Small Biz Feels the Bite from Gas Prices
A year ago, spiking gas prices caused a sharp pain in wallets across the country. A year later, the cost of filling up the tank is now a daily sting -- with the national average for a gallon of gas hitting about $2.91, compared to $2.23 last year. Indeed, the ripple effect that has been created as the price of gas tops $3 a gallon in some areas runs both wide and deep. Everything from transporting goods and services to taking a taxi to the prices on products that are dependent upon oil have all been dramatically affected by the soaring costs.
Small businesses -- which consistently rank as one of the hardest-hit sectors when it comes to fluctuating prices -- remain particularly vulnerable to the continuous northward trek of fuel costs. Prompted last year to address how this volatility was directly affecting their bottom lines, small outfits have been forced to factor in ways to cope with rising fuel costs.
"Small firms are using whatever strategy they can," says Bruce Phillips, senior economist at the National Federation of Independent Business, a Washington, D.C., advocacy group. "If prices stabilize, the effect might be more modest, but if it continues to increase, we will see [more] of the recent surcharges on everything from deliveries to wholesale to retail. The question is, will small businesses eat the pain or pass it on to consumers?"
"FUEL IS EVERYTHING."
Many large companies have taken the latter route. But for small businesses, this isn't always the easiest option, because their often razor-thin margins and the issue of competitive pricing can mean the difference between profitability and going out of business. Still, many small-business owners have begun adding surcharges this year.
One of them is Darren Forse, who owns Forse Transportation, a trucking-freight service based in Houston. He says that in order to stay afloat in the highly competitive transportation business, he has had little choice but to add fuel surcharges: "In our industry, fuel is everything. It's the business."
Forse began charging a 10% fuel surcharge on gas when the price went above $1.85 a gallon. This year, he has had to more than double that, to 26%, in order to keep pace with gas prices. "We knew gas prices were going to rise," he says. "We just didn't know how dramatically."
Moreover, Forse says the rising cost of gas has had other wide-ranging affects on his business. For one, companies that used to hire his companies every day for their shipping needs have cut back to twice a week, to help curb costs. "That has hurt us business-wise," he says. "[When] the money isn't there every day, it hurts our backlog and ability to pay bills."
Forse says that his drivers, 70% of whom own their own vehicles, are being hit the hardest. They earn about a 65% commission for their runs, which can average anywhere from $30,000 to $45,000 a year. Last year, the drivers could count on paying between $4,000 to $5,000 for gas, but now that figure has doubled. "It really hurts them," he says.
Oil prices have also become a key factor for business owners in the launch stage. Steve Rosen, CEO of Frannet, a franchise networking consultancy based in Blue Bell, Pa., that works with entrepreneurs interested in starting a franchise, says gas prices have become a startup issue for the first time. "We're beginning to hear from clients that it's having an impact on the type of businesses people are looking for," says Rosen. "[The price of gas] used to be a non-event. If they wanted to do retail, they did retail. [But] now, they're worried about whether consumers will go to the shopping center as regularly as before because of gas. And if consumers are beginning to think about the cost of making that trip, it can have an impact on sales."
However, as gas prices continue to rise, a number of small businesses are finding innovative ways to cope beyond charging more for their products or services. Toby Junkunc, the owner of two Ventura County, Calif., FiltaFry franchises, has found a way to turn waste into gas. Junkunc's business filters the oil from restaurant deep-fryers, a process which removes food particles and allows the oil to be reused. Now he has begun to take the vegetable oil that he was unable to filter and convert it into biodiesel for his vans.
Junkunc, who also owns a side business which processes biodiesel fuel, sees this as a win-win proposition. His fleet of five FiltaFry vans regularly travel anywhere from between 100 to 150 miles a day to reach his clients, consuming some 7,200 gallons of gas a year. By using his converted biodiesel, Junkunc estimates that he can shave $1.50 to $1.75 off a gallon of gas that is currently costing anywhere from $3.00 to $3.50 a gallon, creating a savings of $12,000 a year.
"I come from a biodiesel background," he says, noting that he already uses converted diesel from vegetable oil for his personal Chevy Blazer. "I see this as a good fit."
Not to mention, it helps take some sting out of a visit to the pump.
For more ideas on dealing with rising gas prices, see BW Online, 4/26/06, "How to Ease the Pain at the Pump."