Top 5 Industries Impacted by Inflation in the Small Business Sector

Soaring inflation takes a toll on all businesses, but it hits small businesses (SMBs) the hardest. Making up 99.9% of all U.S. firms and employing nearly 50% of all employees, SMBs are the backbone of the U.S. economy.

When these businesses struggle, the ripple effects leave workers without jobs and customers without essential local services. This impact is especially severe in the most vulnerable sectors, where rising costs have led 88% of SMBs to report significant financial strain since 2022.

As we move through 2024, inflation continues to drive an alarming trend: nearly 50% of small enterprises may not survive past their fifth year due to financial constraints. It’s no surprise that the following sectors are particularly vulnerable: retail, construction, restaurants, transportation, and healthcare. 

1. Retail is in a perpetual state of flux

Retail businesses are acutely impacted by inflation due to rising costs of goods, supply chain disruptions, and fluctuating consumer demand. Inflation forces retailers to hike prices, which can alienate price-sensitive customers and reduce sales volumes. Furthermore, inventory management becomes more complicated as the cost of holding goods increases.

Overcoming the challenge: Retailers can focus on offering an enhanced customer experience through innovative offerings, value-added services, or bundling products to help justify price increases to customers. 

Especially when 36% of global consumers said they would buy a product that offers value if prices continue to rise.

2. Construction faces a complex economic environment

The construction industry is heavily affected by inflation because of rising material costs and labor shortages, which have increased wages by 20%. The prices of essential materials like lumber, steel, and concrete have surged, making projects more expensive and squeezing profit margins. Additionally, finding skilled labor has become more difficult, increasing wage pressures.

Overcoming the challenge: Firms in the design and construction space should consider bulk purchasing agreements to lock in prices before further increases. Additionally, adopting more efficient project management and resource allocation practices can help mitigate the impact of rising costs.

3. Restaurants struggle to balance value and volume

Restaurants are hit hard by inflation due to rising food prices, labor costs, and energy expenses. Inflation has driven up the cost of ingredients and utilities, while competition for workers has pushed wages higher. In fact, the cost of goods is 31% higher in 2024 than four years ago. Restaurants often operate on thin margins, so even small cost increases can be devastating. 

Overcoming the Challenge: Menu engineering—strategically adjusting prices, portions, and offerings—can help maintain profitability. Restaurants can also explore sourcing local or seasonal ingredients that might be less expensive and offer unique selling points to customers.

4. Transportation faces a ripple effect

Transportation companies, including trucking and logistics firms, are feeling the pinch from rising fuel costs, insurance increases, and vehicle maintenance expenses. The cost of fuel and in some cases, fuel theft, has been a significant factor, directly affecting operational expenses. Moreover, inflation-related wage demands are pushing up labor costs in an industry already facing a shortage of drivers.

Overcoming the challenge: Transportation businesses can invest in fuel-efficient technologies and vehicles, and adopt route optimization software to reduce fuel consumption. Exploring partnerships with other companies to share logistics costs can also be a viable strategy.

5. Healthcare

The healthcare industry is struggling with inflationary pressures on multiple fronts, including the cost of medical supplies, equipment, and labor. Rising healthcare costs also affect insurance premiums, which can increase operational expenses for small healthcare providers. Moreover, attracting and retaining skilled healthcare workers has become increasingly expensive.

Overcoming the Challenge: Healthcare providers can focus on improving operational efficiency through the use of telemedicine, electronic health records, and other digital tools. Additionally, revisiting pricing strategies for services and negotiating better rates with suppliers can help manage rising costs.

3 Steps small businesses can take to navigate rising inflation

Inflation won’t likely disappear overnight, but with careful planning, small businesses can navigate these turbulent times and emerge stronger. Let’s look at three strategic steps small businesses can take to help navigate inflation and stay strong during turbulent economic times.

Step 1: Choose a business charge card designed for small businesses

Major banks and prominent credit card providers don’t always cater to the specific needs of small businesses. However, specialized business card providers offer innovative charge cards that help build credit without requiring a personal guarantee. 

Unlike credit cards, charge cards require monthly balance payments in full, which prevent overspending and debt accumulation. These cards are tailored to small business challenges, offering a flexible and efficient path to credit growth. 

Step 2: Leverage technology to handle expense management

Implementing a modern expense management system gives small business owners greater visibility, cost control, and budgeting capabilities. By automating your expense management process, you can reduce errors and fraud risks, save valuable time—and gain important insights into spending patterns. 

When choosing an expense management solution, make sure it offers user-friendly interfaces, mobile compatibility, real-time notifications, and integration capabilities.

Step 3: Use rewards networks for customer acquisition & retention

Small businesses face tight budgets and limited resources, making rewards networks a smart, no-cost solution to boost sales. These programs attract new customers and foster loyalty through rewards, discounts, and exclusive offers.

Customers benefit from tailored savings, enhancing their commitment to your business. Best of all, you only pay commissions when sales are made, minimizing risk and maximizing returns—perfect for doing more with less.

Running a small business is challenging, even in the best of times. But during economic uncertainty, it can feel overwhelming. To stay afloat, SMBs must find innovative ways to grow revenue while controlling expenses and retaining existing customers.