According to the latest research, consumers are starting to feel better about the economy as they feel inflation may have hit its peak. Still, brands need to be concerned when reporting profits as consumers are looking for someone to blame.
2021 was the most profitable year for American corporations since 1950. Profits surged 35% last year, according to data published on Wednesday by the Commerce Department, driven by strong household demand, which was underwritten by government cash transfers during the pandemic. In all four quarters of the year, the overall profit margin stayed above 13%; a level reached in just one other three-month period during the past 70 years.
This sudden jump in profit margins was elevated to the halls of Congress this week, where the Senate Budget Committee heard testimony about whether the dual increases in corporate profits and inflation were interrelated.
If they think consumers don’t notice or don’t care, they’re in for a rude awakening.
I keep in touch with many brokers who call on retail accounts, drugstores, and grocery chains. They have all told me that retailers are changing their SKU assortments based on customer demand which, in turn, is directly related to raising prices.
Brands are passing costs on to consumers in the form of higher prices. Why? Because they can, And many can because they don’t face meaningful competition. If markets were competitive, companies would keep their costs down to prevent competitors from grabbing away customers.
Retailers are aware of the trends for customers to switch brands, and some private label manufacturers are overwhelmed with class for proposals in several categories. As one buyer told me, “I understand that some costs could be rising, but to raise prices every two weeks is ridiculous.”
Do brands care, or have they bought into the type that American consumers have a lot of money from pent-up demand during COVID lockdowns? They clearly don’t understand that raises in pay can be negated by higher costs of products/brands they buy daily.
Consumers are switching brands at unprecedented rates
The crisis has prompted a surge of new activities. An astonishing 75 percent of US consumers are trying a new shopping behavior in response to economic pressures, store closings, and changing priorities. This general change in behavior has also been reflected in a shattering of brand loyalties, with 36 percent of consumers trying a new product brand and 25 percent incorporating a new private-label brand. Of consumers who have tried different brands, 73 percent intend to continue to include the latest brands in their routine. Gen Z and high earners are most prone to switching brands.
A survey found that consumers are also willing to consider their options when the price rises on their preferred brands. Among U.S. respondents, 58% said they switched to a less expensive brand in the previous three months because of a price increase in their original choice.
Consumer behavior is changing. Nearly 1 in 4 consumers purchased from a brand they hadn’t tried before during peak season 2021 and have been switching brands more frequently since the Covid-19 pandemic.
As earnings come out, the brands that report record earnings, after jacking up prices, will pay the price and lose a lot of customers.