Rising Gas Prices Put Small Businesses In Tough Spot: Increase Costs or Eat Losses?

The Hollywood Corner in Los Angeles offered free delivery when it opened more than three years ago. Now, with close to forty deliveries a week and gas prices at a new high for this time of year, according to AAA, the restaurant can no longer afford to give customers this service without charge.

Manager Jose Barba said the restaurant hit a roadblock where a delivery fee became necessary to help pay for rising costs and gas prices.

"People believe it’s a tip," Barba said. "But it's actually to help pay for these rising costs."

It's not just consumers hurting every time they fill up at the gas station. Small businesses are also struggling to operate with prices at the pump expected to hit all-time highs of $5 a gallon by summer driving season, AAA reported.

Barba said he has seen the fees other companies have imposed on the business due to gas prices.

"Bigger companies drive bigger trucks and have more transportation," he said. "Almost all of them have raised fees on me, and have gone as far as to call it a gas and mileage service fee. It's crazy, but it’s the rising cost of gasoline directly."

Donna Koenman, owner of HomeMart Furniture in Addison, Texas, said her business relies on its "tons and tons," of furniture deliveries per week. Koenman said she has come close to spending double on this service than she was just one year earlier, but has chosen not to raise her $85 flat fee just yet.

"I have been holding prices on delivery costs," she said. "Because of the economy, I can't do anything else. I will lose sales."

Furniture is considered a luxury in this economy, Koenman said. People can survive without it, and her business will suffer if she begins charging more for delivery services. However, if analysts are correct about where prices are heading, she may have no choice but to increase her delivery fee.

"The bottom line is that it's hurting considerably," she said. "I will have to basically increase my overall delivery costs by .20 cents a gallon—I have no choice."

Likewise, Roxbury Bagel and Deli in Succasunna, N.J. said it has chosen not to charge for delivery, despite climbing prices. The deli has between 15 and 20 deliveries for food and catering orders weekly, and owner Todd Bortel said there is little he can do to offset steep gas costs.

"Everyone wants things at different times, so it's not even like I can pair deliveries," he said. "We have to go with what it is—I can't raise my prices for gas prices. I can raise my prices once a year and it doesn't really impact my business. If I raise them more than that, it will impact my business. You just have to take a loss."

For now, The Hollywood Corner is doing its best to absorb the increasing costs of fuel, Barba said.

"We will try to work with what we have," he said. "I know it’s a concern, and we will try to eat the cost ourselves or offset it in a different way. Our customers wouldn't appreciate it if we raised our fees."