GAS PRICE PINCH

Rising fuel costs hit small businesses

Special to The Globe and Mail

A customer holds a gas nozzle in Oakville, Ont., April 20, 2011. (Richard Buchan/RICHARD BUCHAN/THE CANADIAN PRESS)

Steak is off the menu, comfort food is in and prices are up by as much as 20 per cent at the Yellow Belly Brewery in St. John’s, Nfld., this spring, partly because of rising fuel costs.

Owner Brenda O’Reilly says her expenses have increased steadily since she opened her micro-brewery and gastro pub three years ago, but the sudden price hike at the gas pumps this year has been “the straw that broke the camel’s back.”

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In addition to coping with higher labour costs and escalating commodity prices, her main supplier has slapped a steadily rising fuel surcharge, now up to $3.50, on every delivery – a cost that significantly cuts into profits.

“Now we have to respond by changing our menu. We can’t just suck it up any more,” Ms. O’Reilly said.

Ms. O’Reilly said she can raise some prices -- on her new menu, salmon is about to go to $32 from $27 and braised short ribs will cost $28 instead of $25.

But customers will only pay so much before they decide to eat at home.

So her menu now includes items that are inexpensive and easy to prepare, such as rice balls and grilled cheese sandwiches as appetizers, and fish and stews that use cheaper cuts of meat as main courses.

“I have to keep my proper margins and look at what is the maximum I can sell it for without the customer feeling ripped off. It’s a real challenge,” said Ms. O’Reilly, who has 50 staff.

Forced menu changes and higher restaurant prices are just one of the ways record-high fuel costs are affecting small business this spring. Surveys for the Canadian Federation of Independent Business show that fuel costs are now the biggest concern for small business owners. Seventy-five per cent of members said they’re worried about rising fuel prices, compared to 50 per cent who were worried two years ago.

CFIB chief economist Ted Mallett said wide fluctuations in fuel prices over the past few years have created a lot of uncertainty for business owners and make planning especially difficult. Many have signed contracts or service agreements based on costs several months ago, and “if they guessed wrong about fuel prices, it comes out of their bottom line.”

Even if they haven’t locked in to a certain price, many small businesses cannot pass on price increases without losing their customers to a larger competitor, he said.

Some have already lost business as consumers cut back on expenses to cope with their fuel bills.

Ken Simpson, who owns Markham, Ont.-based Fieldstone Windows, a window and door installation company with 10 full-time employees, said business is down about 15 per cent this spring, partly because consumers are tightening their belts.

At the same time, manufacturing and shipping costs have increased about 5 per cent, Mr. Simpson said.

Fieldstone installs “high-end” doors and windows and can pass a price increase on to customers. But Mr. Simpson has been forced to streamline his operation to cut fuel charges.

He said salespeople now make just one visit to a potential customer instead of two, quotes are sent and negotiations conducted by e-mail or on the phone instead of in person, and installation crews have been told to be sure they have everything they need before they go out so they don’t have to make repeat trips and have to make costly refills to their gas tanks.

One staffer has switched to driving a diesel truck which gets better mileage than gasoline, and Mr. Simpson’s service manager has abandoned his cube van for a Toyota Camry.

Steve Thomas, a real estate agent with Sutton Group Solutions Realty Inc., who covers a region north of Toronto, says his business is down because potential customers have decided not to move out of the city this year to avoid high commuting costs.

Most springs, he said, he has three or four customers who want to move out of Toronto and commute to the city to take advantage of lower real estate prices. He said he has had none this year because people are concerned about the extra fuel costs that come with a long commute.

“It’s a big concern,” he said. “It means I’ve got to find other ways to replace the deals I would normally be doing. Generally, I have to go further and further out of my area.”

Mr. Thomas said he normally sells 20 to 25 homes a year and will have to make two or three extra sales to make up for the loss. For the first time, he listed a home in Niagara Falls this spring – a 90-minute drive from his office.

Some business owners say there is little they can do but hope fuel prices drop. Deborah Mohr-Caldwell, vice-president and director of the Ottawa-based transportation and construction services company Goldie Mohr Ltd., said her fuel prices nearly doubled in March.

She said she is holding tutorials to teach drivers about fuel efficiency, but otherwise cannot cut costs or pass the increase along to her customers since most of her contracts are tendered.

“If things don’t change, it will show up dramatically on my bottom line at the end of the year,” Ms. Mohr-Caldwell said.

Special to The Globe and Mail

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