THE HUMBLE TOMATO has become a high-profile emblem of the tariffs controversy, and grocers are faced with delivering dual bad news to shoppers: Prices are likely to rise; quality and availability could suffer.
With the announced imposition by the White House of a 17 percent tariff on Mexican tomato imports beginning July 14, the food industry was thrust further into pricing and operational uncertainty. Tomatoes have been the stars of recent media attention, but the broader issue of tariffs on food imports presents a complex set of challenges for retailers, growers, distributors and packaged food manufacturers.
Politics aside, sweeping food import levies would create a cascade of market effects. Price increases may be expected to depress demand. Transportation from southern border ports of entry would decrease proportionately. Domestically-farmed substitutes, such as those in Florida and California, may travel greater distances to the points of consumption and remain in cold storage for longer periods. The demand for seasonal farm workers could rise. Dependent manufacturing sectors, like the $7 billion U.S. frozen pizza industry, may need to absorb or pass along increased ingredient costs.
That’s just tomatoes. Thanks to its favorable soil, climate and proximity, Mexico has also become an important supplier of avocados, bell peppers, eggplant, spring table grapes and citrus fruits to American consumers, a circumstance initially made possible by the favorable rules of the 1994 NAFTA agreement, later superseded by the 2018 United States-Mexico-Canada Agreement (USMCA).
In 2024, the U.S. imported $11 billion worth of fresh fruits, nuts, citrus and melons, and another $10B in edible vegetables from Mexico. Tomatoes accounted for $3.12 billion of that total, representing roughly 70% of the total fresh tomato imports and highlighting American dependence on fresh imports. Americans alone consume 93% of Mexico’s tomato exports, according to the USDA, and adding a tariff surcharge to an American staple is expected to drive down volume, according to Farmers’ Advance.
How tariffs challenge expectations
With the consistent importation of these commodities, from Mexico and other countries, American consumers
have become accustomed to year-round access to foods that previous generations could only obtain fresh in-season, frozen or canned. Top food retailers have built abundant presentations of fresh produce such as berries, grapes, melons, avocados, cut flowers—and yes, vine-ripened tomatoes—into signature elements of their positioning.
Tomatoes are just one example attracting media attention of late, as a result of the series of tariff announcements issued by the White House. Other potentially affected food imports include: avocados, bell peppers and spring table grapes from Mexico, farmed seafood from Southeast Asia, bananas from Latin America, cane sugar, coffee, and cocoa. And there are more tariffs or changes announced every day, posing a challenge to retailers to competitively price products.
“One of the biggest challenges is to manage the prices that live in the marketplace,” said Melina Martelli, Commercial Design Manager at IMS Company, which handles the design, development and manufacturing displays for fresh and prepared foods. “If you’re not strategic and coordinated with retailers, your perception breaks down.”
There’s very little roadmap for this situation, and in the case of some agricultural commodities, few alternative
sources. Cocoa cannot be grown on U.S. soil due to climate. The world’s largest cocoa producer, Ivory Coast, faces a 15% tariff, and recently announced it would increase the producer price of its cocoa by 62% in response. Ghana, another cocoa exporter, faces a 10% tariff on cocoa imports into the U.S.
This sets up a scenario where a company like Cadbury, for example, might choose to import cocoa from West Africa to its factories in Europe, manufacture chocolates and then ship them to U.S. markets at a lower net landed cost than it would face by importing raw cocoa to owned factories in the U.S.
But since retail selling prices of food products can be influenced by commodity markets, the retail price of those chocolates might still increase for the consumer.
It will be important to consider the impact on the areas outside of produce and baking products, including packaged grocery products and fresh meats, as well. For example, beef from Brazil and farm-raised seafood from Southeast Asia are threatened by tariff-induced price increases. Cocoa and sugar, in particular, affect the producer costs for a host of packaged food products. Tomatoes are important as an ingredient, too. Higher costs may be expected to translate into increased prices for sauces and salsas, not to mention the enormous frozen pizza category.
Some observers say price pressures may further a shift to private label alternatives. Store brand dollar sales in all outlets increased 4x that of national brands in 2024 by 3.9%, compared to a gain of only 1% for their branded counterparts, the Private Label Manufacturers Association says.
Worried outlook for retailers and shoppers
Food retailers are concerned that their fresh product strategies and other business norms could soon come under increased pressure. In its annual The Food Retailing Industry Speaks report for 2025, just released, FMI—The Food Industry Association concludes that 81 percent of retailers report “Trade and tariffs will impact pricing and supply chains” as their top concern. “Trade and tariffs will have a negative impact on my business” was cited by 59 percent of retailers.
These findings are reinforced in a KPMG survey of 300 business executives, released in June, in which 57 percent of respondents, across multiple industries, reported that tariffs have had a negative impact on gross margin. More than 80 percent indicated they expect to raise prices in the next six months.
“Retailers need tools that allow them to flex between local and global supply, depending on shifting costs
and availability,” said Rodrigo Dellaqua, Co-Founder and EVP of Grocery, Food, and Beverage at VTEX, highlighting the importance of technology that allows retailers to analyze shopping trends and tariff impacts on a granular level, “Technology should make sourcing decisions more transparent and less reactive.”
