Inflation hits small businesses. Here’s how an owner fought back

Amanda Nguyen, founder of the cake company Butter &, has had to raise prices after the cost of her ingredients has skyrocketed. She also had to find ways to expand her business.

Source: Andriya Rances

Small business owner Amanda Nguyen thought she had come through the worst part of the Covid-19 pandemic. Then inflation hit.

As the owner of the San Francisco-based bakery Butter &, Nguyen has seen the prices of some of her ingredients double over the past year.

“As 2021 rolled around, I think in some ways it was even harder than 2020,” she said. “It was really unexpected how hard it would be.”

A case of eggs, which account for about 30% of the ingredients of her products, jumped to about $ 45 from $ 19, Nguyen said. She found that the price of flour, butter and sugar also rose dramatically.

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Nguyen, 32, specializes in buttercream cakes, primarily for weddings and milestone birthdays, as well as smaller, more affordable “quarantine cakes” that she introduced during the pandemic. She credits the latter, who brought smart messages like “Wash your hands”, “Do not touch your face” or recently “Just Vaccinated”, to save her business during the crisis.

In response to higher costs, the San Francisco baker raised the price of her larger cakes by $ 5, or about 4%, while keeping the line on quarantine cakes, which start at $ 30.

“It was clearly not enough to keep up with inflation,” Nguyen said.

In January, wholesale prices rose by 9.7% over the past 12 months, according to the producer price index from the Ministry of Labor.

Many companies are responding to rising inflation by raising consumer prices. About three-quarters of small business owners said they are experiencing rising supply costs, according to a new CNBC / SurveyMonkey Small Business Survey. While this response reflected the response in the fourth quarter, the survey showed that the number of companies transferring costs to customers has increased – to 47% in the first quarter, up from 39% in the previous quarter.

A separate survey conducted by the National Federation of Independent Business showed that around 22% of respondents reported that inflation was their biggest single business problem last month. When you include other major concerns like labor shortages and rising wages, small business owners are really struggling, said Holly Wade, CEO of research for NFIB.

Half of respondents reported boosting compensation in the NFIB’s monthly job report for January, a 48-year record high, and 27% plan to raise wages over the next three months.

This pressure is completely new to most small business owners, thanks to years of low inflation.

“It’s incredibly competitive on both fronts, with manpower and inventory securing, so they have to absorb those costs and pass on most of those costs to their customers at higher prices,” Wade said.

What’s more, small businesses are feeling the pain of rising inflation to a much greater degree than their corporate counterparts, said Luke Pardue, an economist at payroll and benefits provider Gusto, which services small and medium-sized businesses.

“Large companies have access to large savings accounts and abundant capital markets, but when small companies notice an increase in prices, it really hits their bottom line,” he said.

Raising prices for consumers may not be enough to fight inflation, as in Nguyen’s case, because of the concern it will drive customers away.

For Nguyen, the solution was to do what came naturally, to be creative. She opened another business, Pastel, which supplies Butter & products and others from various eateries in the area to suburban customers. The expanded business base has allowed her bakery to bring in an average of $ 1,000 a week in extra revenue, Nguyen said.

“You can not just sit still,” she said. “You have to change.

“Change seems to raise your prices or grow your business to meet the cost of simply doing business or reevaluating the conventional ways of doing business and finding a new way that is more efficient,” Nguyen said.

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