Facing “Tarifflation” – F&B Companies Need To Manage Margins

While inflation can be a drag on earnings, “tarifflation” can wreak havoc with F&B margins.

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When Mondelez International reported results for its quarter ending June 30, 2025, the company indicated “significantly higher operating costs.” They faced growing labor and raw material expenses, and something else. Tariffs were taking a bite out of their business as a kind of “tarifflation” forces companies to monitor and manage margins.

Mondelez said significant portions of products in the United States are “imported from other jurisdictions,” so there could be significant adverse impacts “on our business operations and financial performance” amid “protectionist trade measures.” While inflation can be a drag on earnings, “tarifflation” can wreak havoc with F&B margins, impacting everything from demand to sourcing, and putting pressure on a need for increased efficiency.

Tariffs are protectionist measures that often do not protect the increasingly international F&B industry from manufacturers to retailers. They can lead to higher prices and lower demand or chip away at margins.

On the most basic level, the U.S. imports tomatoes, bell peppers, cucumbers, and other vegetables from Mexico. About 90% of avocados reportedly come from that nation. Bananas, berries, mangoes, and more come from Latin America, the Caribbean, and Southeast Asia. We bring in all sorts of fruits and vegetables from Canada, as well as fish from Chile and China. We also export, leading to hits from retaliatory tariffs. Food companies and even restaurants are often international regardless of their product, making monitoring margins crucial amid fluctuating costs.

“A lot of organizations in food and beverage are going to get squeezed relative to their profit margins, because it’s creating margin pressures that you simply can’t plan for,” Alex Kushnir, a Partner in the Consumer Goods and Retail Practice at Baringa Management Consulting, told the Food Institute.

Feeling the Squeeze

Margins are based on knowing costs, and constantly changing tariffs — or what one might call “tarifflation” — makes that more challenging. WK Kellogg recently reported an $8 million second quarter profit, down from $37 million a year ago, as sales dropped 8.8% to $613 million. The culprit? The company cited increasing costs, including tariffs, and lower consumer demand.

“If you’re bringing in ingredients or products from overseas, you’re already feeling it in your margins,” Joe Camberato, CEO of National Business Capital, told the Food Institute.

A survey by Endeavor Business Intelligence found that 60% of business leaders said their operations had already been significantly affected by new tariffs. The number is likely higher for F&B, where U.S. tariffs and retaliations have huge impacts. Heinz, General Mills, Danone, Hershey, and Mondelez International all face tariffs and potential pressure on margins, as well as a need for strategies to manage them.

“Tariffs can squeeze profit margins as brands struggle to absorb additional costs without raising retail prices,” according to Food Logistics, which said big brands may be better “equipped to absorb tariffs than lesser-known or regional brands.”

Tariffs can have a big impact on F&B, since margins are “notoriously thin to begin with,” according to Food Logistics, which said the industry is particularly vulnerable to these impacts.

Tariff Time

Tariffs keep changing faster than the number on a roulette wheel, adding volatility and making it hard to predict or factor in costs, as margins take hits — or recover. How do you plan around what you can’t predict? President Trump recently signed executive orders imposing tariffs between 10% and 41%, including 25% on Mexico, 39% on Switzerland, and 20% on Taiwan — actually down from 32%.

The European Union and Japan faced 15% tariffs. The Food Institute notes that these increase “input costs at every stage,” including raw ingredients, packaging, transportation, and labor. The Food Institute gives simple advice. “Watch your margins,” the Institute indicates.

Wise words indeed, but that means carefully monitoring costs and sources all along the way. Efficiency matters even more during tough times. Companies may be able to shift sourcing, save money, or otherwise compensate. But margins go far beyond products.

While product prices go up, packaging is getting hit hard, especially for F&B companies using aluminum. Campbell’s and Hormel were hit hard when aluminum prices rose due to tariffs. Coca-Cola, the Institute said, moved more beverages from cans to plastic and used less metal. So tariffs are not only impacting packaging costs, but packaging itself.

The Uncertainty Factor

Tariffs make planning tougher, potentially impacting deals. So the effects are not just financial, but structural. The Food Institute, for instance, found that tariffs are making business leaders “hesitant to act,” due to uncertainty.

According to the Institute, many executives are “pumping the brakes a bit, taking a wait-and-see approach.” Short-term uncertainty can impact longer-term decisions. Be prepared, so you can react more rapidly. Agility becomes not just a virtue but a necessity amid volatility.

Taking Stock

Tariffs aren’t only impacting costs and sales, but also stock prices. Salt Lake City, Utah-based grill maker Traeger primarily imports from China and Vietnam, both of which were hit hard by margins. The company reported a recent $7.4 million quarterly loss, up from $2.6 million a year ago, with tarifflation taking its toll as part of that. “Our second quarter results reflect tariff related dynamics,” CEO Jeremy Andrus said.

While sales and income took hits, the stock dropped 20% in early August, as tariffs impacted earnings. The company said it would take measures to seek to compensate for millions in tariff exposure. Companies seek strategies to compensate for, if they can’t simply pass on, all costs.

Bringing It On Home

One way to beat tariffs is to manufacture in the United States, which is what tariffs are designed to encourage. According to Manufacturing Dive, Kraft Heinz is investing $3 billion in expanding U.S. manufacturing. The site called it “the largest investment in its plants in decades.” That, of course, will take time and cost. And who knows what tariffs will look like in a month, a year, or two years?

Technology can be the best way to battle tarifflation, along with price hikes, or possibly smaller portions. It’s possible to increase efficiency, to partly compensate for increased tariffs. The Food Institute suggested using analytical tools, AI, and predictive technology. “Build a strong data foundation that keeps all parties informed,” the Institute suggested. The more you know about the costs, the easier it is to adapt.

Winners

There are likely winners to tariff troubles, which can push up costs, even if many brands have to battle it out with suppliers and balance the risk of raised prices with consumers against the margin risk. But a big winner may be private label, which is already going strong. Private label has “made big gains in recent years,” in 2024, reaching a record 22.9% of total unit volume and 20.4% in sales, according to Food Logistics. Tariffs could put more fuel in the private label rocket.

“Industry leaders feel private-label products could benefit,” according to the Food Institute.

Mitigating Factors

Companies can do many things to protect margins amid protectionist measures whether they hike prices or otherwise seek savings. They can set up supply chains to nations with lower tariffs, manufacture in the United States, figure out ways to get others, if possible, to not pass on tariffs due to temporary cost increases, or simply pass on costs. Technology can be a powerful tariff weapon.

Software can identify “potential disruptions early on, so brands can pivot and explore alternative vendors or sourcing options,” according to Food Logistics. It’s always a good time to have a good window into your business. Tariffs are just another reason that tech can help. So tariffs and tarifflation can cause trouble. But companies that adapt can find ways to save and grow stronger, even as we all wait to see whether tariffs will diminish and what the new normal will be.