Smucker’s hikes show tariffs risk speeding America’s coffee decline
Sarah Charles
September 5, 2025
coffee on stilts
Smucker’s US retail coffee profits plunged 22% last quarter, as tariffs on Brazilian coffee increased input costs
Volumes fell 2% as net pricing went up 18%, signalling that households are cutting back
Tariffs could accelerate a broader US decline in coffee demand
J. M. Smucker raising its prices in the wake of US tariffs raises an alarm. The distributor of Folgers, Dunkin’ and Café Bustelo has long been a bellwether for America’s coffee market. But are tariffs the cause, or the final straw for a market already in decline?
But its latest quarter underlined how fragile that position has become. The company reported that profit at its US retail coffee division plunged by 22% year-on-year, as tariffs on Brazilian green coffee – a 50% levy – drove input costs sharply higher.
“Brazil has long anchored blends thanks mainly to its low cost, neutral cup profile, and year-round availability – important considerations for any roaster looking for year-round flavour consistency,” says Marc Schonland, Strategic Adviser to the coffee industry.
“But a 50% tariff has upended that original purchase rationale, adding roughly $1.50 per pound and instantly erasing its price advantage. Roasters are being forced to cut back on Brazilian usage, but there’s no single substitute for the roughly 8 million bags the US typically imports. Substitution will happen, but solutions will differ.”
“Some will lean on robusta, washed robusta, or lower-grade Centrals and Colombians; others will just rebalance blends with less Brazil or lower-quality Brazil. There’s no one-size-fits-all approach. Some roasters may even hold steady, betting tariffs get lifted. But given the current rhetoric, that looks unlikely in the near term.”
Cost of products rose 23% to $1.64 billion in recent months, leading to a quarterly loss of $43.9 million. Folgers and Dunkin’ both lost ground, partly offset by gains at Café Bustelo, a brand with stronger resonance among younger and Hispanic drinkers.
The market reaction was swift. Shares fell 7% on the same day, erasing year-to-date gains. Analysts noted that higher net pricing could not mask shrinking volumes and margin squeeze.
The problem is not limited to the quarter’s numbers. Earlier this year Smucker shuttered four plants, including a coffee facility, as part of a broader cost-cutting drive. That operational tightening now collides with tariff-driven inflation. Tariffs on coffee, unlike on manufactured goods, are peculiarly self-punitive. The United States grows negligible volumes; a 50% tax on beans is, in effect, a tax on American companies and consumers.
“Tariffs are a structural cost shift, not just another commodity cycle,” says Peter McDonald, Founding Partner of McDonald Strategy Partners LLC.
“Structural changes usually demand structural solutions, and consolidation with its cost synergies would be the logical response. The uncertainty is permanence – whether coffee tariffs stick is still a legal and policy fight. That makes planning difficult. For now, the strategy is to pass through as much pricing as the market will bear – likely less than many expect.”
Is demand destruction in sight?
The danger is not just in squeezed roaster margins but in what comes next: demand destruction. Rabobank has warned that global coffee consumption may be peaking – projected to fall 0.5% in 2025, largely due to higher prices as coffee companies keep transferring their higher costs to consumers.
At-home consumption, which surged during the pandemic, has since softened. Smucker’s own Q1 results echo this, with volumes down 2% despite an 18% increase from net pricing. It seems that their previous confidence in raising prices without losing customers has been put to test.
Tariffs compound this fragility. For mainstream households, a few extra dollars per can of ground coffee is enough to trigger cutbacks. At cafés, where the $5 latte has become a millenial trope over the last few years, further increases could test customer loyalty. Analysts warn that price elasticity in core categories like coffee could hurt long-term sales if consumers continue to push back.
“My sense is that in the O.O.H sector, we have data that clearly already tells us that we have lost coffee consumers,” says Marc. “Starbucks is the best exhibit of that phenomenon, where high price has led to steady customer erosion. Consumers are frequenting Starbucks, Dunkin, or Peet’s stores way less now to avoid the big cash outlay.”
