The Damages Tariffs Have Wrought, As Told By A Chicago Coffee Shop Owner – CoffeeTalk

Michael Salvatore, the founder of Heritage Hospitality Group in Chicago, has had to make business changes due to tariffs and uncertainties. He has raised the price of coffee drinks and is evaluating whether other items need to be changed. Salvatore believes that this period rivals the COVID-19 pandemic in terms of uncertainty and disruption.

The company started as a bicycle manufacturing company and paired it with a café, leading to five different brands: Froth, Heritage Outpost, Heritage Bikes & Coffee, Larry’s, and Bunker. Michael loves the customers, solving problems, experimenting with food, and interacting with employees. His teenager now works at the shop as a dishwasher.

The current moment with inflation and policy uncertainty is starting to rival running a business during COVID. Tariffs are hitting almost every aspect of the business, including bicycle parts, anything coming from overseas, coffee bean prices, and even cups and paper goods. The global economy has also affected everything, making it difficult for Salvatore to make major decisions.

The biggest issue is not knowing what is going on, which creates a temperature where Salvatore will hold off on major decisions because he doesn’t know how it will affect his bottom line tomorrow. Factors such as tariffs, political, immigration, and labor are contributing to the uncertainty. The situation is frozen for at least six months, and the slow season is expected to be uncertain.

To address these issues, Salvatore is raising prices in stages, starting with coffee, then pastries, packaged drinks, and eventually the food menu. They are reviewing item by item over the next two months and adjusting where the margin hit is greatest. Most changes were in the 5% range, rounded up. Salvatore doesn’t want to bombard everyone, but he needs to do it. Right now, he is increasing prices on coffee drinks, where he lost a lot of margin, and he will continue to do that throughout the next few months.

Salvatore discusses the challenges of raising prices for their coffee business, which has seen a decrease in revenue but a smaller margin for profit. They struggle to raise prices on customers who spend money on various items, such as coffee, bikes, services, beer, or food. They decided to explain the increase directly when asked, which felt more aligned with their business practices.

Reactions have been surprisingly quiet, with most people not noticing or saying anything. Michael explains that their margins have become thin due to increasing costs and tariffs. They have had to make operational changes focused on efficiency, eliminating overlapping shifts, reducing prep cook hours, and cutting middle-management roles like kitchen manager, events, and social media.

In late September, the company implemented a hiring freeze due to tariffs and economic uncertainty. They are being extremely selective, halting active recruiting across the company. Despite having one of their best years in terms of revenue, the net profit is smaller.

Salvatore emphasizes that even with great revenue, every line item in the expense sheet has gone up due to increased coffee prices, paper goods, labor, and insurance. To keep up with expenses, Michael suggests raising prices. The group and management discuss finances weekly, planning for slower months, and being realistic about staff hours and offerings.

Salvatore always tries to operate within their revenues, keeping track of what’s happening week by week and running cost of goods and labor within a certain formula. However, the situation is likely to get thinner as tariffs and other factors affect small businesses.

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