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I’ve Always Been Afraid to Raise Prices
In our latest podcast episode: Do you set prices based on what you think the market will bear? Or do you set prices based on your own rising costs and what you need to charge to make a profit?
Here are today’s highlights:
There’s a surge in the sale of canned-fish, thanks in part to TikTok. But are you ready for “tinned-fish date night?”
White real estate agents make almost three times as much as Black real estate agents, according to the National Association of Realtors.
The franchise fee to open a Chick-fil-A is just $10,000.
Would you pay $200 a month to make new friends?
THE 21 HATS PODCAST
This week, in episode 139, Jay Goltz, Dana White, and Laura Zander have a wide-ranging conversation that starts with pricing. Do you set prices based on what you think the market will bear? Or do you set prices based on your own rising costs and what you need to charge to make a profit? And how much profit should a business expect to make? Along the way, the owners also discuss why Laura wants to keep buying businesses (don’t tell her husband, Doug), what Dana needs to do to get her new salon open at Fort Bragg, and why both Dana and Laura are going all-in on influencer marketing. Jay, on the other hand, isn’t entirely convinced that social media marketing works for his picture-framing business. Plus: Should a business owner know every employee’s name? What if you have 130 employees?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
On the other hand, there are indications that shoppers may have hit their limit: “After pushing prices to new heights last year, some companies are starting to pull back. It could be another sign that inflation is starting to turn a corner. Conagra Brands, which makes Hunt’s ketchup and Slim Jim meat sticks, raised prices 17 percent in its latest quarter, on top of two previous quarters, when it increased prices more than 10 percent. The company said it is done boosting prices for now. Conagra’s sales volumes fell 8.4 percent for the quarter ended Nov. 27, which the company attributed in part to shoppers recoiling from the price increases.”
“Chummy Tees founder Josh Neuman raised prices on his T-shirts by about $4 in 2020. He has since lowered them to pre-pandemic levels after sales, which surged during the peak of the Covid-19 pandemic, fell to 2019 levels. ‘The consumer’s mind-set has changed,’ Mr. Neuman said. ‘They want to save money and raising prices is not an option for me in 2023, even though many of my costs are still elevated.’”
“Oransi, a maker of air purifiers, cut prices on its bestselling model in November by 20 percent, said Chief Executive Peter Mann. The model had sold for $599 since its September 2020 launch. It is now $399. Mr. Mann said he decided to cut the price to offset waning consumer demand and heightened competition.”
“Heather Caye Brown raised prices at her active and swimwear brand Night Dive by 15 percent last year. She doesn’t think she can raise prices again. ‘People are tightening their purse strings,’ Ms. Caye Brown said. ‘I feel like I’m on a tightrope and trying to balance being able to be profitable enough to keep the business going, but also not wanting to deter customers.’” READ MORE
Believe it or not, you can even sell canned fish on TikTok: “U.S. sales of canned seafood rose 9.7 percent to $2.7 billion in 2022, according to data provider Euromonitor International, with industry executives crediting the increase to a surge in demand from younger shoppers seeking novel but still affordable foods. To capitalize on the trend, canned-fish sellers are launching new products, expanding production, and working with social-media influencers. The cans now feature flavored olive oils, tomato sauces, and spices; sport snazzy labels; and cost as much as $20.”
“Mathew Scaletta, chief executive of Wildfish Cannery, said he has seen a noticeable increase in sales of canned fish and that the Alaska-based company is struggling to meet demand. Wildfish first saw sales jump in 2020 amid the pandemic, he said, and last year its wholesale revenue doubled.”
“A big driver of interest, industry executives say, has been social media. A search on the social-media app TikTok shows to date more than 25 million views for videos tagged #tinnedfish, with users sharing their experiences with different cans and recommending certain brands.”
“Ali Hooke, a former professional chef who now makes online food videos, posted her first ‘tinned fish date night’ video last year when stuck at home with little to eat. ‘We just had some tinned fish in the cabinet and so we poured a really nice glass of wine and toasted some sourdough,’ she said. ‘That was all we had, but it was so fun and so enjoyable.’”
