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Small businesses that provide services face a pricing dilemma

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Waitress serving food at a restaurant

Restaurants, spas and other service businesses are adjusting their prices to cope with supply chain issues and inflation. Patrick T. Fallon/AFP via Getty Images

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Spending on services in the United States rose $93.8 billion in February, the Bureau of Economic Analysis reported Thursday. Businesses selling those services, like restaurants and hairdressers, have to decide how much to charge consumers because they have their own rising costs to deal with. 

The Crowbar & Grill in Laramie, Wyoming, sells a lot of pizza and burgers, two things that have become a lot more expensive to make. 

Beef prices are higher, cheese has essentially doubled,” said manager Emily Madden. She said the restaurant has also increased wages to attract workers. To keep pace with those expenses, “we’ve had to raise prices about 20% in the last two years.”

The most recent price increase was this month; a basic burger with fries is now $14. So far, Madden said customers are taking it in stride, but she said it’s a balancing act. 

“You know, not pricing people out of coming in, but also making sure that we can continue to pay our employees a decent wage and make sure our margins are where they should be,” she said.

It’s a pretty good time for businesses to adjust prices, according Shantanu Dutta, a marketing professor at the University of Southern California. 

Customers know what businesses are up against.

“It’s in the air that costs are going up, wages are going up, everything is in short supply,” Dutta said. And there’s something extra working in the service sector’s favor, he said.

“Folks have been cooped up at home all this time, and you want to treat yourself. So I think that pent-up demand is showing itself,” he said.

That is true for Betty’s Bath & Day Spa in Albuquerque, New Mexico, according to owner Lisa McCulloch. “It’s amazing, we’re double what our clientele levels typically were prior to the pandemic,” she said.

McCulloch said the spa just had an expensive remodel, and supply prices have gone up. “You know, our massage oil, our lotion, our cleaning costs,” she said.

But with massages and spa treatments booked weeks in advance, she’s been able to keep prices stable. 

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