At Pawtucket-based Papis Refrescos LLC, demand for its coconut rum liquor has grown steadily since the company’s launch in 2022. The bottled coquito can now be found on the shelves of 80 liquor stores in Rhode Island, up from 30 in its first year.
But the rising popularity of the liquor hasn’t translated into an increase in profit for the company doing business as Island Coquito, says owner Victor Regino. A number of factors have forced him to increase the price of a bottle from $20 to $28.99 just to maintain the bottom line.
“That’s not due to greed. That’s just raw ingredients alone,” Regino said of the price hike. “We’re still making the same profit, but we need [the extra money] to cover freight, raw ingredients are really expensive, and labor is always expensive.”
Nevertheless, Regino is confident that the business’s trajectory will continue to rise over the next year, as will the profits.
“I’m optimistic for sure,” he said. “As long as we have access to capital and people in the state who can get behind us, we’re going to do just fine.”
But then he added: “I don’t think [economic conditions are] going to get any better just yet.”
He’s not alone in his feelings. The Providence Business News 2024 Winter Business Survey shows that local companies continue to believe that the threat of a recession is in the rearview mirror, but they still see some bumps in the road immediately ahead.
More than 4 out of 10 business owners and executives who responded to PBN’s biannual survey – 44.8% – said they believe the Rhode Island economy would improve slightly or significantly in the next 12 months. Not exactly a resounding vote of confidence, but that’s better than a year ago when just 34% felt that way as a recession appeared imminent, and it’s the first time since the winter of 2021 that confidence in the state’s economy has shown an improvement over the previous survey.
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WELL STOCKED: Papis Refrescos LLC owner Victor Regino remains hopeful despite challenges he sees for his business and the broader state economy.
PBN FILE PHOTO/MICHAEL SALERNO[/caption]
But at the same time, those people haven’t grown much cheerier about their own prospects. Exactly half of the respondents foresee bigger profits for their companies a year from now, a rate that’s fluctuated very little in recent PBN surveys (53.2% six months ago and 46.4% a year ago). These numbers remain some of the lowest seen in the survey since the Great Recession in 2008.
Is it any wonder that businesses aren’t exactly sure how to feel about the near future?
Inflation has cooled from the highs of 2022, when the rate averaged 8%, but it remains at least 1 percentage point above the 2% that is generally deemed healthy for the economy.
Housing costs continue to put the pinch on many residents as sky-high house prices climb despite higher mortgage interest rates, and rents have surged too.
And there’s also a tumultuous political environment that promises a divisive rematch between President Joe Biden and former President Donald Trump in November.
Yet the stock market has gone on a bull run since late October, with the Dow Jones Industrial Index rising more than 17% in three months, topping 38,000 for the first time in January. And the unemployment rate in Rhode Island stood at a near-rock bottom 3.2% in December and hasn’t been above 4% in more than two years.
Perhaps as a result of the mixed vibes, businesses appear in some ways to be in a bit of a holding pattern. In the latest PBN survey, 46.6% said the number of new orders and business was the same as last quarter, a result that nearly matches the percentage from a year ago (46.8%), while 32% said orders were greater than last year, down slightly from 33% a year ago.
At the same time, businesses have been equally reluctant to make capital investments. Asked if they planned to purchase any big-ticket items in the next quarter, 26.9% of respondents said it’s still under review and another 51.9% said a flat-out “no.” That’s compared with 52.7% who said “no” a year ago.
Three respondents in the most recent survey even acknowledged that they have plans to consolidate their businesses by closing facilities in the next quarter.
Erin Donovan Boyle, CEO and president of the Greater Newport Chamber of Commerce, found a lack of plans to expand company facilities particularly concerning – 70.8% of respondents said they have no plans to do so in the next quarter, a number that stood at 75.5% a year ago.
“People aren’t planning on significant growth, or access to capital and financing is difficult,” Donovan Boyle said. “So, right now is not the time they’ll be making investments while interest rates are high. In a healthy economy, you want to see some businesses investing.”
Still, Edward M. Mazze, a distinguished professor of business administration at the University of Rhode Island, points to the desire of companies to hire more people as a solid indicator of how they feel about the future.
More than half said they planned to hire more employees in the next quarter (52.8%, up from 48.2% six months ago and 44.1% a year ago). And none of the respondents said “yes” when asked if they planned workforce reductions in the next quarter.
“I think most of the smaller and medium-sized businesses in Rhode Island recognize now that there’s less of a chance of a recession,” said Mazze, who helped develop the survey. “So they’re making decisions to hire more people.”
TALENT WOES
The PBN survey, which has been conducted twice a year since 2008, is not scientific. PBN sent 22 questions to more than 1,400 businesses statewide in the newspaper’s database. One hundred six completed the survey, a mix of businesses ranging from manufacturers to banks, construction contractors to lawyers, retailers to real estate agencies. While the respondents include some of the state’s largest employers, most are small and midsize companies.
The latest survey results indicate that the top concerns of businesses are shifting as the fear of a looming recession and runaway inflation fade.
While nearly 4 out of every 10 respondents still noted that a weak economy is a top business challenge (39.4%, virtually the same as a year ago), more than half (54.8%) listed health care costs as one of their greatest challenges, up from 43% a year ago. At the same time, taxes edged higher as a top challenge at 49%, up from 42.1% in winter 2023.
Access to capital remained low on the list of concerns, with 10.6% of the survey takers marking it as a challenge, but that number represented a significant increase over 4.7% a year ago.