Shoppers are worried too, based on relentless news reports and the evidence they already see in their weekly food baskets. Although food inflation has been on the rise for years, it’s only as household budgets tighten that consumers are truly beginning to feel its effects.
From 2020 to 2024, the all-food Consumer Price Index (CPI) rose by 23.6 percent. New tariffs may feel like an added injury, especially for households that have dug deep to maintain healthy food habits for their families.
News reports about “price pack architecture” by manufacturers aiming to deliver their packaged food products at targeted price points may serve to deepen the cynicism of American shoppers, who often equate these practices with “shrinkflation”. Retailers have limited control over the number of ounces in a jar of tomato sauce or the count of cookies in a box. Yet they have the unenviable role of being the deliverer of the news when prices stay stable but unit value decreases.
“A significant 61% of U.S. supermarket shoppers report feeling stressed about rising grocery prices,” according to the Supermarket Shoppers: Rising Prices, Inflation, and Tariffs consumer study released by The Feedback Group this year.
The study found that 95% of shoppers were already aware of proposed tariffs before being surveyed. Among tariff-aware shoppers, many expressed concern that tariffs would impact their grocery bills, with nearly half (47%) saying they were “very concerned.” A majority (83%) expect tariffs to increase prices—49% believe prices will rise significantly, and 34% somewhat.
“Shoppers gave supermarkets relatively low ratings for being on their side when it comes to inflation (3.34 on a scale of 1 to 5), explaining price increases (2.97), and discussing tariff impacts (2.46),” wrote study authors Brian Numainville and Doug Madenberg. As a result, shoppers continue to significantly overestimate supermarket profits, believing them to be, on average, at 30% when the reality is net profit margins actually register in the 1–3% range.”
How should retailers respond? Six “Least-Worst” options:
While we have seen reports of tough negotiation with foreign suppliers by Walmart, Kroger and a handful of other large chains, the truth is even retail giants have very limited leverage over tariff-driven cost increases on food imports. At best, retailers may find ways to “split the difference” with suppliers, to try to keep shelf prices from rising too much.
For everyone who offers imported fresh food, the response comes down to a “least-worst” decision process. There are options, but they all come with tough consequences:
- PASS COSTS THROUGH – Simply pass added food import costs to shoppers as they occur. This might preserve retail gross margins, but shoppers will quickly spot the differences on the shelf and in their baskets. This is especially true for the known-value items (KVIs) that they purchase regularly and drive trips to the store. Consumer economics tells us that as item prices increase, unit volume will decrease. This effect may not be linear in nature, but the eventual result would likely include a lowering of GMROII (gross margin return on inventory investment) for those items, along with less-happy shoppers.
- BITE THE BULLET – Absorb all or part of the tariff costs to hold the line for shoppers. This may be an “heroic” approach, and it makes a statement to shoppers, but it can’t last for long. Simple math tells us that retailers can’t absorb a 17 percent tariff on an item that only nets them an average of 2 percent profit.
- OPTIMIZE SELLING PRICES – Employ pricing technology, including price optimization driven by machine intelligence, to identify items within the total store assortment where lost margins can be offset with price increases that shoppers can accept. This is already common practice among many retailers, but it could become even more relevant as tariffs take hold. Personalized offers, funded in part by trade promotion dollars and delivered via retail loyalty apps, can help send a value message too. Shoppers don’t take kindly to manipulation, however, and they catch on quickly.
- OFFER ALTERNATIVES – If certain popular imported items become prohibitive due to external circumstances, including tariffs, retailers could leverage their sourcing expertise to seek out acceptable substitutes for their loyal shoppers. That may include alternative or private brands in some instances, or products from countries with lower net landed costs. If one variety of farmed seafood is subject to a punitive tariff, for example, the retailer might consider featuring another species from another ocean that offers a better protein value. Shoppers won’t change their preferences easily, but a sharp price is a good incentive to try something new.
- GET LOCAL – A large percentage of retailers (84%) used local assortments of produce throughout the store as a key product differentiation strategy in 2024. This approach was among the most highly effective differentiation strategies for retailers (73% successful), according to FMI SPEAKS 2024. As New York Times columnist William Alexander advocates, moving tomato production much closer to the points of consumption may be a solution: “Grown hydroponically using a fraction of the water and pesticides of field tomatoes, tomatoes nurtured in greenhouses near major population centers can be picked vine-ripened and placed on supermarket shelves in days instead of weeks.”
- STRENGTHEN COMMUNICATIONS – Retailers can choose to adopt radical transparency about the reasons why prices are rising. Blaming politics may not be wise as a lead message but letting shoppers know that some items are affected by current tariffs is at least truthful. A “We’re on your side” positioning could help shoppers to understand that their trusted retailer is not taking unfair advantage. They might even believe a promise to normalize store prices when tariffs decline. Should that occur, react promptly and pass along the full reductions to shoppers – and tell them about it.
This article originally appeared in the 2025 Grocery Trends Report from RETHINK Retail. Reproduced here by permission.
Read more about produce imports from Mexico on Tenser’s Tirades: