It’s About to Get Hot. Small Businesses Will Pay the Price

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Cape Elizabeth is a beach town near Portland, Maine. It has what you'd expect from a New England summer destination, a lighthouse, a fruit farm, and a watering hole near the beach, kettle cove, ice cream and shack.

We may come made ice cream and on the other half of our building we do like lobster rolls fry clans, so we cater to the tourists in the locals for the summer.

That's Michael Concannon. He owns that spot, which locals call the Shack. In a typical year, business is good for an ice cream and lobster roll shop in Maine, where summer temperatures average around seventy degrees. But this summer, Cape Elizabeth is one of the many places that the National

But they are expensive, so you know, for us to do it, we'll need three basically keep pump heads for my building and that will add twenty five thousand dollars that I was hoping not to spend this summer, but I am going to.

That's not to mention skyrocketing electric bills. He says his costs can go from twelve hundred dollars in a typical summer month to as high as two thousand dollars when it's especially hot and all that warming it's hitting his supply too. Temperatures in the Gulf of Maine just keep climbing. That means there's fewer lobsters available, pushing prices up.

Lobsterols are really expensive anyways, but you know, say in the summer, they're being twenty three twenty four dollars a lobster roll, and then all of a sudden it shoos up to forty. Most people skip the lobsterl cape.

Elizabeth's small business owners aren't alone in navigating the financial impact of a warmer planet. More than half the US is predicted to see above average temperatures this summer, and Bloomberg reporter Katerina Sireva says that the heat could take a serious toll on many small businesses, which already operate on thin margins. Small businesses we know employee about fifty

We're used to temperatures in the nineties and high humidity here, right, that's normal, But when you just have days on end where it's one hundred and ten degrees, it's really tough. Because I mean, what do you do? You can't really go outside.

Last June, a high pressure system known as a heat dome trapped warm air over the city and kept temperatures high. Texas is power grid buckled under a record demand for electricity. State and local governments placed millions of people under extreme heat advisories. It was life threatening weather and.

That just continued into July and August. It's just miserable. No one enjoys it.

So how did you cope with it?

So we stayed inside a lot. When I walked by restaurants or stores, I mean, you just didn't see people inside because I think people weren't doing that. They weren't walking to these local small businesses.

Nobody was looking for a reason to be outside during this time period.

That's Ray Perryman. He runs an economic research firm out of Waco, Texas. Last year, his firm tried to put numbers to just how bad these small businesses across Texas were hurt by the heat.

One thing that struck me on that one was the sheer magnitude of it. Because the thing we found with regard to the major heat wave that occurred in twenty twenty three was that on the whole, there were net losses to the stead economy of about nine point five billion dollars as a results of this.

That's not easy to recover from. On a local level, Katarina's already seen some businesses closing their doors.

There were this below restaurant and my neighborhood that closed after many years in operation.

You know, the owner talked about it just being.

More difficult to operate right now, the cost of food and labor rising, but then also hot temperatures putting a dent in your revenue.

But the impact is not just local, Katerina told me, a hit to the Texas economy is a hit for the rest of the country too.

Texas is obviously a huge state. It accounts for ten percent of the national GDP, We account for twenty two percent of all US exports, so anything that's going on here obviously impacts the country more broadly as well.

There are three point two million small businesses in Texas. Emily Kerr, an economist at the Federal Reserve Bank of Dallas, dug into how last summer's extreme heat impacted businesses across the state.

When this summer heat wave happened, we reached out to this group of over four hundred Texas businesses and posed to them the question, you know, did the summer heat wave have any impact on your business? And nearly a quarter of them said that it had a negative impact on either their production if they were a manufacturer, or their revenue if they were a services firm.

For restaurants and stores, that downturn was largely driven by lower foot traffic. In fact, a Houston restaurant noted that it was the worst from a customer traffic standpoint than they'd experienced since they opened in nineteen sixty seven. For manufacturers producing things like food and electronics, it wasn't demand that took the hit.

Their lost revenue came from lower productivity, lower labor productivity, temperature sensitive work sites, and so these manufacturing companies were having to give workers more breaks, you know, provide a lot more water, maybe pull back from outside, and sort of exertion roles whenever it was so hot.

On top of bringing in less money, small businesses are also spending more cranking their acs just like the rest of us, and dealing with surging electricity costs. Last summer in Texas, the price of electric tricity, by some measures, spiked four times. The state is in a unique position because it has its own power grid. That means there's no way to supplement it with power from the rest of the country when the state's electricity demand suddenly shoots up.

So what happens is that the grid regulator asks us to reduce our use of electricity.

Bloomberg's Katerina Sarareva.

Again, without electricity, you can't do anything. So if your electricity gets cut because we're having rolling blackouts because the grid is overwhelmed, or total blackouts where you don't have electricity for a few days, it has huge ramifications on your production capabilities.

Katerina says, the city of Houston has taken steps to mitigate the negative effects of the heat.

So, for example, the city has embarked on a big initiative to try to plant more trees, not just for absorbing carbon but for providing that shade, that really is a big relief.

They also turned city libraries into cooling centers on the weekends and encourage residents to stay indoors. But a lot of the steps required to make businesses more resilient to extreme heat or landing on the plates of individual business owners, and this year's first heat wave is already underway in Texas and is expected to spread to the southeast. After

I think a lot of these companies, especially after last summer, are coming up with ways to adapt.

That's Emily Kerr from the Dallas Fed.

Adding more shade as an example of you know, whether it's a theme park or a restaurant that has that door seating. Small businesses especially are incredibly resilient and have found ways to pivot their business model, adapt to a changing environment and find ways to get through.

At Palmer Lane Maple in Jericho, Vermont, Colleen Palmer sells a local summer staple maple flavored soft.

Serve that in Vermont we affectionately call creamies.

Generally, summer heat is good for the ice cream business, but not if the temperature gets too high.

If it hits like mid nineties, it's too hot. Nope, vermont rous will stay home.

Ninety degrees in Vermont isn't ninety degrees in Houston. Vermont typically sees summer highs around eighty degrees. Most buildings don't even have central air conditioning. People aren't used to extreme heat. Colleen and says that means she needs to stay nimble.

We watch the weather religiously to know how to plan. How many staff do I need that day, how much mix do I need to order for the week. We may find that it's going to be really slow in the afternoon because that's the hottest part, but the evening people will come out because it's cool down a little bit. So we really just kind of adjust based on the weather.

But as Bloomberg' Katerina s Airava says, sometimes being able to adapt requires upfront investment.

For restaurants, it's putting in big fans on the patios, water misters, things like that. That if you had a state program that might help subsidize some of that, right, cover some of those costs of installing those things.

The government recognizes this and it's trying to support these businesses. The Small Business Administration offers a program that allows companies who have suffered from weather disasters to apply for loans.

So these are loans that have a lower interest rate than normal that businesses can taped to kind of try to mitigate some of these losses in revenue.

Think about it like the mom and pop loans from the height of COVID, only this time it's not a pandemic that's threatening business, it's the heat. But not everyone can access these loans. You have to meet certain criteria and the government needs to declare a disaster in your state. And for some businesses, even a low interest loan wouldn't be a quick fix. Brad Ervic ownes cherry shack orchard

We've been doing it for seventeen years and when we started out, you know, you just have the normal summer heat and go away. Now it just seems to be very dry and high heat for almost all summer, like one hundred and five for many days in a row.

Brad says that keeps customers from coming out to pick fruit.

It's not like I want to go outside and pick the fruit. And of course you have the.

Fires, wildfires in the Pacific Northwest.

That's probably the biggest impact is the smoke for people coming out, it's horrible. I mean there's times that you can't see probably forty feet in Coronium.

All this unpredictable weather, it's bad for crops.

Well, we lost all our peaches and probably half the cherries.

That's because this winter was unseasonably warm. Then a cold snap came in and killed a lot of Brod's fruit, which raises the question how do you begin to recoup that kind of loss.

You don't there's no recooping.

Brod says that he thinks the government could be doing more to help out small business owners like him. He hopes he'll be able to make up for his losses with a busy fall season. They have a pumpkin patch and a good apple crop, but Brod says that it's not clear what will happen if temperatures just keep climbing year after year.

I don't know, it's a question that's looming.

I guess the Small Business Administration's loan program is a start, but it's worth noting that during COVID they offered the option to apply for loan forgiveness, as in money that didn't need to be paid back that is not available for weather related events.

Howwether it might not be something that we traditionally have thought about as something that can weigh on the economy, but it's becoming a parent in these last few years that it is a major component of what's going on economically.

Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm Salaia Mosen. This episode was produced by Julia Press. It was mixed by Blake Maples, fact checked by Audriana Tapia, and edited by Aaron Edwards and Wendy Benjaminson, who also provides editorial direction with Elizabeth Ponso. Naomi Shaban is our senior producer, Nicole Beemster bow Or is our executive producer, and Sage Bauman is Bloomberg's head of Podcasts.