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Rising Gas Prices Force Businesses to Add Fees, Cut Services

Posted on: Tuesday, 23 August 2005, 21:00 CDT

Aug. 24--For years, H&S Bakery has delivered fresh rolls and loaves of breads to its customers six days a week, but because of rising gas prices its delivery trucks will now sit idle one of those days.

Beginning next month, the 63-year-old bread maker will forgo delivery on Wednesdays to save money on gas. The roughly 5,000 clients that could be affected include restaurants and schools from Washington, D.C., to Pennsylvania.

"We're trying to hold our price line as much as we can," said Charles Wheatley, director of operations for the company's Baltimore plant. "We're hoping this will simmer down soon, but it's got a lot of simmering to do."

With the price at the pump a national average of $2.61 per gallon yesterday, businesses that deliver are feeling the pinch. From pizza makers to taxis to florists, companies are raising fees, adding fuel surcharges and restricting days of delivery.

Some predict the recent rise in fuel costs, which shows little sign of retreat, could signal an end to what's left of free delivery.

Domino's Pizza Inc. and Papa John's International Inc. added fees in recent years to cover the escalating costs of delivering their pizzas. United Parcel Service Inc. has a surcharge that fluctuates with the price of fuel. The online grocer Peapod, which serves Giant Food, recently raised delivery charges because of rising costs that include gasoline.

"I don't see how companies cannot charge for delivery unless they build it into their cost structure," said Bob Santoni, owner of Santoni's Supermarket, the 75-year-old Baltimore grocer that has also felt the sting of fuel prices. "Nothing is free anymore."

In May, Santoni's raised its fee to deliver groceries by as much as $1 in various places for the first time in seven years after watching gas prices climb for months. The owner said he tried to eat the added gas cost but couldn't absorb both it and an increase in car insurance premiums.

"We held the ground as long as we could, but eventually we had to take these things up," Santoni said. "I kept resisting raising it and had hoped that it would level off and settle, but it never did."

Fearful of alienating customers by raising delivery charges, many operators are cutting costs in other ways such as keeping inventories lean and negotiating lower prices with wholesalers, as well as cutting back on delivery days.

Atlanta-based UPS, for example, avoids scheduling deliveries during peak traffic periods, when it would burn more fuel, and uses technology to coordinate routes more efficiently.

"The last possible option is raising prices when consumers are already frustrated because they're spending more money to fill up their tanks," said Ellen Tolley Davis, a spokeswoman for the National Retail Federation in Washington. "In many instances, retailers are taking a hit on their profits before passing on costs to customers."

The topic is delicate: Barnes & Noble, the book chain that offers free shipping on orders of more than $25, declined requests for an interview on the subject.

Most companies said they can't squeeze their costs any more.

Raimondi's Florists, with nine locations in the Baltimore area, raised delivery fees by $1 in February in response to rising gas prices, but that wasn't enough to counter losses. The company's gas bill jumped more than 70 percent to $12,000 last month, up from $7,000 a year ago.

The company runs 12 trucks that collectively make more than 200 deliveries a day.

"We're at the breaking point right now," said Paul Raimondi, the florist's president and chief executive officer. He admits to being between a rock and a hard place, not wanting to raise prices and unable to pare back deliveries. "We're losing a lot of money right now, especially on deliveries."

Delivery service became a fixture of retail and service industries in the beginning of the 20th century, when merchants delivered groceries and other goods by foot or horse and wagon, food historian and cookbook author Francine Segan said.

With the rise of the automobile, delivery died off as people became enthralled with the self-sufficiency cars afforded. A generation ago, with women returning in force to work outside the home and families looking for ways to make their lives easier, food delivery began a resurgence, led by the growth of the heavily marketed national pizza chains.

During the dot-com boom of the late 1990s, many of the leading Internet concepts involved delivery of various products to the home and office, but many failed long before the gas price run-up.

While people might grumble at a rise in fees, many have become so dependent on delivery that they will pay rather than give up the convenience, said Segan and others.

"At some point, you do the math and say, 'What's my hour worth?'" Segan said. "'I'm going to have to pay the gas to pick up the food. So, maybe the fee isn't such an outrageous cost.'"

Papa John's began adding a delivery surcharge in 2003 on the West Coast because of rising fuel prices and other factors there. Now about two-thirds of its franchises charge an extra $1 to offset the cost of fuel and travel.

Domino's began charging to deliver in the Baltimore area last year, a few years after it did in some other parts of the country, to deal with the higher costs associated with delivery, including insurance, labor and gas prices. The Michigan-based pizza chain, the world's second-largest, said it has gotten few complaints about it.

"Most people have decided that a half-hour of their life is worth a dollar for the service of having dinner delivered to their house," said Tim McIntyre, vice president of communications at Domino's.

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Source: The Baltimore Sun, Maryland

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