How Tariffs are Reshaping Pricing and Product Innovation in 2025
One theme finally popping up in earnings reports: tariff-related pricing. Three strategies to deal with it are emerging, none are great. Let’s start with retail because it’s closest to the consumer.
Retailers with scale (Amazon, Walmart) are absorbing or deflecting costs to maintain share. Walmart's "25% cheaper" Thanksgiving meal is the poster child, even though it's 15 items instead of 21, with more private label. Companies like IKEA just raise prices and point to tariffs. In discretionary categories, brands eat it. At an 18% effective tariff rate, most businesses are still absorbing costs, but that's shifting.
It's hitting during the holidays:
1) Container volumes are down 8% in September. According to Reuters, fewer containers are making port. You can't sell what you don't have, and what you do have costs more.
2) The "always on" promo season is killing impulse shopping. According to PwC, 80% of holiday shopping is expected before Cyber Monday. Gone are the gameified Black Friday bumps that always get me to spend more, replaced by drawn-out indecision.
3) Gift cards will pop. Less supply for goods & services, too pricy to ship them, and your kids’ student loans resumes – gift cards are wealth transfers, not consumption. And the trick we learned at Kroger is that more than 10% of balances go unredeemed.
What General Mills Is Doing
For challenger brands, this environment is brutal. You don't have Walmart's leverage to deflect costs or General Mills' scale to absorb them. But there are always lessons in how the big players are adapting.
General Mills dropped a 177-slide deck at investor day last month. There was no shortage of cool pet food strategies, but the human food insights were more interesting for me. They're not waiting for conditions to improve, they're adjusting the strategy now because Mills needs share and volume at their scale:
Know your price cliffs. Mills identified specific purchase behavior thresholds and surgically worked two-thirds of their portfolio to narrow gaps with competitors. They're not cutting prices across the board, it’s truly pack/price tradeoffs.
Make packs do more work. Larger sizes to drive volume, but priced to be less expensive per ounce for the consumer.
Improve the product in obvious ways. Brick-to-the-forehead clarity in the value they are giving consumers. More cheese in Annie's Mac, more chicken in Old El Paso Soup. They're not overthinking GLP-1 concerns, they are just adding protein and fiber and moving forward.
For Challenger Brands
Environments like this suck for cool, expensive, emerging brands with gloss-matte packaging. You're facing the same cost pressures without the scale to absorb them or the leverage to push them downstream. But there are moves:
Know your price cliffs and pressure test surgically, because you can't afford broad discounting. I used to love indexing to the category, but I think it’s easier, more sustainable, and better consumer psychology to say “we just won’t be over $4.99”. You’ll still want to index to cat/comp, but this makes it easier for busy teams to digest and manage to.
Make innovation obvious. Consumers need to see or taste it immediately
Don’t just broadly discount, that’s bad for brand. Instead, segment pack architecture for different wallets in the same purchase cycle, we’re going to see wider social stratification in the haves and have-nots.
I wish tariffs were the least of our concerns, and we didn’t have BLS job numbers this month, but reports are not positive. Last year, Expo West was about package innovation. If brands can react quickly, we might see a shift toward helping consumers weather the storm through more value. Consumers need that new hope.