Navigating Tariffs: How Grocery Retailers Can Adapt and Thrive in a Changing Trade Landscape

04/21/2025 9 MIN READ

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Food and beverage production is a massive industry across North America. In the U.S., more than 15% of manufacturing workers are employed by food brands—a sector that drives about 16.8% of all manufacturing sales, according to the USDA in 2024. Similarly, in Canada, the food and beverage industry is the largest manufacturing sector, contributing approximately $167.8 billion to the country’s GDP.

One of the fastest-growing segments in this industry is private label food goods, which provide strong value for consumers while allowing retailers to differentiate themselves. Industry estimates predict private label sales will grow by USD 204.6 Billion from 2024-2029, while Canadian private label sales are also rising steadily, driven by increasing consumer demand for affordable alternatives to national brands.

However, recent shifts in trade policies are poised to impact private label food manufacturing significantly. With the Trump administration’s imposition of tariffs on imports from Mexico and Canada, American grocery retailers and private label manufacturers must prepare for rising costs and potential supply chain disruptions. Meanwhile, Canadian grocery retailers face retaliatory tariffs on American imports, adding complexity to an already challenging landscape.

For private label manufacturers, these tariffs present both risks and opportunities. Unlike national brands with greater financial flexibility, private label producers often operate on leaner margins, making sudden cost increases a significant challenge.

Passing costs to consumers: Price increases risk reducing the value perception of private label goods.
Absorbing costs: This approach could strain profitability for retailers and manufacturers alike.
Implementing “shrinkflation”: Reducing package sizes while maintaining price points is a potential solution but carries the risk of consumer backlash.
Reformulating products: Finding domestic ingredient alternatives could help maintain costs but might impact quality.

Interestingly, this disruption may create unexpected advantages. If national brands implement substantial price increases, private labels that manage to maintain competitive pricing may capture greater market share.

Strengthening Supply Chains for Resilience

Tariffs expose vulnerabilities in existing supply chains, many of which prioritize efficiency over resilience. Private label manufacturers in both the U.S. and Canada must reconsider their sourcing strategies:

Diversifying suppliers: Relying on a single country for key ingredients may no longer be viable.
Exploring nearshoring options: Moving production closer to key markets in North America could mitigate risks.
Building buffer stock: Stockpiling critical ingredients, where feasible, could reduce short-term disruptions.

Some manufacturers are already seeking alternative suppliers in Latin America, Europe, or domestic markets to create supply chain flexibility.

Consumer Behavior Shifts: A New Opportunity for Private Label

Economic pressures typically push consumers toward private label products, and tariffs could accelerate this trend. A recent McKinsey study found that 45% of U.S. consumers have increased their private label purchases due to inflation, while Canadian shoppers are similarly gravitating toward store brands.

Retailers can capitalize on this shift by:

Promoting domestically sourced products: “Made in the USA” or “Product of Canada” labeling could boost consumer confidence.
Expanding private label tiers: Introducing budget-friendly and premium private label options provides consumers with choice.
Positioning store brands as an inflation hedge: Reinforcing the value of private labels amid rising national brand prices.

Strategic Approaches for Private Label Success

Private label brands in both Canada and the U.S. can navigate these challenges with proactive strategies:

Ingredient optimization: Reformulating recipes with domestic alternatives.
Long-term supplier contracts: Locking in prices where possible to avoid fluctuations.
Innovative packaging solutions: Reducing reliance on tariff-affected materials.

For example, a private label manufacturer of canned vegetables might partner with local farmers to increase local production, reducing dependency on imports.

Strengthening Retailer-Manufacturer Partnerships

Collaboration between grocery retailers and private label manufacturers is more important than ever. Key strategies include:

Transparent cost-sharing agreements: Ensuring fair distribution of tariff-related expenses.
Joint product development: Creating cost-effective alternatives that maintain quality.
Agile response planning: Preparing for future trade policy shifts proactively.

Technology as a Competitive Advantage

Technology will play a crucial role in helping private label manufacturers and retailers manage complexity. A modern product lifecycle management (PLM) solution improves visibility, agility and coordination across the entire product development and supply chain process with:

1. Enhanced Visibility into Ingredient Sourcing: PLM platforms centralize data on suppliers, ingredients, and sourcing regions. When a tariff hits a particular country or product:

Developers can quickly identify which recipes or SKUs are affected.
Alternative suppliers or ingredients can be evaluated based on preloaded specs, costs, and compliance data.

2. Faster Reformulation and Costing: Tariff increases can make certain ingredients prohibitively expensive. PLM helps by:

Allowing side-by-side comparisons of formulations.
Integrating cost modeling tools to simulate the impact of ingredient swaps.
Automating allergen, nutritional, and regulatory recalculations as new ingredients are tested.

3. Streamlines Collaboration: Tariffs often require quick decisions involving multiple departments (R&D, procurement, regulatory, finance). PLM:

Keeps all stakeholders aligned in a shared platform.
Tracks discussions, approvals, and change logs in real time.
Shortens reformulation cycles by reducing back-and-forth emails or spreadsheet confusion.

4. Compliance and Documentation Readiness: Changing suppliers or formulations often requires updated documentation:

PLM stores labeling templates, spec sheets, and audit trails.
Automatically updates compliance documents with changes, ensuring food safety and import/export readiness.

5. Scenario Planning & Risk Management: PLM offers simulation or forecasting tools:

Developers can model the financial and operational impact of different tariff scenarios.
Helps teams proactively prepare alternate formulations before a tariff hits.

Conclusion: Embracing Agility in an Era of Change

The private label food sector stands at a crossroads. While tariffs and inflation present serious challenges, they also offer opportunities for companies that are willing to innovate.

The most successful private label manufacturers and grocery retailers will:

Build flexibility into their supply chains.
Leverage technology for better decision-making.
Strengthen relationships between retailers and manufacturers.
Adapt their product portfolios to shifting consumer preferences.
Invest in long-term resilience rather than short-term fixes.

For North American grocery retailers looking to enhance agility in private label operations, technology is an essential enabler. Centric PLM™ provides the digital foundation needed to navigate tariff-related disruptions, from scenario modeling and supplier management to reformulation and cost optimization. With the right tools, grocery retailers can turn economic challenges into long-term competitive advantages.

Discover how Centric Software can build the agility needed to thrive amidst tariff challenges.