The supply chain crisis is impacting Silicon Valley businesses, big and small.
The San Jose Chamber of Commerce held a breakfast Thursday where business leaders discussed how inflation and COVID-19 have impacted their shops, and shared how over the last two years things have gotten more expensive—and unpredictable.
“Last year was kind of a perfect storm around reduction in supply (and) increase in demand because we were all ordering online, and having difficulties with shipping and transporting goods,” Seaver said.
When local governments ordered businesses to close in the beginning of the pandemic in March 2020, it slowed the production of goods and means of transport such as cargo shipping and trucking. Consumers turned to ordering online, which sped up demand that production couldn’t keep up with, Seaver said. That coupled with increased stimulus funding led to more demand—which led to a scarcity of supply and inflated prices.
“The problem has become so much more pervasive now,” Seaver said, adding these types of supply chain issues used to affect large international firms, so it’s unique that small businesses are feeling the heat.
Frank Nguyen, owner of Academic Coffee in downtown San Jose, said he’s purchasing inventory for his shops three to four months in advance—and ordering a year’s worth of coffee to avoid inflated costs.
“As soon as I saw the price of gasoline skyrocket, I told my team, ‘let’s ship out the coffee now and find space for it,’” Nguyen said. “Because if you don’t get those deliveries in now, we’re gonna be spending hundreds of dollars to ship product that we have already paid for.”
He said he also saw the price of butter nearly double, which forced him to move away from butter-heavy desserts and start selling more bread products that don’t use butter.
Noelle Boesenberg, who owns and operates TherapyBaking out of her home, said she had to shift her products as well. She said four pounds of butter increased from $8 to $16 and a pallet of eggs increased from $8 to $11 in a week.
“When you’re talking about projections, I mean not only is there this issue of forecasting like when to buy,” Boesenberg said. “But also, you don’t know what that cost can be in 12 weeks.”
She said costs are increasing exponentially and to combat it, she started focusing on vegan and gluten-free desserts that don’t rely on the more expensive ingredients.
The small business owners agreed that while the problem in the beginning of the pandemic was related to labor and production, the problem now is energy and transportation costs. The way they try to mitigate increased costs is to buy in bulk and shop locally, even if it’s a bit more expensive, because it’s reliable.
“It’s hard when you have a buying power of zero,” Boesenberg said. “In a sense, there is a positive thing about that. It’s because I’m small, I’m able to be nimble and I’m able to be flexible.”
Costco, on the other hand, has huge buying power. Abel Zuniga, assistant general manager of the Costco on Senter Road, said the store has purchased its own means of production, so they aren’t impacted by the supply chain as much and don’t pass costs on to customers.
For example, Costco operates a meat farm out of Tracy, California and raises chickens in Nebraska. The company also purchased three ships with 1,025 containers so it doesn’t have to rely on other market forces.
“Costco is always still trying to target small businesses as far as partnerships,” Zuniga said. “And if you can resource through the wholesalers, you guys are going get a much better deal.”
Panelists shared advice from building personal relationships to creating detailed financial plans, but Jeffery Nott, a local consultant for small business owners, said the best thing a small business can do is increase prices.
“They always tell me they are scared to upset their customers, but if you can’t make your mortgage then you won’t be there at all for your customers in a year or so,” Nott told San José Spotlight.
He said unfortunately prices will continue to increase, unless there is a recession or depression, so when owners raise their prices they have to increase pay so workers can pay their bills as well.
“If done correctly, it’s supposed to trickle down,” Nott said. “But you can’t cut and save your way to success.”
Contact Jana Kadah at [email protected] or @Jana_Kadah on Twitter.