Some economists say inflation in the U.S. has peaked, but that's likely little comfort to business owners everywhere that are still feeling the pressure of surging and still elevated prices. They're still resorting to increasingly creative ways to stomach higher costs.
Here, four entrepreneurs in four very different industries share their biggest inflationary cost burdens and how they've tackled them.
Hiking Prices--and Not Skimping on the Mayo
At Penn Station East Coast Subs, a Cincinnati-headquartered fast-casual restaurant chain, which has 317 franchise locations (one of which is company-owned), the cost of everything from wheat products to poultry have been surging. Craig Dunaway, COO of the chain, says the biggest surge is in oil-based products like mayonnaise and soybean oil, which the chain uses for its French fries. Costs for these products have generally increased between 8 and 22 percent. One oil-based product, which Dunaway declined to specify, increased by 42 percent ($35 per case to over $49 per case), year over year.
To contend with higher ingredients costs, the chain hiked prices by about 4 to 5 percent in August. That was on top of the three price increases the company had to log in 2021 to account for higher labor expenses. A six-inch Italian sub from Penn Station East Coast subs that cost $5.99 at the end of 2021 now costs $6.59.
Even with the price increases, Dunaway says that the business has seen some margin erosion, but he anticipates that the company can stomach it--provided that inflation gradually cools over the next six to 18 months. Dunaway is adamant about maintaining the business's premium products; cutting back on quality in the name of better margins, he says, would damage the company in the long-run. For now he says that customers haven't complained about prices, and it helps that they've seen similar increases from both competitors and grocery stores.
Curbing Inventory to Keep Cash Flowing
With an average of 25 percent higher year-over-year freight costs, it's little wonder why Jake Bullock--co-founder of Cann, the Los Angeles-based cannabis social tonic brand--is laser focused on weathering economic uncertainty. Between the pandemic delays and labor shortages--and now interest rate hikes, which have made investing in new equipment and facilities more expensive--costs have been ballooning. But raising prices to accommodate the higher costs is something Bullock has been loath to do. For Cann to compete with alternative drinks, like craft beer, he needs to keep the social tonics priced competitively. Right now, the brand's sweet spot is about $24 for a six pack.
For this reason, it's a priority for Cann to keep as much cash on hand as possible--and that means keeping less inventory on hand. "Running leaner allows us to extend our runway," Bullock says. "We've been fortunate to raise money, but today, we're in a more challenging capital market and we're not as sure where our next big fundraise will come from." Cann announced a $27 million Series A in February.
In addition to pulling back on supply, Cann has standardized pricing across markets, which has indeed forced prices higher in some areas. Because the brand considers its tonic a premium product, Bullock says that demand hasn't been hit particularly hard by inflation--which has helped the company to invest in hiring and retaining employees, particularly in sales and supply chain divisions. "We think that the way that you get through these periods of uncertainty is by really relying on your team," Bullock says.
Ordering Supplies Far in Advance
In early 2022, Alodia Hair Care landed a major retail milestone, hitting Target shelves and listing on Amazon. But this year, founder and CEO Isfahan Chambers-Harris also saw a number of cost increases that threatened to dramatically cut her margins. Medium-chain triglyceride, or MCT oil and fragrance--two ingredients in many of Alodia Hair Care's products--increased several times in cost over the course of this year. The price of two products, Nourish & Hydrate Deep Conditioning Masque and Nourish & Grow Healthy Hair and Scalp Oil, rose by as much as $1.20 per unit. While preparing her Bowie, Maryland-based company for its retail expansion, Chambers-Harris also decided to invest in higher-quality lids, which increased costs by about 55 cents per unit. Because the lids are sourced from China, making them less expensive than domestic-made alternatives, they also come with a long order lead time.
Chambers-Harris made the decision to order supplies in bulk during non-peak times (like the spring) in order to secure price cuts from suppliers; she's doubled her average order size for most supplies. Her strategy is opposite of the one that Bullock has followed for Cann, but Chambers-Harris says that bulking up inventory has helped her business to accommodate her brand's new retail channels and reduce the cost per unit of its products--even if it does eat into cashflow. The CEO adds that she is currently pitching her business to investors.
Alodia Hair Care has also boosted prices--between 50 cents to $1 per item--mainly on products offered through the brand's own ecommerce channel and not in its retail partners. For these reasons, Chambers-Harris has invested in ways she can engage customers on the brand's website, like offering a "VIP program" that offers special discounts and a points system to repeat buyers. Currently, the brand gets about 60 to 70 percent of its sales through retail partners, and between 30 and 40 percent from direct-to-consumer purchases.
Cutting Back on Unnecessary Marketing Tactics
Over the past two years, the cost to produce a case--comprising 12 bags--of Reading, Pennsylvania's Unique Snacks pretzels increased by about 35 percent thanks to cost increases for sunflower oil and flour. The former went up about 17 percent after the company switched providers, while the latter saw prices double from 16 cents per pound to 32 cents per pound. COO Justin Spannuth says the business raised its own prices by about 17 to 18 percent in that time, through two separate increases.
Because the majority of Unique Snacks's business comes from distributors, raising prices isn't as easy as updating a website. The business must propose price increases to its distributors, who need to first accept the changes. It's a process that can take four to five months, Spannuth says. "When we finally got our first price increase [accepted], our costs went up so much that we had to do another."
The company also had to make cuts. In particular, it trimmed its social media marketing output and sponsorships. Unique Snacks has seen little impact from this change, but Spannuth admits that it can be hard to measure exactly how much sales those channels previously drove. "It's been a really good lesson in learning what's actually necessary for the business," she says.