Tariffs. As a small business owner, the looming threat of cost increases from tariffs is impossible to ignore — especially for grocery stores that source many of their products internationally.
While bigger chains can absorb the rising costs resulting from tariffs, many small grocery owners feel powerless — forced to raise their prices and potentially drive their customers into the hands of the big guys.
When tariffs hit, some price raises are inevitable, but that doesn’t mean there’s nothing you can do.
We’ve taken a deep dive into grocery store tariffs to help you understand how they work, how they affect prices, and some top strategies to raise prices without sacrificing your customer base.
Let’s dive in.
What Is a Tariff and How Does It Affect Grocery Store Pricing?
Tariffs are a major news story, but many news outlets don’t take the time to fully explain what a tariff is and how it works.
Put simply, a tariff is a form of import tax put on foreign goods that is paid by the importer (e.g. a food supplier or wholesaler), not the exporting country. The goal of a tariff is to protect domestic industries and act as a lever for trade negotiation, but they typically raise prices in the short term (and sometimes for months or years later).
Because many food items sold in grocery stores are a combination of different ingredients from various locations around the world, this can make specific price increases hard to predict.
While many larger grocery chains are profitable enough to eat the cost of tariffs (at least temporarily), that generally isn’t the case for small, family grocery stores and food markets.
Instead, independent grocery stores have to take a more strategic approach to pricing and communication to stay competitive without putting off their customers and sending them towards their competitors.
Practical Examples of How Tariffs Impact Grocery Stores
Many avocados are imported from Mexico, which currently faces 15% tariffs.
Let’s illustrate the impact of tariffs on pricing and grocery store profit margins with a basic example:
A grocery store buys Mexican avocados from a supplier for 85 cents per avocado. The store then sells those avocados at a 70% markup for $1.45 apiece. This nets them a profit of 60 cents per sale (or just over a 40% profit margin).
Now, Mexican avocados are subject to a 15% tariff, and the supplier passes that cost onto the grocery store. The grocery store buys the same avocados for 98 cents apiece wholesale. Assuming the store doesn’t raise its prices and continues to sell them at $1.45, they’re now earning only a 47 cent profit on every sale (or a 32% profit margin).
To earn the same 40% profit margin they were earning before, the store would have to charge its customers nearly $1.70 per avocado (an increase of 17%).
While the price of a single avocado might not seem like much, the increased cost of goods throughout the store can slowly eat into profit margins and affect cash flow unless a grocery store eventually raises its prices — an unpopular move with customers unless it’s done carefully.
Related Read: 7 Tips for Managing Your Grocery Store Operating Costs
Other Products That May Rise in Price
Here are a few more real-world products that could be affected by the tariffs in the coming months:
- Seafood, which is heavily supplied from China and Vietnam, faces tariffs of 10% and 20% respectively.
- Coffee prices were already rising, but now Brazil, a popular coffee exporter, has been hit with tariffs of 50%, threatening to drive prices of certain blends even higher.
- Much of the U.S.’ olive oil supply comes from the E.U. — at the time of writing, all products from the E.U. face a 15% tariff.
- Two common sources of nuts, Vietnam and Australia, both have imports taxed at 20% and 10% respectively.
As various trade deals are negotiated, deadlines extended, and exemptions made, it’s hard to predict exactly how prices will be affected in the short and long term.
At a minimum, maintain close contact with your suppliers to stay informed about upcoming pricing changes, so you can adjust your merchandise planning accordingly.
Tariffs and the Supermarket Supply Chain: Where Things Get Really Complicated
It’s easy to imagine how, for example, a tariff on fish caught in China and shipped to the U.S. might lead to price increases. However, tariffs can also affect the pricing of products made in the U.S.
Why? Tariffs have knock-on effects along the supermarket supply chain, from the prices of packaging and specific ingredients to other, less direct factors like gas for shipping.
For example, a U.S.-based food company making canned soups might feel pressure to raise its prices because the tomatoes and onions they import for their soup bases, or the aluminum they use to make their cans, are now more expensive.
