Archives for October 2018

Tariffs are meant to protect American businesses, but tariffs can force businesses and consumers to pay more for imported products. Industries affected by tariffs can respond by absorbing the extra cost, increasing prices or even moving production to other countries.

It started with a 25% tariff on imported steel and 10% on aluminum from China. As a result, U.S. industry leaders say consumers could face higher costs for cars and trucks, beer and soft drinks, canned goods and more.

“Make no mistake, this is a tax on American families,” said Matthew Shay, the President and CEO of the National Retail Federation.

But how big will the impact really be?

It depends on how far it escalates. So far, the Trump administration has focused on raw materials and components. Beer makers said their cans will cost more to make. Car companies said their expenses for manufacturing vehicles will increase. But even these costs will not be felt until next year when raw material inventories begin to be replenished.

In fact, some food product prices such as soybeans will likely decrease for American consumers. Sales of soybeans have slowed since China retaliated with taxes on soybeans, pork and electric cars. Excess supply will lower food prices in some categories. U.S. fruit and nut farmers could also suffer, but President Trump has proposed $12 billion in aid to help American farmers.

Full scale trade war?

Much depends on what happens next. President Trump has threatened to increase the scope of tariffs to $450 billion if China indeed retaliates against his 25% tariff.

Currently only about 1% of targeted tariff items are consumer products thanks in part to lobbying by companies such as Best Buy. But if the trade war with China grows, it could impact categories both consumers and retailers will notice. Mobile phones, TV’s and computers represent some of the largest categories of consumer products imported from China. More than 41 percent of clothes and 72 percent of shoes sold domestically are also made in China.

Plus, the trade war could intensify with other trading partners such as Mexico, Canada and the EU. Mexico and Canada account for almost half of U.S. steel imports.

“The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help,” according to the National Retail Federation’s Shay.

The U.S. Chamber of Commerce has also spoken out against the tariffs, saying the escalating global trade war will hurt American consumers in the long run.

Stay tuned.

Remember the excitement when Amazon acquired Whole Foods a year ago? There were huge expectations. So what’s happened so far?

First, to understand where Whole Foods is today, we need to remember that Whole Foods had been struggling before Amazon bought the company. In fact, Whole Foods had suffered two straight years of declines in same store sales as customers began to find lower priced organic and natural food products at traditional grocery stores.

Wasn’t Amazon going to slash prices at Whole Foods?

Many signature items have decreased and additional discounts are given to Prime members, but matching traditional grocery store prices will continue to be a major challenge. U.S. grocery giants Walmart, Kroger and Target have been waging fierce price battles that have only intensified with the low-price leader Aldi expanding and the arrival of their German counterpart Lidl.

Analyst Joseph Feldman, who closely follows Amazon was somewhat surprised, “I would have thought they would have lowered prices more broadly at Whole Foods. I don’t feel like they just went across the board and took prices down 20%.”

As Amazon streamlines Whole Foods operations, there will be more room to lower prices. It has already begun to centralize purchasing for its suppliers which will make it easier for new products to grow faster — although small brands may be more challenged to gain a foothold.

Traffic is up, but only slightly.

Customer traffic at Whole Foods is up 2.4% for the first half of the year. That may not seem like a lot, but for a chain that was losing customers, stopping the bleeding is a big first step. However, sales have been sluggish as customers are spending less, according to a report from Second Measure. Lower sales per customer could mean many of these new shoppers are first time tryers and not the return of regular customers lost over the past two years.

Amazon is adding Amazon Lockers to many Whole Food locations, which could drive more store visits. Customers will also find kiosks displaying Amazon gadgets such as Echo, which may trigger more impulse sales than actually drive traffic into the store.

What about online?

Surely Amazon will lead the way for online grocery shopping. The problem is that less than 4% of groceries are bought online. Consumers are slow to change their grocery buying habits due in large part to a reluctance of having someone else choose their fresh meat and produce. Whole Foods should have an edge here as their customers may have more confidence they can get consistent quality in these categories.

Another hurdle for all online grocers is the added cost of delivery which will always be a problem with the razor thin profit margin for food products.

One solution is curbside pickup known as “click and collect,” where customers order online and it’s ready for pickup when they arrive at the store. But Walmart and Kroger have a huge advantage with store pickup—far more store locations. Walmart has more than 5,000 stores nationwide, while Kroger has over 2,500 supermarkets. Whole Foods has 464 stores in the U.S.

Stay tuned.