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The U.S. restaurant industry is bracing for a massive financial hit as a result of the new round of Trump tariffs set to take effect on March 4.
The National Restaurant Association (NRA) has warned that a proposed 25% tax on food and beverage imports from Mexico and Canada could cost the sector up to $12 billion. With already narrow profit margins, the industry fears that higher menu prices and supply chain disruptions will make dining out more expensive for consumers.
“A tariff of this magnitude would send costs soaring across the industry,” David Warrick, former head of global supply chain at Microsoft (MSFT-0.88%), told Quartz in an interview. “This ultimately means higher consumer prices.”
Warrick, now EVP at Overhaul, a supply chain risk management company, explains that restaurants will likely have no choice but to raise prices to offset ingredient costs.
The proposed tariffs could also disrupt supply chains, particularly for restaurants that rely on imports from Mexico. According to Warrick, this could lead to shortages of key ingredients, forcing restaurants to seek alternative suppliers – often at higher prices.
“Any disruption will create ripple effects across the supply chain, complicating day-to-day operations,” he added.
Smaller restaurants, which have limited buying power, are particularly vulnerable, Warrick said. Without the purchasing scale of larger chains, they may struggle to secure locally sourced ingredients in a more constrained market. This could lead to reduced menu options or price hikes. For example, Domino’s has already hinted at higher prices, partly due to the cost of cheese.
“Tariffs could mean financial hardship, or even closure,” Warrick warned.
Recent data from the U.S. Labor Department Consumer Price Index (CPI) shows food-at-home prices rose 0.5% in January, while food-away-from-home prices increased 0.2%. With food costs rising and ingredient shortages likely, Americans could cut back on dining out, especially as price increases become more noticeable. If restaurants are forced to reduce menu variety or quality, customer satisfaction could decline, impacting foot traffic.
Warrick suggests that some restaurants may turn to locally sourced or farm-to-table models to absorb costs. However, these strategies may still face financial challenges. Ultimately, he believes restaurants will need to focus on providing “exceptional service and unique dining experiences” to retain customer loyalty despite higher prices.