Are Rising Gasoline Prices an Imminent Threat to Small Businesses?

By Patricia Schaefer

Fuel prices affect both individual consumers and businesses, but small businesses often get hit hardest. Read about how some small businesses are reacting to rising gas prices and get tips for dealing with the problem in your own business.

As gasoline prices rise to record highs, many individuals and businesses may be inclined to agree with Congressman Brad Sherman who last year uttered, "What is needed is an all-out science project to get vehicles off of gasoline, rather than off of the earth."

Gas prices have been steadily rising for more than six years. According to the U.S. Department of Energy, the average retail price of gasoline in the United States in March of 1999 was $1.05 per gallon. The price has been rising ever since, with prices reaching over $2.50 per gallon in August, 2005.

Rising gasoline prices affect both individual consumers and businesses, but small businesses often get hit hardest. Small businesses often don't have much of a financial reserve to cover rapid increases in their cost of doing business. Furthermore, they are often the last to get paid when their customers fall on hard times or have higher-than-expected bills.

How Are Small Businesses Coping?
Business Know-How recently interviewed a number of small business owners to see how they were affected by rising gas costs and whether or what, if any, changes they are making to deal with the crisis. We chose businesses like florists and moving companies where gasoline plays an intrinsic and significant part of their businesses.

Here are some of the responses we got.



Pizza Delivery

Santina Matwey, Office Manager
Ray Bari Pizza in Manhattan (3 locations), New York
The most striking way that a pizza delivery service in a big metropolitan city like New York can save money is simple – use bicycles for deliveries. This, says Santina Matwey, is what Ray Bari Pizza does.

On the downside, Matwey explains, "It has been continually hard to maintain our quality level and not raise prices. Customers don't want to see [higher prices] or don't think something like rising gas prices will affect a local store or restaurant. The higher the prices of gas, the bigger the effect on everything else."

Ray Bari Pizza's management is now more conscientious in their efforts to offset losses from high oil prices: "One of the things we do is to try to save money on other things that we use for our business; like getting better prices from our vendors, or cutting down on things that aren't necessary to the operation. [As far as the future], we will continue to cut costs whenever possible without sacrificing the product."

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Maria, Manager
Royal Pizza of Centereach, Long Island, New York
Fifty-nine miles away from Manhattan in a suburban town of Long Island, Royal Pizza of Centereach uses vehicles to deliver their pizzas: a bicycle would take too long in the "burbs." According to Royal Pizza's manager Maria, the rising cost of gasoline has seriously affected their business: "Rising oil prices have affected not only our delivery costs; but it has also affected just about all our costs: cheese, flour, boxes, soda. The distributors are charging us more because their costs are higher as a result of rising oil prices."

Maria describes the owner of Royal Pizza as a man "who grew up really poor in South Dakota," someone who wanted to provide a really affordable product to his community because he knew what it was like to struggle with money. "Our pizzas used to sell for $3.99 a pie," said Maria, "and because of higher gasoline prices, we've had to raise our prices; most recently in 2003, and again in 2005; now a pizza costs $6.90. This doesn't cover our actual increase in costs: You can't charge $15.00 for a pizza, so a lot comes out of our profits.

"I know a lot of small business people in the food industry and they're hurting; business is slow, profits are down, and they're barely staying afloat. Right now they're just waiting it out, hoping fuel costs will come down, but many are considering selling their businesses."

Realty Business

Parker Moore, Owner/Broker
ComSee Horizon Realty, Douglas, Wyoming
In business for almost five years, owner Parker Moore first noticed that rising gasoline prices were affecting his business in 2003. Since then, he said, "Our costs went up, making it harder to justify servicing some of our lower priced homes."

Moore explained steps his realty has taken to combat the negative effects of higher gasoline prices: "We are more conscious of who we do business with and make sure we do not make unnecessary trips to properties out of their price range. We also have our clients come to us to get information sheets on properties before going out to show them a property that they might not like on sight. We encourage them to do a drive by previous to our making appointments. We also are more aware of bunching up our showings in one part of town, rather than driving back and forth across town several times."

Moving and Storage

Jack Wright, Owner
Wright-Way Moving and Storage, Seattle, Washington
"Pennies count," said owner Jack Wright. "When you're using 8000 to 10,000 gallons of fuel per month, five cents less per gallon can mean a savings of $500."

One of the ways he's able to save, said Wright, is to have his drivers fuel up in big cities whenever possible. Small towns in the "middle of nowhere," claimed Wright, usually have higher priced fuel because they are further away from fuel tank farms.

Today, Wright said, his fuel expenses are his second largest cost; just two years ago, fuel costs ranked third or fourth.

These higher costs resulted in the establishment of a fuel surcharge for his customers as well as a loss in profits for his business. Like almost every other small business across the country, Wright-Way shares absorption of higher fuel prices with the customer. "Most customers understand [the fuel surcharge]" he said, "but they don't like it."

Wright-Way Moving and Storage is not the only moving company feeling the gas crunch. According to Wright, more moving companies went out of business in 2004 than in any of the previous ten years.

Florists

Don Waters, Co-Owner
Citrus Valley Florist, Covina, California
Citrus Valley Florist has been in business for 30 years. Co-Owner Don Waters said, "When we first began we did not charge for delivery, and then when the first gas prices began to climb, we began charging for delivery to help compensate for the expenses. In 2003, our delivery fee was $6.00 and this would barely cover the costs of the delivery employee and the expenses of the van. Since Mid-2004, we have raised our delivery anywhere from $7.00 to $10.00, depending on the distance; even then this no longer covers our delivery expenses.

"We try not to always pass the increase on to our customers. I'm a customer and I get tired of always have to pay more because things are out of control. We may not make as much profit but our customers are much happier.

"While we realize everyone is dealing with the same problem, the larger corporation is able to pass the increase on to their customers. If we were to do this at the same rate, we would not have customers to pass the cost onto for very long."

Some Gas Price-Coping Tips for Small Businesses
What it really comes down to for small businesses is to either increase revenues or reduce expenses related to gas costs. Some suggestions:

  • Raise the price of products and services.
  • Bill a separate additional charge, attributed to fuel costs, such as a delivery charge. Customers may be more understanding when they can associate the price increase to the higher price of gasoline.
  • Absorb part or all of higher gasoline prices in order to avoid the loss of customers.
  • Educate drivers on ways they can increase fuel efficiency: Drive at 55 miles per hour on a highway to get 20 percent more miles per gallon than driving at 70 miles per hour; avoid jerky driving or rapid acceleration; run automobile air-condition only when really necessary; use cruise control when possible; shop around for the best price on gas; and don't overfill the gas tank.
  • Maintain vehicles in ways that save on gas: change fuel filter and air filter as recommended by vehicle manufacturer; have vehicles regularly tuned up; keep tires at the proper pressure; and keep the front wheels of vehicles in proper alignment.
  • Conduct route analysis to improve scheduling. Routing and scheduling software can also effectively assist in developing a more cost effective and efficient system.

Copyright 2005 Attard Communications, Inc.

About the author:
Patricia Schaefer is a staff writer for Business Know-How. She can be reached by email at pschaefer@businessknowhow.com 

 

 
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