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posted: 6/9/2019 6:20 AM

America’s lunch bill could go up $875M thanks to global trade war

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  • An employee adds sour cream to a burrito bowl at a Chipotle Mexican Grill Inc. restaurant. Chipotle estimates the Mexico tariffs, if enacted, could cost them $15 million this year.

    An employee adds sour cream to a burrito bowl at a Chipotle Mexican Grill Inc. restaurant. Chipotle estimates the Mexico tariffs, if enacted, could cost them $15 million this year.
    Bloomberg photo by Luke Sharrett.

 
 

The growing threat of an all-out global trade war means Americans may have to fork out more cash at lunchtime.

Firehouse Subs will likely bump sandwich prices by 10 cents because of tariffs on to-go packaging it gets from China. The cost is amplified by the fact that about 60% of the company's orders are for takeout or delivery, according to Don Fox, chief executive officer of the 1,100-store chain.

"It's a critical item for us," Fox said in an interview. "It might not seem like a lot, but it adds up in a hurry."

Across the industry, tariffs are causing another headache for chains already grappling with higher wages, a dearth of workers and pork prices inflated by an outbreak of African swine fever. Imminent levies on staple imports like avocados and tomatoes, part of the Trump administration's pledge to punish Mexico for immigration, may add up to $875 million for those two products alone, according to an estimate from A.T. Kearney. This will likely be passed along to consumers in the form of price increases.

Like Firehouse, Chipotle Mexican Grill Inc. uses sugar-cane pulp known as bagasse for its burrito bowls and kids' meals packaging. China is an important supplier of the material, but the tariffs forced the 2,500-store company to diversify its supply chain earlier this year to reduce costs. It's now also getting bagasse from Taiwan and is looking at other Asian nations as well for supplies.

Tomatoes and avocados are a tougher nut to crack, however. Mexico's geographic proximity and longer growing season has made it a key U.S. supplier for these products. Mexican-grown avocados made up 78% of the U.S. market last year, Hass Avocado Board data show. The U.S.'s southern neighbor also exports significant quantities of cucumbers, berries, peppers, coffee, beef and other food.

Chipotle estimates the Mexico tariffs, if enacted, could cost them $15 million this year. The burrito chain would consider bumping menu prices by "about a nickel on a burrito," according to a statement from Chief Financial Officer Jack Hartung.

Higher prices could also be on the menu at chains like Subway Restaurants, which get vegetables from Mastronardi Produce, a Canadian greenhouse grower with facilities in Mexico that produce tomatoes, peppers and cucumbers.

"Everyone will end up passing on the tariffs," said Paul Mastronardi, president of the Kingsville, Ontario-based company, which also grows berries indoors. Tariffs on strawberries and other berries imported from Mexico would add up to about $493 million, the A.T. Kearney data show.

Wendy's, which also buys produce from Mastronardi, said the levies won't have a "substantial impact" on its purchasing, according to spokeswoman Heidi Schauer. Subway didn't immediately respond to a request for comment.

Jacksonville, Florida-based Firehouse Subs, which is mostly franchised, gets tomatoes and lettuce from Mexico, depending upon the time of year. It will be hard to find alternatives and it has no choice but to keep ordering the items, since they are scattered across the menu.

Firehouse also predicts pork prices will climb as much as a 25% later this summer due to the fever that's killing hogs in China, along with jumps in chicken and beef costs, Fox said.

"There's various debate and discussion about who really pays the cost of the tariffs," Fox said. "Let's face it, in the end it's the consumer."