Recession Hits Small Businesses

The "Financial Family Tree" series tracks how the recession has hurt people and small businesses from Florida -- to California, overseas to China -- and back home to New York.

We move on to the Midwest tonight, where CBS News Correspondent Dean Reynolds picks up the story.

When we met Roxanna White she was optimistic about her gift basket business in Huxley, Iowa. But 15 months after starting it she's still looking for a profit while her store is piling up with supply.

The slowdown in her business has had a negative effect on Mike McKearnan's company, 333 miles away in Glendale Heights, Illinois.

McKearnan says, "Our business is down about 25 percent from last year. All our customers are ordering smaller, being very cautious."

At Imperial Foods, McKearnan distributes all the ingredients that go into the baskets that White sells. This includes the coffee, the biscotti, the pretzels and rum cakes to name a few.

Business had expanded about 10 percent annually since 2004. But orders dried up last year. They're expecting a $300,000 to $400,000 loss in sales this year.

McKearnan's had to lay off one warehouse worker. He's cut back office hours from 40 to 30 hours a week.

He's had to hold the line on everything else. He said, "Our phone bill, our rent, bank costs. Any costs that we can try to monitor and reduce these as much as possible."

So now McKearnan is purchasing less coffee from Sandra Knight, president of the Chicago Coffee Roastery in Huntley, Illinois.

Knight says "nobody can afford to be giving out gifts like they were before."

They roast 20,000 pounds of beans every month at her 19-year-old business.

The gift basket business used to account for one out of every four sales she made.

Today, it's one out of ten.

Plans to expand to an adjacent parcel of land are on hold.

When asked if she was hiring, she said, "No, I'm not doing any hiring."

Still, she is both bullish and superstitious about the rest of the year, saying "I am very optimistic. My fingers are crossed. "

In the gift basket, the coffee's neighbor is the biscotti from Facet Foods in New York.

Eight out of every ten sales that Matthew Weinberg makes go into gift baskets.

But this year his sales have taken a big hit.

"Probably 20 to 30 percent. There's been a big drop-off," he says.

In a good year, Weinberg sells about 100-thousand packs of biscotti. Now, he'll be lucky to hit 70,000, but enough he hopes - to make it through the year.

Weinberg says, "Then after that I'm going to have to take a good look at the business and really see if it's economically viable to stay in business."

Next to the biscotti you'll find the mustard and pretzels produced by East Shore Specialty Foods of Hartland, Wisconsin.

First quarter sales were down by nearly 20 percent from a year ago, or $120,000.

That's put Jeri Mesching's 23-year-old company in something of a squeeze.

To avoid layoff, she's foregoing new manufacturing equipment.

Also in the basket is the Tortuga Rum Company's rum cake. It's the number one export of the Cayman Islands.

The cakes may be hot out of the oven, but sales are cold - down 30 percent this year.

Monique Simmonds, president of the Tortuga Rum Company, says "We are spending a lot of time putting our heads together, to see what can we do to try and increase business."

Simmonds praises the hard work of her employees, saying "We have over 100 employees and without this wonderful team we could not do it."

But the sad fact is that her team has 40 fewer people today than it did just six months ago. It's a sign of how far and wide the economic ripples can reach. It can reach a Caribbean island almost 500 miles off America's coast.