November 26, 2022

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

Source: Andriya Rances

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

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

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

A case of eggs, which accounts for about 30% of her products’ ingredients, jumped to about $45 from $19, Nguyen said. She saw the price of flour, butter and sugar also increase 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, which carried clever messages such as “Wash Your Hands,” “Don’t Touch Your Face,” or more recently, “Just Vaccinated,” as saving her business during the crisis.

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

“It clearly wasn’t enough to keep up with inflation,” Nguyen said.

In January, wholesale prices were up 9.7% over the past 12 months, according to the producer price index from the Labor Department.

Many businesses are reacting to spiking inflation by raising prices for consumers. About three-quarters of small business owners said they are experiencing rising supplies costs, according to a new CNBC/SurveyMonkey Small Business Survey. While that response mirrored the one in the fourth quarter, the survey indicated the number of businesses passing on costs to customers has risen — to 47% in the first quarter, up from 39% during the previous quarter.

A separate survey by the National Federation of Independent Business found that about 22% of respondents reported inflation was their single-most significant business problem last month. When you factor in other big concerns like labor shortages and rising wages, small business owners are really struggling, said Holly Wade, executive director of research for NFIB.

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

These pressures are brand new for most small business owners, thanks to years of low inflation.

“It is incredibly competitive on both fronts, with labor and securing inventory, so they are having to absorb those costs and pass most of those costs onto their customers in higher prices,” Wade said.

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

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

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

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

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

“Change looks like raising your prices, or growing the business to meet the costs of just 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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https://www.cnbc.com/2022/02/16/inflation-has-slammed-small-businesses.html