February 27, 2012

Gas Prices Are On The Rise (Again) – Part 1 of 2

gas prices small food businessGas prices are in the news again with the analysts predicting that the median cost in the US for a gallon of regular unleaded will flirt with the $4 mark this Summer and 16 of the top 20 US metro regions will likely experience record high gas prices.  Since there’s little you or I can do about the actual cost of gasoline on the global market, the question really is what does that mean for us small food business owners and how might it impact our Summer business? 

Filling Up Will Get More Expensive

I realize that this is a no brainer but bear with me for a minute.  Filling up doesn’t just impact mobile food businesses like food trucks that rely heavily on gasoline to get them from place to place.  The cost to fill up your car will also go up so that means every time you run out for ingredients or every time you make a delivery it’s costing you more in gas then it used to.  Even if you have a wholesale company to deliver ingredients to your kitchen I wouldn’t be at all surprised if a fuel surcharge gets added onto your delivery costs at some point soon – all of which eats into your profit margin.

So what can you do about it?  If you’re a food truck or other mobile food business you may want to take a look at this post I wrote about a year ago when gas started to do its annual Summer rate hike.  If gasoline isn’t a major factor in your day-to-day business you should still try to minimize your business-related trips (ie – start making a list of everything you need from the store so you don’t have to keep going back for forgotten ingredients!).  If your wholesaler has added a fuel surcharge and you have the cash available and enough storage space, you might consider ordering in more nonperishable ingredients so you have to order from the wholesaler less often and thus help spread the cost of the fuel surcharge amongst a greater number of ingredients.

Lastly, if part of your business strategy is delivery-based then perhaps you need to consider adding in a fuel surcharge of your own to cover your rising costs.  Before you do that though you should make sure you understand whether you’re clients will be willing to handle the price increase.  It may be one thing for a bride and groom to pay a one-time fuel charge on their wedding cake delivery but another thing altogether for someone who receives weekly meal delivery to pay a surcharge every week.  Make sure that you don’t think you’ll lose more customers as a result if you do add in a surcharge.

Getting Around Gets More Expensive For Your Customers Too

As gas prices rise people without easy access to mass transit (or those who simply don’t want to give up their cars) may start taking a closer look at their own driving patterns and figuring out where they can cut trips and save expenses.  This could mean, for example, that your little out-of-the-way café is now seen as a little too out of the way to be worth it for your customers.  If you worry that gas prices could drive customers away from you perhaps you should consider some promotions that you could put in place if you start to notice a drop-off in business.  Things like loyalty programs which reward customers for coming back to your location can be a great way to keep those customers coming through your doors.

Depending on your business strategy and location, if gas prices impact Summer travel plans that could either help or hurt your business.  I remember when I lived in New York it would seem like every Summer weekend I had the city to myself as people scattered to the Shore or the Hamptons.  With gas prices rising, more people may opt to stay close to home this year.  If you’re a local business this may be great for your business because people will be sticking around but if you rely heavily on tourism you should start to consider what you can do to bring in both locals and any tourists that do show up.  Running promotions like “Locals Specials” that are valid for tourists too help make tourists feel like they are getting a great deal and are part of the “in” crowd during their vacation (everyone likes to feel like a local when they travel, right?).

Shipping Costs Will Go Up Too

It sounds like a nasty refrain at this point but lest wholesale businesses or those of you who ship your products directly to customers think you’ll get off easy, the truth of the matter is that shipping costs will likely also rise as gas increases.  Obviously, this means the cost to ship your product will increase as well and you need to weigh your margins against a concern that people may no longer be willing to pay an increased shipping rate.  For wholesalers you could try encouraging your stores to purchase more quantity – even if it means you have to provide them with Net Terms so that they don’t have to pay for all of the product up front – so as to save them or you (depending on who pays for wholesale shipping) on shipping costs.  For those who are selling directly to customers and shipping your product to them, now is a great time to explore the various shipping options available to you and see, if you don’t already have one, whether signing up for an account with one shipping company over another might help save money.   Alternatively, if your product costs are low enough, you might want to offer promotions like “Buy One Get One” to your customers so that they’re incentivized to purchase from you regardless of the shipping cost.

As this is a longer article this is Part 1 of 2.  Check back tomorrow for the second half.

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