Small Business

‘You can’t just sit still.’ Inflation has slammed small businesses. Here’s how one entrepreneur fought back

Amanda Nguyen, founder of cake company Butter&, has had to raise prices after the costs of her ingredients skyrocketed. She also had to find ways to expand her business.
Source: Andriya Rances

Small business owner Amanda Nguyen thought she had gotten through the worst part of the Covid-19 pandemic. Then, inflation hit.

As the owner of San Francisco-based bakery Butter&, Nguyen has seen the prices of some of her ingredients double over the past year.

“When 2021 rolled around, I think it was in some ways even harder than 2020,” she said. “It was really unexpected how hard it would be.”

A case of eggs, which accounts for about 30% of her products’ ingredients, jumped to about $45 from $19, Nguyen said. She saw the price of flour, butter and sugar also increased dramatically.

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Nguyen, 32, specializes in buttercream cakes, primarily for weddings and milestone birthdays, as well as smaller, more affordable “quarantine cakes” that she rolled out during the pandemic. She credits the latter, which had messages such as “Wash your hands,” “Don’t touch your face,” or more recently, “Just vaccinated,” as saving her business during the crisis.

In response to higher costs, Nguyen raised the price tag of her larger cakes by $5, or about 4%, across the board. However, she didn’t change the price of her quarantine cakes, which start at $30.

“It clearly wasn’t enough to keep up with inflation,” Nguyen said.

In January, wholesale prices were up 9.7% over the past 12 months, according to the U.S. Department of Labor’s Producer Price Index.

Many businesses are reacting by raising prices for consumers. About three-quarters of small business owners said they are experiencing rising supplies costs, a new CNBC/SurveyMonkey Small Business Survey. While that number is virtually unchanged from the fourth quarter of 2021, the number of businesses passing on costs to customers has risen to 47% in the first quarter, up from 39% in Q4 2021.

A separate survey by the National Federation of Independent Business found that about 22% reported inflation was their single most important business problem in January. Add in the labor market shortage and rising wages, and they are really struggling, said Holly Wade, executive director of research for NFIB.

A net 50% reported boosting compensation in the NFIB’s monthly jobs report for January, a 48-year record high. A net 27% plan to raise wages in the next three months.

It’s something a good deal of small business owners have never experienced before, thanks to years of low inflation.

“It is incredibly competitive on both fronts, with labor and securing inventory, so they are having to absorb those costs and pass most of those costs onto their customers in higher prices,” Wade said.

Meanwhile, small businesses are feeling the pain of inflation to a much larger degree than bigger corporations, said Luke Pardue, an economist at payroll and benefits provider Gusto, which services small and medium businesses.

“Large businesses have access to large savings accounts and abundant capital markets, but when small businesses feel an increase in prices, it really hits their bottom line,” he said.

Boosting prices to consumers may not be enough to combat inflation, as in Nguyen’s case. Some may be concerned about driving away customers.

For Nguyen, the solution was to become creative, once again. She opened a second business, Pastel, which helps expand the reach of San Francisco eateries — including Butter& — by delivering their products to the suburbs. The expanded customer base has allowed Butter& to bring in an average of $1,000 a week in additional revenue, Nguyen said.

“You can’t just sit still,” she said. “You have to change.

“Change looks like raising your prices, or growing the business to meet the costs of just doing business or reevaluating the conventional ways of doing business and finding a new way that is more efficient.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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