Small town ‘Willy Wonka’ is forced to raise prices with inflation – and that’s the reality for small businesses everywhere
The owner of McJak Candy, known as “Willy Wonka of Medina, Ohio,” isn’t feeling so nice this month. Thanks to rising labor and supply costs, he had to increase the average price of his candy by about 12%.
“We always put out a price list and say, ‘Here’s our 2022 price list.’ That’s always how we did it,” says Larry Johns Fortune. “For the first time this year we’re saying, ‘This is our current pricing effective this date, subject to change’ because I can’t lock things in for an entire year. I don’t know what’s going to happen. to pass.
Candy McJakwhich has been making candy in northeast Ohio for 40 years, is one of countless small businesses in the United States that have had to make big changes due to skyrocketing inflation over the past six months.The price of consumer goods and services continues to rise, reaching 7.0% in December, according to latest consumer price index (CPI) report from the Bureau of Labor Services released Wednesday.
Johns typically increases candy prices by about 2% per year to keep pace with rising raw material costs and rising wages. In the past, the confectionery company was even able to keep some customers at the same price for two to three years without an increase. But last year it was different. Cotton candy wholesale prices, for example, have fallen from $0.98 per container in 2021 to $1.10 this month, while the cost of a 16 oz. box of fudge went from $4.25 to $4.80.
Along with other factors such as increased employee compensation, McJak’s average total production costs rose 20% throughout 2021. Johns says he just didn’t no choice but to raise prices to keep pace.
“We have already kind of squeezed our margins over the last three to six months. We cannot afford to continue doing this,” he said. “In my 21 years at McJak, we have never experienced such widespread inflation on almost anything we buy.”
Even the ingredients for McJak recipes have become more expensive. Chocolate chip prices jumped 32%, corn syrup rose 9%, sugar rose 6%, according to Johns.
These are of course only the costs that he can actually determine. McJak’s has yet to release 2022 prices for its fudge boxes because the candy maker cannot find a profitable source for the metal containers. “In the past, our boxes were produced in China, but the cost of shipping from China is still MUCH higher than in 2020,” says Johns. “We could have them made from a US supplier, but the cost is so high that we wouldn’t be able to find retailers to sell them at such a high retail price and the program wouldn’t work.”
And it’s not just McJak’s—on 71% of small business owners say inflation has had a significant impact on their operations over the past 12 months, according to the latest Small Business Index report published last month.
About 63% of small businesses have raised prices to combat the effects of inflation on their bottom line, and about 40% say they have cut staff, according to the Small Business Index report. And 45% of small businesses say they have gone so far as to meet inflation by taking out a loan in the past year.
The problem is that, as US officials finally acknowledged late last year, this inflation is not transitoryand higher prices are expected to continue at least until 2022.
Johns thinks the current Consumer Price Index and Producer Price Index figures may not even be showing the full effects of inflation yet. This is because many manufacturers, including McJak’s, negotiate annual contracts. So, while energy prices can fluctuate from month to month, many manufacturers are forced to fix raw material prices for a full year. But when those contracts are renegotiated, Johns believes there will be another big jump, likely in prices reported at the end of the first quarter of this year.
Labor is a big part of why McJak charges more for its candy now. Workers’ wages have climbed 21% for McJak over the past year, and Johns doesn’t expect them to drop.
“You never give someone a raise and say, ‘Oh, inflation is over. I take off $1. It doesn’t work that way,” Johns says, adding that the company raised wages three times during the pandemic and paid bonuses in an effort to keep employees. Johns fortunately says the measures have largely worked and most of his employees have stayed.
At McJak, which currently employs around 40 full-time workers, starting pay is typically $12 an hour, although trained hourly workers can earn an average of $17 an hour on the profit-sharing program. company and other bonuses, according to Johns.
And while it would like to match what other companies like Amazon pay, approximately $15 per hour at nearby Akron fulfillment centerhe says McJak would likely have to increase product prices an additional 25% on top of recent increases to afford it. “It could kill the whole company,” he says.
“I’ve always been more of a planner,” says Johns, but adds that now a lot of those plans are written in pencil. Flexibility, he found, is key. “I’ve never seen an environment where it can change so much in a month.”
This story was originally featured on Fortune.com