On-demand companies may find themselves stuck in a world of low margins, high promotional costs and labour churn as they struggle to attain the sort of market dominance that locks in their network advantages.
The company said its holiday sales revenue fell short of expectations, but that lower operating costs and fewer promotional discounts bolstered its profit margins and offset any shortfall in expected revenue.
A less favorable product mix and greater promotional activities caused the gross profit margin to decline 140 basis points to 42.69%.
"Promotional activity in the month produced margins that were below projection," Heidi Kunz, the executive vice president and chief financial officer, said in a written statement.
He also pointed to a cutback in promotional activity designed to protect profit margins, which are expected to be up about 50 basis points for the full year.
But the grocery business saw pressure on margins at Allied Bakeries, with promotional activity to try and attract cash strapped consumers, as well as the problems in Australia.
That could lead to markdowns or other promotional activities, which would shrink profit margins.
Such promotional tie-ins helped boost gross margins by two points, to 22.4%, for the first nine months of fiscal 2002.
And although the company is, according to analysts, regaining some of the market share in food storage bags, it is gaining that market share only through promotional discounts, which likely will hurt margins and could invite further competitive pressure.
"We are concerned about the margin outlook in this more promotional environment," said Lazard Capital Markets analyst Matthew DiFrisco.
