Costs cramp small businesses
Added challenge for owners has some wondering if they can stay afloat in pandemic
NEW YORK — In just two weeks, the cost of pecans for the pies at Peggy Jean’s Pies in Columbia, Missouri, has surged nearly 40%, perplexing co-owner Rebecca Miller and adding to the cost of doing business.
Miller will soon have to bump up the price of her Southern Pecan, Chocolate Bourbon Pecan, and German Chocolate pies by $2 to $24.
Miller is seeing price increases across the board, from blackberries to condensed milk and eggs. She consults with three food brokers weekly to source the lowest prices for ingredients. But she still needs to charge more for the nut pies.
“We can’t absorb that cost and still meet wage demands, increased cost of goods in our tins and boxes, and afford to live as a family,” she said.
Sharply higher costs are another challenge thrown at business owners by the pandemic. The unpredictability of shipping, labor and the coronavirus itself have created an environment where owners are often left guessing about when products might arrive and how much they’ll cost.
The Labor Department last week said wholesale prices rose a record 9.7% in December from a year ago.
“There’s a tremendous amount of not just risk — risk you can calculate — but uncertainty. We just don’t know what’s going to happen.” said Ray Keating, chief economist with the Small Business & Entrepreneurship Council. “Consumer demand is there, but there are just enormous supply chain constraints. All of this is feeding into price increases.”
With low visibility into how long higher inflation will last, some owners are increasingly worried about keeping their doors open in the long run.
“We put out new fires every single day and have had to reassess the way we do business to cater to new behaviors,” said Deena Jalal, owner of plant-based ice cream chain FoMu and co-founder of wholesaler Sweet Tree Creamery in Boston.
For her FoMu shops, the cost of business overall rose about 15% in 2021 compared with 2020. She has raised prices about 10% but taken other measures, too: shifting to more delivery and cutting flavors like avocado ice cream, which became too expensive to make as avocado prices rose.
“No business can sustain the rapid increase in expenses that we have seen in the last year,” Jalal said.
She is also apprehensive about the longterm prospects for the small business community.
“If we have to work this puzzle for another two years, I really do think we’ll see a lot of businesses — ourselves included — struggle to keep their doors open,” Jalal said.
Some online vendors are eliminating free shipping to combat costs. Gianluca Boncompagni, owner of e-commerce site Off Road Tents, which sells off-road and overlanding equipment, saw logistics costs quadruple. In October 2020, he paid $6,300 for a 40-foot container coming from China. By October 2021, he was paying $26,000 for the same sized container.
Boncompagni has raised prices about 5% and started to charge a flat shipping rate depending on item size. While he may lower prices in the future, the shipping charge is here to stay, he said.
“There is simply no way most online businesses can keep shipping pallets and less-than-truckload shipments without having to charge at least a bit for them,” he said.