“Scout Canning, based in Vancouver, said its revenues rose 82 percent to $4 million last year. To help boost its exposure, the company has worked with popular TikTok users such as [Ali] Hooke, who alone refers roughly 500 people a month to its site, the company said. Adam Bent, Scout’s chief executive, said consumers were using artisan canned fish as a sort of ‘cultural cachet’ to impress friends and family.” READ MORE
Mark Zandi says our next big economic worry will be the debt-limit drama:
The headlines may be about layoffs, but so far at least, small businesses are still hiring: “Small businesses have seen their openings soar, compared to larger businesses, from where they stood before the pandemic. Bureau of Labor Statistics data on private-sector job openings show that the number of openings in businesses with 1 to 49 employees was 85 percent higher in November 2022 than in February 2020, much bigger than the 41 percent increase for companies with at least 1,000 employees. While openings for small businesses are not as high as they were in spring 2022, there still are more openings in these kinds of businesses than big ones.”
“Businesses with 500 or more employees saw employment decline by 151,000 in December, according to ADP employment data. At the same time, small businesses with 1 to 19 employees saw a 65,000 gain and those with 20 to 49 employees saw employment increase by 130,000.”
“A small and midsize business CEO survey from Vistage shows that a majority of these CEOs reported they ‘plan to increase hiring in the year ahead.’” READ MORE
Black real estate agents face daunting challenges: “To make it in the industry, Black agents say they are taking precautions and making concessions, including changing their names or omitting their photos from promotional materials to hide their racial identities. The discrimination they face can be life-threatening: In August 2021, police officers in Michigan handcuffed and pointed guns at Eric Brown, a Black real estate agent, and his Black clients as he showed them a home.”
“Lydia Pope, 53, president of the National Association of Real Estate Brokers (N.A.R.E.B.), an organization founded in 1947 as an alternative for Black agents and brokers excluded from the N.A.R., recalled how in 2017 she had a listing in a majority-white neighborhood. ‘Police cars started surrounding the whole area,’ said Ms. Pope, who lives in Cleveland.”
“When she asked the police what was happening, they told her they had a report of a break-in, she said. ‘I showed them the computer, the information on my phone. I showed them the work order that I had. I showed them my business card, my license, everything, and they ran my plate,’ Ms. Pope said.”
“‘Luckily, the situation resolved peacefully, but it was still upsetting enough for Pope to refuse to return to the property. ‘I gave the listing back.’” READ MORE
U.S. industrial policy could have a big impact on global trade: “In just over a year, the U.S. has passed three huge budget measures aimed at transforming its domestic economy—by rebuilding infrastructure, accelerating a clean-energy transition, and boosting manufacturing in semiconductors and the automotive industry. Each of these initiatives is focused on strengthening the U.S. economy and on boosting U.S. competitiveness in the world. But there is another crucial consideration as well: How these three policies are implemented in the months ahead could reshape global trade relations for years to come.”
“If U.S. policy makers use this opportunity to promote domestic industries at the expense of foreign competitors, other governments are likely to respond with their own protectionist policies, leading to a costly breakup of global trade, government officials and trade specialists say.”
“But, these same experts say, if instead the U.S. is more welcoming to products from friendly nations, and works with them to achieve what some call ‘friend shoring’—shifting production of critical materials to friendly nations, away from adversaries including China and Russia—the countries could continue to enjoy the benefits of trade while strengthening their supply chains, these people say.” READ MORE
Here’s what it costs to open a Chick-fil-A: “Despite its success, Chick-fil-A charges a franchise fee of $10,000 to open a new restaurant, and the company told Business Insider it doesn't require candidates to meet a threshold for net worth or liquid assets. Those fees are cheaper than most other major fast-food chains in the U.S., including McDonald's, whose operators view Chick-fil-A as its biggest rival. McDonald's, for example, requires potential franchisees to pay from $1.4 million and $2.5 million in startup costs — including a $45,000 franchise fee. Potential Taco Bell franchisees pay the same $45,000 fee with startup costs ranging between $1.3 million to $3.4 million for a traditional restaurant, according to the chain's FDD. Total costs to launch a franchised Chick-fil-A restaurant ranges from $219,055 to $2,912,697, according to 2022 FDD documents.”
