Inflation hits small businesses: ‘Covid was a breeze by comparison’ inflation
Loveone, an Ipswich gift shop, receives notifications every day announcing price increases of 5% to 10% on the products sold, which usually adds a few pounds to the price of the sticker.
“If I don’t get my orders by a certain date, I have to pay more,” says Cathy Frost, who has run the store for 15 years. “I’m kinda holding my prices right now because I ordered goods six months ago, but if the things I’m ordering now go up in price, I’m like, ‘Will people pay more?'”
Frost is already worried about Christmas. Retailers can have six months lead time to ensure they have the right products for their most important season. “I’m wondering if this cost of living crisis is really going to be felt in October, are people going to spend Christmas?” she says. “I don’t know if people will spend £30 on a candle like they did last Christmas.”
Visitor numbers to Ipswich have been falling, which Frost attributes to people spending less and also the number of people working from home. Small businesses are not protected by an energy price cap and can therefore remain exposed. Frost turned off the heat weeks ago to lower the bills. Meanwhile, labor costs for part-time workers have also increased, further detracting from the bottom line.
“I’ve been here 15 years and been through Covid, but it felt like a walk in the park in comparison,” says Frost. “We knew we were in lockdown and that we were going to come out.”
“You take the punch while you can”
Ben Hancock is Managing Director of Oscar Acoustics in Kent which manufactures and installs interior acoustic insulation. Inflation brings a number of challenges as the £4.5million company plans to expand and add another building.
It will continue to invest, though Hancock says some companies in worse financial shape may not. But inflation is hitting the commodities the company uses, like aluminum for hardware, the price of which can change overnight. The weakening pound hasn’t helped either, making imports from the US more expensive and forcing the company to choose between raising prices or lowering margins.
“You have to protect your customers as well as possible,” he says. “You take the hit on your margins while you can, and then increase.”
The company also sees increased salary demands when looking for new employees. It’s looking for ways to make the job attractive without offering raises, which Hancock fears may not be sustainable if the economy continues to deteriorate. “We’ve got to be a bit cautious as we head into a recession,” he says.
“The risk has gone through the roof”
David Exwood has around 600 cows and farms around 2,000 acres in Horsham, West Sussex, growing crops such as wheat, oats, canola, maize and beans. He is also Vice President of the National Farmers’ Union.
“No one is isolated from what’s going on,” he says. “My fuel bill has doubled, my fertilizer bill has tripled and those are big numbers that mean £250,000 more to me just to continue farming the same way.”
The price of everything from replacement parts to fences and fence posts has gone up. “There’s not much you can do about it,” he says. “Yes, you can get efficiencies, but you can’t find them on this scale. This places a huge burden on companies. You can only hold out for so long, in the end something has to happen. You either have to do less, or have less ambition, or grow fewer crops because you can’t keep making miracles forever.”
Exwood says while the price of his wheat has risen, the harvests he feeds his livestock have risen “much more than that.”
Customers in his farm shop count their pennies. “People are very nervous. You may buy less or chicken thighs instead of breast; They might buy a pot roast instead of sirloin steak.”
He adds: “The risk of farming has gone through the roof. The volatility exceeds anything we have experienced. I can’t budget, I have no idea what the market will do. Farming is a long-term game. I just bought a bull, I will use this bull [to mate] and these calves will not be ready for sale for another three years, 2025. Who knows what the price of beef will be in 2025? It’s anyone’s guess.”
“I must be pretty smart”
When filling up a 400 liter fuel tank in a 44 ton truck, it pays to keep a close eye on diesel costs. Kevin Plews, a director at Plews Brothers, a North Shropshire-based haulage company, says there’s not much they can do about price increases. “It’s always been uphill since Christmas,” he says. “I must be pretty smart how we buy it.”
Fuel cards can sometimes be cheaper, while when prices drop, buying in bulk can be better. Drivers’ wages have also risen, partly due to a shortage (which many analysts say is due to post-Brexit immigration restrictions) and the fact that they themselves are seeing inflation at home. Other increased costs include tires and the urea-based AdBlue that is added to diesel combustion to reduce harmful pollutants.
At least interest rates are historically low for now. “I remember in the ’70s and ’80s when inflation was very high, but we had the added hassle of high interest rates,” says Plews. “If interest rates rise, that’s worrying.”