Money Matters
Equipment manufacturers face additional “opportunity costs” in the current environment, says Charlie Souhrada, CFSP, vice president of regulatory & technical affairs at NAFEM.If the instability and unpredictability set in the first half of the year holds, this could be a tougher period than anticipated for many businesses. Indeed, even before the most extreme trade policy implications came into play; before the market hit the roller coaster; before the Federal Reserve said it would not immediately step in to lower interest rates, industry leaders were battening the hatches and refocusing on how to navigate their way through a period of slower growth.
“As for hot-button issues, the tariff situation, in particular, has created an absurd amount of churn, angst, concern and confusion,” notes Charlie Souhrada, CFSP, vice president of regulatory & technical affairs at the North American Association of Food Equipment Manufacturers (NAFEM). “Putting a big lien or tariff or duty on a certain product from a certain country could impact where the parts or components that go into equipment and supply items are coming from, and that requires manufacturers to redirect and try to be as flexible as possible. The experience of going through all of this during the pandemic helped our industry become better versed in the agility required to navigate these kinds of situations, which is good, but it doesn’t make it any less painful.”
Small businesses, in particular restaurant operators, dealers, and equipment manufacturers, are likely to struggle mightily amidst the churn. From the equipment perspective, Souhrada adds, “NAFEM has more than 600 member companies and, based on our size and shape study, we represent a $17 billion industry.
Half of our membership are small businesses that annually generate $5 million to $10 million in sales. They don’t have the resources to be as nimble or as resourceful or commanding as some of the larger companies. That challenges them to be creative and look for opportunities that may not be as apparent, which in turn draws them away from other business activities that may be higher value or have a greater positive impact on their business. Those opportunity costs are really high. They draw companies, large and small, away from things like research and development, and developing relationships with customers because they have to divert so many resources to chasing after supply-chain options and trying to understand and jump through all of these flaming tariff-related hoops.”
Equipment manufacturers face additional “opportunity costs” in the current environment, Souhrada adds. For example, the Trump administration’s aggressive approach to deregulation, particularly within the Department of Energy and the Environmental Protection Agency, has side effects that can ultimately add expenses.
“From a business standpoint, rolling back some of those regulations, which may not be technically feasible and/or economically justified, makes sense,” Souhrada says. “But the flip side is that as the federal government pulls back, sometimes the states step in with actions of their own to fill a perceived void. That creates another layer of challenges, where manufacturers have to stay on top of a slew of new state regulations that may or may not be similar to the federal ones. Again, that’s an opportunity cost and another economic impact in terms of resource allocation required to keep up with and meet the various requirements. We all understand that these are costs of doing business, and the impact both of tariffs and regulations depends on what your product is and where it or its components are coming from, but as they begin to accumulate, some of this becomes onerous and almost overwhelming.”
Ben Whitlock
State of Mind
Ben Whitlock
Co-Owner/President
Mobile, Ala.
If you’re not projecting a big growth year, you’ve got to figure out how you’re still going to add to the bottom line. The answer for us in 2025 is inventory. We have significant post-COVID inventory. Everybody was going crazy during the supply-chain shortages, buying truckloads of ovens and this and that. We tried to stay the course and didn’t really ramp up inventory, but we also didn’t move the inventory that we had. When interest rates were at 3% or 4%, you didn’t pay as much attention to interest expense, but with interest rates now at 7%, 8%, 9%, that line item on a P&L is massive and every piece of inventory we can move reduces that expense. We recently implemented centralized purchasing, which has directly impacted the amount of
inventory we’re carrying and increased our efficiency.
As for anticipated price increases from tariffs, we don’t know what to expect. It will likely vary a lot by vendor more than by category, with so many of the vendors scattered throughout Asia, Mexico and even the EU. I anticipate that we’ll be having a lot of country-of-origin conversations with customers and working to secure alternative sources from countries with lower tariff rates, at least in the short term.
Reason for optimism: In addition to centralizing purchasing, we’ve invested a lot of money in hiring and training new salespeople, project managers and sales assistants. They may have it tough right now but if they can make it now, they can make it anytime.
Patricia Bible
State of Mind
Patricia Bible
Owner, CEO
Kodak, Tenn.
The attitude that we’re taking is that embedded in every time of volatility or anxiety there is always opportunity to become more successful. We did that during COVID and we are now at that same inflection point today. It’s almost COVID 2.0 in some ways. But I remind my team that only the heroes run toward the problem. We have a big problem in our industry, so let’s run at it and together come up with opportunities to solve it.
Product sourcing and this economic volatility are our biggest concerns. The market is right for price increases, whether that’s in the form of a traditional price increase or tariff addition. We don’t know what is coming, exactly, or how frequently increases will come. Just this morning I counted 20-plus price increases coming May 1, 30-plus coming in June and more in July. We have no idea what to expect for later in the year, which certainly leaves some angst about how customers are going to receive that. But we saw increases during COVID, as well, so we’re somewhat prepared for that.
We have a very strong import arm, so that’s certainly the most worrisome. We’re repositioning a lot of our sourcing from China to other countries, but we’re also seizing opportunities to collaborate and work much more closely with our domestic manufacturers.
Reason for optimism: Despite the turmoil and uncertainty in pricing and supply chain, the market for our products and services remains strong and our projects so far this year have not slowed. School systems still have to feed children, hospitals still have to feed patients, restaurants still will take care of their customers.
