Inflation doesn’t just cost small businesses money. It also costs them the customer.
At the Bushwick Grind Cafe in Brooklyn, New York, Kymme Williams-Davis has raised prices and shifted to a variety of commodities to keep up with rising prices of milk, coffee, paper and plastic goods, as well as shortages of items like paper cups and lids plastic. She hasn’t experienced anything like this since opening in 2015.
Williams-Davis said she has lost nearly half of her regular customers. Some have had a discount and are buying coffee for $1 at McDonald’s or bodega on either side of the cafe instead of paying the $3 she charges.
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“If (customers) can buy it for a dollar without being noticeable in terms of difference, they will go right next door.”
A customer who has been coming for years stops by to tell Williams-Davis that he bought himself a coffee machine.
“He said I was going to start making coffee at home, I needed to have a budget, so I wouldn’t come here every day,” she said. “I feel as if I’m on a goodbye campaign.”
Inflation has accelerated at almost its fastest pace in 40 years, driven by strong consumer spending and higher costs of food, rent, medical care and other necessities.
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On Tuesday, the government is expected to report that price increases slowed in August from a year ago, largely due to a steady drop in gas prices. Prices of other commodities, especially food, are likely to continue to rise rapidly. Overall, economists expect consumer prices to rise 8.1% in August, compared with a year ago, down from 8.5% in July, according to data provider FactSet.
For much of the pandemic, small business customers have largely accepted the price increase and kept spending. But now the owners say they are seeing some backlash.
Ninety-seven percent of small business owners say inflation pressures are the same or worse than they were three months ago, according to a survey of more than 1,500 small businesses by Goldman Sachs 10,000 Small Business Voices. 65% raised prices to offset higher costs. And 38% say they’ve seen customer demand drop as a result of rising prices.
Nicole Miskelley, manager of PMR, an auto and diesel engine repair shop in Marion, Illinois, says she has seen customers delay non-emergency repairs like scheduled maintenance or buying new tires.
At the beginning of the year, Miskelley’s labor costs increased 12% and the cost of towing the car to the store also increased due to higher gas prices. Parts are also more expensive. Last year, an air conditioner microprocessor cost $200, but this year, she couldn’t find one for less than $400. So she had to increase the average price for a repair by 30% to 40%.
Her client noticed.
“Usually, I can joke about how dramatically things are different these days, and most agree with me,” she said. “Sometimes, I deal with pushback, including the rare instance of being yelled at or yelled at by a client.
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“Among a lot of my older clients, who have limited incomes like the Social Security Administration, they say they have to cut back,” she says. “They said, ` `I know I need these tires, but I need to do a few more laps (by Social Security) to save money.”
She said she was a bit nervous but hoped people could adapt to inflation.
“Right now, that sucks because costs are growing faster than I can keep up. Over time, I expect people to budget better and their incomes change to reflect the economy.”
The pullback was more acute among consumers with less discretionary income. Walmart says its customers, who tend to have lower incomes, are spending more on food and less on other items. Small business owners are seeing much of the same thing.
Kim Shanahan runs the Gifts Fulfilled online store in Berlin, Maryland, which sells gift baskets and packages that care for and hire people with disabilities.
She said: “Last year was a challenging year to say the least. “All prices across the board have gone up.” Everything from the cardboard, the containers, and the food she put in the basket became more expensive.
She made a 5% increase to cover some of the expenses. After she upped the price of her most popular welfare gift basket called “One Tough Cookie,” from $27.50 to $28.95, sales dropped, she said.
Cheaper baskets, such as gift baskets and confectionery that sell for $25 or less, were hit the hardest, with sales down about 50% in 2022 from last year. “The whole segment of the market is no longer available to us,” she said.
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“We are the kind of people who ` `don’t want- ‘not-‘ to have items in our main catalog,” says Shanahan. “What we see is people can buy a $50 gift down to $35. And the whole lower floor doesn’t even buy, they don’t have discretionary money. “
Schuyler Northstrom of Uinta Mattress, a mattress manufacturer in Salt Lake City, Utah, says he’s raised prices 15% since 2020. A mattress that once sold for $289 wholesale is now $330. la.
The increase doesn’t fully cover the Uinta’s higher costs. Raw materials such as springs and foam have increased by 40%. But Northstrom is concerned that raising prices even higher could drive his customers away from him.
“The opposition from retailers there is quite strong,” he said. His retail partners include mattress stores John Paras and 2Brothers Mattress, both in Utah. “Sometimes we are replaced by some larger companies with cheaper products because of their volume.”
To adapt, Northstrom is redesigning the mattress to cut costs and make less profit, which isn’t sustainable in the long run, he said. He’s also focusing more on the higher end, up to $1,200 mattresses, which aren’t affected too much.
“We feel it, we’re not a necessity, people buy food and gas,” he said.
© 2022 The Associated Press