As small businesses raise prices, some customers push back

NEW YORK (AP) – Inflation doesn’t just cost small businesses. It’s costing them customers too.

At Bushwick Grind Cafe in Brooklyn, New York, Kymme Williams-Davis raised prices and switched to different types of products to keep up with the rising costs of milk, coffee, paper and plastic items, as well as shortage of items such as paper cups and plastic lids. She hasn’t experienced anything like this since opening in 2015.

Williams-Davis says he has lost nearly half of his regulars. Some have given in and are buying coffee for $ 1 at McDonald’s or in a bodega on either side of the bar instead of paying the $ 3 she charges.

“If (customers) can get it for a dollar without such a noticeable difference, they’ll go next door.”

A customer who had been coming for years stopped by to tell Williams-Davis that he had bought himself a coffee pot.

“He said I’ll start making coffee at home, I need a budget, so I’m not coming here every day,” he said. “I feel like I’ve been in a farewell campaign.”

Inflation has risen at almost the fastest pace in 40 years, driven by high consumer spending and rising costs for food, rent, medical care and other essentials.

On Tuesday, the government is expected to report that price increases slowed in August compared to a year ago, mainly due to a steady drop in the cost of gas. The prices of other items, especially food, are likely to continue to rise rapidly. Overall, economists predict that consumer prices rose 8.1% in August, compared to 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 continued to spend. But now the owners say they are seeing some pushbacks.

97% of small business owners say the inflationary pressure 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% raised their prices to compensate for the higher 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 has seen customers delay non-urgent repairs such as scheduled maintenance or tire changes.

At the beginning of the year, Miskelley’s labor cost increased by 12%, and the cost of towing cars to the workshop increased due to rising gasoline prices. Parts are more expensive too. Last year, an air conditioner processor would cost her $ 200, but this year she can’t find one for less than $ 400. So, she had to raise the average price for a repair from 30% to $ 400. 40%.

His clients have noticed it.

“Generally, I’m able to joke about how drastically different things are now and most agree with me,” he said. “Sometimes, I deal with repelling,” including the rare bout of yelling or cursing from a client.

“Among many of my older clients, who have limited incomes like Social Security, they say they have to cut,” he said. “They say, ‘I know I need these tires, but I need to do a couple more (social security) laps to save.'”

She says she’s a little worried, but she hopes people can adjust to inflation.

“Right now, it sucks because costs have risen faster than I could recover. Over time, I hope people balance better and their incomes change to reflect the economy. “

The withdrawal is most dramatic among consumers with less discretionary income. Walmart tells its customers, who tend to have lower incomes, spend more on food and less on other goods. Small business owners see much the same.

Kim Shanahan runs the Gifts Fulfilled online store in Berlin, Maryland, which sells gift baskets and care packages and employs people with disabilities.

“Last year was hard to say the least,” he said. “All prices across the board have gone up.” Everything from cardboard, to containers and the food it includes in baskets, has gotten more expensive.

It has implemented a 5% increase to cover some costs. After raising the price of her most popular healing gift basket called “One Tough Cookie,” from $ 27.50 to $ 28.95, sales dropped, she said.

Less expensive baskets, such as those with gifts and candy that sell for $ 25 and less, were the hardest hit, with unit sales down about 50% in 2022 from last year. “The whole segment of the market has gone for us,” she said.

“We are a ‘want -‘ not ‘must -‘ to have articles in our main categories,” Shanahan said. “What we somehow see is that people maybe buy a $ 50 gift that goes down to $ 35. And the whole bottom tier isn’t even buying, it doesn’t have the discretionary funds.”

Schuyler Northstrom of Uinta Mattress, a mattress manufacturer in Salt Lake City, Utah, says it has raised its prices by 15% since 2020. A mattress that used to wholesale for $ 289 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 fears that a rise in prices will cause its customers to drop it.

“The rejection of retailers is pretty strong there,” he said. Its retail partners include John Paras and 2Brothers Mattress mattress stores, both in Utah. “Sometimes we get moved by some of the older kids with a cheap product because of their volume.”

To fit in, Northstrom is redesigning the mattress to reduce costs and make less profit, which isn’t sustainable in the long run, he said. He’s also focusing more on high-end, mattresses costing up to $ 1,200, which haven’t been hit that hard.

“We feel it, we are not a necessary purchase, people buy food and gas,” he said.

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This story was changed to correct the survey group name in Goldman Sachs 10,000 Small Business Voices, not Goldman Sachs 10,000 Small Businesses.

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AP business writer Christopher Rugaber in Washington contributed to this report.

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