Rising costs add to pandemic pain for small businesses

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.

While pecans have risen the most, 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 yet another challenge thrown at business owners by the global 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 said Thursday that prices at the wholesale level 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.”

In response, owners are raising prices, cutting staff hours, dropping some goods and services and nixing free shipping in a delicate balancing act. But with low visibility into how long the 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. “You used to be able to work really hard and see progress. Now you work really hard just to try to stay afloat.”

Jalal is apprehensive about the long-term prospects for the small business community if inflation doesn’t calm down soon. “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.”

Elizabeth Benedict, owner of interior design firm Elizabeth Home Decor & Design in Chestnut Hill, Massachusetts, said prices have risen 7% to 30% for all the products she buys. She pays shipping surcharges on top of that.

“Most of these (increases) come with less than a two-week notice,” she said. “We cannot guarantee any quotes that go out and have had to adjust our contract as well as all of our language on our proposals to reflect these variable conditions.”

To deal with rising costs and overseas shipping delays, Benedict significantly changed her vendor list, and now shops only with U.S. brands that make products in the U.S. And she added services like e-commerce and virtual design. But she’s still facing longer timelines for her projects and is not taking on new clients until things stabilize.

“We continue to pivot with the punches, but definitely feel like we are being pushed and pulled in too many directions,” she 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.

Some businesses are using channels they developed during the pandemic to communicate with customers about why prices are increasing, in the hopes they’ll be patient.

Kialee Mulumba, founder of beauty brand Jakeala in Newport News, Virginia, has had to raise prices of her beauty products by $1 to $5. Her container prices have doubled—with one that used to be 50 cents now costing $1. Prices for organic olive oil butters and conditioners have all risen 5% to 10% and shipping from China is up 5%. She also cut her four employees’ hours from full time to part time.

Mulumba emailed customers to be transparent and let them know prices were going up due to the rising cost of supplies. But she has noticed a slight decrease in sales.

“I just hope the consumers support the small businesses they like—this is the time to support small business,” she said. “Even if you can’t purchase, you can share posts, like, or comment—that would really go far.”