R&D / New Food Products / Packaging

The Disappearing Middle Class

Contributing Editor John Stanton suggests that processors may need to learn how to market food to the "have-nots."

By John L. Stanton, Contributing Editor

About 25 years ago I lived in Brazil. One of the things that made it such an experience was there was no real middle class. There were the “haves” and the “have nots.” The problem with marketing food there or almost any product was the bulk of the market was the “have nots.”

I thought how different this was from the U.S., where we have a huge middle class with a fair amount of disposable income. Our marketing practices are geared to a large middle class.

However, there are some harbingers that might make the U.S. more like the underdeveloped Brazil than the U.S. of the past. The Dept. of Education reports the number of people who will not graduate from high school is getting larger every year. And it might actually be worse than the DOE portrays. For example, the “official” drop-out rate starts at 9th grade, so kids who drop out before 9th grade are not reported as drop-outs. Or if you fail to come back to school in the beginning of the year, you are not a drop out, etc.

Our problem as food marketers is that income correlates with education. The lower the educational levels in the U.S., the more people there will be in the low-income groups. One estimate is that by 2025, about 50 percent of the population will be in the day-to-day income class.

Since I don’t write social commentaries, my concern is the disappearing middle class will significantly change the way we market food. It already is changing. Look at the growth of dollar stores, the Sav-a-Lots, etc. They are becoming the store of choice for that lower 50 percent, with that group “splurging” at Wal-Mart. Even the next 40 percent will be very price-conscious and probably mass merchant-loyal; they’ll only splurge at today’s traditional grocery stores. The top 10 percent will shop wherever they want.

This does not bode well for the companies whose primary target has been the middle class. I know this is not new, and in fact I wrote a book in the early 1990s on niche marketing where I said the mass market is dying. The victims of the social change will be those who continue to target a market that is disappearing.

I think there are a few steps any food company can take to get ready for the bifurcation of society. Number one is to make some visits to less-developed countries where food companies and other consumer product companies deal with the haves and have nots.

Keep in mind the brand managers and researchers that will be developing and marketing these products are likely to be in the top 10 percent, and they’ll think everyone is like them. Ask them what percentage of people are college graduates. I bet they will give you a number much higher than the 27 percent actual rate.

Another step is to re-evaluate your distribution channels and make sure you are not over-represented in a disappearing channel. Keep in mind traditional grocery stores have been declining in numbers for the past 10 years. Look at what has happened to the independent drug stores (remember them?) or even department stores. Don’t you think apparel manufacturers had to re-think their market strategy when department stores vanished?

Just calling on the emerging retailers is not the same as servicing them. I once gave a seminar to a food company and asked the people if they were dealing with the dollar stores, the convenience stores and all the new places selling food. The top dog said, “Of course, we wouldn’t have missed this trend.” Later, a salesman came up to me and privately said they may call on these stores but they what they try to sell them are “supermarket” products, with nothing really tailored for these new outlets.

Finally, try to help your current retailers reposition themselves to serve a specific market. My experience is retailers are a little slower to change than other segments of the food business. The good news is there will be new opportunities in the future even targeting those with limited disposable income, but it can’t be done in the same old way. It will require more targeting and more attention to delighting the customer and less about category management. It will mean the grocery can no longer be a store everybody likes a little, but rather a store somebody is crazy about.

Someone told me I have a rather dismal view of the future. I disagree. I believe the future is what we make of it. It will be dismal if we try to do the same things in 2010 that we did in 1995. Our social structure may change, and we may have to change to accommodate it, but our mission doesn’t have to change. We still need to make tasty, safe, convenient foods and get them where people want to buy them. It just might not be the same foods or the same places, but it still can be the same profits.

John L. Stanton is a professor of food marketing at St. Joseph's University, Philadelphia. He can be contacted at 610-660-1607; e-mail at jstanton@sju.edu.