If you run a business, one of the decisions you have to make is prices of goods and services, while consumers expect prices to bounce up and down in a supermarket, generally companies only have one opportunity to raise prices. The decision process involves what the company thinks the market will bear, their profit margin; the costs of the product and when the prices were raised the last time. If a price has been stable for a number of years, often there is a change to increase prices and the market share will remain because the customer has little choice.
In an article by Jeanna Smailek of the New York Times News Service, at the present time corporations are discovering people are willing to pay for the goods and services they want to buy. Most people have heard about the supply system bottlenecks and expect prices to go up. How much before it bothers the consumer, only the market will tell you. At the moment, corporate executives have a window of opportunity to increase prices to cover costs and to expand their profit margin.
Rental car costs
Everything related to automotive seems to be increasing in cost and rental cars are the vanguard of that trend. Joe Ferraro, president of Avis Budget group said the rental a car market has more demand than supply. The margins are increasing and the group is competing on the quality of service not the price.
Richard J Kramer, CEO of Goodyear noted, it is a really very very good constructive pricing environment that we have seen right now. Goodyear tracks 9 competitors and 7 of the 9 have announced price increases. Goodyear expects profit margins to be up because of price increases.
Sizing up beef costs
The restaurant chain that includes Outback Steakhouse is planning to raise prices by 5% across its brands to cover labor and food costs as well as find efficiency improvements to increase its profits. Christopher Meyer, CFO, said the 3% increase was too small. Prices were stable since 2019. The efficiency includes simplifying its menu and cutting food waste.
Recovering profits in food
Shake Shack’s Katherine Fogertey CFO, said prices increased in October and another price increase is expected in March. Normally prices increase 2% a year, but this year it is 7%.
Pricier hotel rooms
If you are planning to go to Vegas, Wynn Resorts CEO Craig Billings believes the company has strong pricing power on rooms, food and beverage.
Josh Charlesworth. CEO of Krispy Kreme, increased prices with double digit price increases. The cost of labor may go up, but the company had locked in prices for key ingredients such as sugar and oil for the year. If prices go up it will tend to add to margins.
Linking to dividend paying stocks, one of the elements you look for in a company is does it have the ability to raise prices. It seems this year, many companies are in the position to raise prices and that is good for the company. The price increases cover costs but it also increases margins which translates into profitability and that is a good thing for investors. From an investor viewpoint, you like when the CEO or CFO says sales will increase at higher prices and higher margins.
There are more questions than answers, till the next time – to raising questions.