Louisville businesses that survived the pandemic face inflation and a likely recession
Bridget Knight arrives at Wiltshire Bakery in Louisville before most folks get out of bed.
“I just get up early in the morning now … even when I don't want to on my days off, I'm up at 3:00,” Knight said.
She spends the small, quiet hours preparing dough and rolling out large slabs of butter to make puff pastries. But her ingredients have gotten expensive.
Milk prices increased more than 28% since September 2021. Wheat is 15% higher, and the price of eggs has doubled, according to the U.S. Department of Agriculture.
Susan Hershberg owns Wiltshire Bakery. She said she can’t expect customers to carry those costs.
“We have people who come in for breakfast every day, and they're not going to be able to pay $8 for a croissant,” she said.
Hershberg’s business is not a modest operation. She owns a few cafes, a restaurant and a catering service. But no matter how many customers and events she serves, Hershberg said high supply costs are holding her back.
“For the first two or three months of prices going crazy, we just thought, ‘Oh, you know, things will level out. Let's just roll with it,’” Hershberg said. “Now at this point in the year, we can't just roll with it, because we're just going to be hemorrhaging.”
Supply costs are getting to small businesses, and so are supply chain disruptions.
Gibin George owns D’Nalleys diner in the Old Louisville neighborhood. He’s had a hard time getting essentials like eggs, to-go boxes, onion rings and chicken wings from food wholesalers like Restaurant Depot and Sysco.
“I remember I went a span of almost two weeks without ground beef. You couldn't find it at any of the vendors, and every time I asked they were like ‘They're out right now. We don't know when the trucks are going to come in. Call in in a week,’” George said.
He said supply shortages are hard for his customers to comprehend.
“I would have to distinctly put a sign up. ‘Hey, today we are out of this. Today we are out of this.’ And it's easy for me to sit and say that I'm just not going to sell this today. But what about the next day? What about the day after?” George said.
Leisure and hospitality workers’ total compensation has gone up, too, which includes wages and benefits. It rose more than 8% nationwide between June 2021 and June 2022, according to the Bureau of Labor Statistics, though these are still some of the lowest paying jobs around.
“I was paying someone $14. Now the conversation starts at $20,” George said.
George said he hasn’t struggled to find workers, but he’s had to do more to keep them around.
“You no longer are the boss, now your employees are your bosses. … You work around their schedule,” George said.
Changing industries and customer habits
During a Thursday evening rush at Baxter Avenue Theatres, folks are lining up to see blockbusters and arthouse films.
Manager Matt Kohorst said the theater had a successful summer.
“‘Top Gun’ did very well. Who would have thought ‘Top Gun: Maverick’ was going to be as big as it was? But it was, it was like that movie that just kept going,” Kohorst said.
But the theater’s parent company, Apex Theaters, had to shut down its discount theater Village 8. The landlord didn’t renew the leasefor Village 8, but Kohorst said it was also the victim of online streaming. For most of its history, Village 8 played second-run movies at discount ticket prices. It switched to new releases during its last year.
“The window for on-screen in the theater to on-screen at your house, with streaming, was getting shorter and shorter, and that's just crushing like a second-run theater,” Kohorst said.
Kohorst said more and more films are being released on streaming platforms before hitting the theaters, if at all. That goes for arthouse films and cult hits as well, something Baxter Avenue prides itself on.
“I grew up in the 90s, so I watched this film ‘Hocus Pocus’,” Kohorst said. “Disney decided to release the second one this year, but only on their streaming service. So something that we probably would have done okay with here, it's just going straight to Disney+, and we don't see any revenue from that.”
Still, Kohorst said the outlook for Baxter Avenue is good.
“We are looking forward to a big holiday season this year starting with ‘Halloween Ends’ ... ‘Black Panther 2: Wakanda Forever’ is going to be probably the biggest movie of the year, or ‘Avatar 2’, which is coming in December. So we got some good things to look forward to,” Kohorst said.
Hard decisions and resilience
Susan Hershberg at Wiltshire Bakery said the business’s outlook is getting worse. She’s considering closing some of the four locations, and that would mean laying off some workers.
“Pondering that would have been absolutely devastating two years ago,” Hershberg said. “But we’ll see, there’s no point in trying to operate something that's unsustainable.”
Scaling back weighs on her mind daily. But what she’s not willing to do is compromise on the quality of her food, something she says restaurants might have to do to survive.
“I'm not going to just open a box of something and heat it up. You know, we're going to source it. We're going to make it from scratch, and we're going to serve it in a loving way,” Hershberg said.
Hershberg and other businesses have made it through the worst of the pandemic, but economic woes have presented new challenges.
“I've been pleased at the number of businesses that survived,” said Jennifer Rubenstein with the Louisville Independent Business Alliance. “It was very wise for some businesses to take that downtime to recalibrate and be ready for when we came back out of it.”
Rubenstein said businesses have incorporated online and delivery services they might not have had before the pandemic.
But government grants and loans made available through the pandemic haven’t returned in this economic moment. Rubenstein said businesses should look to her office, fellow business owners and their customer base to come up with creative solutions.
“It's really hard to decide when to raise prices or if it's necessary. Is it a permanent raise or a temporary fee?” Rubenstein said. “When you're making kind of life or death decisions, you want to have all the resources that you can get, all the information that you can get, to help you along that path.”
An economic turning point
The Federal Reserve plans to curb inflationthrough raising interest rates in the hopes of reducing consumer spending and slowing down the economy.
Executive Director of the Kentucky Center for Economic Policy Jason Bailey said that could tip the U.S. into a recession.
“The medicine that they are providing to the condition of inflation may be worse than the condition itself if we start to see workers lose their jobs and businesses close,” Bailey said.
He described how raising interest rates could dissuade businesses from investing and consumers from spending. That could result in fewer jobs and less bargaining power for workers.
“There's no question that the tight labor market, the strong job growth we've had in the last year or two, has allowed them to bid up wages and see some wage increases that they haven't seen in decades,” Bailey said.
Steve Gohmann, director of the Center for Free Enterprise at the University of Louisville, said he thinks a statewide tax cut is a solution that wouldn't prevent a recession, but could make an impact to workers.
“Most workers haven't received that real increase in wages because of this inflation. And so they're made much worse off. Getting rid of the income tax would improve their income by 5%. … That's a pretty substantial bump,” Gohmann said.
Bailey said Kentucky policymakers should prepare as if a recession is coming in the next year. He said Kentucky’s rainy day fund would provide some cushion, but thinks tax cuts would deplete those funds quickly.
“We could be looking at budget cuts that affect hospitals, that affect schools, that affect services that Kentuckians rely on. So we need to shift to the footing of recession preparation. And that involves, in part, not squandering resources we have on tax cuts,” Bailey said.