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Fuel Prices Creating Bottom Line Challenges

The owner of Red Rock Cafe in Sedona is frustrated by the high price of gasoline. Jeff Wetmore says he made forecasts for 2011 based on positive upward trends he saw during the last quarter of 2010. “We thought our business would move up 10-12 percent over last year, but it is flat or even slightly down.”

Wetmore blames gas prices for keeping tourists at home. “There is a definite impact on my business and I think it is true of all restaurants and probably true of hotels and lodging properties,” he said, referring to the tourism economy of Sedona.

Many types of business are feeling the pinch of prices at the pump and the rising cost of commodities.

William Hargrave owns Floral Arts, Ltd. in Flagstaff. “We’re a delivery business, so our gas costs have increased significantly. And on the wholesale level, we’re seeing a lot of delivery fees,” he said, describing the costs that are passed along to him by wholesalers. Floral Arts, Ltd. has maintained a $10 delivery fee, which covers a large area from Winona to Bellemont and Munds Park.

The cost of products is also affected, said Hargrave. “For instance, glassware is made with oil, and so are plastics.” So he works to keep prices down for customers. “We do absorb some of the cost, if not a great deal of it. Some of it gets passed along in the products, of course, but we try to curb it as much as we can because it’s expensive for everybody.”

At the time of printing, the national price for a gallon of gas dipped to $3.90 and in Arizona, the average was $3.68. Figures from the Commerce Department show growth in the second quarter has been sluggish, with many blaming gas prices. Because consumer spending makes up about 70 percent of United States economic activity, there is concern about the rest of 2011.

Small business advocate Karen Kerrigan says gas prices are creating burdens. The president and CEO of the Small Business and Entrepreneurship Council testified before the U.S. House Committee on Oversight and Government Reform. “For many small businesses, sales and revenues remain weak, while business costs continue to move higher. High gas prices are hitting the two major pain points of small business owners. These higher prices are putting upward pressure on business costs in general, which is forcing small businesses to do things – like raising their prices – that put them at a competitive disadvantage in the marketplace. Secondly, higher gas prices are hurting sales because customers have fewer disposable dollars to purchase small business goods and services,” said Kerrigan. As the nation works to emerge from the recession, she added, it’s more important than ever that businesses operate in a more predictable environment.

District One Congressman Paul Gosar agrees. He recently voted to lower gas prices after advocating on the house floor for the Putting the Gulf Back to Work Act. The legislation, which passed the house, would facilitate drilling in the Gulf of Mexico. “Rural communities are hit hardest by high gas prices. Whether dropping kids off at school, making a run to the store, or going to work, the people in Northern Arizona log far more miles than most other places,” he said. “That is why I continue to fight for more domestic oil and gas production. We have the resources here, we simply need the will political will to go forward,” wrote the congressman in an email to Flagstaff Business News.

Jeff Wetmore remains concerned about gas prices and inflation. He recognizes prices have dipped slightly, but thinks the underlying problem remains. “The dollar is declining and gasoline is priced on the dollar. And the Fed and the Treasury department aren’t doing a damn thing about it. In my opinion, it’s a crime what they’ve done to gas prices,” said Wetmore, predicting a double-dip recession if policy isn’t changed soon. FBN

 

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