“This is not just in the coffee landscape but in quick-service restaurants generally. They’re not noticing the value or sufficient differentiation to warrant the extra cost and justify the added expense.”
Competition makes this picture starker. Keurig Dr Pepper, Smucker’s main rival, has struggled with coffee volumes too – its US coffee segment fell 3.7% in early 2025, with volumes down more than 5%. But its latest mega-merger with JDE Peet’s could turn this around. Starbucks, meanwhile – also experiencing profit loss – has leaned on brand strength and café formats to pass through costs more smoothly.
This leaves Smucker squeezed between bigger rivals with deeper innovation pipelines, and creative premium players drawing on national icon status.
The irony is that tariffs are accelerating a slowdown that market forces were already nudging toward. After years of steady expansion, US per-capita coffee consumption looks vulnerable for the first time in decades. If tariffs persist, they may do what health warnings and wellness trends could not: dent America’s national addiction.
“I don’t see people abandoning coffee entirely – it’s too ingrained – but they do have plenty of ways to trade down,” says Peter.
“Coffee is a highly price-stratified category: $5–8 at high-end cafés, $3–5 at mainstream chains, $1–2.50 at fast food or C-stores, and as little as $0.20–0.90 brewed at home. In past inflation spikes, we saw resilience as consumers shifted out-of-home occasions into cheaper in-home ones. But eventually that trade-down hits a ceiling, and consumption itself contracts.”
“I think that contraction may come faster this time, since food budgets haven’t fully recovered from the 2021–23 inflation surge. That’s why I see a risk of elasticity optimism from the big coffee players – and why I felt Smucker’s guidance looked too upbeat.”
Margin erosion may not be the biggest risk at hand
The greater danger is not simply margin erosion, but substitution. Persistent price hikes in coffee, layered on top of tariffs, risk pushing US consumers toward other beverages altogether.
The industry may repeat history, with consumers pivoting to sodas as cheaper caffeinated beverage alternatives. Energy drinks, functional waters, and even flavoured sodas are waiting in the wings with aggressive marketing and cheaper entry points. They can also be “made in the USA,” whereas coffee and tea remain vulnerable to import tariffs.
For Smucker, whose iconic and emerging brands – Folgers, Dunkin’ and Café Bustelo – depend on regular purchase, the threat of customers breaking routine could be far more damaging than a quarter of squeezed profitability.
The US coffee market is already showing signs of strain. Smucker’s own results reveal volume declines at Dunkin’ and Folgers even as Café Bustelo grew. If households, especially younger ones, decide that the price of their coffee is no longer justified, the category could lose share as tariffs lift costs further. The cost-conscious consumer may choose to reject coffee altogether.
For an industry that has spent decades cementing coffee as America’s default drink, this is not the best time to invite consumer experimentation. The CEO of McDonald’s recently told CNBC that we are living in a two-tier economy – meaning middle and lower-income consumers – explaining that traffic for lower-income consumers is down by double digits. This explains why companies like McDonald’s and Smucker’s are the hardest-hit.
“For a large portion of the public that only view coffee as a caffeine delivery system, a slew of caffeine alternatives exist, and all are available in the same grocery store: sodas, energy drinks, green tea, and more,” says Marc. “My sense is that Gen Z has discovered this cheaper option already when it comes to finding other caffeine options.”
“For the ‘at home’ consumer, they will simply seek out a lower-priced coffee product in the coffee aisle – there are always ‘specials’ to be found on any given week. Once those ‘fed-up-of paying-too-much consumers’ move away from coffee to alternatives, I think they will largely be lost as future regular customers. It will be hard to lure them back in volume.”
In the short term, price realisation can protect revenues. In the longer term, however, loyalty may not prove as inelastic as Smucker hopes. If tariffs accelerate a drift toward alternatives, the company, and many others, could face the bitter irony of propping up sales today only to hollow out its consumer base tomorrow.
Coffee Intelligence