NEW YORK (AP) β Inflation isnβt only costing small businesses money. Itβs costing them customers as well.
At the Bushwick Grind Cafe in Brooklyn, New York, Kymme Williams-Davis has raised prices and switched to different types of goods to keep up with the rising costs of milk, coffee, paper goods and plastic, as well as shortages of items such as paper cups and plastic lids. She hasnβt experienced anything like this since opening in 2015.
Williams-Davis says she has lost nearly half of her regular customers. Some have traded down and are buying coffee for $1 at the McDonaldβs or the bodega on either side of the cafΓ© instead of paying the $3 she charges.
βIf (customers) can get it for a dollar for not that notable of a difference, theyβre going next door.β
One customer who had been coming in for years stopped in to tell Williams-Davis he bought himself a coffeemaker.
βHe said Iβm going to start making coffee at home, I need to budget, so I wonβt be coming in here every day,β she said. βI feel like Iβve been on a goodbye campaign.β
Inflation has been rising at nearly the fastest pace in 40 years, driven up 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 compared with a year ago, largely because of a steady drop in the cost of gas. Prices for other items, particularly food, are likely to keep rising quickly. Overall, economists forecast consumer prices rose 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 were largely tolerant of price increases and kept on spending. But now owners say theyβre seeing some pushback.
Ninety-seven percent of small business owners say inflationary pressure is the same or worse than it was three months ago, according to a survey of more than 1,500 small businesses by Goldman Sachs 10,000 Small Business Voices. Sixty-five percent have raised prices to offset higher costs. And 38% say theyβve seen a decline in customer demand due to price increases.
Nicole Miskelley, who manages PMR, an auto and diesel repair shop in Marion, Illinois, said she has seen customers delay repairs that arenβt urgent such as scheduled maintenance or getting new tires.
At the beginning of the year, Miskelleyβs labor costs rose 12% and the cost of towing cars to the shop went up due to higher gas prices. Parts are more expensive too. Last year, an air conditioner processor would cost her $200, but this year she canβt find one for under $400. So, sheβs had to raise her average price for a repair by 30% to 40%.
Her customers have noticed.
βTypically, I am able to joke about how drastically different things are now and most agree with me,β she said. βOn occasion, I deal with push back,β including the rare bout of yelling or cursing by a customer.
βAmong a lot of my older customers, who are on restricted income like Social Security, they say they have to cut back,β she said. βThey say, βI know I need these tires, but I need to make a couple more rounds (of Social Security) to save up.ββ
She says sheβs a little worried but hopes people can adjust to inflation.
βRight now , it kind of sucks because costs increased faster than I could catch up with. In time, I hope people budget better and their incomes change to reflect the economy.β
The pullback is more dramatic 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.
Kim Shanahan operates the online store Gifts Fulfilled in Berlin, Maryland, which sells gift baskets and care packages and employs people with disabilities.
βLast year has been challenging to say the least,β she said. βAll prices across the board have gone up.β Everything from cardboard, containers and the food that she includes in the baskets have become more expensive.
She implemented a 5% increase to cover some costs. After she raised the price of her most popular get-well gift basket called βOne Tough Cookie,β from $27.50 to $28.95, sales went down, she said.
Less expensive baskets, such as those with gifts and candy that sell for $25 and under, have been the most affected, with unit sales down about 50% in 2022 compared with last year. βThe whole segment of the market is gone for us,β she said.
βWe are a βwant to-β not βhave to-β have item in our primary categories,β Shanahan said. βWhat we sort of see is people maybe buying a $50 gift dropping down to $35. And the whole lower tier arenβt even buying at all, they donβt have the discretionary funds.β
Schuyler Northstrom of Uinta Mattress, a mattress maker in Salt Lake City, Utah, says heβs raised his prices by 15% since 2020. A mattress that used to sell for $289 wholesale is now $330.
The increase doesnβt fully cover Uintaβs higher costs. Raw materials such as springs and foam have increased by 40%. But Northstrom fears that raising prices any higher could cause his customers to drop him.
βThe pushback from retailers is pretty strong there,β he said. His retail partners include John Paras mattress stores and 2Brothers Mattress, both in Utah. βSometimes weβre displaced by some of the larger guys with a lower cost product because of their volume.β
To adapt, Northstrom is redesigning the mattress to cut down on costs, and taking less profit, which isnβt sustainable in the long term, he said. Heβs also focusing more on the higher end, mattresses that cost up to $1,200, which hasnβt been hit as hard.
βWeβre feeling it, weβre not a necessary purchase, people buy food and gas,β he said.