To make a long story short: The more processed a food item is, and the more steps of the supply chain it passes through, the more likely it is to be impacted by higher tariffs.
Grocery Store Tariffs: 7 Tips for Pricing and Product Strategy
The on again, off again nature of the current tariff situation can feel confusing and overwhelming — and trying to somehow get ahead of every change and update on tax policy is exhausting.
Let’s get one thing out of the way: Some price raises are inevitable when tariffs hit. There’s no advice we can give outside of jumping into a time machine to bring prices down to pre-pandemic and pre-tariff levels.
That doesn’t mean you’re powerless — and the most destructive thing you can do is to react to looming tariffs with blanket price hikes and panicked calls to suppliers.
By taking a more strategic approach to your pricing, marketing, and supplier strategies, you can weather the storm without sacrificing your business. Here are seven expert tips to help you adjust prices at your grocery store in a way that protects your bottom line and keeps your customers happy.
1. Keep Your KVI Prices as Low as Possible
With prices and cost of living on the rise, people are increasingly searching for a good deal. As a result, many customers are willing to look at multiple stores to find the lowest prices.
That said, when people perceive a store as “affordable” or “premium,” it’s not by looking at your entire catalogue of prices, but at the items they buy the most frequently. This small selection of products is called your key value items (KVIs) and represents the products your customers are most price-sensitive about.
Identifying your KVIs and focusing on keeping their prices more competitive helps paint your overall brand as more affordable to people shopping around for low prices.
To establish your stores' KVIs, look at things like:
- Your top-selling products on a given day or monthly basis
- Which product categories are more popular at your store
- The top sellers by department to spot items that may have a lower overall sales volume but are bought more frequently
- Which item or department discounts consistently perform well year-round
Once you create a list of KVIs, compare them with other nearby stores to try (within reason) to keep prices competitive. When looking at your competitors, make sure to account for price and quality. If your products are high quality, locally sourced, and slightly more expensive, some customers will still flock to you over the cheaper options.
KVIs usually consist of about only 15% of your store’s total stock. Typical KVIs for grocery stores include:
- Eggs
- Bread
- Milk
- Bananas
- Ground beef
- Cheese
If you find that your KVIs are high-quality and that lowering the price to match competitors would be too damaging to your cash flow, it might be a sign to lean into a different marketing strategy that positions your store as a more premium, high-end option for quality food.
2. Highlight Deals on Seasonal Produce
Customers are used to having access to certain produce and fresh foods year-round, but items that are out of season in the U.S. have to be imported, meaning they’re more likely to be subject to tariffs (and higher prices).
Arrange your produce displays and create signage that highlights your cheaper, seasonal produce. Try using bright colors to make U.S.-sourced and seasonal products stand out in store on your website, and use big lettering on products that are lower priced.
If you send out a newsletter or write a blog for your grocery store, consider adding a “seasonal highlights” section, full of fresh and low-priced items. Emphasizing in-season produce is another effective way to help customers perceive your brand as affordable.
Pair your more seasonal sales strategies with solid demand forecasting to ensure you remain well stocked.
Guiding customers towards fresher products is also a great strategy for boosting fresh produce sales, since many people want to eat more fresh fruits and vegetables, but just don’t know where to start.
3. Diversify Your Suppliers (and Think Local)
If anyone knows in detail how tariffs are affecting prices, it’s your suppliers. Evaluate the sales and profit margins from your various suppliers to negotiate pricing terms on high-volume and popular high-margin items.
However, when we say talk with your suppliers, we do mean multiple suppliers. Being overly reliant on a single supplier means you’ll have little choice but to eat the increased tariff costs. If you haven’t already, see if your supplier is open to adding a tariff adjustment clause to their contract to insulate yourself against sudden cost changes.
When negotiating with your suppliers, use your sales data to give an impartial view of customer demand. If you can show there’s a high demand for their products at your store, you’ll be in a better position to negotiate a more favorable rate.
