When small businesses raise prices, some customers push back

by MAE Anderson

AP Business Writer

new york Inflation isn’t just costing small businesses money. It is costing them customers too.

At the Bushwick Grind Cafe in Brooklyn, New York, Kimme Williams-Davis increased prices and switched to different types of items, including milk, coffee, paper containers and plastic containers, as well as shortages of items such as paper cups and plastic covers. In the year She has never experienced anything like this since she opened in 2015.

Williams-Davis says she has lost about half of her regular customers. A few have traded up and are buying coffee for $1 at McDonald’s or the bodega on either side of the cafe instead of paying the $3 she charges.

“(Customers) will go next door if they can get it for a dollar that doesn’t have that much of a difference.”

A customer who has been coming in for years told Williams-Davis he bought a coffee maker.

“He said I’m going to start making coffee at home. I have to budget, so I don’t come here every day,” she said. “I feel like I’ve been on a farewell tour.”

Inflation is at its fastest pace in 40 years due to strong consumer spending and higher costs of food, rent, medical care and other essentials.

On Tuesday, the government is expected to announce that price hikes in August have slowed from a year ago, due to persistently lower oil prices. Prices of other goods, especially food, may rise rapidly. Overall, economists said consumer prices rose 8.1 percent in August, down from 8.5 percent in July a year earlier, according to data provider FactSet.

For most of the pandemic, small business customers have endured price hikes and continued spending. But now the owners say they’re seeing some pushback.

Ninety-seven percent of small business owners say inflation is the same or worse than three months ago, according to a Goldman Sachs 10,000 Small Business Voices survey of more than 1,500 small businesses. 65 percent increased prices to offset higher costs. And 38% say they’ve seen a decrease in customer demand due to price increases.

Nicole Miskelly, who runs PMR, an auto and diesel repair shop in Marion, Illinois, has seen her customers put off non-urgent repairs like scheduled maintenance or getting new tires.

At the beginning of the year, Cross’s labor costs rose 12 percent and the cost of towing cars to the shop was driven up by gas prices. Rooms are very expensive. Last year, an air conditioner processor cost her $200, but this year, she couldn’t get it under $400. Therefore, she must increase her average cost of maintenance by 30 percent to 40 percent.

Her customers noticed.

“Normally I can joke about how different things are now and most people agree with me,” she said. “Occasionally, I’ll face pushback,” including the rare scream or curse from a client.

“Among many of my larger clients with limited income, like Social Security, they say they have to cut back,” she says. “I know I need these tires, but they say I have to make two more rounds (of Social Security) to save up.”

She says she is a little worried but she hopes people can adjust to inflation.

“At the moment, it’s unfortunate that the cost has increased faster than I’ve achieved. I hope that over time people will budget better and their incomes will change to reflect the economy.

The rebound is even more dramatic among consumers with less discretionary income. Walmart says its lower-income customers spend more on food and other items. Small business owners are seeing much the same thing.

Kim Shanahan runs Gifts Filled, an online store in Berlin, Maryland, that sells gift baskets and care packages and employs people with disabilities.

“Last year was challenging to say the least,” she said. “All prices across the board have increased.” Everything you put in cartons, containers and baskets has become more expensive.

She implemented a 5% increase to cover some costs. After raising the price of her most popular gift basket, “One Strong Cookie,” from $27.50 to $28.95, she said sales have slowed.

Less expensive baskets, such as gift baskets and candy for $25 and under, were hit hardest, with unit sales down 50 percent in 2022 compared to last year. “A whole segment of the market is lost to us,” she said.

“We don’t have a ‘want-to'” item, Shanahan said. We see people buying maybe a $50 gift down to $35. And all the bottom tiers don’t even buy, they don’t have interest funds.

Schuyler Northstrom, a mattress maker in Salt Lake City, Utah, said it has increased prices by 15 percent since 2020. A mattress that retails for $289 wholesale is now $330.

The increase does not fully cover Unta’s higher costs. Raw materials such as springs and foam have increased by 40%. But Northstrom worries that price hikes could push customers away.

“The push from retailers is very strong,” he said. Its retail partners include John Paras Mattress Stores and 2Brothers Mattress, both in Utah. “Sometimes we get displaced by the big guys who have less value because of their bulk.”

To facilitate that, Northstrom is redesigning the mattress to cut costs and taking less profit, which is unsustainable in the long run, he said. He’s also focusing more on the higher-end, up to $1,200 mattresses, which haven’t been hit hard.

“We’re feeling, we’re not an essential purchase, people buy food and gas,” he said.

Related