As small businesses raise prices, some customers back off
By MAE ANDERSON, AP Business Writer
NEW YORK (AP) — Inflation isn’t just costing small businesses money. It also costs them customers.
At the Bushwick Grind Cafe in Brooklyn, New York, Kymme Williams-Davis raised prices and switched to different types of products to cope with rising costs for milk, coffee, paper and plastic items, as well as to shortages of items such as paper cups and plastic lids. It hasn’t experienced anything like it since it opened in 2015.
Williams-Davis says she’s lost nearly half of her repeat customers. Some have traded and are buying coffee for $1 at McDonald’s or the bodega either side of the cafe instead of paying the $3 she charges.
“If (customers) can get it for a buck for not-so-noticeable difference, they’re going next.”
A customer who had been coming for years stopped by to tell Williams-Davis that he had bought himself a coffee maker.
“He said I’m going to start making coffee at home, I need a budget so I won’t come here every day,” she said. “I feel like I was part of a farewell campaign.”
Inflation rose at nearly the fastest rate in 40 years, driven by strong consumer spending and higher costs for food, rent, medical care and other necessities.
On Tuesday, the government is expected to report that price increases slowed in August from a year ago, largely due to a steady decline in the cost of gasoline. The prices of other items, especially food, are expected to continue to rise rapidly. Overall, economists forecast consumer prices rose 8.1% in August from a year ago, compared with 8.5% in July, according to data provider FactSet.
For much of the pandemic, small business customers largely tolerated price hikes and continued to spend. But now owners say they see some pushback.
Ninety-seven percent of small business owners say inflationary pressure is the same or worse than three months ago, according to a survey of more than 1,500 small businesses by Goldman Sachs 10,000 Small Businesses. Sixty-five percent raised prices to offset rising costs. And 38% say they have seen a drop in customer demand due to rising prices.
Nicole Miskelley, who runs PMR, an auto and diesel repair shop in Marion, Illinois, said she’s seen customers delay repairs that aren’t urgent, such as scheduled maintenance or buying new tires. .
At the start of the year, Miskelley’s labor costs increased by 12% and the cost of towing cars to the shop increased due to rising gas prices. Parts are also more expensive. Last year an air conditioner processor would cost her $200, but this year she can’t find one for less than $400. She therefore had to increase her average price for a repair by 30 to 40%.
His customers noticed.
“Usually I’m able to joke about how drastically different things are now and most agree with me,” she said. “On occasion, I face pushbacks,” including the rare outburst of shouting or swearing by a customer.
“Among many of my older clients, who have limited incomes like Social Security, they say they have to cut back,” she said. “They say, ‘I know I need those tires, but I have to do a few extra (Social Security) laps to save. “”
She says she is a little worried but hopes people can adjust to inflation.
“Right now it kind of sucks because the costs have been rising faster than I could catch up. Over time, I hope people will budget better and their incomes will change to reflect the economy.
The decline is more pronounced among consumers with lower discretionary income. Walmart says its customers, who typically have lower incomes, spend more on food and less on other items. Small business owners see the same thing.
Kim Shanahan operates the online store Gifts Fulfilled in Berlin, Maryland, which sells gift baskets and care packages and employs people with disabilities.
“Last year was tough to say the least,” she said. “All prices at all levels have gone up.” Everything from the cardboard, the containers and the food she includes in the baskets has become more expensive.
She implemented a 5% raise to cover some costs. After raising the price of her most popular wellness gift basket called “One Tough Cookie” from $27.50 to $28.95, sales went down, she said.
Cheaper baskets, like those with gifts and candies that sell for $25 and under, have been hit the hardest, with unit sales down about 50% in 2022 from a year ago. “The whole market segment is gone for us,” she said.
“We are a ‘want-to-‘ not ‘must-‘have an item in our main categories,” Shanahan said. “What we kind of see is people buying maybe a $50 gift that drops to $35. And all the lower tier don’t even buy at all, they don’t have the discretionary funds. »
Schuyler Northstrom of Uinta Mattress, a mattress maker in Salt Lake City, Utah, says it’s raised prices 15% since 2020. A mattress that used to sell for $289 wholesale now costs $330.
The increase does not fully cover Uinta’s higher costs. Raw materials such as springs and foam increased by 40%. But Northstrom worries that a price increase could cause its customers to drop it.
“Retail reaction is quite strong there,” he said. Its business partners include mattress stores John Paras and 2Brothers Mattress, both located in Utah. “Sometimes we get replaced by some of the bigger guys with a lower cost product 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 term, he said. It also focuses more on the higher end, mattresses that cost up to $1,200, which haven’t been hit as hard.
“We feel it, we’re not a necessary purchase, people are buying food and gas,” he said.
AP Business Writer Christopher Rugaber in Washington contributed to this report.
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