Last, if you haven’t started already, connect with local farmers, food producers, and suppliers. This not only helps you build up resilience against tariff effects, but gives you opportunities to stock your shelves with more unique, local products that help your brand stand out.
4. Focus on Education and Transparent Signage
As a grocer, you know all about seasonality, changing prices, and what the best deals in your store are. Your customers, on the other hand, may feel a bit lost as to why their grocery bills are going up.
Sometimes, the best policy to bridge the gap between you and your customers is honest communication.
Educate customers through employee training, signage, and marketing communication like social media and SMS to build trust and help customers feel more confident shopping at your store.
When we talk about “educating” customers, we mean:
- Addressing the rising costs of tariffs and what you’re doing to try and keep costs down
- Highlighting particularly good deals
- Explaining the value of seasonal shopping and providing helpful shopping tips
- Giving people cooking tips, since learning to cook with fresh ingredients can offer significant cost savings
- Demonstrating your store’s value over cheaper competitors
The overall goal of educating customers isn’t to give excuses for rising prices, but to establish your brand as reliable and trustworthy.
Education can be fun, too! Partner with local restaurants to do cooking demonstrations with seasonal or cheaper ingredients that are available to buy in your store. Provide printed recipe cards or links to blog entries so attendees can refer back to them later.
At the end of the day, some price increases will be inevitable — but if you’re honest with your customers and do your best to provide solutions, they’re more likely to stick by you.
Related Read: 8 Grocery Store Ideas To Attract Customers & Drive Sales
5. Consider Investing in Private-Label Products
Another way to keep costs down (in the long term) is to create private-label products. These products are made exclusively for your store by partnering directly with a food manufacturer.
On a smaller scale, it means creating some alternative products (e.g. fresh pasta sauces, salsa) and packaging them in house.
Private-label items allow you to control costs more directly, and generally allow you to keep costs low while benefiting from higher profit margins. Of course, building a private-label brand doesn’t happen overnight, so gauge interest before investing too heavily in this strategy.
Instead of rolling out private-label products across all of your departments and product types, start with your most popular sellers — items you already know have a high demand.
6. Offer Product Bundles and Bulk Purchases
No matter how well you plan your inventory and connect with a diverse range of suppliers, some prices will go up because of tariffs.
Don’t panic! There are lots of tricks you can use to give your customers a good deal despite higher prices. One of those is bundling high-tariff items with cheaper complementary products to provide more value.
Use the analytics tools on your point of sale (POS) system to look at customers’ purchase histories to see which categories of items are commonly purchased together. This will help you come up with ideas based on what your customers are actually buying, as opposed to just a hunch.
You can also use buy one, get one (BOGO) deals to encourage customers to offset the higher costs of items with bulk purchases. If these deals remain popular and sales stay steady despite higher prices, it could be a good starting point to negotiate a more favorable minimum order quantity (MOQ) with your supplier.
7. Use Personalized Marketing To Highlight Low-Cost Alternatives
Sending customers relevant marketing offers instead of generalized discounts is always a good idea, but it’s also a useful way to combat the price fatigue of tariffs.
Use the contact information from your customer loyalty program to filter down to customers who bought certain product categories (e.g. dry goods, fresh fruit, ready meals, etc.) in the last 30 days. Then, if you see a particularly good deal in those categories, you can ping those customers to let them know about it.
This type of personalized marketing is extremely effective, and it creates the impression that you’re actively helping customers search for deals for foods they actually buy.
Tariffs for Grocery Stores: Stay on Your Feet With a Trusted POS System
Tariffs are creating a lot of uncertainty across the grocery industry, especially for small businesses — but by proactively helping customers navigate rising prices and finding ways to reduce costs, your grocery store can weather the storm.
When strategic moves are needed, having an unbiased view of store performance is essential. Grocery-specific tools like IT Retail are built specifically for small to mid-sized grocers, giving them affordable access to detailed reports, flexible marketing, and cloud-based systems for maximum flexibility.
Want to find a better way to navigate tariffs? Schedule a demo of IT Retail today to talk with one of our grocery store experts.
by Margaret Thacker
