Brands using pandemic to make higher profits?

SUMMARY: As consumers struggle with inflation, nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the Covid-19 outbreak, data from FactSet show. This is going to lead to more pissed-off customers and brand defections.

According to the WSJ, “industries from retail and manufacturing to biotech have seen their profits rise.Other industries, largely those still climbing out of pandemic lockdowns, such as travel, or those too weighted with inflationary costs, have raised prices but not experienced a profit boost.”

While widespread inflation makes it easier to raise prices with customers, brands that are raising fees just to make more money are essentially lying to their customers. Americans are paying more for various products and services, including necessities: food, gas, rent, and furniture. A key economic indicator, the consumer-price index increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%. They are angry and are holding politicians accountable.

Some economists have said some degree of higher inflation could stick around for the next few years. Entrenched inflation could mean Federal Reserve officials might have to raise rates sooner or more than they expected, potentially dampening growth. It’s also a sign of American spending power from significant savings amassed during lockdowns and from federal payouts.

“Whenever you have a strong economy, companies will try to capture a greater share of the pie”. If they have a strong market position and strong demand, then they have the leeway or capacity to increase prices.”

Gregory Daco, chief U.S. economist for consulting firm Oxford Economics

There are some signs that demand is cooling, and with it, consumers’ and businesses’ willingness to absorb price hikes, said Mr. Daco of Oxford Economics. Once supply bottlenecks ease and consumer spending shifts, he said, it could dampen companies’ ability to raise prices further.

If some CPG brands report record or increased profits, you can bet that consumers are going to take note and ask, “why am I paying more?”. Brands had better be careful because they risk eroding all of their built-up brand equity.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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