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ENERGY

Gas prices no walk in the park

Service firms are being forced to pass costs to clients and cut back on driving

April 29, 2008|Ronald D. White | Times Staff Writer

You know fuel prices have gotten out of control when even your dog walker is adding a surcharge to the bill.

In the week ended Monday, self-serve regular gasoline rose nearly a nickel a gallon in California to an average of $3.892 -- a record -- while nationwide the average jumped nearly a dime to a record $3.603, according to the Energy Department's weekly survey of service stations.

For Melissa Roth, owner of Pet Concierge, filling the tank of her 2003 Ford Explorer costs nearly $90 instead of the $74 tab when she opened her company in July 2006.

"It's just scary," said Roth, who logs as many as 300 miles a week to walk and care for her clients' four-legged family members. "One of my biggest expenses now is gasoline."

To keep her company operating, Roth is planning to increase her prices and add an extra fee for clients who live more than 10 miles from her Atwater Village base.

Businesses traditionally are loath to be the first to raise prices and risk losing customers. They will do whatever they can to reduce their costs first and then hope for the usual seasonal gas relief.

But this year, fuel prices have followed one course: sharply up. Companies are running out of options, and fuel costs are being tacked onto goods and services beyond the expected airline tickets and package delivery.

"Sellers will absorb these costs for a while, but sooner or later, these increases are going to be passed on to U.S. consumers. It's just a matter of time. It's inevitable," said economist Edward Leamer, director of the UCLA Anderson Forecast.

In a recent poll of nearly 1,900 service companies nationwide conducted by Angie's List, a 650,000-member home improvement referral website, 85% said gas prices were eating into their profits. About 60% of the businesses said they were passing those costs to their customers in the form of higher prices or fuel surcharges.

"Over the last couple of months, we have been looking at fuel costs in our surveys. We wanted to know how the companies were handling them, and we wanted customers to have a clear understanding of what they are going to be paying for," said Angie Hicks, founder of the Angie's List website, where consumers review and rate contractors and other types of service operations.

"Service providers around the country are struggling with how to respond to the skyrocketing fuel costs," Hicks said.

Roth, for instance, limits her pet-sitting jobs these days.

"If I get a call from the Westside now, I have to turn it down. It's just not cost effective for me," Roth said. She also has switched to electronic invoicing to save money on her paperwork, started a direct marketing campaign to find more clients in the areas she still serves and uses doorknob-hanging ads that she distributes herself -- on foot.

Like Pet Concierge, Jerry Dino's housecleaning franchise is a young company on the hunt for new customers.

Until recently, Dino had been willing to send four-person Maid's Home Service teams out from his Tustin office for a single housecleaning. He now tries to consolidate nearby jobs onto the same days.

"I had a team going out to Lake Forest three days in a row. Each was just one job. That wasn't a big deal the first couple of years," Dino said. "We put a lot more planning into our scheduling now, and we use one team to do all of those jobs."

Dino couldn't cut corners on products or team size, which are mandated by Omaha-based Maid's Home Service. And he couldn't improve on his vehicles: 2005 Ford Focuses that could comfortably carry four passengers and all of the cleaning equipment and still get as much as 37 miles a gallon on the freeways.

So Dino raised prices by 16% at the end of the year -- then watched with disbelief as gasoline prices kept climbing. "I'm beginning to think that this will be an ongoing thing. You can't raise prices on our customers two or three times in a year, but there is a real possibility that we are going to have to have annual price increases," Dino said.

At Los Angeles-based Azteca 111 Builders, fuel bill increases have been compounded by higher prices for building materials, leading owners Rick Valdez and Lucia Marano de Valdez to raise prices by 40% recently.

They know some customers will go elsewhere for home building, remodeling and interior design.

"Some say we are too expensive, that they are on a budget," Marano de Valdez said. "This is directly affecting our costs. It can't be helped, and we have to act accordingly."

Peter Zazzara, owner of Zazzara Kitchen and Bath in Orange County, said he raised prices 5% to 10% based on the building job, and now finds himself undercut by competitors.

"I got outbid on a job yesterday by $3,000. I'm pricing everything honestly and I'm getting cut in half," Zazzara said.

"It's like a double whammy," he said. "You are paying more for all of your materials and your business is going down. It's very upsetting. We're watching our business get dissolved."

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ron.white@latimes.com

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(BEGIN TEXT OF INFOBOX)

In a fix over fuel

Record gasoline and diesel prices are squeezing service businesses, many of which are raising their prices, according to a survey of nearly 1,900 service firms.

85%

of service providers said fuel costs had hurt profits.

60%

were adopting fuel surcharges or higher rates.

43%

said customers understood why rates were rising.

23%

said they were cutting costs to make up for increased gasoline expenses.

9%

said customers responded angrily to higher bills.

Source: Angie's List

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