With gas prices soaring since the past several weeks, many consumers have been feeling the pinch. But as it turns out, businesses may be feeling it even more when it’s time to restock their shelves.
Alliance Poultry in Chicago’s Ukrainian Village is no stranger to sticker shock. Fayyad Abdallah, co-owner of the small business, has seen the price of the cracked corn he provides his birds double in a year and a half. This latest hike in gas prices however, has been a whole different animal. Abdallah says the price of the organic chickens he purchases from Amish farms in Indiana, Michigan, and Wisconsin has now soared by 20 cents per pound.
Selecting how much of the costs to pass on to customers is an art that requires careful balancing. So far, Abdallah has only raised his prices by 5 cents a pound. He explains that he doesn’t want to increase his prices too abruptly or the customers might question the spike and not return.
“I’d rather lose a few cents a pound than lose a few customers,” Abdallah says. It’s a conundrum that many other businesses are facing.
At the University of Chicago Booth School of Business, economics professor Chad Syverson explains that producer prices and consumer prices aren’t always joined at the hip. Producers actually experience greater shifts in their costs than consumers. The exact reasons for this aren’t entirely clear, says Syverson, though he suggests that businesses are often hit with additional costs when researching and establishing new prices.
There is one cost that seems to drain everyone’s wallets right away though: gas prices.