Supply Chain Challenges: When Trade Policies Change Faster Than the Weather
“What should I do now?” That’s the question that people in our industry are asking at a furious pace as news of new trade policies, tariffs and agreements come almost daily – and sometimes more often than that.
The tricky bit is to come up with an answer for navigating rapidly changing supply chain challenges that works no matter what the latest announcement is. That’s because by the time you read this, something will have changed.
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That’s the nature of writing about trade policy since just after Jan. 6. Tariffs are telegraphed and delayed, suddenly announced or adjusted, exemptions are given for some products – you get the gist. Deals are struck, details may follow at some point, and until then, much will remain hanging in the balance. Shipments are delayed to wait out the latest circumstances, and supply chains are slowed. Orders placed aren’t fulfilled or prices are renegotiated. Or suddenly you or a supplier are stockpiling some import ahead of the next announcement, and monthly or quarterly financials are blown up.
What to Know
Changes are happening faster than our businesses can decide how to adjust. But beyond whatever’s in today’s headlines, for better or for worse, there are a few more enduring things that we do know:
- Tariffs are now a part of the business environment. There are many reasons that the Trump administration favors them, and one is to create a new revenue stream for the government. We can count on them staying in some form and driving prices up.
- Policy making and policy announcements are occurring more frequently and much faster than new business deals can be made, suppliers set up or category plans revised.
- China is our largest trading partner and is getting “special attention.”
- One of the intended benefits of tariffs – at least a century or so ago before global trade blossomed – is to boost domestic consumption.
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Overall, with higher prices, revenue may hold stable, but velocity will decline. Maybe Liberation Day means that this Independence Day, Americans can get by with just two cans of beer instead of a 24-pack, or two hot dogs instead of a whole pack, and pay just about the same price.
How to Act
With change being the constant, along with tariffs of some kind or another, there are some reasonable expectations for both grocery stores and our main suppliers that we can anticipate, and actions that make sense regardless of the twists and turns in trade policy:
Expect Lower Costs in the Bakery Section: The United States produces much more wheat than we consume domestically. Reduced exports mean lower wheat prices and higher supplies. That, coupled with the United States’ decision to end economic barriers to trade with Russia — historically the world’s largest wheat exporter — over its invasion of Ukraine, means that global supplies will rise as well, so wheat prices are headed down.
Take Action: Now is the time to shift promotions to in-store bakery; expand the selection of savory “meals” like calzones, filled buns, rolls and other pastries; and get your customers used to getting more of their meals here.
Anticipate Meat and Poultry Prices Not to Go Up and Maybe to Come Down: Similarly, the United States had previously been a favored exporter for corn and soy for animal feed globally. Reciprocal tariffs will mean that more will be available domestically, and at lower prices. Avian flu and drought, which affect hay for cattle, may offset savings, but at least there’s some good news about lower meat and poultry prices.
Take Action: Work with your suppliers to make sure you’re sharing in their savings on feed.
Rethink Packaging: We rely on imports for all sorts of things, but one without any immediate substitutes is custom packaging, which can take a while to create. So expect fewer new brand launches, occasional shortages of some SKUs due to packaging rather than ingredient disruptions, and a bit more paper and carboard.
Take Action: Be flexible with your suppliers, help them shift to the environmentally friendly packaging that consumers say they want, and put more labor into keeping shelves looking full when specific SKUs aren’t available.
Load Up on Snacks: The same export dynamics for wheat also may affect corn and potatoes, of which the United States has historically been a large exporter to Mexico and Canada. Prices should hold steady for chips and pretzels, and one place for expanded offerings includes private label.
Take Action: Focus promotions on the snack aisle, including working to expand your private label offerings for potato chips, pretzels and related snacks.
Lean Into American Flavors: Both for fresh product and when suppliers or private label decide on new flavors, American crops are suddenly more attractive, at least when they’re in season.
Take Action: Consider going back to what’s tried and true – think citrus, berries, apples and pears not only as seasonal produce features, but also in CPGs as new product flavors.
Those are the coping mechanisms. In general, prices will be a bit higher, and that will hit pretty soon. In response, imports may slow down. That’s what tariffs do. While there are a few bright spots for shifting sales to bakery and chips, and a look ahead to more new products with traditional American flavors, the biggest challenge over the coming months will be to keep the center of the store interesting as packaging becomes decidedly less so. That’s partly a stocking challenge but also may speed the decline of a colorful center of the store.
Such is the nature of a volatile global trade environment, whether one of our own making or caused by a global health pandemic, Mother Nature or other forces beyond our control. The key is flexibility and being able to pivot.
