MY HUSTLE

How small businesses are adapting to inflation

Raise prices and lose customers or cut costs instead, is their dilemma

In Summary

• Cost of living has gone up due to higher taxes, drought, costlier fuel and electricity

• To survive, some small businesses are, for example, using charcoal instead of gas

A customer buys chapati at a food kibanda in Westlands
A customer buys chapati at a food kibanda in Westlands
Image: FILE

The rising cost of living in Kenya is not affecting consumers only; small businesses are also badly hit. The increase in the prices of commodities is reducing the income business owners can take home.

There's another effect, too: shortages of products that are no longer profitable because the ingredients have become too expensive.

Fred Matasi, 27, runs a roadside cafe. Until recently, he used liquid oils for cooking in the cafe, but he’s been forced to switch to solid fat. The price of liquid oil has risen from Sh2,000 for a 20 litre container to Sh4,000 over the past year.

“The problem of cooking with fat is that a layer forms on top of the food when it cools down,” Matasi says. “Customers don’t like seeing layers of fat because they think it is not healthy.” Liquid oil does not present that problem. Besides, solid fat clings to plates and utensils, making them harder to clean.

Meanwhile, the price of cooking fat is also on the rise. A year ago, Matasi could buy a 10kg pack of cooking fat for less than Sh1,000. The price today is Sh2,500 for the same quantity.

The price of LPG (cooking gas) has also risen sharply since July, when the government raised taxes on the product. Before the tax increase, the price of a 6kg cylinder of LPG was Sh800. Matasi is now buying it at Sh1,300.

The prices of sugar, flour, cereals and vegetables have all gone up, raising the costs of the cafe.

CAUSES AND REACTIONS

Despite the circumstances, small business operators such as Matasi cannot increase their own prices for fear of losing customers. They are cutting costs to survive by, for example, using charcoal instead of gas.

The current sharp rise in the cost of living is blamed on higher taxes, drought, fluctuations in the value of the Kenya shilling and an increase in the prices of fuel and electricity. Outside Kenya, the rest of the world is also experiencing a rise in commodity prices, which the World Bank blames on bad weather this year.

Other sources say the movement restrictions imposed to control the spread of Covid-19 between countries made shipping more expensive. The higher shipping costs were passed on to the consumer.

“Unusually high summer temperatures increased the demand for electricity; droughts reduced hydroelectricity supply and affected some agricultural commodities, while floods affected the supply of some metals and coal," the World Bank reports on its website. The institution expects prices to stabilise in 2022 as producers and shipping companies get back to full capacity.

Higher prices are already causing a shortage of some consumer goods. Mama Fidi, a shopkeeper, says she no longer gets doughnuts and the thick buns popularly known as KDF.

“After the price of cooking oil went up, the supplier said it’s no longer profitable to continue baking them. My customers have now switched to buying scones as they are still available,” she says.