The Covid Surcharge: Companies Confront the Unforgiving Economics of Coronavirus

Rising costs, weak demand and customer limits challenge efforts to reopen for business

By Matt Grossman of The WSJ. This generally makes sense since higher production costs reduce supply which raises the price of the good. But weak demand would tend to lower the price. Maybe the supply effect is stronger. Excerpts:

"Facing higher costs to keep workers and customers safe and an indefinite period of suppressed demand, businesses are navigating an ever-narrower path to profitability. To make the math work, some businesses are cutting services and jobs. Others are raising prices, including imposing coronavirus-related fees aimed at getting customers to share some of the expenses.

For large companies, the price—and perils—of operating in a pandemic are already coming into focus.

Walmart Inc., Target Corp. and Home Depot Inc. this week said they absorbed more than $2 billion combined in added expenses for wages, bonuses and other benefits for workers during the early months of the pandemic. McDonald’s Corp. laid out conditions for franchisees to reopen their dining rooms that include cleaning bathrooms every half-hour and digital kiosks after every order. Ford Motor Co. this week opened its American assembly plants for the first time in two months, and promptly had to idle factories in Michigan and Illinois after employees tested positive for Covid-19."

"Billy Yuzar saw adding a surcharge to diners’ tabs as a simple way to compensate for higher food prices at his West Plains, Mo., restaurant, Kiko Japanese Steakhouse & Sushi Lounge. It was more convenient than raising menu prices, Mr. Yuzar said, because he could update the fee in the business’s point-of-sale computer in one step."

"Herman Halici, the owner of Dan’s Super Subs in Woodland Hills, Calif., said the price of meats such as pastrami, roast beef and corned beef has risen by up to 60%, and new procedures mean that employees must spend 25% more time on cleaning. In response, the shop has added a surcharge of 75 cents to $1 a sandwich."

"The pricing strategy also has landed at large package carriers, with United Parcel Service Inc., FedEx Corp. and DHL Express applying surcharges for some international shipping during the pandemic.

"DHL Express said its costs have risen in part because cargo space it buys on commercial airliners has become scarce because of flight reductions."