The outdoor cooking industry is unique in many ways. A handful of companies and even fewer retailers control the majority of the market. Of course, there are dozens of other companies making high-end stainless steel gas grills, pellet cookers, smokers, and everything else under the sun. The market is diverse and filled with manufacturers both large and small, domestic, and foreign. Competition is high, but there has always been space for anyone with an innovation and a dream. Then came the tariffs.
After a partial tariff in March 2018, all imported steel came under a 25% tax by June 1st of the same year. Steel prices rose sharply and high-end gas grill manufacturers quickly increased prices by as much as 20% in some areas. Grills in this price range are made almost entirely from high-grade stainless steel. This wasn’t cheap to begin with and neither were these gas grills. The high-end market, primarily built for outdoor kitchens, featured gas grills ranging in price from a few thousand to over $20,000.
How to Adapt to Chaos
For domestic US manufacturers, options were few and difficult. Most companies had no other choice but to raise prices. When the primary raw material for their product jumped in price they scrambled to cover their costs. The question that these companies have had to ask is how much to increase their prices. Some have chosen to maintain their margins by raising prices matching the percentage increase in steel. Others have tried to navigate a middle path that cuts profits, but covers costs. The latter group is working under the assumption that steel prices will decrease enough to restore their profits.
It isn’t just steel that was affected by the wavering trade policies of the past year. The components of gas grills from control valves to fasteners to wiring, all globally sourced, have also increased in price. In part, this is caused by companies scrambling to rebuild supply chains in the face of fluctuations in each category of products. This style of sourcing is complicated, and most experienced companies have dealt with this for years.
Another problem for manufacturers was timing. Grill sales are strongest through the summer even in the higher end market space. Product lines and prices are set early in the calendar year and don’t change until the season is over. With the tariffs being fully implemented on June 1st, manufacturers were forced to decide between an unpopular mid-season price change or the real potential of losing money in the later months. Many chose to change their prices during the summer. For retailers, this presented a challenge of dealing with customers who suddenly found prices jumping during their decision processes.
But what happens if the tariffs are removed? On one hand, no one in the industry believes that the steel tariffs are permanent. It is true that exemptions have appeared removing nation after nation from the tax. On the other hand, no one truly believes that prices will return to where they were. Steel sourcing has been disrupted. U.S. Steel producers have made expensive investments to further automate production and these costs will continue to distribute throughout the economy. Companies that chose the middle pricing path had hoped for good news. None arrived. As of right now, I suspect another price increase from many companies at the end of the season.
This doesn’t just apply to high end, stainless steel gas grills. Anything made from steel in the United States is faced with substantially higher costs. Since most outdoor cooking equipment is made from some form of steel, it hits everything from the Weber Kettle to custom made smoker rigs. Few companies in the industry remain unaffected and all have had to struggle with difficult decisions. This has become such a touchy subject that many in the industry, some I have known for more than a decade, replied with a simple, “no comment,” when contacted. It is a subject that few feel comfortable talking about.
Tariffs Round Two
To further complicate the situation, on July 18th, 2018, a tariff on 818 categories of products including gas grills was imposed against China. These tariffs were delayed as negotiations continued, but with the recent failure of those talks, the tariffs are now being implemented. This is where the squeeze on the gas grill consumer tightens, and remember that all costs are passed on to the consumer. The biggest impact will be evident in lower priced gas grills. This is particularly true for those sold through large retailers. Big box stores use gas grills as doorbuster products in the summer months. This means that they require margin space to offer deep discounts. What they are hoping for is that grills in transit will see them through July 4th, before prices are forced higher.
Let’s be honest, one of the unique features of the outdoor cooking industry is that the majority of grill purchases are either impulsive or conducted with little research. These purchases are also very low on the price spectrum. For many years the average price for a gas grill in the U.S. was well below $400USD. Weber, the most recognized brand in the industry, has one model of gas grill in this range. Aside from Weber and Char-Broil, most brands in this range are either generic or store brands, and all are imports from China. In fact, there are very few gas grills for sale today under $1,000 that are not made in China. Adding 25% on to each and every one of these grills not only puts the pinch on the consumer but on the manufacturers, importers, distributors, and retailers in their effort to hit low price points.
