What it means
The expression paints a simple picture: someone sits down and takes what you were counting on. In business, the lunch is revenue, customers or market share, and the competitor is the one enjoying it.
Phrases such as "the start-up is eating our lunch" are common in board meetings and news reports. It usually describes a shift in the competitive balance.
A new rival may offer a lower price, a better product or a more convenient way to buy, and customers move across. Established firms are often caught out because they are comfortable with their existing business and slow to respond.
The financial effects are measurable. Market share falls, revenue growth slows, margins come under pressure as the company cuts prices to defend itself, and customer numbers decline.
If the trend continues, it can flow through to profits, share price and the company's ability to invest. Spotting the problem early is the key skill.
Managers watch market share, customer churn (the rate at which customers leave), win-and-loss rates on sales deals and price comparisons with rivals. A slow decline in a market that is growing overall can hide the problem, because sales still rise while the company's share falls.
Responses include improving the product, lowering costs, matching prices where sensible, buying the competitor or entering the new area oneself. Not every case calls for a panic, as some competitors take only a small segment.
The idiom is informal, so in written reports it is better to describe the loss in numbers, such as a drop of five points of market share. History offers many illustrations of the pattern.
Newcomers often start in a corner that larger firms consider unprofitable, such as the cheapest customers, and then improve until they challenge the leaders. By the time the established company reacts, the challenger may have the scale and customer loyalty to defend its position.
In practice
Real-world examples.
Example
A traditional taxi company watches ride-hailing apps win customers with lower fares and faster pickups. Within two years its revenue falls 30% and its licences lose value. Drivers leave for the new apps, and the company is left with fixed costs spread over fewer trips.
Example
A high-street bookshop finds that an online retailer is selling the same titles for 20% less with next-day delivery. Its weekend footfall drops, and it must decide whether to match prices or offer something different. The owner chooses to focus on events and expert recommendations that the online seller cannot copy easily.
Example
A software firm sees a smaller competitor offering a simple version of its product for free. The firm's growth slows from 15% to 5%, and it rushes to launch its own entry-level plan.
Formula
Calculation
Market share = (Company sales / Total market sales) x 100
Revenue lost to a competitor = (Old share - New share) x Total market sales
Worked example: a market is worth $200 million a year. A company held a 25% share, worth $50 million of sales, but a new rival cuts it to 20%.
Old sales = 25% x $200 million = $50 million
New sales = 20% x $200 million = $40 million
Revenue lost = $50 million - $40 million = $10 million, equal to a fall of 20% in the company's own sales.
If its gross margin is 40%, the lost gross profit is $10 million x 40% = $4 million a year.Case study
Seen in the real world.
Marlow Office Supplies is a fictional distributor with annual sales of $30,000,000. For years it sold to small businesses through a printed catalogue. A fictional start-up, QuickDesk, launched a website with next-day delivery and cheaper prices on common items.
Marlow's finance director, Ms Adeyemi, noticed that although total sales were flat, customer numbers had dropped by 12% and the average order value had risen only because remaining customers were bigger. QuickDesk was clearly eating Marlow's lunch among smaller buyers. She estimated that each lost small customer cost about $2,500 a year in revenue.
This illustrative case prompted Marlow to launch its own online ordering and a loyalty discount. Within 18 months, customer losses stopped, and the firm regained part of its position. The company's leaders agreed that they should have acted when the number of customers first started to fall. Ms Adeyemi now reports customer numbers to the board every quarter alongside sales.
Watch out
Common mistakes.
- Watching only total sales and missing the loss of market share when the whole market is growing.
- Reacting only with price cuts, which can damage margins without fixing the real reason customers are leaving.
- Dismissing a small new competitor as irrelevant, when early customers may be the most profitable ones. Small rivals can grow quickly once they find a model that works.
Questions
People also ask.
Is this a formal finance term?
No, it is an informal idiom, but it describes real changes in market share and customer numbers.
How can a company tell it is happening?
Warning signs include falling market share, rising customer churn, more lost deals and growing pressure on prices.
How should a business respond?
It can improve its product and service, lower costs, find a different niche or buy or partner with the challenger.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related