“Chick-fil-A, however, makes up for the loss of upfront capital investment with other costs to franchisees, such as real estate, restaurant construction, and equipment, which it leases to the franchisee.”
“Chick-fil-A prohibits most of its franchisees from opening multiple units, which can limit potential profits, and franchisees must devote their full time and attention to operating the actual business.”
“Most locations average about $8.1 million in sales per year, according to 2022 FDD documents. Mall locations average sales of $3.2 million.”
“‘That's more than double a McDonald's, and McDonald's is no slouch,’ veteran restaurant analyst Mark Kalinowski said of Chick-fil-A's non-mall restaurants.” READ MORE
The pandemic brought a surprising surge in new businesses, but now higher interest rates are forcing some of those businesses to adjust: “After [Taylor Wallace] was laid off from the augmented-reality company Magic Leap at the start of the pandemic, he reconnected with a friend, Mike Mayleben, who was looking to start a daycare business for dogs. In the fall of 2020, the two began acquiring dog day care locations that were for sale, rolling them into a new business called Paws ’n’ Rec. The company, which offers membership-based day care, boarding and grooming, currently has two locations in the Tampa, Fla., area, with a third under construction. But the company wants to grow by opening more locations — just as inflation is pushing up construction costs and rising interest rates are making terms on loans more onerous. His borrowing costs on the company’s line of credit, which he expects to draw on soon, are based on prevailing interest rates and have increased by more than four percentage points from a year ago.”
“‘Debt being more expensive is going to be massively challenging for us and everyone,’ he said. ‘When we started this, we were dealing with money being the cheapest it’s ever been in the United States.’”
“[Higher interest rates] helped shape the business model for a second company that [Lundon Attisha] started last year, Cita Reservations, an online reservations system for tables at sought-after restaurants.”
“Rather than relying on outside funding, the company began charging people right away, selling reservations at some restaurants for $200. To drum up attention, he gives reservations away to social media influencers. ‘We have to be much more mindful of where we are putting resources,’ he said.” READ MORE
A $200-a-month “friendship startup” has a waiting list: “Pandemic isolation, emotionally manipulative social media algorithms, and the ever-increasing fear of being asked, ‘So, how are you really?’ have all conspired to birth a term that would have your econ professor chuckling: the friendship recession. In short, it’s harder than ever for people to make friends. A San Francisco startup called Groundfloor hopes to end our collective social slump with a $200 a month service. The selling points to membership include bottomless espresso and—hopefully—a bestie who speaks your love language, be them an orange-wine enthusiast who’s just renounced tech or a fellow Kathryn Hanh superfan with a heart of gold like the queen of wry comedy herself.”
“By day, Groundfloor looks much like a popping hotel lobby or a barista-less coffee shop. After work hours and on weekends, though, Groundfloor hosts regular events like SoFar Sounds concerts, mixers, tennis socials, yoga classes and local hikes.”
“The 10-month-old startup is doing so well, it now boasts 452 members. An East Bay location that will open in April already has 200 people on its waitlist. There are already plans to expand the bestie incubators to Marin and L.A.”
“‘People are really lonely and isolated, and that seems to only be getting worse,’ Groundfloor co-founder Jamie Snedden told The Standard. ‘We’re saying to them, Pay us $200 a month, and we will help you build friendships and meaningful relationships.’” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The State of Small Business, 2023: John Arensmeyer, founder and CEO of Small Business Majority, an advocacy group for entrepreneurs and businesses, talks about how businesses are faring, what issues they are most concerned about, and where his organization is focusing its energy. Among other things, he discusses access to capital, the need for immigration reform, who benefits from non-compete agreements, California’s experiment in fast food regulation, and the Labor Department’s approach to independent contractors.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren