Inventive cost controls

Cost control at a time of skyrocketing prices is a daunting challenge for businesses these days.

But rather than cut staff or raise prices, many Sonoma County companies are deploying new and inventive tactics to weather the inflationary storm.

Some have invested in projects to increase efficiency and reduce waste. Others are pushing their equipment further, waiting longer to replace it.

Another strategy is to substitute cheaper products and hope customers don't notice. Some Sonoma County restaurants, for example, are switching to smaller portions and cheaper ingredients in an effort to hold the line on prices. Some are even trading down to less expensive plates, cups and utensils.

"Business owners are looking to see how they can save money," said Jeff Benson, sales manager at Armstrong Paper Group in Santa Rosa.

The company sells supplies such as paper cups and plates, cleaning solvents and bathroom tissue to restaurants and other companies.

"If a business had been using a top-of-the-line product, now they're scaling back a little. Maybe they have gone from a top-of-the-line paper plate to one that is less thick," Benson said. "If the customer doesn't notice the quality difference, then the business wins."

Rising gas prices, a weak dollar and commodity speculation have rippled through the economy during the last year, increasing the price of everything from truck tires to French oak wine barrels.

On average, costs have jumped 7.2 percent for producers over the past last year. That is more than triple the historic pace set during the last quarter-century, when wholesale prices increased an average 2.2 percent annually, according to the U.S. Bureau of Labor Statistics.

Making matters worse for businesses, customers are increasingly fickle about their spending. Wages have remained stagnant in Sonoma County since 2000, and falling home prices have helped dry up discretionary spending.

So consumers continue to search for the best deals, ratcheting up pressure on businesses to keep their retail prices down.

"The market just won't bear any price increases," said Michael Peters, who owns

Kasuari Winery, a small operation in Sebastopol. "Businesses are stuck between a rock and a hard place."

To reduce production costs -- he bottles about 300 cases a year -- Peters has begun holding onto his wine barrels longer. The cost of a French oak wine barrel has jumped from about $500 a few years ago to more than $1,000 now, largely because of the weak dollar.

Instead of using barrels for three to four years, Peters is holding onto his barrels for five to six years. An old barrel might not contribute the same strong flavor, but it still works to hold the wine, he said.

"You're trying to spread your oak dollar a little bit further," Peters said.

Other wineries are refurbishing their barrels by adding oak inserts or chips to forgo having to replace the whole thing, but still get the new oak flavor. Sales have doubled for oak inserts and chips at Barrel Builders, a Calistoga barrel maker where Peters also works.

Another tactic is to invest in equipment that is more efficient and reduces waste.

Lagunitas Brewing Co. spent the extra bucks -- about $3 million -- in a recent expansion to get brewing equipment that reduces beer loss.

"We've gotten to the point where we just don't want to waste a drop of beer," said Tony Magee, owner of the Petaluma brewery.

The brewery's new high-speed centrifuge whips around leftover yeast to drain every ounce of beer it can. The new equipment also uses about 10 percent less hops. And that's a huge boon since hop prices have more than quadrupled since last year.

"Those things have helped us soften price increases,"

Magee said.

Still, the brewery's costs have gone up about 20 percent in the past two years. But Lagunitas has raised its wholesale prices only 5 percent to 6 percent. So its profit margin has been slimmed.

The brewery has lost a few employees to attrition and not replaced them. But it has managed to not lay off anyone or reduce benefits, Magee said.

Some costs, such as safety measures, are just not worth trying to reduce.

"We're not going to cut back on anything that reduces safety, because that will cost us in the long run," Magee said. "That would be penny-wise but dollar-foolish."

You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@pressdemocrat.com.