When you add up all the tariffs, they represent one of the largest tax increases in U.S. history. Never mind the rhetoric, this IS a tax and one that falls squarely on the consumer. As a consumption tax, it has the potential to reduce sales which is not beneficial to retailers or manufacturers. It is the government that collects all monies paid by the importer of the tariffed goods. If a sufficient number of consumers decide to hold off on making purchases in this category, it will hurt manufacturers both domestic and foreign, and could reduce diversity in the industry.
For now, the import tariff does not affect other types of grills. Charcoal grills, smokers, and many other products coming from China will arrive without tariffs, and those prices and margins will remain the same. This is one reason why some manufacturers and retailers are pushing charcoal grills in their marketing. For companies like Char-Broil who import all of their products, it makes sense to divert their marketing efforts toward non-tariffed goods. This isn’t a viable long term strategy but might help them weather the storm.
This brings us to Weber. As the most recognized brand, it set the pace of the industry and acts as a measure of its overall health. I would like to say that I have had deep conversations with them about this, but they will not comment on the situation at this time. In fact, they haven’t discussed anything related to their business in nearly a year. It is a quiet time for Weber, and their strategy right now is a mystery. Though recently, Weber has invested in some expensive public relations representation.
Now let’s talk about their risks. Weber builds its charcoal products in the United States and while little of it is stainless, it is almost entirely steel. Costs are up. As for their gas grills, well, most of those are made in their factory in China. For Weber, the tariff squeeze is more like a vice. Their domestically made products are subject to higher production costs, while their Chinese products sold in the United States are subject to import taxes. Weber’s best bet at the moment is to sell gas grills anywhere but the U.S. It isn’t surprising that they are not taking questions from the media.
On May 30, 2019, a 5% tariff on all products coming from Mexico was announced with implementation to take effect on June 10th. As originally stated, this tariff would increase to 10% on July 1st and increase 5% per month. This tariff will be removed if immigration across the southern border stops or the tariff reaches 25% (which it would on October 1st). The company in the crosshairs of this tariff is Big Green Egg, whose ceramic grill bodies are made in Mexico. Already under attack from excessive competition in the Kamado market, Big Green Egg could suffer heavily if this new tariff follows the pattern proposed. The biggest challenge for Big Green Egg is that Chinese-made kamado grills will continue to be imported without tariff since they are not named in the current list of taxed imports.
A Value No More
The companies between the proverbial rock and hard place are those that have specialized in ‘affordable’ stainless steel grills. When DCS introduced the all-stainless luxury gas grill in the 1990s, it was a product for those who had money to burn. Designed to be part of an outdoor kitchen, grills like these sat firmly in the backyards of the rich and famous. Then came their clones from China. Built with a similar design, but lighter materials and cheaper labor costs, these grills quickly found success. Not to be outdone, the original American companies retaliated with their own line of ‘value’ priced products. We got brands like American Outdoor Grill from Fire Magic and Delta Heat from Twin Eagles. The difference between these later models is that they are not imports. Now, with companies like Bull and Lion facing dramatic price increases, this will push them into the range of superior domestic products. After all, a 25% tariff on a $2,600 grill is a big jump in price. Time will tell how they cope and if they survive.
Until The Next Tweet
Once upon a time, the whole patio cooking world of charcoal grills, burnt chicken, and cocktails was a very American idea. It is true that every culture has grills and grilling, but it was 1950s Americana that spawned an industry around the leisure activity of backyard cooking. Now it has grown into an international business with many grill companies selling globally. This means that while there might be confusion in the U.S., companies with greater reach may try to make up for tighter margins by focusing their sales and marketing elsewhere.
Since government policy can change in the time it takes to type out a tweet, uncertainty is high. Some companies remain optimistic that they can weather the storm and actually come out stronger on the other side. Others hope to simply make it through. No one knows when the industry will restabilize and that might be the biggest challenge. Those that have chosen to narrow their margins might find themselves riding this out for years to come. Those that quickly moved to increase prices or change their product lines might find themselves out-competed by less expensive products in the next few months.
One thing I can tell you is that my sources agree that prices of imported grills are going up soon. While I can’t reveal which companies (for legal reasons), some brands will be increasing prices on July 1st and others on August 1st. If you are in the market for a new grill, I suggest making your purchases now.