Editor’s note: This is the second of a two-part series on inflation. The first part appeared on Page 1 of last Sunday’s Gazette.
As consumers beset by rising prices struggle to put food on their tables and gas in their vehicles, businesses are being hammered as well — with many forced to pass their growing costs onto those beleaguered consumers.
Shoppers might blame groceries, retailers, pharmacies and home improvement stores for higher prices, but those businesses aren’t happy about the situation either, said Christopher Howes, president of the Colorado Retail Council, an industry group representing large chains and big boxes.
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“The first thing people have to understand is, competition between our members is friendly, but vicious,” Howes said. “If you’ve ever been in a big city, you’re going to see supermarkets right across the street from one another. … You’re going to see 7-Elevens right near Kum & Gos. Walgreens and CVS are battling it out across the country.
“I think there’s a myth in some channels in the media that somehow retailers are jacking up their prices and taking advantage of citizens,” he said. “Look, if they did that, then the citizen would just run to the other guy because he’s right across the street. … This is not that kind of industry where you can just jack up prices and the customer won’t notice. The other supermarket is right across the street. You can compare prices, and people do.”
Like other industries, retailers, grocers and the like face supply chain woes and price hikes passed on by manufacturers and wholesalers, he said. The war in Ukraine, soaring fuel prices and higher labor costs also contribute to rising prices that retailers pay and pass on to customers, he said.
“Because of inflation, it’s like a vicious cycle,” Howes said. “Because of inflation, people say they need more to live on. So the price of labor goes up. And then the price of the product goes up.”
And don’t forget spiking energy costs, Howes said.
“We’ve got to heat our stores, we’ve got to cool them off, we’ve got to electrify them, we’ve got to put light on the product so we won’t shop in the dark, he said.
The result: Consumers have nowhere to turn to avoid higher prices, he said.
“It’s the case in every state,” Howes said. “So, it’s not like you can cross state lines and go to Wyoming and find some sort of unbelievable, unimaginable deal. It’s not like there are stores in Colorado with a monopoly. The things you find at Lowe’s you generally find at Home Depot as well. Usually, those stores are only about a mile from each other. So you can shop to your heart’s content, but in this economy that’s been driven by a number of factors, I don’t see prices plummeting anytime soon.”
Retail stores, he notes, “are dependent on the product being shipped via truck. And all that product goes into a big truck. It goes along the highway, and it finally gets to a distribution center in Colorado Springs or Pueblo and none of the gas prices I’ve seen are going down.
“So, that’s all got to be accounted for,” Howes said. “These are public companies. They’re not going to take a loss. You can’t do that. They’re not running a nonprofit. They have a fiduciary duty to the shareholders to turn a profit.”
Maintaining a healthy business for restaurant owners like Jake Topakas, of Jake and Telly’s Greek Taverna in Old Colorado City, means that as the price of goods rise, so do the prices on his menu.
Topkas said he’s not just paying more for things like food and containers, but utilities and wages.
“Almost every possible thing that you can think of has raised in price,” Topakas said. “And not just raised a little bit, but as raised significantly.”
Increasing prices mean customers might buy less — splitting meals or skipping appetizers. Thankfully, Topakas said, business is still good. But that in itself poses a challenge.
“I’m afraid I’m going to have to be closed on Mondays and Tuesdays because there’s such a lack of staff,” Topakas said. “There’s such a shortage of employees.”
Lack of staffing also is an issue for Luke Travins, owner of Concept Restaurants, which includes MacKenzie’s Chop House and Jose Muldoon’s. As are, of course, those rising prices and strained supply chain.
“It seems like every week when we order something, something’s out of stock, whether it’s avocados, calamari — limes quadruple the price they used to be,” Travins said. “We have to go to the grocery store more than we ever had to.”
Rick’s Garden Center in Colorado Springs has seen a jump in the price of plastic pots and garden trays, among other items. Co-owner Dan Hopper said he and his wife, Jeana, have been able to absorb some of the increased costs but in other cases have had to raise prices, too.
“Sometimes inflation is a good thing, like with wages going up,” Hopper said. “That’s a good thing for the workers. But it is kind of a yo-yo effect, where then there’s more demand. Right now, the supply is just not keeping up with demand.”
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Manufacturers are sharing in the pain. Tom Neppl president of Springs Fabrication, which employs 180 in Colorado Springs and Denver, said material prices for the Springs-based specialty metal manufacturing and finishing company have increased 150% in the past year and up to 300% in the past two to three years.
“We haven’t had anything that hasn’t gone up at least 50%,” Neppl said. “It is almost impossible to keep up with the increases. Most of our customers have been reasonable (about accepting price increases), except for the government. They are the least willing to participate in cost-related price increases.”
Most of the cost increases have happened since the pandemic began more than two years ago, though only some of the increases are related to the pandemic, he said.
