restaurant operators to innovate or adapt business models and menus to protect themselves from future tariff volatility,  said Kafarakis,

"It is already happening in beverage and there are opportunities for appetizers and desserts, especially in ready-to-eat products. The only path to successful innovation is through collaboration with manufacturing partners. If you are a restaurant entity, independent, or chain of any size, and you are not integrated into your suppliers’ resources (culinary teams, food scientists, procurement professional services, etc.) you will struggle to survive in this environment."