At Food Strategy Associates we work with a lot of companies and analyse a lot of data, and we often get asked what measure best indicates superior profitability for a given brand or company. From our experience both in industry and through our advisory work, for us the answer is clear: it’s Relative Market Share (volume).
Relative Market Share indicates how strong a business or brand’s position is relative to the market leader. For the market leader in turn, it’s a measure of the strength of its leadership position.
As an example, in a market where Company A has a share of 50% and Company B a share of 30%, the former’s RMS is 1.67 (50/30) whilst the latter’s RMS is 0.6 (30/50).
Now, you might be wondering ‘So what?’. RMS is an output; a measure you can’t control. However, it is useful as a tool as it can help businesses make resource allocation decisions across a portfolio but also serve as a valuable measure diagnose performance issues. For example, if you have a high RMS but are not making superior profits relative to your peers that could signal an opportunity that warrants further investigation.
So, why is it higher relative market share correlates so well with profitability? There are a number of reasons behind this including:
- Economies of Scale (Scale) | Companies with high RMS benefit from myriad economies of scale, leading to a structural cost advantage over smaller rivals. Scale can not only create huge procurement advantages and operating efficiencies relative to peers but it also strengthens a companies’ negotiating position vis a vis its customers
- Increased Consumer Adoption & Reach (Trust) | Being the market leader generates powerful social proof (the belief that “if everyone buys it, it must be good”) and high visibility, which reduces customer risk and friction. This increased reach and high-volume sales translate directly into greater brand awareness, trust, and mental availability, increasing the likelihood of first-time and repeat purchases.
- Investment Capacity & Innovation (Reinvestment) | Superior profitability generated from scale and pricing power gives leaders more money to invest in things like innovation, R&D, capability and marketing, further widening the perceived value gap vs. other players.
- Distribution Dominance & Retail Leverage (Access) | Due to high consumer demand (in the case of brand), or lack of viable alternatives (in the case of Private Label / B2B) the market-leader effectively becomes a “must-stock” for its customers. In the case of brands, this leverage secures prime shelf space, preferential trade terms, and better promotional slots, further driving sales volume, reinforcing the brand’s visibility, and completing the virtuous circle back to greater scale and cost efficiency.
Success Stories
Time and time again, across geographies, categories, and temperature regimes, we’ve found that our clients have highest profitability in markets where they have highest RMS.
As for publicly available examples, nowhere is RMS and its correlation with profitability more apparent than in brewing, a sector in which Food Strategy Associates Partner Richard Wyborn has deep experience, having worked for global brewer SABMiller.
Indeed, economies of scale in sales, distribution and manufacturing can result in extremely high levels of profitability, particularly in emerging markets where 1-2 brewers often capture 90%+ of the market. As an example, in Middle Americas, leading brewer Grupo Modelo, owned by ABInBev has >60% of the market, and a whopping 49.2% EBITDA margin a phenomenal return on sales rarely seen in any food and beverage category.
Closer to home, Weetabix is an example of a UK company reaping the rewards of a high market share. Weetabix is the leading brand in the UK cereals category, ahead of #2 cereal brand Crunch Nut, with £176m sales in 2024 and an RMS of 1.38. However, what makes Weetabix special is that its leading product, has spawned its own sub-category, in which its only competitors are private label imitations. As a result, Weetabix Limited posts superior EBITDA margins, ranging from 20-30% in recent years.
When RMS isn’t enough
While RMS is a powerful indicator, it is not a universal law and its predictive power on profitability can be significantly diminished in specific market contexts.
A brand’s high RMS should be questioned when the following structural dynamics exist:
- High Category Fragmentation | In industries with many small players and no clear leader, even the “leading” brand’s RMS may not grant it a structural cost advantage or the power to influence pricing. The figure is a weaker signal of dominance.
- PL Dominant Categories | When private label is strong and consumer switching costs are low, the retailer holds immense bargaining power. A high RMS may only indicate high sales volume, not guaranteed superior margins.
- Innovation-Led Spaces with Leadership Rotations | In fast-moving markets, a high RMS is inherently unstable. Disruptive innovation can quickly reposition a new firm as the leader, making the current RMS a lagging indicator before a sudden collapse.
How we can help
At Food Strategy Associates we help businesses make better decisions based on the above insight. Whether it’s optimising resource allocation across your portfolio, refining your RGM strategy, or diagnosing underlying profit issues, we provide the clarity you need. If you’re ready to strengthen your position or stop leaving money on the table in categories you lead, contact us now.