The New Economic Storm for Small Businesses
Michael Salvatore, founder of Chicago’s Heritage Hospitality Group, navigated the unprecedented challenges of COVID-19 shutdowns only to face what he describes as an equally formidable economic environment today. The 44-year-old entrepreneur, who operates five distinct brands including Froth, Heritage Outpost, Heritage Bikes & Coffee, Larry’s, and Bunker, finds the current climate of tariffs and policy uncertainty creating operational challenges that rival the pandemic era.
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“COVID was one of the hardest points in my life operating a business,” Salvatore reflects. “Now, it feels like everything’s uncertain, but no one’s giving it the attention it needs. The current moment with inflation and policy uncertainty is starting to rival running a business during COVID.”
The Tariff Impact on Daily Operations
For Salvatore’s diversified business model spanning coffee shops, bars, and bicycle operations, tariffs have created cascading challenges throughout his supply chain. “Any bicycle parts, anything coming from overseas, that’s getting hit, whether it’s tariffs or lack of inventory at this point, because the wholesalers don’t have it either,” he explains. The situation extends to his coffee operations, where tariffs on South America, particularly Brazil, have significantly increased costs.
The challenges extend beyond imported goods to everyday operational items. “Even things like cups, paper goods, anything that we rely on—essentially, nothing’s manufactured in the States,” Salvatore notes. “It’s a global economy, so everything gets hit.” This reality reflects broader industry developments affecting businesses across multiple sectors.
Strategic Price Adjustments in Response
Faced with mounting cost pressures, Heritage Hospitality Group has implemented a carefully staged approach to price increases. “We’re raising prices in stages, starting with coffee,” Salvatore explains. “Next, we’re looking at pastries, packaged drinks, and eventually our food menu. We’re reviewing item by item over the next two months and adjusting where the margin hit is greatest.”
The specific changes illustrate the careful calculation behind each adjustment. At Froth, cappuccino prices increased from $4.50 to $4.75, drip coffee from $3.00 to $3.15, and cold brew from $4.75 to $5.00. Most increases fell within a 5% range, strategically rounded up to minimize customer impact while addressing margin erosion.
“Raising prices is really hard for me,” Salvatore admits. “It’s been years since I’ve done that for coffee. It needed to be done because I see that we’re making more revenue, but we have less margin for any profit to pay our folks.” This difficult balancing act reflects the broader challenges facing Chicago hospitality executives navigating current economic conditions.
Staffing and Operational Restructuring
The economic pressures have forced difficult decisions regarding staffing and operations. “We cut staff in September due to tariffs, but also to streamline operations in response to thinning margins,” Salvatore reveals. The company implemented operational changes focused on efficiency, including eliminating overlapping shifts, reducing prep cook hours, and cutting key middle-management roles.
A hiring freeze implemented in late September has further constrained operations. “We’re being extremely selective so while there may be a few specific roles open, we’ve halted active recruiting across the company,” Salvatore explains. The staffing reductions represent a strategic response to economic uncertainty that mirrors recent technology sector adaptations to market conditions.
Navigating the Uncertainty
For Salvatore, the fundamental challenge lies in the pervasive uncertainty affecting business planning. “The biggest issue is not knowing what is going on. You can’t operate a business with uncertainty,” he emphasizes. “Every day is a win or a loss, and you can’t really run a business that way.”
This uncertainty stems from multiple factors: “It’s tariffs, it’s political, it’s immigration, it’s labor. We’re going into the slow season. That’s going to be uncertain. I’m frozen for at least six months.” The situation requires careful financial management, with weekly reviews and planning for slower months to ensure operational continuity without resorting to loans.
Despite the challenges, Salvatore remains committed to his core philosophy: “It’s always been about the people, it’s always been about the hospitality, and that keeps me going.” His approach to weathering the current economic storm reflects the innovative thinking seen in other sectors, including related innovations in education and workforce development that support business adaptation.
Customer Response and Future Outlook
Surprisingly, customer reaction to the price increases has been muted. “Reactions have been surprisingly quiet,” Salvatore observes. “Most people haven’t noticed or haven’t said anything. A few regulars asked about the change, and when we explained it was tariff and cost-related, they nodded and moved on.”
The company deliberately chose not to broadly announce the increases, instead opting to explain changes directly when asked—an approach that aligns with their relationship-focused business model. “I think people generally understand that everything is getting more expensive,” Salvatore notes.
Looking ahead, Heritage Hospitality Group will continue its careful, staged approach to navigating economic challenges while maintaining the quality and service that define their brands. “We’ll continue to do that throughout the next few months and slowly but surely raise prices where it makes sense,” Salvatore concludes, emphasizing the strategic patience required in the current business climate.
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