CHICAGO — In 2018, Reyna Gonzalez bought Dulceria La Fiesta, a Mexican candy and party store on Clark Street in Chicago's Rogers Park neighborhood. About three weeks later, the building caught fire. “We lost everything,” Gonzalez said.
Gonzalez reopened the store in July 2020. She taught herself how to make the custom piñatas that now make up the bulk of her business. For a while, things were going well; in 2021, she said, her sales tripled. But this past winter, the omicron variant hit Chicago.
“It hit us hard,” she said. “We’ve been struggling ever since.”
Because the store was closed in 2019, Gonzalez wasn’t eligible for most pandemic relief programs, such as the federal Paycheck Protection Program, which require tax documents from 2019. She said she and her husband, who maintains a job outside the business, have exhausted their savings trying to keep the doors open. Now, rising costs have compounded her woes.
In midwinter — just as she was losing business — suppliers of the Mexican candy she stocks in the store started to raise their prices. Some items are now 50 cents to a dollar more expensive, Gonzalez said.
Gonzalez decided to lower prices on some products in an effort to draw customers in. She soon found herself having to raise them again, because she was losing too much. In recent weeks, Gonzalez said, it’s started to seem like business is picking up again. She’s hopeful.
After two grueling pandemic years, inflation is climbing the list of challenges for small businesses. The consumer price index rose 7.9% in February from a year ago, the highest it’s been since the early 1980s. The regional consumer price index for the Chicago, Naperville and Elgin area was up 7.1% from a year ago, according to the U.S. Bureau of Labor Statistics.
Some in the Chicago small business community are hopeful, saying business has picked up in recent weeks. But costs are rising across the board, prompting many small business owners to increase prices while others try to hold out to avoid losing customers.
In a PNC economic outlook report conducted earlier this year, just more than half of U.S. small business owners said they expected to increase their prices over the next six months. The survey was conducted before Russia’s invasion of Ukraine, which has exacerbated existing concerns about inflation and supply chain disruptions. Meanwhile, most pandemic-specific aid programs have dried up.
“Small business owners are really struggling,” said Lotika Pai, the chief financial officer for the Women’s Business Development Center. “They feel the pain a lot more than larger corporations do. Because larger businesses have access to capital markets, they have greater cash on hand, they have access to bigger lines of credit.”
When supply chains are constrained, Pai said, suppliers tend to favor larger businesses over smaller ones.
Teresa Ging, the CEO of Loop bakery Sugar Bliss, has noticed business picking up. After working for much of the pandemic on her own or only with a pastry chef, Ging has close to 10 employees in the bakery, and she’s hiring. She’s developed a packaged cookie line that will launch with Walgreens later this spring.
Ging’s seeing a “huge demand” for corporate orders in particular. “They’re not as conscious of prices as a consumer buying one cupcake,” she said.
Still, Ging said, inflation and supply chain disruptions are a challenge. The cost of everything has gone up: flour, sugar, butter, eggs, even paper cups and cupcake boxes. “It’s not even 1 to 2%,” she said. “It’s probably 10% to 20%, depending on what it is.”
Ging used to use a certain kind of dipping chocolate for the cake pops at Sugar Bliss; she had to change brands because of supply chain issues. Sugar Bliss just increased the price of their coffee for the first time in about five years. Ging is expecting to raise cupcake prices, too.
Martha Razo, the CEO at Guero Pallets, a family pallet business located in South Austin, said she’s losing about 12 cents per pallet due to rising costs of lumber and fuel, which adds up to about $10,000 in a month. For now, she’s eating the cost so that she doesn’t lose customers, which include food, technology and packaging warehouses that use her products to store and move their own. When her losses get up to 15 cents per pallet, Razo’s decided, she’ll have to raise prices.
Geri Sanchez Aglipay, administrator for the U.S. Small Business Administration’s Great Lakes region, said inflation is particularly challenging for women-owned small businesses, which she said tend to be clustered in industries like food and retail that have been most heavily impacted by the pandemic. Still, she said, inflation and supply chain issues have not stopped Americans from opening new businesses, with more than 5 million opening last year.
After plunging more than 30% in March 2020, the number of small businesses operating in Illinois is approaching pre-pandemic levels, according to the Economic Opportunity Insights Tracker, a project from Harvard and Brown universities tracking the economic impact of COVID-19. As of January, the number was down 10% compared with January 2020, according to the tracker.
“I think it’s still hard,” said Sandi Price, the executive director of the Rogers Park Business Alliance. It seems like as soon as businesses get past one hardship, another one pops up, she said. Still, Price added, the neighborhood saw more business openings than closures in 2021.
Phil Moy, operations manager for the Hyde Park Chamber of Commerce, said small businesses are still having a hard time finding qualified employees, a concern echoed by others across the city. Rising costs have made it hard for businesses to avoid raising prices, he said. “It’s hard to find a lunch less than somewhere in between $15 and $20, where it seems to me that lunch was a $10 item years ago.”
Pai said that for many of the small community-based businesses that work with the Women’s Business Development Center, raising prices isn’t an option. They’re trying to remain accessible to the communities they serve, Pai said. Instead, they’re taking a hit to their profits.
In 2021, the average family had to spend $3,500 more than the year before to purchase the same goods and services, according to an analysis by the University of Pennsylvania’s Penn Wharton Budget Model. Low-income and working-class families were most affected, the model found, because they spend a higher proportion of their income on “necessity goods” such as food, energy and transportation. The model found that for households making between $20,000 and $100,000 a year, increases in wages offset the higher cost of living on average. Working households making below $20,000, however, saw wages increase only about one-third of the increase in their cost of living.
Relief from inflation is not coming soon, said Phillip Braun, a clinical professor of finance at Northwestern’s Kellogg School of Management. “I view inflation as continuing to rise into next year,” he said. Braun said the Federal Reserve would need to raise interest rates more aggressively in order to have an impact on inflation. “Right now, their policy’s not that aggressive,” he said.
Like Gonzalez of Dulceria La Fiesta, Jesse Reed wasn’t eligible for most pandemic aid programs. He opened his sustainable dry cleaning business, Green Collar Cleaners in Hyde Park, in January 2021.
Business picked up starting last fall, he said, but things have gotten challenging over the last month. He believes inflation has played a role in slowing business down, with some people afraid to spend as much as they used to. Products he needs, from invoice tags to garment bags, are more expensive. There’s a hanger shortage, so he’s offering a hanger recycling program. Reed hasn’t yet raised his prices, but he’s considering doing so for his wash-and-fold services.
Reed said he’s not concerned about his customers abandoning him for traditional dry cleaners, which tend to be cheaper. His customers are eco-conscious, he said, and value his services even though they might cost more.
He is worried, though, that as paychecks get stretched further, people might decide to just wash their clothes at home.
The problem is twofold, Reed said. “People are spending less, and I have to spend more on products.”
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