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Some customers repel when small businesses raise prices

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MAE ANDERSON, AP Business Writer

NEW YORK (AP) — Inflation doesn’t just cut costs for small businesses. It also costs the customer.

At the Bushwick Grind Cafe in Brooklyn, New York, rising costs for milk, coffee, paper products and plastic, as well as paper cups and plastic lids. Since opening in 2015, she has never experienced anything like this.

Williams-Davis says he’s lost nearly half of his regular customers. Some users cut prices so that instead of paying her $3 on the bill, he buys coffee for $1 at McDonald’s or the bodega on either side of the cafe.

“If[customers]can get it for $1 without much of a difference, they’re going to go next door.”

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A customer who had been coming for years stopped by and told Williams-Davis that he had purchased a coffee maker.

“He said he’s going to make coffee at home. I’m not going to be here every day because I need to make a budget,” she said. To do.”

Inflation is rising at nearly the fastest pace in 40 years, driven by robust consumer spending and rising costs for food, rent, health care and other essentials.

On Tuesday, the government is due to report that price gains slowed in August compared to a year ago, mainly due to steadily falling gas costs. Prices for other items, especially food, may continue to rise rapidly. Overall, economists expect consumer prices to rise 8.1% year-on-year in August, down from 8.5% in July, according to data provider FactSet.

For much of the pandemic, small business customers were tolerant of price increases and continued to spend. But now the owners say they’re seeing some backlash.

According to a Goldman Sachs 10,000 Small Businesses survey of more than 1,500 small businesses, 97% of small business owners say inflationary pressures are the same or worse than they were three months ago. 65% raised prices to offset rising costs. Thirty-eight percent also said price increases have reduced customer demand.

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 the purchase of new tires. rice field.

Earlier this year, Miskelley’s labor costs rose 12%, and higher gas prices increased the cost of a tow truck to the shop. Parts are also more expensive. Last year, air conditioning processors cost $200, and this year he can’t find one priced below $400. So we had to increase the average repair price by 30% to 40%.

Her customers have noticed.

“Most of the time I can joke about how dramatically things are changing now, and most people agree with me,” she said. We will deal with it.” This includes infrequent yelling and swearing by customers.

“Many of my older clients who have income restrictions like Social Security say they need to reduce their income,” she said. I know, but we need to do a few more rounds[of Social Security]to save the money.”

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

“It’s kind of disappointing because costs have risen faster than I can catch up for now. I hope eventually people will budget better and incomes will change to reflect the economy.”

The setback is more dramatic among consumers with lower discretionary income. According to Walmart, customers with lower incomes tend to spend more on food and less on other goods. Small business owners see much the same thing.

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

“Last year has been challenging to say the least,” she said. “Prices of everything are going up across the board.” Cardboard, containers, food in baskets, everything is going up.

She implemented a 5% price increase to cover some costs. She said her sales declined after she raised the price of her best-selling sympathy gift basket, called “One Tough Cookie,” from $27.50 to $28.95.

Cheaper baskets, such as gifts and candy priced at $25 or less, were the hardest hit, with sales in 2022 down about 50% compared to last year. It’s gone for us,” she said.

“We ‘want’ rather than ‘have’ items in key categories,” Shanahan said. “What we are seeing is people who probably buy $50 gifts are dropping to $35. Is not.”

Skyler Northstrom, of Uintah Mattress, a mattress maker in Salt Lake City, Utah, said prices have increased 15% since 2020. A mattress that used to sell for $289 is now $330.

This increase does not fully cover Uinta’s higher cost. Raw materials such as springs and foam increased by 40%. But Northstrom fears customers could drop him if he raises prices any further.

“The backlash from retailers is pretty strong,” he said. His retail partners include his John Paras mattress store in Utah and his 2Brothers Mattress. “Sometimes, because of volume, we’re superseded by larger players with lower-cost products.”

To adapt, Northstrom is redesigning its mattresses to cut costs and reduce profits, but this isn’t sustainable in the long run, he said. We’re also focusing more on high-end mattresses that cost up to $1,200, which we don’t get.

“We feel it. We are not buying needed. People are buying food and gas,” he said.

Christopher Rugaber, AP Business Writer in Washington, contributed to this report.

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