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Companies Address Impact of Energy Costs

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August 26, 2005--Record-high levels of oil prices are causing small business owners to re-think their business strategies, despite otherwise good business conditions.

Oil prices rose to about $68 per barrel Friday, a record level and about $20 higher than August 2004. In the past month alone, crude oil prices have risen about 10%.

The high oil prices affect more than just transportation and trucking companies. The implications expand to affect companies in less obvious ways as well, mainly through the supply chain. "We keep seeing costs go up and up," said Seth Goldman, "Tea" EO of Bethesda, MD-based Honest Tea, which sells tea in petroleum-based plastic bottles. So far, Goldman has evaded raising prices by opening multiple production facilities, which minimizes shipping costs.

In the face of higher oil prices at the beginning of the summer and a need to find innovative ways to cut costs, small business owners felt optimistic, according to a July Small Business Economic Trends Report by the National Federation of Independent Business (NFIB). Now, in late August, the optimism "certainly has waned, but it's still at a pretty high level," according to William Dennis, senior research fellow at the NFIB Research Foundation.

Goldman said he remains optimistic because Honest Tea's business has increased this summer, despite the rising costs in his supply chain. He attributed Honest Tea's growing success to warmer weather and an increasing popularity of organic products.

Dennis said that for small businesses in general, the high costs of oil are balanced by otherwise good business conditions. "Sales are good. Earnings are pretty good, so some of the small business owners' optimism probably comes from that" he said, adding, "Entrepreneurs tend to be pretty optimistic people."

Last updated: Aug 26, 2005




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