Can Fraser Valley businesses survive inflation?

Mountain biking changed Rocky Blondin’s life.

As a hockey and baseball player growing up, Blondin’s knees were shot by the time he was 16. But 20 years ago, at the age of 22, a college roommate introduced him to mountain biking and it helped build back strength in his legs.

“Through cycling, because it’s a low-impact and high-strength sport for your legs, I basically rehabilitated my legs,” Blondin said. “I could sleep at night because my legs didn’t hurt anymore.”

He dreamed of sharing his love of mountain biking with people in Mission, and opened Independent Cycles in the first month of the pandemic: March 2020.

The pandemic was bad for many businesses. But for bikes, it was a blessing. Blondin had a three-year plan on how to grow his business. But with the pandemic blowing up interest in bikes, by June of that year, Blondin had hit sales he hoped to achieve in 2023.

“The biking industry took off like a rocket,” he said.

Then the pandemic, which helped him in 2020, exacted its revenge. With issues in the global supply chain and rising costs due to inflation, Blondin has had to navigate one pitfall after another to stay open.

“The plan we laid out to start a community-focused, modest bike shop quickly turned into survival mode.”

Why is inflation so high?

The inflation rate in Canada grew to 8.1% in June, a mark that hadn’t been reached in nearly four decades.

The price of almost everything—from gas to groceries—has skyrocketed, impacting both consumers and small businesses.

It’s disruptions to global supply chains that are causing record-high inflation, according to Andrey Pavlov, a professor at SFU’s Beedie School of Business.

“Normally inflation happens because there’s too much demand and not enough goods,” Pavlov said. “This time it’s different because it’s driven by our inability to produce many things.”

Three years into the pandemic, Pavlov points to COVID restrictions as the lingering reason why supply chains haven’t been able to facilitate the production of enough goods to meet the world’s demand.

Attempts to boost the economy have increased demand, but an obstructed supply chain has made it difficult for companies to produce the goods necessary to meet it.

“We’ve been stimulating demand quite a bit with government assistance,” Pavlov said. The most basic law of economics is that when demand for a product exceeds supply, prices rise.

“People started buying all kinds of things because they certainly saw their income go up. So combined with a high increase in demand and an inability to produce, you get the very high inflation that we’re seeing today.”

Impacts to small business owners

Small businesses have been among the hardest hit when it comes to the clogged supply chains.

By June 2020, Blondin sold out of all of his bike inventory. Although business was booming, operations ground to a halt because he couldn’t order enough product to meet demand.

Although Blondin now has bikes in stock, the premium mountain bikes are at least one year away.

Bike manufacturers need various components—chains, brake pads, and tires—to complete their product. But those parts often need multiple components themselves to be manufactured. If any one of those individual parts are in short supply, it can mess up the whole system.

“The longest lead item I have right now (a specific chain) is March 11, 2024,” Blondin said.

On top of the problems accessing products, the prices Blondin has to pay for them has also been rising. Since last year, annual price increases from vendors are turning into quarterly jumps.

“Every three months we are getting a pricing update and we have to go through and reprice everything,” Blondin said.

For Blondin to stay in business, those price hikes are necessary. But it has priced some consumers out of the market.

“I have a lot of families that come in with a young teenager and they’re like, ‘I wanna get a mountain bike!’ And they’re looking to spend $3,000, which is a good sum of money. I can’t put them on anything for $3,000, I have to lean into the $4,000 bucket.”

Over the next year, he expects sales to be down 30% compared to the peak early in the pandemic.

Why inflation challenges differ now

Blodin isn’t the only small Fraser Valley business owner to struggle in the past three years. Between the rising costs of food, equipment, and gas, most businesses have had to adjust.

Lepp Farm Market has operated in Abbotsford for over 20 years. Manager Jason Lepp says his company has received cost increases for products across the board.

“Poultry, even what we pay, in the last number of months have gone up like north of 15%,” Lepp said. “Dairy has gone up incredibly… We’ve just been getting hammered on packaging, like things are double.”

Like Blondin’s bike business, the increase in costs has forced Lepp to adjust his prices, and he has noticed a change in consumer demand.

“You can see there’s a little bit more of a hesitance to buy more of the high-end products. We’ve seen things change where people are looking for sale items,” Lepp said.

The challenges are different than usual, according to experts like SFU’s Pavlov.

Often, Pavlov said, inflation can help businesses—especially small businesses.

If owners make a mistake—such as producing something people don’t really want—they can keep the price of that item consistent. Over time, as prices steadily rise, that item may become relatively cheaper compared to other goods and it will eventually sell.

“Inflation helps erase those mistakes without forcing businesses into losses,” Pavlov said.

But if businesses aren’t able to get any products in the first place, they can’t sell items and benefit from inflation.

“This time around, this mechanism doesn’t really work. If you can’t get products to your customers, it doesn’t matter what the price of that product is.”

What to do now?

One temporary solution business organizations have asked for is assistance at the gas pump.

The Langley Chamber of Commerce has called for a 30 cent per litre tax break to help businesses cope with inflation. Other business groups have made similar pitches.

Cory Redekop, the CEO of the Langley Chamber of Commerce, said fuel is an expense that is shared for businesses across many sectors. Because of that, he says a tax break would be beneficial to many in the region, and simultaneously give consumers a relief at their shops.

“One of the levers you have is fuel, which is embedded in the supply chain. It’s an obvious suck of revenue from consumers, and we think we can forgo some of the taxes,” Redekop said. “Let the consumers have a bit of a break over the coming months while we see what the ground holds for us.”

But that strategy hasn’t always paid off.

In Alberta, the provincial gas tax was suspended in April. Although retail margins initially dipped, new research showed that profit margins eventually ended up matching the difference.

Economists also warn that such cuts can merely incentivize further spending, which can just boost inflation even higher.

Other business leaders in the Fraser Valley have emphasized the importance of customer service.

Nicole Reed, general manager of Community Futures South Fraser, and Leanna Kemp, executive director of the Chilliwack Chamber of Commerce, both said a business’s ability to market itself is crucial to surviving inflation.

“It’s going to come down to customer service,” Kemp told The Current.

“[Customers] might forgo quality at this point, because if it comes down to paying your hydro bill and [then choosing between] buying a $200 sweater [or] a $40 one at Walmart, people are going to start to make those kinds of connections and make those changes.”

Kemp suggested that small businesses in the same area could work together to ensure they aren’t selling the same products, specialize in a couple of different areas, and spread the wealth.

Blondin agrees. Going forward, he hopes small business owners across different sectors will work in tandem to better react to economic downturns.

“We can have a collective conversation and share knowledge that we’re both seeing sales slowing,” Blondin said. “Then we can react better as a community as opposed to spending six months wondering where all the customers are—realizing nobody’s had customers for six months.”