Small-town ‘Willy Wonka’ forced to hike prices with inflation—and it’s the reality of small businesses everywhere

“We always put out a price list and say, ‘Here’s our 2022 price list.’ That’s always how we’ve done it,” Larry Johns tells Fortune. “For the first time this year, we’re saying, ‘This is our current pricing effective this date, subject to change,’ because I can’t lock things in for a whole year. I don’t know what’s going to happen.”

McJak Candy, which has been manufacturing sweets in Northeast Ohio for 40 years, is one of countless small businesses in the U.S. that have had to make some big changes because of sky-high inflation over the last six months.The price of consumer goods and services continues to rise—hitting 7.0% in December, according to the latest Consumer Price Index (CPI) report from the Bureau of Labor Services released Wednesday. 

Johns typically raises candy prices about 2% a year to keep pace with raw material cost increases and rising wages. In the past, the candy company was even able to keep some customers at the same price for two to three years without an increase. But last year was different. The wholesale prices for cotton candy, for instance, jumped from $0.98 per container in 2021 to $1.10 this month, while the cost of a 16 oz. box of fudge rose from $4.25 to $4.80. 

Along with other factors like increases to employee pay, McJak’s average total production costs went up 20% throughout 2021. Johns says he just doesn’t have a choice but to raise prices to keep up. 

“We’ve already been kind of compressing our margins the last three to six months as it is. We can’t afford to keep doing it,” he said. “In my 21 years at McJak, we have never experienced such across-the-board inflation on almost everything we buy.”

Even the ingredients for McJak recipes have gotten more expensive. Chocolate chip prices jumped 32%, corn syrup increased 9%, sugar rose 6%, according to Johns. 

Those, of course, are just the costs he can actually nail down. McJak’s hasn’t released 2022 pricing for its fudge tins yet because the candy manufacturer can’t find a cost-efficient source for the metal containers. “In the past we had our tins produced in China, but the cost of shipping from China is still MUCH higher than 2020,” Johns says. “We could have them made at a U.S. supplier, but the cost is so high that we would not be able to find retailers to carry them at such a high retail price and the program would not work.”

And it’s not just McJak’s—about 71% of small-business owners report inflation significantly impacted their operations within the past 12 months, according to the latest Small Business Index report released last month. 

Around 63% of small businesses increased their prices to combat the effects of inflation on their bottom lines, and about 40% say they have decreased staff, according to the Small Business Index report. And 45% of small businesses say they have gone so far as to deal with inflation by taking out a loan over the past year. 

The problem is, as U.S. officials finally acknowledged late last year, this inflation is not transitory, and higher prices are expected to stick around through at least 2022.  

Johns believes that the current Consumer Price Index and Producer Price Index numbers may not even be showing the full effects of inflation yet. That’s because a lot of manufacturers, McJak’s included, negotiate annual contracts. So while energy prices may fluctuate month to month, many manufacturers are locked into pricing on raw materials for a full year. But when those contracts come up for renegotiation, Johns believes there will be another big jump—likely in the prices reported at the end of the first quarter this year. 

Labor is an important part of why McJak is charging more for its candy now. Worker wages shot up 21% for McJak over the past year, and Johns isn’t expecting them to come down. 

“You never give someone a raise and say, ‘Oh, inflation, it’s over. I’m taking away $1.’ It doesn’t work that way,” Johns says, adding the company has raised wages three times during the pandemic, and paid bonuses in an effort to keep their employees. Johns says thankfully the  measures have largely worked, and most of his employees have stayed on. 

At McJak, which currently employs about 40 full-time workers, starting wages are typically $12 per hour, although trained hourly workers can earn an average of $17 per hour with the company’s profit-sharing program and other bonuses, according to Johns. 

And while he would like to match what other companies like Amazon pay, around $15 per hour at the nearby Akron fulfillment center, he says McJak likely would need to raise product prices by another 25% on top of the recent increases to afford that. “That might kill the whole business,” he says. 

“I’ve always been more of a planner,” Johns says, but adds that now many of those plans are written in pencil. Flexibility, he’s found, is critical. “I’ve never seen an environment where it can change so much in a month.”