He blamed a series of trade agreements for some cost increases, especially steel. Prices for steel began to drop earlier this year but have escalated since Russia invaded Ukraine, with prices sometimes increasing daily.
Neppl said material cost increases could make some construction projects unaffordable, resulting in their cancellation.
Springs Fabrication has increased wages in recent months to attract and retain workers. Those costs also are contributing to the company raising prices.
“We have seen commodity price spikes of 50% in the past, but prices would come back down in a couple of quarters,” Neppl said. “This time, prices have gone up more and stayed higher longer. In a lot of cases, we can’t keep up with price increases from our suppliers. Price quotes often are only good for the day they were quoted.”
Patrick Scott, president and a partner in Advantage Manufacturing, a Colorado Springs machining and metal finishing and assembly company that focuses on the aerospace industry, said prices for materials are rising “continually,” prompting the company to impose a surcharge.
Advantage also must order materials two years or more in advance to ensure availability, at any price.
The company also raised wages 10% to 20% late last year to help its 98 employees cope with rising prices and to help it fill openings; it’s also giving entry-level workers raises more quickly to keep them from leaving.
Add surging utility costs to the mix, and all of those factors have combined to require the company to review its prices every quarter, Scott said.
Material prices are increasing even more for technology manufacturers like dipX, a Colorado Springs-based company that employs 136 people to manufacture digital X-ray media.
CEO Lindsay Pack said prices for some rare gases that dipX uses have increased 1,100% in the past year, with some suppliers imposing surcharges for inflation.
Material prices, increasing freight costs and rising wages “does put a challenge on our overall costs,” Pack said.
As a result, the company has put off some projects to remodel parts of its plant near the Colorado Springs Airport, and dipX is about to impose a surcharge to recoup its rising costs.
Rising costs also are hitting local car dealers, pushing prices higher, especially for used vehicles, said David Perkins, president of Perkins Motors, which sells new Chrysler, Dodge, Fiat, Jeep and Ram vehicles in the Motor City area.
New vehicle prices have increased two or three times in the past year by a total of $3,000 to $4,000 — and that’s for what few vehicles the dealership has available on its lot, he said. Because of supply chain issues, vehicle inventories are about 25% of what the dealership had on hand three years ago.
Labor costs have had a major impact on the dealership, which has increased wages for entry-level workers such as parts drivers and delivery staff, who make up nearly one-third of its 130-person staff, by $3 to $4 an hour.
“I can’t get anyone to respond to a job advertised at $15 an hour,” Perkins said. “And you can’t hire somebody at a higher rate without adjusting wages for people who have been around longer.”
Tim Jackson, president of the Colorado Automobile Dealers Association, a statewide trade group, said the surging cost of new and late-model used vehicles is prompting many buyers to purchase older used vehicles.
Statewide sales of vehicles 3 years old or less in the first quarter were down 23% from a year ago, while sales of vehicles 7 to 10 years old during the same period were up 15.6%.
“That’s because prices of vehicles 7 years old or less are 30% to 50% higher than a year ago,” Jackson said. “Cars that are 2 to 5 years old are selling for as much or more than was paid for them when they were new,” Jackson said. “There are probably some people that have been forced out of the car market entirely.”
The same could be said of the housing market, as home buyers face a tight demand and record home prices. Homebuilders, meanwhile, must deal with their own increasing costs.
Grace Covington, co-owner with her husband, Ron, of Covington Homes in Colorado Springs, oversees day-to-day operations and purchasing for the homebuilder.
Of course, prices for builders are on the upswing, but the higher costs didn’t just begin over the last few months; they date back to last year, she said.
Lumber, concrete, copper and other building material prices have soared since at least last summer, said Covington, adding that she suspects some suppliers have boosted prices to take advantage of the situation.
Last year, an average single-family residence built by Covington Homes might have sold for $450,000 to $475,000, Grace Covington said. Today, the price has zoomed to about $550,000 — a jaw-dropping $75,000 to $100,000 more than a year ago.
“It’s actually gotten so bad that I welcomed the high interest rates because we need something to slow it down,” she said. “From a builder and a developer, we never want to say that, right? We don’t want to say, ‘we want interest rates to go up.’ But it seems like it’s the only thing that will start to slow down this inflation pressure, especially in housing.”
It’s not just the price of building materials that have risen, Covington said.
The cost to buy land and develop home sites has jumped along with labor costs, she said.
“Really across the spectrum, every single component it seems like has gone up in price from the suppliers,” she said. “And then our lead times also have increased, so the construction takes longer. And the longer it takes, the more interest carries (on loans that builders take out from lenders).
“It’s not one thing, it’s kind of everything that is increasing the cost that much,” Covington said. “Fundamentally, when the cost of everything goes up, it has to stop. And the thing that’s going to help stop it is, sadly, these high interest rates.”
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