After two years of navigating the pandemic and losing business, coping with inflation has been another challenge for Dana Buchanan, co-owner of local restaurant business Primal Alchemy.
Over the past 20 years, Primal Alchemy experienced steady growth in Long Beach, with its roots in sustainable and seasonal menus, until March 2020 when virtually all business disappeared in one day, Buchanan said.
“We lost everything,” Buchanan said.
Although Primal Alchemy was able to creatively pivot and alter its business model amid the pandemic restrictions, “every day was stressful,” she said. “He wasn’t paying the bills.”
While the city and other organizations initially stepped up to provide grants, funds eventually began to dry up and the business was left in “no man’s land,” Buchanan said.
“It was really scary for quite a while there,” Buchanan said.
Now, Primal Alchemy is in “recovery mode”, with the goal of reducing the debt incurred to stay in business through 2020 and 2021. A sharp increase in food and labor costs, however , added another hurdle to cross, Buchanan told me.
“A Black Swan Event”
In June of this year, inflation soared to just over 9%, the biggest 12-month increase in the consumer price index since 1980-81, according to the US Bureau of Labor Statistics. .
Over the past two years, inflation has more than tripled, said Laura Gonzalez, associate professor of finance at Cal State Long Beach.
While in November 2022 inflation had fallen to 7.1%, providing some relief, costs remained high for business owners and consumers.
According to a National Federation of Independent Business (NFIB) Small Business Economic Trends Report in November, although inflationary pressures have eased slightly for small business owners, it remains a major concern.
While many things are contributing to current inflation rates, the biggest drivers are energy prices, disruption to supply chains and labor shortages, Gonzalez said.
As a result, food and energy prices experienced the strongest increases. According to the US Bureau of Labor Statistics, food prices have risen an average of 10.6% and energy prices by 13.1% over the past year.
“Obviously, COVID was a black swan event that disrupted the economy and changed the world,” Gonzalez said.
The pandemic has accelerated some trends that could continue to impact the economy, primarily around technology development and automation, especially in restaurants and supermarkets, Gonzalez said.
Inflation rates, while high, are not breaking records in the United States. In 1980, inflation reached over 14%. However, before the 2008 crisis, when there was a housing bust and high unemployment, inflation was markedly low, signaling a lack of economic growth, Gonzalez said.
Following the 2008 recession, the economy went from growing without inflation to growing around 2% a year, to support a growing economy, Gonzalez said.
“When we say it’s big variations, we’re talking about American standards,” noted Gonzalez, a native of Spain. “Here, when we have a case of unemployment of 5 to 10%, we are very worried, but 10% in Spain, for example, is what we have in times of economic boom.”
Today, the Federal Reserve aims to keep inflation under control, and in mid-December interest rates were raised for the seventh time this year.
For Gloria Bradley, a Long Beach resident, real estate agent and driving instructor, business has been hit hard between the pandemic and current inflation rates.
Gas prices have been particularly tough for his two businesses, and it’s been a relief to see prices finally start to come down, Bradley said.
“When you have higher prices affecting your business and your lifestyle, you really have to reevaluate,” Bradley said. “If I go (to Corona) to show a property, I have to make sure I show five or six properties in hopes that (my) client finds something.”
Combined with rising interest rates due to inflation levels, not only has Bradley been unable to help some of her clients move forward with a purchase, it has left her without revenue.
“As a real estate agent, I can go months without earning any income. I only get paid when I help a client buy or sell,” Bradley said. a lot of people don’t look, especially when you look at the self-employed.”
Thanks to the savings, Bradley was able to navigate through the pandemic and current inflation rates, she said.
During the few months she couldn’t fully work, Bradley channeled her energy into entrepreneurship, starting her own travel agency, a business that is now ‘booming’, as well as a car business. -independent school.
“I’m always hopeful and always try not to focus on the negative,” Bradley said. “Yes, some things are high, some things have to come down, of course, but we have to make sure we live within our means.”
A balancing act for the Fed and business owners
Right now, the Fed’s goal is to get inflation under control, bringing it down to around 2% without increasing unemployment, Gonzalez said.
“The biggest fear is that unemployment will start to rise before inflation is brought under control,” Gonzalez said. “And when that happens, the Federal Reserve will be in a very tough spot.”
While controlling inflation requires raising interest rates, in order to create jobs, interest rates must come down, Gonzalez said.
“They have to choose which problem to solve first,” Gonzalez said. “Normally what they do is try to control inflation first, which means unemployment may not get immediate relief.”
With high interest rates, it is more expensive for businesses to borrow, which means there are fewer opportunities to expand and increase production, resulting in a hiring freeze and a potential loss of jobs, Gonzalez said.
Gonzalez urged local business owners and consumers to hold off on large purchases, if possible, in hopes that within a year interest rates and inflation will start to come down, she said. declared.
“Unless something unexpected happens, we should be in much better shape by the end of 2023,” Gonzalez said.
For many companies such as Primal Alchemy, increased costs have led to higher prices for services, Buchanan said.
“Now people are in sticker shock, people aren’t used to paying these prices for these types of events before the pandemic,” Buchanan said.
However, people are catching up on lost time and planning events they couldn’t have done in the past two years, making it overall a bit busier for Primal Alchemy than in 2019, Buchanan said.
Plus, “we’re finding that a lot of restaurant businesses haven’t been successful, and we’re getting business that could have gone to some of our competitors,” Buchanan said.
Navigating the company’s pricing structure to remain profitable and pay down debt, while remaining accessible to customers and without sacrificing quality of food or service – while securing staff to run events – has been difficult, but despite that, it was a successful year, she told me.
Despite recent challenges, Buchanan is optimistic about 2023, with a fair amount of business already booked, she said.
“It’s been a really big dance getting what our customers need in a budget they can afford and making sure we’re giving them the quality product that we’ve known for 20 years,” Buchanan said.