Monday, November 16, 2015
The disappearing middle class is threatening American mega brands
The disappearing middle class is challenging many major American brands.
The Hershey Company on Wednesday reported flat sales for the most recent quarter and cut its profit outlook for the year.
Company executives blamed the disappointing results in part on the changing income landscape in the US.
"We think that consumer bifurcation has been an important driver," Hershey CEO John Bilbrey said on an earnings call, referring to the growing gap between upper-income and lower-income consumers.
Upper-income consumers are buying more premium treats, while lower-income individuals are purchasing discounted chocolates, he said. Hershey's has been losing market share, as a result.
"While overall consumer confidence is trending up, lower income consumers continue to be fragile as income and wage growth has been minimal," he said. "Higher income and more confident consumers are driving premium growth, while cost-conscious consumers are driving the value segment."
Hershey's is hoping that its acquisition of the Canadian company Allan Candy will help it compete for lower-income consumers, Bilbrey said. The company is also ramping up its premium offerings.
Campbell Soup CEO Denise Morrison also recently identified "a shrinking middle class in developed markets" as one of four "seismic" shifts that are impacting her company.
"The pace of change is accelerating as consumers endlessly evolve their preferences and unceasing pressure is placed on the industry to operate differently," she wrote in Fortune.
Even Walmart, which is known for its cheap prices, is tailoring its business strategy to the expectation that growth will come from upper-income households in the years ahead.
"The nature of e-commerce, the nature of the Neighborhood Markets and other things we’re doing do create an opportunity for us to be even more relevant to customers that are at the higher end of the scale," Walmart CEO Doug McMillon said at an investor meeting this month, according to Fortune.
The share of households in the middle tier of income earners has fallen to 43% from 55% since the 1970s, according to The New York Times.
And those households in the middle tier haven't gotten a raise since 1999.
After adjusting for inflation, US median household income, at $53,657 in 2014, is still 6.5% lower than pre-recession levels in 2007, and 7.2% lower than its peak in 1999, according to the US Census Bureau.