Specialty food retailers said they are planning to pass along the 25 percent tariffs on several products imported from Europe after the levies were announced last week.
Although the U.S. Trade Representative had previously said it could slap tariffs as high as 100 percent on a wide range of goods in retaliation for European government subsidies of airplane manufacturer Airbus, it unveiled last week a narrower list of food items from specific countries that will be tariffed at the 25 percent rate.
These include a slew of cow’s milk and sheep’s milk cheeses, as well as wine, olive oil and other olive products, pork products, seafood and other food items. The tariffs are effective for all products that arrive in the U.S. beginning on Oct. 18, which is much sooner than had been expected, said Ron Tanner, vice president of government, philanthropy and industry relations at the Specialty Food Association, in a webinar on the topic this week.
The narrow window between the announcement and the effective date has left some importers and retailers having to pay more than expected for products they already ordered that are scheduled to arrive after that date. In addition, the price increases come after many retailers have already finalized their holiday plans, such as the pricing of food gift baskets, for example.
“The timing is just horrible,” says Richard Sutton, a partner with his wife, Danielle, in specialty food retailer and importer St. James Cheese Company in New Orleans. “A lot of folks have had their holiday lineup set since back in July, and all those prices are going to change. They have to go back and rethink their price points.”
He says he is hopeful that some of the tariff costs could be absorbed in the supply chain in the near term — perhaps long enough to get through the holidays — but eventually retail prices will have to increase to cover the added costs of procurement.
“There is absolutely no question we are going to have to raise prices eventually,” Sutton says.
He says he is concerned that increased retail prices could alienate some consumers who already have a negative impression about the cost of cheese. In addition, he pointed out, restaurants will be challenged to set pricing on cheese plates as prices increase. Chefs often look to specialty retailers for their cheeses, and those retailers depend on that business to move their inventory.
“We have lots of chefs that buy cheese from us,” says Sutton. “When their costs go up by $1, $2 or $2.50, that adds up to a lot when you are trying to price these things on a menu, because of their margin structure.”
In addition to cheeses, Sutton says several specialty foods throughout his store, such as olives and cured meats, will also be affected. He says the store will probably post signs explaining the price increases.
No margin room
Matt Caputo, CEO of Caputo’s Food Market & Deli, a four-store specialty food retailer in Salt Lake City, says he expects the full costs of the tariffs will be passed on to consumers.
“Every single supplier that I've talked to about it is going to be passing that cost on directly to me as a retailer,” he says, although he’ll hold off as long as possible before passing the costs on to his customers.
“The bottom line is that no one has the kind of margin that they can just absorb it,” Caputo says. “The consumer is the one who pays.”
He estimates that about half of the 200 or so varieties of cheese he offers will be hit by the tariffs.
Caputo says that although the public might have the impression that specialty foods such as imported cheeses are primarily purchased by higher-income consumers, he describes many of his customers as middle class or even lower-income shoppers who are seeking to keep alive their family culinary traditions.
He also says he doesn’t anticipate that many of his customers will switch away from their favorite imported products in favor of American alternatives. In addition, he says, price increases on imported cheeses could open a window for American producers to raise their prices as well.
The tariffs will also impact several other products at Caputo’s, including olives and tinned seafood items — the latter of which have been among the company’s fastest-growing categories, Caputo says.
Tanner of the SFA noted that countries involved in the production of Airbus — including Spain, France, Germany, and the United Kingdom — were hit harder by the tariffs than other European Union countries. Olive oil was not impacted as much as expected, he noted, given that only olive oil from Spain will be tariffed, while olive oils from Greece, Italy and other countries will not. In addition, pasta did not end up on the list of tariffed products, and wines from Italy, Greece and Portugal were also spared.
Tanner noted, however, that the USTR could adopt a “carousel” of tariffs that rotate to different products over time.
He suggests that companies impacted by the tariffs write to the USTR and voice their concerns.
“The biggest winner was airplanes,” says Tanner. “Even though this is a dispute about airplanes, everything from Airbus was only hit with a 10 percent tariff … whereas the food products have a 25 percent tariff. To me that seems innately unfair.”
Sutton of St. James Cheese Company agrees.
“I don’t really understand how it has fallen on me as a small retailer, or any number of other importers and distributors and all of the other folks in the business, to help defend essentially one company that makes billions of dollars every year in profit,” he says.
Related: US, Japan Sign Trade Agreement; Tariffs to Be Levied on EU Specialties.
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