Brands that sell food and other household staples — many of which have reported increased profits in their latest quarterly earnings — are weighing their next moves on prices as inflation cools, and they’re not planning to reduce costs. Consumers, however, have other plans.
When asked by analysts if Kraft Heinz had raised prices too soon and by too much, the company’s chief executive, Miguel Patricio, said: “I would do everything again.” That’s a problem.
The price jump has allowed some companies to increase profits while selling fewer products. Other companies, such as the energy drink company Monster Beverage, have raised prices and sold more. Both trends point to a consumer who can absorb higher costs.
Some companies are starting to feel consumers tighten their purse strings by buying bulk items or switching to generic brands. Consumers are “really maximizing their pantries,” said Steven Cahillane, chief executive of Kellogg Company.
Do we see a dramatic shift in brand priorities from market share to profit? The answer depends on your brand equity. Monster Beverage has a lot of brand equity, so consumers are willing to pay more, but other brands are learning that their brand equity is more imagined than real.
Profit and market share are important metrics for businesses, but they measure differently. Profit measures how much money a company makes after all its expenses are paid, while market share measures the percentage of the total market a company controls.
In general, profit is more important than market share for long-term business success. This is because gain allows a company to reinvest in its business, grow its operations, and create new products and services. However, too many brands are using earnings on stock buybacks to keep investors happy.
Market share can be important for short-term growth, but it is not sustainable if a company is not profitable.
In some cases, market share can be more important than profit in the short term. For example, a company trying to enter a new market may need to sacrifice profit to gain market share. This is because building brand awareness and establishing a customer base in a new market can be expensive. Once the company has earned a significant market share, it can focus on increasing its profit margins.
Ultimately, the importance of profit and market share depends on the specific circumstances of the business. However, in general, profit is more important for long-term business success.
Here are some additional thoughts on the relationship between profit and market share:
- Profit is a better measure of a company’s financial health. Market share can be influenced by factors outside of a company’s control, such as the market’s overall size and competitors’ actions. Conversely, profit is a more direct measure of how well a company is managing its operations and generating revenue.
- Profit can lead to more market share. A profitable company can reinvest its earnings in new products, marketing, and other initiatives that can help it gain market share.
- Market share can lead to profit. A company with a significant market share can often command higher product and service prices. This can lead to higher profit margins.
In the end, the best way to achieve both profit and market share is to focus on providing high-quality products and services that customers value. If a company can do this, it will be well on its way to long-term success.