The challenge that remained at the top of most of the respondents’ minds: a shortage of qualified workers, with 62.5% saying it’s a big problem, up slightly from 61.7% a year ago.
It’s certainly been on the mind of Ross Cann.
The managing director at A4 Architecture Inc. in Newport says finding qualified workers isn’t so much of a problem since there’s a pipeline of talent from nearby Roger Williams University and its architecture program.
But Rhode Island’s cost of living, particularly on Aquidneck Island, is making it difficult to keep those new employees at A4. And many staffers grow weary of the long daily commutes into the Newport office from far-flung locations with more affordable housing.
“We definitely have challenges in finding people and keeping people because of commuting issues, and we’re very cognizant of that,” Cann said. “That’s a heavy burden on them, and it makes it harder for them to stay with us, even if they like working with our firm.”
Most employees leave after two or three years, often in pursuit of larger salaries in bigger metropolitan areas, Cann says.
Donovan Boyle says it’s not much different for other businesses, too. The high cost of living and housing has hurt the ability of many companies to find help.
“Proximity to your employer becomes more and more difficult when you’re competing with other companies who can offer similar wage, better benefit packages but they’re closer to [employees’] homes,” Donovan Boyle said.
“So cost of living is high, cost of housing is high,” she said. “And the regular, double-digit percentage growth is hard for small businesses to incur and budget for.”
That might explain why, when asked about important actions state government could take to support businesses in the year ahead, executives and business company owners placed reducing the cost of doing business in Rhode Island highest on the to-do list, with 70.5% of those surveyed marking that as important, up from 62% in the winter 2023 survey.
A notable change in responses to that question was that 33.3% of those answering the latest survey said improving transportation infrastructure was crucial to assisting the business community, up from 24.1% a year ago and 19.8% only six months ago.
That’s perhaps not surprising since survey responses were solicited in mid-December around the time when a safety inspection led state officials to suddenly close part of the Washington Bridge. The closure caused lengthy traffic jams and hurt businesses during the crucial holiday season.
Indeed, a business executive based in Warren lamented the traffic problems and their effects on business in the comment section of the PBN questionnaire. “Infrastructure is terrible,” the respondent wrote. “Three months of this is not sustainable. I have employees leaving. Cannot attract talent and many businesses will close,” said the executive, who could not be reached for additional comment.
Survey respondents indicate they have enough headwinds without the infrastructure woes.
Forty-five percent of respondents said the salaries of new hires have been their biggest growing expense over the last five years, an indicator of a tight job market. That’s up from 42.2% a year ago.
Health insurance was second on the list of the biggest growing expenses at 31%, nearly the same as a year ago.
[caption id="attachment_458740" align="aligncenter" width="1024"]
TALL TASKS: Erik Berlied, right, general manager of The Pell Hotel in Middletown, talks with Ross Cann, principal architect and founder at A4 Architecture Inc. in Newport, which performed renovation work on
the hotel. Cann says finding and retaining qualified workers has been one of the most significant challenges for his company.
PBN PHOTO/DAVID HANSEN[/caption]
For Cann, health insurance costs are more consequential than the rising salaries of his A4 employees. The firm gives employees annual raises of around 5%, Cann says, but it is struggling to keep up with health care expenses that can rise by 10% to 20% annually.
At the same time, only 9% of respondents said rental and building costs had increased the most over five years, down from 12.8% a year ago. That decline is perhaps the result of the upheaval in the commercial real estate space rife with vacancies as businesses rent smaller offices because of the growth of remote work.
That might make Maria Andresino an outlier.
Andresino, owner of Mind 2 Body Fitness in Providence, says she’s received support from city and state economic development officials in recent years. The studio and personal training business actually signed more clients during the COVID-19 pandemic, with more people taking part in her virtual programming first launched during lockdowns.
Andresino left those virtual options in place even as COVID-19 measures lifted, and they continue to attract clients locally and nationwide. About 30% of her clients connect with the studio virtually.
Staffing was a concern, but Andresino has started her own training program for fitness instructors in hopes of retaining the graduates as independent contractors.
Now she’s got another worry: real estate.
Mind 2 Body Fitness had leased space at the Rising Sun Mills since 1998, but the agreement is set to expire and she fears the new owner of the building may not renew or may seek to jack up the rent.
“I would love, love, love to be able to buy, but all of the mill spaces around Olneyville and Valley Street are leased,” Andresino said.
ADDED CHALLENGE
There’s a lot that’s got Victor Regino concerned at Island Coquito – hiring talent, rising health insurance expenses and taxes, and skyrocketing prices on essential ingredients in his product, such as pure cane sugar and coconut cream.
Also, Rhode Island doesn’t have suitable co-packing facilities in the state, he said, so Island Coquito pays to transport the product from a bottling facility in Indiana to Rhode Island.
Still, everything looked promising near the end of 2023.
Coquito is a staple at celebratory occasions in Puerto Rico but has few commercial distributors in the U.S. Regino said about 70% of Island Coquito’s revenue comes from sales through liquor stores, but another essential stream is from bars and restaurants — partnerships that introduce potential customers to the beverage and feed liquor store sales.
Then came the Washington Bridge problems and the massive traffic jams that quickly followed in December.
The partial bridge closure during the lucrative holiday season for restaurants and bars dealt a severe blow to those locations in East Providence, where there are numerous Island Coquito customers. That in turn cut into Island Coquito’s sales revenue and into the company’s effort to build its consumer base.
Nevertheless, Regino is trying to remain positive despite the challenges right now.
“The demand is there,” Regino said of his coquito product. “It’s just everything else [that’s a problem].”
