Introduction
The small businesses in the Bay Area interviewed for this study tell the story of the COVID pandemic as a time of supply chain disruption and a continuing slow recovery due to inflation. This aligns with the timeline of the U.S. Census Bureau business surveys: in 2020, small businesses in the U.S. began reporting supplier delays and feeling the pains of inflation. At the peak in April 2022, 44.5% reported experiencing domestic supplier delays and 19.2% reported foreign supplier delays. In parallel, in April of 2022, a “stunning 78% of U.S. small businesses reported price increases of any kind,” and while consumers were stressed by rising prices, U.S. small businesses reported a reduced ability “to pass on cost increases to their customers,” did not raise their own prices, and their margins shrunk. By July 2023 the number of small businesses reporting supplier delays had dropped to 14.5% domestic and 4.3% foreign delays, and inflation began to recede. However, though actual inflation was declining in 2023, the perception of inflation declined “noticeably less.” This perception of slow recovery post-COVID is echoed in the four pressures expressed in 2024 interviews of Bay Area business owners: supply prices and delays, inflation, thin margins, and the need to innovate to make ends meet.
This report summarizes the findings of four interviews of small business owners conducted between October 25th and 31st, 2024. Each business was located in a different Bay Area neighborhood; two were in San Francisco, one in Downtown Oakland, and one in Berkeley. One of the interviews was conducted by the author and the rest were conducted by colleagues. The quotes used in this report were edited for clarity, and some information has been excluded to preserve the anonymity of the respondent and business.
Supply Chain Shifts
The small businesses interviewed felt the impacts of supply chain delays and rising costs and adjusted in various ways. A tea shop owner described when his tea and accessories were stuck “in an [ocean] container but no one knew when they’d get released … we were out of a lot of stuff. We had demand for it, but we didn’t have it.” As a result, “logistics were more expensive, at least triple,” and he stopped importing tea accessories to reduce the risk of paying upfront costs of slow-selling imports.
Supply chain price changes also affected the entertainment industry. A movie theater owner described how “studios dropped their prices [of films] during the pandemic … and several of them have kept their prices low, and that’s been a godsend … now we do order more content from [lower priced studios] … because we know that it’s going to be less expensive.” If studios decide to raise their prices back to pre-pandemic rates, small theaters would likely close. Both of these businesses have maintained the changes they made during COVID supplier disruptions, implying that they still don’t feel secure in their finances. This may be in part due to their perception of ongoing inflation.
The Pressures of Inflation
Experiencing stagnation from the customer burden of rising prices due to inflation is echoed in the analysis of the 2023 Small Business Inflation Study: “in the post-vaccine recovery and inflationary period … margins [of small businesses] were significantly eroded.” Interviewees perceived that their businesses recovered slightly after COVID but growth has slowed, at least in part because of inflation.
“I think [things are] stagnating. Stagnating might be the wrong word … I don’t feel like things are trending upward.” — Movie theater owner, Downtown Oakland
A general threat of inflation and the burden of rising prices for customers was top of mind for these businesses. A San Francisco Chinatown business owner, when asked about his top concerns in 2024, responded: “The [biggest] concern is that San Francisco is a very, very expensive city. The price of everything is going up, gasoline went up, the rent went up, water, garbage and everything.” The tea shop owner, when asked to describe the post-COVID financial recovery of his Inner Richmond San Francisco location, said, “2022 was our best year once everything reopened. And then 2023 was more stagnant and this year [2024] is also not much improvement.” In comparing his pre- and post-COVID business he explicitly named inflation as a challenge: “this year [2024] if you do $1000, it’s nothing, because of inflation, [everything] costs so much.” The specter of inflation still hung over these businesses, and it was especially apparent when they described the multitudes of expenses reducing their margins.
Taking on the Crawfish
The owners interviewed felt the stress of juggling multitudes of little things while squeezing very small margins out of their businesses. The tea shop owner said running one of his locations was like “eating a crawfish.” An art education business owner felt the same:
“It’s not just the rent … You need printers, you need paper, you need thread. There’s all the materials, all the costs that are kind of hidden, but you still have to spend that money. And sometimes, I’m [debating] whether I should keep a little bit in the bank account so I have some [savings] and have some peace of mind, or should I invest in things to make the business grow?” — Art education business owner, Berkeley
The tea shop owner also listed the expenses he was juggling at Fisherman’s Wharf: “The rent was like $3600 … you can’t park anywhere, I had to rent monthly parking for $300, so that’s four grand already, before you do anything. And then [add] electricity, utilities, and hiring people. Everything added up, you’re probably over 10 grand to 12 grand before you make any money … margins were okay, but it wasn’t like, ‘wow this is making a lot of money.’” Both the tea shop and movie theater received two COVID PPP loans plus an additional grant between 2020–2022. These interviews confirm that there is still appetite from small businesses for financial relief opportunities.
The Future: Pressure to Innovate
After several years of supply chain disruptions, stagnating revenue growth, and the rise of inflation, what is next for these small businesses? Across industries and neighborhoods the owners felt pressure to innovate for new sources of income to make breaking open the crawfish worth it — but no one solution was apparent. When it was time to reopen, the movie theater owner described:
“My expectations were like Field of Dreams: you build it, they’ll come … I thought after the pandemic, people are gonna come in droves. And they did not … we need … new ways of doing things, because we can’t save the business entirely by cutting costs.” — Movie theater owner, Downtown Oakland
The art education owner described her ongoing innovation process: “It’s just I don’t have enough time to make [new ideas come] into fruition. It’s the execution part. The execution part is hard.” With their resources and margins stretched thin post-COVID, small business owners in the Bay Area struggle to find new ways to grow their business. Each business had a unique challenge to increase their customer reach and retention; no single intervention to support innovation was obvious across the industries and neighborhoods interviewed.
When considering policies or programs, it’s critical for planners to consider the aggregate time and effort costs incurred from the multitude of tasks small business owners juggle in comparison with the intervention’s intended benefits. Interventions that do not address the pains of supply chain disruptions, inflation, and thin margins are not likely to be worth the effort for a small business otherwise occupied with breaking open a crawfish.