Fuel Inflation: Rising gas prices tack on cost to Truckee and Tahoe goods and services
April 10, 2008
It’s no surprise that fuel prices are soaring to record highs, but what consumers may not realize is they are absorbing the cost increase in places other than the pump.
People need food to survive. Grocery stores need to acquire the products from wholesalers. These suppliers need to transport the goods by diesel-fueled trucks. So, as the cost of fuel increases, someone has to pay ” and in the food industry, that someone is the customer, said Mark Pingle, a University of Reno economics professor.
“In order to be in business, you have to have a certain return,” Pingle said. “When costs go up for fuel, it makes business less profitable if they don’t pass it on, and so those costs get passed on to consumers.”
For Tahoe-Truckee residents buying groceries at New Moon Natural Foods in Truckee and Tahoe City, consumers may have noticed a rise in product prices over the last year, said owner Billy Griffin.
While Griffin said he’s never shelled out for delivery fees in the past, over the last year and a half, he is now seeing surcharges tacked on due to the spike in fuel prices.
“What we’re seeing is both wholesale price increases, which raises our profit, but the surcharge for delivery is going up, so we lose there,” Griffin said. “It evens out for us in the end, but the customer does end up paying.”
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Unfortunately, Tahoe-Truckee customers buying from larger grocery chains like Safeway and Savemart will also see product prices on the rise, said Dave Heylen, spokesman for the California Grocers Association.
“It’s happening across the board in the food industry,” Heylen said.
Although other factors, such as labor and energy costs, play into the price increase fuel prices have a direct impact on production, distribution and consumption, Heylen said.
“It’s costing more for stores to operate and there’s very little room to absorb those costs,” he said. “So they have to pass those costs along to the consumers, and that’s definitely what we’re seeing right now.”
One positive outcome may be a growth in local production and distribution, Griffin said.
“The natural foods market is seeing an awakening in customer awareness and business awareness in the value of local markets,” Griffin said. “It doesn’t cost as much to get it from here to there.”
Retailers are also seeing customers pinching pennies at the grocery store by selecting less expensive products, Heylen said.
“We’re seeing a trend of customers buying down by not purchasing the same types of products as they have in the past,” Heylen said.
By contrast, businesses that provide services that are considered luxury expenses ” such as furniture stores and the lumber industry ” are bearing the burden of high prices at the pump because they are unable to subsidize delivery fees by charging more for products, Pingle said.
“People can put off home improvements,” Pingle said. “The lumber industry is seeing a decline in demand because of the current housing market, so they can’t command an increase in cost.”
“There’s no way for them to pass it on,” he said.
Steve Stevenson, vice president of operations for the Truckee-Tahoe Lumber Company, said his business is feeling the pressure from all sides.
“The challenge is the price of lumber is at an all-time low, and the price of fuel is at an all time high,” Stevenson said. “It’s hard to be profitable with those two factors.”
The company ” based in Tahoe City and Truckee ” is trying to compensate by increasing charges for small deliveries and by working with customers on timing to make delivery routes more fuel efficient, Stevenson said.
But small changes at the local level are not enough to offset the rising costs from the suppliers, Stevenson said.
“Higher freight charges are being tacked onto the cost of goods,” he said.
“Everything that comes in on a truck from hardware to building materials is put into our costs. We absorb it.”